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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
HealthGrades.com Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
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<PAGE> 2
HEALTHGRADES.COM, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
It is my pleasure to invite you to attend the 2000 Annual Meeting of
Stockholders of HealthGrades.com, Inc., to be held at the Sheraton Denver West,
360 Union Boulevard, Lakewood, Colorado, on June 20, 2000 at 9:00 a.m. local
time. The meeting will be held for the following purposes:
1. To elect seven directors for the ensuing year.
2. To vote upon a proposal to amend the HealthGrades.com, Inc. 1996
Equity Compensation Plan by increasing the number of shares of
HealthGrades.com common stock that may be issued under the plan from
6,000,000 to 7,000,000.
3. To act upon such other matters as may properly come before the
meeting.
Holders of record of our common stock at the close of business on May 8,
2000 are entitled to receive this notice and to vote at the meeting or any
adjournment.
Your vote is important. Whether you plan to attend the meeting or not, we
urge you to complete, sign and return your proxy card as soon as possible in the
envelope provided. This will ensure representation of your shares in the event
you are not able to attend the meeting. You may revoke your proxy and vote in
person at the meeting if you so desire.
/s/ Patrick M. Jaeckle
Patrick M. Jaeckle
President and Secretary
May 24, 2000
<PAGE> 3
HEALTHGRADES.COM, INC.
44 UNION BOULEVARD
SUITE 600
LAKEWOOD, COLORADO 80228
PROXY STATEMENT
This proxy statement is being furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of HealthGrades.com, Inc. for the
2000 annual meeting of stockholders. We are first mailing copies of this proxy
statement, the attached notice of annual meeting of stockholders and the
enclosed form of proxy on or about May 24, 2000.
At the annual meeting, holders of our common stock will vote upon the
election of seven directors to serve until the 2001 Annual Meeting of
Stockholders and upon a proposal to amend the HealthGrades.com, Inc. 1996 Equity
Compensation Plan by increasing in the number of shares that may be issued under
the plan from 6,000,000 to 7,000,000.
Our Board of Directors has fixed the close of business on May 8, 2000 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the annual meeting or any adjournment of the annual meeting.
Accordingly, you may vote at the annual meeting only if you are a holder of
record of common stock at the close of business on the record date. As of the
record date, 21,516,468 shares of common stock were issued and outstanding.
If you complete and return your proxy card and we receive it at or prior to
the annual meeting, your shares will be voted in accordance with your
directions. You can specify your choices by marking the appropriate boxes on the
enclosed proxy card. If your proxy card is signed and returned without
directions, the shares will be voted for the persons identified in this proxy
statement as nominees for election to the Board of Directors and for the
proposal to amend the HealthGrades.com, Inc. 1996 Equity Compensation Plan. You
may revoke your proxy at any time before it is voted at the meeting by sending a
notice of revocation to our Secretary, executing a later-dated proxy or voting
by ballot at the meeting.
The holders of a majority of our common stock entitled to vote, present in
person or represented by proxy, will constitute a quorum for the transaction of
business. Abstentions and broker "non-votes" are counted as present and entitled
to vote for purposes of determining a quorum. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner.
Holders of common stock are entitled to one vote per share on all matters
properly brought before the meeting. Directors are elected by a plurality of the
votes cast. A plurality means that the nominees with the largest number of votes
are elected as directors up to the maximum number of directors to be chosen at
the meeting. All other matters to be acted upon at the meeting will be
determined by the affirmative vote of the holders of the majority of the common
stock present in person or represented by proxy and entitled to vote. An
abstention is counted as a vote against and a broker "non-vote" generally is not
counted for purposes of approving these matters.
The Board of Directors is not aware of any matters that will be brought
before the meeting other than those described in this proxy statement. However,
if any other matters properly come before the meeting, the persons named on the
enclosed proxy card will vote in accordance with their best judgment on such
matters.
OWNERSHIP OF OUR COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of May 8, 2000 by (i) each person
known to us to own beneficially more than five percent of our common stock
(including such person's address), (ii) our executive officers listed under
"Executive
<PAGE> 4
Compensation -- Summary of Cash and Certain Other Compensation," (iii) each
director and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES(1)
- ------------------------ ------------------ ---------------------
<S> <C> <C>
Kerry R. Hicks(2)......................................... 2,578,436 11.4
Patrick M. Jaeckle(3)..................................... 2,028,142 9.0
D. Paul Davis(4).......................................... 462,352 2.1
David G. Hicks(5)......................................... 439,286 2.0
Timothy D. O'Hare(6)...................................... 397,505 1.8
Parag Saxena(7)........................................... 5,690,250 24.7
Marc S. Sandroff(8)....................................... 4,050,000 17.9
Leslie S. Matthews, M.D.(9)............................... 85,116 *
Peter H. Cheesbrough(10).................................. 54,345 *
Mats Wahlstrom(11)........................................ 46,677 *
Chancellor V, L.P.(12).................................... 5,690,250 24.7
Essex Woodlands Health Ventures Fund IV, L.P.(13)......... 4,050,000 17.9
All directors and executive officers as a Group (13
persons)(14)............................................ 16,811,854 61.3
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 21,516,468 shares of common
stock outstanding on May 8, 2000. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
means voting or investment power with respect to securities. Shares of
common stock issuable upon the exercise of stock options exercisable
currently or within 60 days of May 8, 2000 are deemed outstanding and to be
beneficially owned by the person holding such option for purposes of
computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by such stockholder.
(2) Includes 10,000 shares of common stock held by The David G. Hicks
Irrevocable Children's Trust, warrants to purchase 350,000 shares and
813,018 shares underlying stock options. Does not include 60,000 shares of
common stock held by The Hicks Family Irrevocable Trust, for which shares
Mr. Hicks disclaims beneficial ownership. Mr. Hicks' address is
HealthGrades.com, Inc., 44 Union Boulevard, Suite 600, Lakewood, CO, 80228.
(3) Includes warrants to purchase 175,000 shares and 813,018 shares underlying
stock options. Does not include 100,000 shares of common stock held by The
Patrick M. Jaeckle Family Irrevocable Children's Trust, for which shares
Mr. Jaeckle disclaims beneficial ownership. Mr. Jaeckle's address is
HealthGrades.com, Inc., 44 Union Boulevard, Suite 600, Lakewood, CO 80228.
(4) Includes warrants to purchase 17,500 shares and 337,853 shares underlying
stock options.
(5) Includes warrants to purchase 17,500 shares and 295,505 shares underlying
stock options.
(6) Includes 397,505 shares underlying stock options.
(7) Includes 4,215,000 shares and 1,475,250 shares underlying warrants held by
Chancellor V, L.P. Mr. Saxena is a Managing Director of INVESCO Private
Capital, Inc., the Managing Member of IPC Direct Associates V, L.L.C.,
which is the General Partner of Chancellor V, L.P. Mr. Saxena's address is
INVESCO Private Capital, Inc., 1166 Avenue of the Americas, New York, NY
10036.
(8) Includes 3,000,000 shares and 1,050,000 shares underlying warrants held by
Essex Woodlands Health Ventures Fund IV, L.P. (the "Fund"). Mr. Sandroff is
a Managing Director of Essex Woodlands Health Ventures Fund IV, L.L.C. (the
"LLC"), which is the General Partner of the Fund. Mr. Sandroff's address is
Essex Woodlands Health Ventures, 190 South LaSalle Street, Suite 2800,
Chicago, IL 60603.
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(9) Includes 43,333 shares underlying stock options.
(10) Includes 53,345 shares underlying stock options.
(11) Includes 46,677 shares underlying stock options.
(12) Includes warrants to purchase 1,475,250 shares. The address of Chancellor
V, L.P. is 1166 Avenue of the Americas, New York, NY 10036. See note 7.
(13) Includes warrants to purchase 1,050,000 shares. The address of Essex
Woodlands Health Ventures Fund IV, L.P. is 190 South LaSalle Street, Suite
2800, Chicago, IL 60603. See note 8.
(14) Includes warrants to purchase 3,085,250 shares and 2,800,254 shares
underlying stock options.
ELECTION OF DIRECTORS
At the meeting, seven directors will be elected to hold office until the
Annual Meeting of Stockholders in 2001 or until their successors have been
elected and qualified. Unless contrary instructions are given, the shares
represented by a properly executed proxy will be voted for the nominees listed
below. All of the nominees are currently members of our Board of Directors.
If, at the time of the meeting, one or more of the nominees has become
unavailable to serve, shares represented by proxies will be voted for the
remaining nominees and for any substitute nominee or nominees designated by the
Board of Directors, unless the size of the Board is reduced. The Board of
Directors knows of no reason why any of the nominees will be unavailable or
unable to serve.
HealthGrades.com, Inc., Messrs. Kerry Hicks, Jaeckle, David Hicks, Davis
and Fatianow and Ms. Loughran have agreed to take such actions (including in the
case of the individuals, voting their shares) as are in their control so that
(1) our Board of Directors is comprised of no more than eight members and (2)
one designee of each of Chancellor V, L.P. and Essex Woodlands Health Ventures
Fund IV, L.P is elected to the Board of Directors. See "Certain Transactions."
In addition, we have agreed that, at the option of Chancellor V, L.P. and Essex
Woodlands Health Ventures Fund IV, L.P., their respective designees may serve on
both the Audit Committee and the Compensation Committee of the Board of
Directors. Chancellor V, L.P. has designated Mr. Saxena and Essex Woodlands
Health Ventures Fund IV, L.P. has designated Mr. Sandroff. Mr. Saxena serves on
the Audit Committee and Mr. Sandroff serves on the Compensation Committee. The
agreement remains in effect as to each of the director designees until the later
of March 17, 2005 or the date on which the respective designating entity fails
to own in the aggregate more than five percent of our issued and outstanding
common stock.
Information concerning the nominees for election as directors is set forth
below:
KERRY R. HICKS, age 40, one of our founders, has served as our Chief
Executive Officer and as a director since our inception in December 1995. He
also served as our President from our inception until November 1999. From 1985
to March 1996, Mr. Hicks served as Senior Vice President of LBA Health Care
Management ("LBA").
PATRICK M. JAECKLE, age 41, one of our founders, has served as our
President since November 1999. From July 1998 to November 1999, Mr. Jaeckle
served as Executive Vice President -- Corporate Development. Mr. Jaeckle served
as our Executive Vice President -- Finance/Development and Chief Financial
Officer from December 1995 to July 1998, and as a director since our inception
in December 1995. From February 1994 through March 1996, Mr. Jaeckle served as
Director of Healthcare Corporate Finance at Morgan Keegan & Co., Inc.
Previously, Mr. Jaeckle was a member of the healthcare groups at both Credit
Suisse First Boston and Smith Barney. Prior to his career in investment banking,
Mr. Jaeckle was a member of the International Business Development Group at
Merck & Company.
PETER H. CHEESBROUGH, age 48, has served as one of our directors since
December 1996. Since August 1999, Mr. Cheesbrough has been Chief Financial
Officer of XCare.net, Inc., a company providing electronic commerce architecture
and business to business applications solutions for healthcare. From June 1993
to August 1999, Mr. Cheesbrough was the Senior Vice President -- Finance and
Chief Finance Officer of Echo
3
<PAGE> 6
Bay Mines Ltd., a company engaged in precious metals mining. From April 1988 to
June 1993, he was Echo Bay Mines' Vice President and Controller. Mr. Cheesbrough
is a Fellow of the Institute of Chartered Accountants of England and Wales and
is also a chartered accountant in Canada.
LESLIE S. MATTHEWS, M.D., age 48, has served as a director of
HealthGrades.com since December 1996. Since October 1994, Dr. Matthews has been
an orthopaedic surgeon at Greater Chesapeake Orthopaedic Associates, LLC, and
since 1990, he has been the Chief of Orthopaedic Surgery at Union Memorial
Hospital in Baltimore, Maryland. From July 1982 to October 1994, Dr. Matthews
was also engaged in private practice.
MATS WAHLSTROM, age 45, has served as a director of HealthGrades.com since
March 1997. In May 2000, Mr. Wahlstrom was appointed as an Executive Vice
President for Securitas AB, a multinational corporation engaged in guard
services, alarm system design, installation and monitoring and cash-in-transit
services. From 1990 until February 2000, Mr. Wahlstrom served in various
capacities for Gambro AB and its affiliated companies, which are engaged in the
manufacture of equipment for hemodialysis, cardiovascular surgery and blood
component analysis and in the provision of health care services. He was
President of Gambro Healthcare, Inc. from 1993 until February 2000, Executive
Vice President of Gambro AB from 1990 until February 2000 and President of COBE
Laboratories, Inc., a subsidiary of Gambro AB engaged in the development and
manufacture of hemodialysis products and the operation of dialysis centers from
1991 until February 2000.
PARAG SAXENA, age 44, has served as one of our directors since March 2000.
Mr. Saxena has served in various capacities at INVESCO Private Capital, Inc. or
its predecessor since May 1983, most recently as Chief Executive Officer.
MARC S. SANDROFF, age 42, has served as one of our directors since March
2000. Mr. Sandroff has been a general partner and/or Managing Director of Essex
Woodlands Health Venture Funds since 1987. From 1984 to 1987, he was one of nine
professionals responsible for managing the venture capital portfolio for
Allstate Insurance. Prior to entering the venture capital industry, he was a
founder of and had direct operating responsibilities of several rehabilitation
and long-term care facilities.
Kerry R. Hicks and David G. Hicks, our Executive Vice
President -- Information Technology, are brothers.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 12 meetings during 1999. The Board has an Audit
Committee, a Compensation Committee, and a Nominating Committee.
The Audit Committee is authorized to consider the adequacy of our internal
controls and the objectivity of our financial reporting, to review with the
independent auditors the scope of their activities and findings, and to review
with the appropriate officers our internal controls. The Audit Committee also
recommends the firm of independent auditors for appointment by us. Messrs.
Wahlstrom (Chairman), Cheesbrough and Saxena are the current members of the
Audit Committee. The Audit Committee held one meeting during 1999.
The Compensation Committee is authorized to determine the terms and
conditions of the employment of our executive officers and to administer our
1996 Equity Compensation Plan. Messrs. Cheesbrough (Chairman) and Sandroff are
the current members of the Compensation Committee. The Compensation Committee
held two meetings during 1999.
The Nominating Committee is authorized to consider and recommend to the
Board of Directors nominees for election as directors, and to evaluate current
directors and their contribution to our strategic direction and management. Mr.
Cheesbrough, Dr. Matthews and Mr. Wahlstrom are the current members of the
Nominating Committee. The Nominating Committee held one meeting in 1999. The
Committee will consider qualified candidates for election as directors suggested
by stockholders that are submitted in writing to our Secretary in accordance
with procedures set forth in our by-laws.
4
<PAGE> 7
COMPENSATION OF DIRECTORS
On May 5, 1999, we granted options to our non-employee directors to
purchase the following numbers of shares: Mr. Cheesbrough, 23,345 shares; Dr.
Matthews, 27,236 shares; and Mr. Wahlstrom, 20,010 shares. The options all have
an exercise price of $0.5313 per share (the closing price per share of our
common stock at the date of grant) and terminate on May 4, 2009. The options
vested on November 5, 1999.
Effective January 1, 1999, Messrs. Cheesbrough and Wahlstrom are entitled
to receive $20,000 per annum for their services on our board of directors and
board committees.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is composed of two members of the Board of
Directors who are not current or former employees of HealthGrades.com. The
Committee is authorized to determine the terms and conditions of the employment
of HealthGrades.com's executive officers, including compensation, and to
administer the HealthGrades.com, Inc. 1996 Equity Compensation Plan. In its
administration of the Equity Compensation Plan, the Committee has the power to
grant and determine the terms and conditions of stock options, other than stock
options granted to non-employee directors.
COMPENSATION PHILOSOPHY IN 1999
HealthGrades.com faced profound challenges in 1999, including cash
constraints, restructuring the company's relationships with the various
practices with which it had previously affiliated and attempts to reduce the
company's substantial debt burden. As a result of these events, as well as
HealthGrades.com's transition to its internet healthcare information business,
the Committee believed that it was necessary to provide meaningful incentives to
retain the executive officers, while not causing undue strain on
HealthGrades.com's limited cash resources.
In light of the considerations described above, executive compensation in
1999 consisted of two components: (1) base salaries and (2) longer-term
incentives through the provision of stock options under the Equity Compensation
Plan. The basis for determining executive compensation in 1999 for the executive
officers generally, and specifically for Kerry R. Hicks, HealthGrades.com's
Chief Executive Officer, is described below:
BASE SALARY
The base salary of our executives generally is governed by the terms of
employment agreements between each of the executives and HealthGrades.com. All
of the employment agreements were entered into prior to 1999. Certain of our
executives, not including Mr. Hicks, received salaries above the levels set
forth in their employment agreements because the executives assumed increased
responsibilities subsequent to the execution of the employment agreements. Mr.
Hicks' salary was established in the same manner as the other executives, and in
1999 his base salary was paid in accordance with the terms of his employment
agreement.
STOCK OPTIONS
The Committee generally believes that equity compensation, in the form of
stock options, should be a significant component of each executive officer's
compensation. Stock options are designed to provide incentives for the
enhancement of stockholder value since the full benefit of stock option grants
is not realized unless there has been appreciation in share values over several
years. Moreover, in considering stock option grants for 1999, the Committee
noted that annual incentives have been limited to salary in recent years; no
cash bonuses have been paid since 1996. In addition, the Committee believed that
retention of the executive officers was critical to the survival of
HealthGrades.com through a difficult period. As a result, the Committee
determined to make substantial stock option grants in 1999, in order to
encourage the executives to continue employment with the Company and to devote
the substantial time and effort necessary to restructure the Company's
arrangements with physician practices and build the internet healthcare
business. The determination of the number of shares underlying stock options
granted to executive officers was not based on any
5
<PAGE> 8
specific criteria. However, at the time of the grants, the Committee considered
the number of shares available for grant under the plan, the maximum number of
shares that could be granted to any individual under the plan during any
calendar year, and the nature of the responsibilities of the executive officers.
With regard to Mr. Hicks, the Committee recognized his essential role in
connection with negotiation of various restructurings with physician practices,
overseeing structural and personnel changes in connection with the transition
from a physician practice management company to an internet healthcare
information company, and his instrumental role in encouraging other valued
executives to remain in the employ of HealthGrades.com.
Certain provisions of the Internal Revenue Code provide that a publicly
held corporation may not deduct compensation for its chief executive officer or
each of certain other executive officers to the extent that such compensation
exceeds $1 million for the executive officer. It is not expected that these
provisions will adversely affect HealthGrades.com based on its current
compensatory structure. In this regard, base salary and bonus levels are
expected to remain below the $1 million limitation for the foreseeable future.
In addition, the Equity Compensation Plan is designed to preserve the
deductibility of income realized upon the exercise of stock options under the
plan regardless of whether such income, together with salary, bonus and other
compensation, exceeds the limitation.
This report is provided by the members of the Compensation Committee during
1999. In March 2000, Marc S. Sandroff succeeded to Mr. Wahlstrom's position on
the Compensation Committee.
Peter H. Cheesbrough
Mats Wahlstrom
6
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain information concerning the
compensation we paid to our Chief Executive Officer and the four other most
highly paid executive officers during 1999, 1998 and 1997. We refer to these
persons in this proxy statement as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
---------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ---- -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kerry R. Hicks.......................... 1999 $253,606 -- 475,000 $7,137
Chief Executive Officer 1998 $248,923 -- 500,000 $4,197
1997 $214,260 -- 172,622 $8,226
Patrick M. Jaeckle...................... 1999 $253,606 -- 475,000 $4,800
President 1998 $250,400 -- 500,000 --
1997 $214,259 -- 172,622 $6,572
D. Paul Davis........................... 1999 $174,391 -- 200,000 $6,392
Executive Vice President -- Finance 1998 $166,442 -- 305,310 $6,402
1997 $135,519 -- 60,217 $8,236
David G. Hicks.......................... 1999 $162,377 -- 200,000 $6,070
Executive Vice President -- 1998 $139,615 -- 183,659 $5,584
Information Technology 1997 $121,731 -- 50,181 $7,110
Timothy D. O'Hare....................... 1999 $146,077 -- 200,000 $5,728
Senior Vice
President -- Providerweb.net 1998 $143,402 -- 183,659 $5,736
1997 $124,717 -- 50,181 $4,552
</TABLE>
- ---------------
(1) Includes amounts that we contributed for the account of the executive
officers under our Retirement Savings Plan. The 1997 amount also includes,
for each executive officer, $692 distributed upon termination of medical
savings accounts that we initially established for all employees.
STOCK OPTIONS
The following table sets forth information regarding stock options granted
during 1999 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION GRANT DATE
NAME GRANTED(1) FISCAL YEAR SHARE DATE PRESENT VALUE(2)
- ---- ---------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Kerry R. Hicks.................... 475,000 20.25% $0.5625 4/28/09 $223,250
Patrick M. Jaeckle................ 475,000 20.25% $0.5625 4/28/09 $223,250
D. Paul Davis..................... 200,000 8.53% $0.5625 4/28/09 $ 94,000
David G. Hicks.................... 200,000 8.53% $0.5625 4/28/09 $ 94,000
Timothy D. O'Hare................. 200,000 8.53% $0.5625 4/28/09 $ 94,000
</TABLE>
7
<PAGE> 10
- ---------------
(1) On April 29, 1999, we granted options to a number of our employees,
including our executive officers. The options each have an exercise price of
$0.5625, which was the closing price per share of our common stock on the
date of grant. The options fully vested on October 29, 1999 and terminate
ten years from the date of grant.
(2) These amounts represent the estimated fair value of stock options, measured
at the date of grant, using the Black-Scholes option pricing model. There
are four underlying assumptions used in developing the grant valuations: an
expected volatility of 1.55; an expected term to exercise of 3 years;
risk-free interest rate over the life of the option of 6%; and an expected
dividend yield of zero. The actual value, if any, an option holder may
realize will depend on the amount by which the stock price exceeds the
exercise price on the date the option is exercised. Consequently, there is
no assurance the value realized by an option holder will be at or near the
value estimated above. These amounts should not be used to predict stock
performance.
The following table sets forth certain information regarding stock options
held as of December 31, 1999 by the named executive officers. The named
executive officers did not exercise any stock options in 1999.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kerry R. Hicks............................. 769,766 452,856 $920,313 --
Patrick M. Jaeckle......................... 769,766 452,856 $920,313 --
D. Paul Davis.............................. 311,997 283,530 $387,500 --
David G. Hicks............................. 286,006 179,834 $387,500 --
Timothy D. O'Hare.......................... 388,007 195,833 $387,500 --
</TABLE>
- ---------------
(1) Based on $2.50, the closing price of our common stock as reported on Nasdaq
on December 31, 1999.
EMPLOYMENT AGREEMENTS
We have employment agreements with each of Mr. Kerry Hicks and Mr. Jaeckle
dated as of April 1, 1996. Each agreement has an initial term of five years and
is renewable automatically for one year periods unless terminated by one of the
parties. The agreements provide for an annual salary rate to each officer of
$215,000 for 1997 and $250,000 for 1998, with cost of living increases for the
years following 1998. In addition, the agreements provide for annual incentive
compensation to each officer equal to up to 100% of his base salary based on
performance targets established by the Board of Directors.
We have employment agreements with Mr. Davis, Mr. David Hicks and Mr.
O'Hare, dated as of February 22, 1996, March 1, 1996 and August 12, 1996,
respectively. Each agreement has an initial term of five years and is renewable
automatically for one year periods unless terminated by one of the parties. The
agreements provide for an annual salary rate to each officer of $125,000 for
1997 and $144,000 for 1998, with cost of living increases for the years
following 1998. In addition, the agreements provide for annual incentive
compensation to each officer equal to up to 75% of his base salary based on
performance targets established by the Board of Directors. In connection with
Mr. Davis' appointment as Senior Vice President in 1997, his base salary was
increased to $150,000 per annum on April 1, 1997 and $172,500 per annum
effective on April 1, 1998. In connection with Mr. David Hicks' appointment as
Senior Vice President in 1999, his base salary was increased to $172,500 per
annum.
Under all of the employment agreements described above, in the event that
the officer is terminated without cause and there has been no change of control
of HealthGrades.com, we will pay the officer his base salary for the remaining
term of the agreement and any earned but unpaid salary and incentive
compensation. In the event the officer is terminated with cause, regardless of
whether there has been a change of control, we
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<PAGE> 11
will pay the officer his base salary for 60 days following such termination. If
the officer is terminated without cause upon a change of control, he is entitled
to receive a lump sum payment upon such termination equal to 300% of his base
salary plus 300% of his annual incentive compensation for the prior year. Each
agreement contains certain confidentiality covenants.
CERTAIN TRANSACTIONS
During 1998, when our business was principally focused on physician
practice management, we had service agreements with certain medical practices
(the "Director Affiliated Practices") and their respective physician owners,
including physicians who have served as our directors. Under the service
agreements, we, among other things, provided facilities and management,
administrative and development services, and employed most of the non-medical
personnel in the Director Affiliated Practices in return for management service
fees. Such fees were payable monthly and consisted of the following: (i) service
fees based on a percentage ranging from 20% to 33% of the Adjusted Pre-Tax
Income of the Director Affiliated Practices (defined generally as revenue of the
Director Affiliated Practices related to professional services less amounts
equal to certain clinic expenses of the Director Affiliated Practices, not
including physician owner compensation or most benefits to physician owners
("Clinic Expenses," as defined more fully in the service agreements)) and (ii)
amounts equal to Clinic Expenses. However, under the service agreements, for the
first three years following affiliation with the Director Affiliated Practices,
our service fees were to be equal to the greater of the amount payable as
described under clauses (i) and (ii) above or a specified fixed dollar amount
plus Clinic Expenses. In addition, with respect to our management of ancillary
facilities and services for certain of the Director Affiliated Practices, we
received fees based on net revenue related to such facilities and services.
In December 1998, we entered into transactions (collectively, the
"Modification Transactions") with four of our affiliated practices, including
Greater Chesapeake Orthopaedic Associates, LLC ("GCOA"). Dr. Leslie S. Matthews,
one of our directors, is a physician owner of GCOA. Under the terms of the
Modification Transaction with GCOA, we sold to GCOA accounts receivable and
other assets relating to the practice and revised the original service agreement
through entry into a new management services agreement. Under the new management
services agreement with GCOA, which, as described below, was terminated in
September 1999, we provided substantially reduced services to the practice, and
the practice paid significantly reduced service fees. In addition, the term of
the new management services agreement was shortened to November 2001. We
received $2,747,000 and 1,176,692 shares of our common stock in return for the
repurchase by GCOA of its practice assets and for our execution of the new
management services agreement. In addition, GCOA pre-paid its service fee
obligation under the management services agreement with a lump sum payment of
$1,185,271.
In September 1999, we agreed to terminate the management services agreement
with GCOA. In connection with this termination, we retained the prepaid service
fee. Additionally, we entered into agreements to lease certain fixed assets to
GCOA, commencing on October 1, 1999 and terminating at various dates through
August 31, 2003. Under the terms of the leases, GCOA agreed to pay to us a fixed
fee of approximately $5,849 per month and an additional fee equal to 7.5% of
Ancillary Services Revenue, as defined more fully in the lease agreements. In
December 1999, we terminated the lease agreements with GCOA and sold the fixed
assets previously under lease to GCOA. We received $200,000 from GCOA as
consideration for the fixed assets.
Effective June 15, 1999, we restructured our relationship with ten
affiliated practices, including Princeton Orthopaedic Associates, II, P.A.
("POA") (collectively, the "Restructuring Transaction"). Dr. Richard E. Fleming,
Jr., one of our directors until November 18, 1999, is a physician owner of POA.
The Restructuring Transaction provided for the repurchase by each of the
participating affiliated practices of accounts receivable and other assets
relating to the practice and revision of the original service agreement with the
practice through entry into a new management services agreement. In return, we
received cash and, in most cases, our common stock. Under the new management
services agreement, the management services provided by us to the practice and
the term of the agreement were substantially reduced. In addition, service fees
paid to us by
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<PAGE> 12
the practices were also reduced significantly. Under the new management services
agreement with POA, which terminates in June 2000, we provide substantially
reduced services to the practice, and the practice pays significantly reduced
service fees. We received $3,126,000 and 533,131 shares of our common stock from
POA in return for the repurchase by POA of its practice assets and for our entry
into the new management services agreement. In addition, POA pre-paid its
service fee obligation under the management services agreement with a lump sum
payment of $972,155.
In 1998, we funded, through a wholly-owned subsidiary, Ambulatory Services,
Inc. ("ASI"), the purchase of a lease for, and improvements to, a surgery center
in Lutherville, Maryland. The surgery center was the only asset of a limited
liability company (the "LLC") which was owned by us through ASI. We also entered
into a service agreement with GCOA and its physician owners with respect to our
management of the surgery center. In March 1999, the LLC issued a promissory
note in the amount of $2,120,619 to ASI with respect to advances made by ASI to
cover development of the surgery center. This promissory note bore interest at
8% and was payable in 60 monthly installments beginning July 1, 1999. GCOA
acquired a 68% interest in the LLC from us in March 1999 for $360,505. In
September 1999, we sold our remaining interest in the LLC to GCOA for $169,650.
In addition, we received $2,212,445, in full payment of the obligation of the
LLC to us and $502,633 in full payment of working capital advances made by ASI
to the LLC.
In 1998, we acquired Provider Partnerships, Inc. ("PPI") in exchange for
420,000 shares of our common stock. PPI was a recently formed company that
provided consulting services to hospitals. In addition, PPI had begun
development of an Internet web site designed to rate hospitals on quality of
care indicators. Kevin J. Hicks, brother of Kerry Hicks, our Chief Executive
Officer, and David Hicks, our Executive Vice President -- Information
Technology, was one of the principals of PPI and was elected to serve as our
Executive Vice President-Provider Businesses, following that transaction. Kevin
Hicks' employment with us terminated in 1999.
During the latter part of 1998, the former stockholders of PPI raised
certain issues relating to the transaction in which we acquired PPI. In June
1999, we entered into agreements with the former PPI stockholders and Venture5,
LLC ("Venture5"), an entity formed by the former PPI stockholders, to resolve
these matters. Under the agreements:
- We formed a new company ("HG.com") that owned certain aspects of our
Internet health care business. In substance, we owned 75 percent of
HG.com, Venture5 owned 20 percent of the company and Peter A. Fatianow
owned five percent of the company.
- We entered into a stockholders agreement under which we agreed to place
representatives of Venture5 on the HG.com Board of Directors and provide
to Venture5 certain preemptive rights, voting rights, registration rights
and rights to participate in some sales with respect to HG.com stock.
- We agreed, under the stockholders agreement, to facilitate financing to
fund the operations of HG.com. Under the agreement, if we were unable to
facilitate financing of at least $4 million by December 31, 1999, we
would be required to transfer sufficient shares of HG.com stock that we
owned so that the former PPI stockholders would become the majority
stockholders of HG.com.
- We sold most of the assets of PPI to the former PPI stockholders for
notes receivable totaling approximately $172,000 (the "PPI Notes"). The
PPI Notes bore interest at the greater of 4.8 percent per annum or the
"Applicable Federal Rate," as defined in Section 1274(d) of the Internal
Revenue Code of 1986. We also funded approximately $500,000 in expenses
of PPI from July 1, 1999 through December 31, 1999.
- The former PPI stockholders waived their options to purchase 760,000
shares of our common stock that they previously held.
- We and the former PPI stockholders mutually released each other from
claims relating to our acquisition of PPI.
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<PAGE> 13
In December 1999, in exchange for $4,000,000 and our cancellation of the
PPI Notes, we purchased from Venture5 a number of shares of HG.com that
increased our ownership interest in HG.com to 90 percent. Sarah Loughran, a
member of Venture5, did not participate in the transaction and retained a five
percent interest in HG.com.
In December 1999, Kerry Hicks, our Chief Executive Officer, Patrick
Jaeckle, our President, Paul Davis, our Executive Vice President -- Finance and
Chief Financial Officer and David Hicks, our Executive Vice
President -- Information Technology, made loans to HealthGrades.com in the
principal amounts of $2 million, $1 million, $100,000 and $100,000,
respectively. Mr. Kerry Hicks and Mr. Jaeckle also jointly loaned an additional
$350,000 to HealthGrades.com. We used the proceeds of those loans to purchase
the HG.com shares held by the members of Venture5 other than Ms. Loughran. We
issued notes (the "Officer Notes") to those officers in connection with those
loans. The notes bore interest at 10.5% per annum and were payable on December
31, 2000.
On March 17, 2000, we closed a private placement of our securities. In
connection with the offering, we sold 4,215,000 shares of our common stock and
warrants to purchase 1,475,250 shares of our common stock to Chancellor V, L.P.
for $8,430,000. Parag Saxena, one of our directors, is an affiliate of
Chancellor V, L.P. We also sold 3,000,000 shares of our common stock and
warrants to purchase 1,050,000 shares to Essex Woodlands Health Ventures Fund
IV, L.P. for $6,000,000. Marc Sandroff, one of our directors, is an affiliate of
Essex Woodlands Health Ventures Fund IV, L.P. In addition, the holders of
$3,200,000 principal amount of Officer Notes surrendered their notes in exchange
for our common stock and warrants as follows: Kerry R. Hicks surrendered
$2,000,000 principal amount of Officer Notes for 1,000,000 shares and warrants
to purchase 350,000 shares; Patrick M. Jaeckle surrendered $1,000,000 principal
amount of Officer Notes for 500,000 shares and warrants to purchase 175,000
shares; and each of D. Paul Davis and David G. Hicks surrendered $100,000
principal amount of Officer Notes for 50,000 shares and warrants to purchase
17,500 shares. The warrants issued in the transaction each have an exercise
price of $4.00 per share and have a term of five years.
In February 2000, through a series of transactions, we acquired the
remaining minority interests in HG.com from Peter A. Fatianow and Sarah
Loughran, each of whom owned five percent of the outstanding stock of HG.com. We
issued 400,000 shares of our common stock to each of Mr. Fatianow and Ms.
Loughran in exchange for their minority interests. In March 2000, Mr. Fatianow
became our Senior Vice President -- Business Development and Ms. Loughran became
our Senior Vice President -- Content.
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<PAGE> 14
PROPOSAL TO AMEND THE 1996 EQUITY
COMPENSATION PLAN
Our 1996 Equity Compensation Plan (the "Plan") provides for grants of stock
options to our employees and employees of our subsidiaries, certain consultants
and advisers, and non-employee members of our Board of Directors ("non-employee
directors"). Shares of our common stock, par value $.001 per share ("Shares"),
may be issued upon exercise of stock options issued under the Plan. The Plan was
designed to serve as an incentive to participants to contribute materially to
our growth, thereby benefiting our stockholders and aligning the economic
interests of the participants with those of our stockholders.
At the meeting, we will present a proposal to our stockholders to amend the
Plan by increasing the number of Shares reserved for issuance under the Plan
from 6,000,000 to 7,000,000. Our Board of Directors believes that our ability to
grant options has been instrumental in the retention of our management and other
key employees. In addition, as Healthgrades.com continues to grow and the number
of employees increase, we will need to grant additional options as incentive
compensation.
As of May 8, 2000, options to purchase 12,135 shares of our common stock
remain available for grant under the Plan. Within the last three months, our
executive officers have surrendered options to purchase 335,404 shares that we
previously granted to them in order to enable us to grant options to other
employees. Our Board of Directors does not feel that it is appropriate or
constructive to request further surrender of options by these executive
officers.
The key provisions of the Plan are as follows:
General. If the proposal is approved, the Plan will authorize up to
7,000,000 shares for issuance, subject to adjustment in certain circumstances
discussed below. If and to the extent stock options that have been granted under
the Plan terminate, expire or are canceled without being exercised, the Shares
subject to those stock options will again be available for grant under the Plan.
No individual may receive grants of stock options for more than an aggregate of
500,000 shares in any calendar year during the term of the Plan.
Administration of the Plan. The Board of Directors or a committee of not
less than two persons appointed by the Board of Directors from among its members
(the "Committee") administers and interprets the Plan. The Compensation
Committee of the Board of Directors currently serves as the Committee. However,
with respect to the grant of stock options to non-employee directors and other
members of the Committee, the Board of Directors exercises the authority of the
Committee. The Committee has the authority to determine (i) persons to whom
stock options may be granted under the Plan, (ii) the type, number of underlying
Shares and other terms of each stock option, (iii) the time when the grants of
stock options will be made and (iv) any other matters arising under the Plan. In
addition, a Non-Officer Grant Committee of the Board of Directors may grant
options to employees who are not our officers, subject to limitations described
below. Kerry Hicks, our Chief Executive Officer, currently serves on the
Non-Officer Grant Committee.
The Committee has full power and authority to administer and interpret the
Plan, to make factual determinations and to adopt or amend such rules,
regulations, agreements and instruments for implementing the Plan and for
conduct of its business as it deems necessary or advisable, in its sole
discretion.
Grants and Awards. All grants of stock options are subject to the terms and
conditions set forth in the Plan and to other terms and conditions consistent
with the Plan that are specified in writing by the Committee in a grant
instrument given to the individual receiving the grant. The Committee must
approve the form and provisions of each grant instrument. Grants of options
under the Plan need not be uniform as among other recipients of the same type of
grant.
Eligibility for Participation. Subject to the terms of the Plan, the
Committee is responsible for designating our employees and consultants and
advisors and those of any of our subsidiaries who may participate in the Plan.
As of May 8, 2000, 62 employees were eligible for grants of stock options under
the Plan. The Committee is authorized to select the persons to receive grants of
stock options (the "grantees") from among those eligible and to determine the
number of Shares that are subject to each grant of a stock
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<PAGE> 15
option. To be eligible, consultants and advisors must render bona fide services
and such services must not be in connection with an offer or sale of securities
in a capital raising transaction.
Grant of Stock Options. The Committee may grant stock options intended to
qualify as incentive stock options ("ISOs"), within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or so-called
"non-qualified stock options" that are not intended to so qualify ("NQSOs").
Only employees may receive ISOs.
The Committee fixes the option price per Share at the date of grant of the
stock option. The option price of any ISO granted under the Plan may not be less
than the fair market value of the underlying Shares on the date of grant, and
the option price of any NQSO may be equal to, less than or greater than the fair
market value of the underlying Shares on the date of grant. However, if the
grantee of an ISO is a person who holds more than 10% of the combined voting
power of all classes of our outstanding stock, the option price per Share of an
ISO must be at least 110% of the fair market value of a Share on the date of
grant. To the extent that the aggregate fair market value of Shares, determined
as of the date of the grant, with respect to which any ISOs granted under the
Plan and any other plan to a grantee initially become exercisable during any
calendar year exceeds $100,000, the ISOs, to the extent of that excess, must be
treated as NQSOs. Currently, the fair market value of a Share on a particular
date is equal to the closing sale price of a Share as reported on Nasdaq. On May
8, 2000 the closing price per share of our common stock was $1.8125.
Term of Stock Option. The term of each stock option is determined by the
Committee but may not exceed ten years from the date of grant, or five years
from the date of grant if the grantee of an ISO is a person who holds more than
10% of the combined voting power of all classes of our outstanding stock. Stock
options are subject to earlier termination as described below under "Termination
of Stock Options as a Result of Termination of Employment or Service, Disability
or Death." The Committee also determines the vesting period for stock options,
if any, and specifies the vesting schedule in the grant instrument. The
Committee, in its sole discretion, may accelerate the exercisability of any
stock option.
Grants by Non-Employee Grant Committee. The Non-Employee Grant Committee
may grant options (not to exceed 100,000 shares underlying such options in any
calendar quarter) to new employee hires and to employees promoted to non-officer
positions. Such options may vest over no less than three years, must have an
exercise price per Share at least equal to the fair market value of a Share on
the date of grant and may not have a term exceeding ten years. Such options will
be ISOs to the extent permissible under the Code.
Payment for Shares Underlying Stock Option. A grantee may exercise a stock
option by delivering to us a notice of exercise and payment of the option price.
The grantee may pay the option price in cash or by check or wire transfer in
immediately available funds, or by delivering Shares that the grantee already
owns (subject to such restrictions as the Committee deems appropriate). The
Committee has the option to designate additional methods of payment, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. At the time of exercise, the grantee must pay the
option price and the amount of any federal, state or local withholding tax due
in connection with such stock option exercise.
Termination of Stock Options as a Result of Termination of Employment or
Service, Disability or Death. If a grantee ceases to serve as an employee,
director, consultant or advisor to HealthGrades.com or its subsidiary for any
reason other than disability, death or "termination for cause" (as defined in
the Plan) that person's stock option will terminate 90 days following the date
on which he or she ceases to serve. If the person's service ceases due to the
person becoming disabled within the meaning of Section 22(e)(3) of the Code, his
or her stock option will terminate one year following the date on which he or
she ceases to serve. In the event of the death of a grantee while providing
service or within three months after he or she ceases to serve, the grantee's
personal representative may exercise the stock option until one year from the
date of death. However, in each case described above, the Committee may specify
a different termination date, but the new termination date cannot be later than
expiration of the initial term of the stock option. If a grantee's service
ceases due to "termination for cause" as defined in the Plan, the grantee's
stock options will terminate immediately.
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<PAGE> 16
Restrictions on Transferability of Stock Options. Subject to the exceptions
set forth below, no stock option granted under the Plan may be transferred,
except by will or the laws of descent and distribution. However, (i) if
permitted in any specific case by the Committee in its sole discretion, an NQSO
may be transferred pursuant to a "qualified domestic relations order," within
the meaning of the Code or of Title I of the Employee Retirement Income Security
Act of 1974 and (ii) the Committee may provide in a grant instrument that a
grantee may transfer stock options to his or her family members or other persons
or entities according to terms that the Committee determines.
Amendment or Termination of the Plan. The Board of Directors may amend or
terminate the Plan at any time. Nevertheless, the Board of Directors may not
amend the Plan without stockholder approval if stockholder approval is required
by Section 162(m) of the Code and the Plan is subject to Section 162(m). The
Plan will terminate on October 14, 2006 unless it is terminated earlier by the
Board of Directors or it is extended by the Board of Directors with approval of
the stockholders. The termination of the Plan will not affect the power and
authority of the Committee over outstanding stock options.
Amendment and Termination of Outstanding Stock Options. A termination or
amendment of the Plan that occurs after a grant is made will not result in the
termination or amendment of the stock option unless the grantee consents, but
the Committee may revoke any stock option that contains terms contrary to
applicable law, or modify any grant to bring it into compliance with any valid
and mandatory government regulation. Stock options may also be modified,
replaced or exchanged under the "Change of Control" provisions described below.
Adjustment Provisions. If there is any change in the number or kind of
Shares outstanding due to a stock dividend, spin off, recapitalization, stock
split, or combination or exchange of shares, or merger, reorganization or
consolidation, reclassification or change in the par value or similar event, or
if the value of our outstanding Shares are substantially reduced as a result of
a spin-off or our payment of an extraordinary dividend or distribution, the
number of Shares available for stock options, the maximum number of Shares for
which any individual participating in the Plan may receive stock options in any
year, the kind of shares issued under the Plan and the number of shares and
option price per share subject to outstanding stock options will be
appropriately adjusted by the Committee to reflect any increase or decrease in
the number of, or change in kind or value of, issued shares of our stock.
Change of Control Provisions. In the event of a "Change of Control," all
outstanding stock options will automatically become immediately exercisable,
unless the Committee determines otherwise. In addition, subject to certain
exceptions, upon a Change of Control where HealthGrades.com is not the surviving
corporation (or survives only as a subsidiary of another corporation), all
outstanding stock options that are not exercised will be assumed by, or replaced
with comparable options by, the surviving corporation, unless the Committee
determines otherwise.
In the event of a Change of Control, the Committee may require that
grantees surrender their outstanding stock options in exchange for a payment (in
cash or Shares as determined by the Committee) equal to the amount by which the
then fair market value of the Shares subject to the grantee's outstanding
options exceeds the option price.
The Plan limits the discretion of the Committee if its membership changes
following a Change of Control or if actions of the Committee could have certain
adverse accounting or tax effects.
Under the Plan, a "Change of Control" will be deemed to have occurred upon
the earliest to occur of the following events:
- any "person" (as the term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) becomes a beneficial owner of securities
representing 35% or more of the voting power of our then outstanding
securities, except where the acquisition is approved by the Board;
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<PAGE> 17
- our stockholders approve (or, if stockholder approval is not required,
the Board approves) an agreement providing for:
- our merger or consolidation with another corporation, subject to certain
exceptions;
- a sale or other disposition of all or substantially all of our assets;
or
- our liquidation or dissolution;
- any person has commenced a tender offer or exchange offer for 35% or more
of the voting power of our then outstanding Shares; or
- a majority of the members of the Board of Directors elected have been
members of the Board of Directors for less than two years, unless the
election or nomination for election of each new director who was not a
director at the beginning of the two year period was approved by a vote
of at least two-thirds of the directors then in office who were directors
at the beginning of the two year period.
Section 162(m). Under Section 162(m) of the Code, we may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. Total remuneration includes amounts
received upon the exercise of stock options granted under the Plan. An exception
does exist, however, for "performance-based compensation," including amounts
received upon the exercise of stock options pursuant to a plan approved by
stockholders that meets certain requirements. The Plan is intended to allow
grants of options thereunder to meet the requirements of "performance-based
compensation."
Option grants, net of cancellations, to purchase Shares have been made
under the Plan from inception of the Plan through May 8, 2000, as follows: Kerry
R. Hicks, 1,108,157 Shares; Patrick M. Jaeckle, 1,108,157 Shares; D. Paul Davis,
556,891 Shares; David G. Hicks 429,921 Shares; Timothy D. O'Hare, 549,921
Shares; current executive officers as a group, 3,878,047 Shares; non-employee
directors as a group, 235,596 Shares; all other employees as a group, 1,175,043
Shares; and physicians formerly affiliated with HealthGrades.com (other than
physicians who were granted options in their capacity as directors), 249,179
Shares. Because options are granted from time to time by the Committee to those
persons whom the Committee determines in its discretion should receive options,
the benefits and amounts that may be received in the future by persons eligible
to participate in the Plan are not presently determinable.
Federal Tax Consequences. There are no federal income tax consequences to a
grantee or to HealthGrades.com upon the grant of an NQSO under the Plan. Upon
the exercise of an NQSO, a grantee will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Shares
underlying the NQSO at the time of exercise over the option price of the NQSO,
and we generally will be entitled to a corresponding federal income tax
deduction in that amount. Upon the sale of Shares acquired by the exercise of an
NQSO, a grantee will have a capital gain or loss (long-term or short-term
depending upon the length of time the Shares were held) in an amount equal to
the difference between the amount realized upon the sale and the grantee's
adjusted tax basis in the Shares (the option price plus the amount of ordinary
income recognized by the grantee at the time of exercise of the NQSO).
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<PAGE> 18
A grantee of an ISO will not recognize taxable income for purposes of the
regular income tax, upon either the grant or exercise of the ISO. However, for
purposes of the alternative minimum tax imposed under the Code, the amount by
which the fair market value of the Shares acquired upon exercise exceeds the
option price will be treated as an item of adjustment and included in the
computation of the recipient's alternative minimum taxable income in the year of
exercise. A grantee who disposes of the Shares acquired upon exercise of an ISO
after two years from the date the ISO was granted and after one year from the
date such Shares were transferred to him or her will recognize long-term capital
gain or loss in the amount of the difference between the amount realized on the
sale and the option price (or the grantee's other tax basis in the Shares), and
we will not be entitled to any tax deduction by reason of the grant or exercise
of the ISO. As a general rule, if a grantee disposes of the Shares acquired upon
exercise of an ISO before satisfying both holding period requirements (a
"disqualifying disposition"), his or her gain recognized on such a disposition
will be taxed as ordinary income to the extent of the difference between the
fair market value of such Shares on the date of exercise and the option price,
and we will be entitled to a deduction in that amount. The gain, if any, in
excess of the amount recognized as ordinary income on such a disqualifying
disposition will be long-term or short-term capital gain, depending upon the
length of time the grantee held his or her Shares prior to the disposition.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO AMEND
THE PLAN.
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PERFORMANCE GRAPH
The graph below compares the percentage change in total stockholder return
for our common stock with the CRSP Index for the Nasdaq Stock Market (US
companies) ("Nasdaq Stock Market (US)") and the CRSP index for Nasdaq Health
Services Stocks ("Nasdaq Health Services Index").
This graph assumes the investment of $100 in Company common stock, the
Nasdaq Stock Market (US) and the Nasdaq Health Services Index on February 7,
1997, when our common stock was first traded on the Nasdaq National Market, and
covers the period from February 7, 1997 through December 31, 1999. Dividend
reinvestment has been assumed.
[GRAPH]
<TABLE>
<CAPTION>
FEBRUARY 7, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
HealthGrades.com, Inc. ....... $100.00 $168.99 $ 15.50 $ 31.01
Nasdaq Stock Market (US)...... $100.00 $116.48 $163.74 $296.05
Nasdaq Health Services
Index....................... $100.00 $101.89 $ 87.37 $ 71.35
</TABLE>
INFORMATION CONCERNING INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP to serve
as our independent auditors for the current fiscal year. Representatives of
Ernst & Young LLP are expected to be present at the meeting, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors and beneficial owners of more than ten percent of our common stock
to file reports of ownership of our securities and changes in ownership with the
Securities and Exchange Commission. We believe that all filings required to be
made during 1999 were made on a timely basis.
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ADVANCE NOTICE PROCEDURES
Our by-laws provide that any stockholder wishing to make a nomination for
director or propose business to be considered by the stockholders at the meeting
must give us notice within ten days following the date of the attached Notice of
Annual Meeting, and that the notice must meet certain requirements set forth in
the by-laws.
In accordance with our by-laws, notice relating to nominations for director
or proposed business to be considered at the 2001 annual meeting of stockholders
must be given no earlier than March 22, 2001 nor later than April 21, 2001.
These requirements do not affect the deadline for submitting stockholder
proposals for inclusion in the proxy statement, nor do they apply to questions a
stockholder may wish to ask at the meeting. Stockholders may request a copy of
the by-law provisions discussed above from the Secretary, HealthGrades.com,
Inc., 44 Union Boulevard, Suite 600, Lakewood, Colorado 80228.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at annual meetings in accordance with regulations adopted by the
Securities and Exchange Commission. Any proposal that an eligible stockholder
desires to have presented at the 2001 annual meeting of stockholders concerning
a proper subject for inclusion in the proxy statement and for consideration at
the annual meeting will be included in our proxy statement and related proxy
card if we receive it no later than January 24, 2001.
SOLICITATION OF PROXIES
We will pay the cost of solicitation of proxies for the annual meeting. In
addition to the mailing of the proxy material, such solicitation may be made,
without extra compensation, in person or by telephone or telecopy by our
directors, officers or regular employees.
ANNUAL REPORT ON FORM 10-K
We will provide without charge to each person solicited by this proxy
statement, on the written request of any such person, a copy of the our Annual
Report on Form 10-K (excluding exhibits) as filed with the Securities and
Exchange Commission for our most recent fiscal year. Such written request should
be directed to Patrick M. Jaeckle at the address of HealthGrades.com appearing
on the first page of this proxy statement.
The above Notice and Proxy Statement are sent by order of the Board of
Directors.
/s/ Patrick M Jaeckle
Patrick M. Jaeckle
President and Secretary
Dated: May 24, 2000
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APPENDIX A
HEALTHGRADES.COM, INC.
1996 EQUITY COMPENSATION PLAN
The purpose of the HealthGrades.com, Inc. 1996 Equity Compensation Plan
(the "Plan") is to provide (i) designated employees (including employees who are
also officers or directors) of HealthGrades.com, Inc. (the "Company") and its
subsidiaries, (ii) certain consultants and advisors to the Company or its
subsidiaries and (iii) non-employee members of the Board of Directors of the
Company (the "Board") with the opportunity to receive grants of incentive stock
options and nonqualified stock options ("Options"). The Company believes that
the Plan will encourage the participants to contribute materially to the growth
of the Company, thereby benefitting the Company's shareholders, and will align
the economic interests of the participants with those of the shareholders.
1. Administration
(1) The Plan may be administered by the Board or by a committee
(the "Committee") or two or more directors appointed by the Board.
Notwithstanding the foregoing, the Board of Directors shall exercise the powers
of the Committee with respect to the grant of options to members of the Board
who are not employees of the Company or its subsidiaries or who are members of
the Committee ("Non-Employee Directors"). With respect to employees who are not
officers of the Company, the Board of Directors may delegate certain Committee
powers to a Non-Officer Grant Committee pursuant to the provisions of Section 18
hereof. If no administrative committee is appointed, all references in the Plan
to the "Committee" shall be deemed to refer to the Board.
(2) The Committee shall have the sole authority to (i) determine
the individuals to whom Options shall be granted under the Plan, (ii) determine
the type, size and terms of the Options to be granted to each such individual,
(iii) determine the time when the Options will be granted and the duration of
any applicable exercise period, including the criteria for exercisability and
the acceleration of exercisability and (iv) deal with any other matters arising
under the Plan.
(3) The Committee shall have full power and authority to administer
and interpret the Plan, to make factual determinations and to adopt or amend
such rules, regulations, agreements and instruments for implementing the Plan
and for the conduct of its business as it deems necessary or advisable, in its
sole discretion. The Committee's interpretations of the Plan and all
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all persons having any interest in
the Plan or in any awards granted hereunder. All powers of the Committee shall
be executed in its sole discretion, in the best interest of the Company, not as
a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
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2. Options
Options granted under the Plan may be incentive stock options
("Incentive Stock Options") or nonqualified stock options ("Nonqualified Stock
Options") as described in Section 5. All Options shall be subject to the terms
and conditions set forth herein and to such other terms and conditions
consistent with the Plan as the Committee deems appropriate and as are specified
in writing by the Committee to the individual in a grant instrument (the "Grant
Instrument") or an amendment to the Grant Instrument.
The Committee shall approve the form and provisions of each Grant
Instrument.
3. Shares Subject to the Plan
(1) Subject to the adjustment specified below, the aggregate number
of shares of common stock of the Company ("Company Stock") that may be issued
under the Plan is 7,000,000 shares. If the Company Stock becomes publicly traded
as a result of a public offering under the Securities Act of 1933, as amended,
the maximum aggregate number of shares of Company Stock that shall be subject to
Options granted under the Plan to any individual during any calendar year shall
be 500,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options granted under the Plan terminate, expire, or are canceled, forfeited,
exchanged or surrendered without having been exercised, the shares subject to
such Options shall again be available for purposes of the Plan.
(2) If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spin off,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Options, the maximum number of shares of Company Stock for
which any individual participating in the Plan may receive Options in any year,
the number of shares covered by outstanding Options, the kind of shares issued
under the Plan, and the price per share of such Options shall be appropriately
adjusted by the Committee to reflect any increase or decrease in the number of,
or change in the kind or value of, issued shares of Company Stock to preclude,
to the extent practicable, the enlargement or dilution of rights and benefits
under such Options; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
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4. Eligibility for Participation
(1) All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board, and
Non-Employee Directors shall be eligible to participate in the Plan. Consultants
and advisors who perform services to the Company or any of its subsidiaries
("Key Advisors") shall be eligible to participate in the Plan if the Key
Advisors render bona fide services and such services are not in connection with
the offer or sale of securities in a capital-raising transaction. The term "Key
Advisors" shall include personnel of medical practices that have entered into
and remain subject to management agreements with the Company or any subsidiary,
and the provision of services to those practices shall be considered the
performance of services with respect to the Company for purposes of the Plan.
(2) The Committee shall select the Employees, Non-Employee
Directors and Key Advisors to receive Options and shall determine the number of
shares of Company Stock subject to a particular grant in such manner as the
Committee determines. Employees, Key Advisors and Non-Employee Directors who
receive Options under this Plan shall hereinafter be referred to as "Grantees".
5. Granting of Options
(1) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each grant of Options to
Employees, Non-Employee Directors and Key Advisors.
(2) Type of Option and Price.
(i) The Committee may grant Incentive Stock
Options that are intended to qualify as
"incentive stock options" within the meaning
of section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or
Nonqualified Stock Options that are not
intended so to qualify, or any combination
of Incentive Stock Options and Nonqualified
Stock Options, all in accordance with the
terms and conditions set forth herein.
Incentive Stock Options may be granted only
to Employees. Nonqualified Stock Options may
be granted to Employees, Non-Employee
Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the
Committee and may be equal to, greater than, or less
than the Fair Market Value (as defined below) of a
share of such Stock on the date the Option is granted;
provided, however, that (x) the Exercise Price of an
Incentive Stock Option shall be equal to, or greater
than, the Fair Market Value of a share of Company
Stock on the date the
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Incentive Stock Option is granted and (y) an Incentive
Stock Option may not be granted to an Employee who, at
the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all
classes of stock of the Company or any parent or
subsidiary of the Company, unless the Exercise Price
per share is not less than 110% of the Fair Market
Value of Company Stock on the date of grant.
(iii) If Company Stock is publicly traded, then the Fair
Market Value per share shall be determined as follows:
(x) if the principal trading market for the Company
Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof
on the relevant date or, if there were no trades on
that date, the latest preceding date upon which a sale
was reported, or (y) if the Company Stock is not
principally traded on such exchange or market, the
mean between the last reported "bid" and "asked"
prices of Company Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported
by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service,
as applicable and as the Committee determines. If the
Company Stock is not publicly traded or, if publicly
traded, not subject to reported transactions or "bid"
or "asked" quotations as set forth above, the Fair
Market Value per share shall be as determined by the
Committee.
(3) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(4) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
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<PAGE> 25
(5) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be
exercised while the Grantee is employed by, or
providing service to, the Company as an Employee, Key
Advisor or member of the Board. In the event that a
Grantee ceases to be employed by, or provide service
to, the Company for any reason other than
"disability", death, or "termination for cause", any
Option which is otherwise exercisable by the Grantee
shall terminate unless exercised within 90 days of the
date on which the Grantee ceases to be employed by, or
provide service to, the Company (or within such other
period of time as may be specified by the Committee),
but in any event no later than the date of expiration
of the Option term. Unless otherwise specified by the
Committee, any portion of the Grantee's Option that is
not otherwise exercisable as of the date on which the
Grantee ceases to be employed by or provide service to
the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by, or
provide service to, the Company on account of a
"termination for cause" by the Company, any Option
held by the Grantee shall terminate as of the date the
Grantee ceases to be employed by, or provide service
to, the Company.
(iii) In the event the Grantee ceases to be employed by, or
provide service to, the Company because the Grantee is
"disabled", any Option which is otherwise exercisable
by the Grantee shall terminate unless exercised within
one year after the date on which the Grantee ceases to
be employed by, or provide service to, the Company (or
within such other period of time as may be specified
by the Committee), but in any event no later than the
date of expiration of the Option term. Any of the
Grantee's Options which are not otherwise exercisable
as of the date on which the Grantee ceases to be
employed by, or provide service to, the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by, or providing
service to, the Company or within 90 days after the
date on which the Grantee ceases to be employed, or
provide service, on account of a termination of
employment or service specified in Section 5(e)(i)
above (or within such other period of time as may be
specified by the Committee), any Option that is
otherwise exercisable by the Grantee shall terminate
unless exercised within one year after the date on
which the Grantee ceases to be employed by, or provide
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<PAGE> 26
service to, the Company (or within such other period
of time as may be specified by the Committee), but in
any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the
Grantee ceases to be employed by, or provide service
to, the Company shall terminate as of such date.
(v) For purposes of this Section 5(e):
(1) The term "Company" shall mean the Company
and its parent and subsidiary
corporations. With request to personnel
employed by medical practices that have
entered into, and remain subject to,
management agreements with the Company or
any subsidiary, the term "Company" shall
include any such medical practice, but
only so long as the practice remains
subject to such management agreement.
(2) "Employed by, or providing service to,
the Company" shall mean employment as an
Employee or the provision of services to
the Company as a Key Advisor or member of
the Board (so that, for purposes of
exercising Options, a Grantee shall not
be considered to have terminated
employment or ceased to provide services
until the Grantee ceases to be an
Employee, Key Advisor and member of the
Board).
(3) "Disability" shall mean a Grantee's
becoming disabled within the meaning of
section 22(e)(3) of the Code.
(4) "Termination for cause" shall mean a
finding by the Committee that the Grantee
has breached his or her employment or
service contract with the Company, or has
been engaged in disloyalty to the
Company, including, without limitation,
fraud, embezzlement, theft, commission of
a felony or proven dishonesty in the
course of his or her employment or
service, or has disclosed trade secrets
or confidential information of the
Company to persons not entitled to
receive such information. In the event a
Grantee's employment or service is
terminated for cause, in addition to the
immediate termination of all Options, the
Grantee shall automatically forfeit all
shares underlying any exercised portion
of an Option for which the Company has
not yet delivered the share certificates,
upon refund by the
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<PAGE> 27
Company of the Exercise Price paid by the
Grantee for such shares.
(6) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option (i) in cash or by check or wire transfer in
immediately available funds, (ii) by delivering shares of Company Stock owned by
the Grantee (including Company Stock acquired in connection with the exercise of
an Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or (iii) by such other method as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Shares of Company Stock used to exercise an Option shall
have been held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The Grantee
shall pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 6) at the time of exercise. Shares of Company Stock shall not be
issued upon exercise of an Option until the Exercise Price is fully paid and any
required withholding is made.
(7) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code). If and to the extent that an Option designated
as an Incentive Stock Option fails so to qualify under the Code, the Option
shall remain outstanding according to its terms as a Nonqualified Stock Option.
6. Withholding of Taxes
(1) Required Withholding. All Options under the Plan shall be
granted subject to any applicable federal (including FICA), state and local tax
withholding requirements. The Company shall have the right to deduct from wages
paid to the Grantee any federal, state or local taxes required by law to be
withheld with respect to Options, or the Company may require the Grantee or
other person receiving shares upon exercise of an Option to pay to the Company
the amount of any such taxes that the Company is required to withhold.
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(2) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option by having shares withheld up to an amount that does
not exceed the Grantee's maximum marginal tax rate for federal (including FICA),
state and local tax liabilities. The election must be in a form and manner
prescribed by the Committee and shall be subject to the prior approval of the
Committee.
7. Transferability of Options
(1) Except as provided below, only the Grantee or his or her
authorized representative may exercise rights under an Option. A Grantee may not
transfer those rights except by will or by the laws of descent and distribution
or, with respect to Nonqualified Options, if permitted in any specific case by
the Committee in its sole discretion, pursuant to a qualified domestic relations
order (as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder). When a Grantee dies,
the representative or other person entitled to succeed to the rights of the
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution.
(2) Notwithstanding the foregoing, the Committee may provide, in a
Grant Instrument, that a Grantee may transfer Nonqualified Stock Options to
family members or other persons or entities according to such terms as the
Committee may determine.
8. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have
occurred if:
(1) After the effective date of the Plan, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 35% or more of the
voting power of the then outstanding securities of the Company, except where the
acquisition is approved by the Board;
(2) The shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger or consolidation of the Company with another corporation where the
shareholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to a majority of all votes to which all shareholders
of the surviving corporation would be entitled in the election of directors, or
where the members of the Board, immediately prior to the merger or
consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the board of directors of the surviving corporation,
(ii) a sale or other disposition of all or substantially all of the assets of
the Company, or (iii) a liquidation or dissolution of the Company;
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(3) Any person has commenced a tender offer or exchange offer for
35% or more of the voting power of the then outstanding shares of the Company;
or
(4) After this Plan is approved by the shareholders of the Company,
directors are elected such that a majority of the members of the Board shall
have been members of the Board for less than two years, unless the election or
nomination for election of each new director who was not a director at the
beginning of such two-year period was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of
such period.
9. Consequences of a Change of Control
(1) Upon a Change of Control, unless the Committee determines
otherwise, (i) the Company shall provide each Grantee with outstanding Options
written notice of such Change of Control and (ii) all outstanding Options shall
automatically accelerate and become fully exercisable.
(2) In addition, upon a Change of Control described in Section
8(b)(i) where the Company is not the surviving corporation (or survives only as
a subsidiary of another corporation), unless the Committee determines otherwise,
all outstanding Options that are not exercised shall be assumed by, or replaced
with comparable options by, the surviving corporation. Any replacement options
shall entitle the Grantee to receive the same amount and type of securities as
the Grantee would have received as a result of the Change of Control had the
Grantee exercised the Options immediately prior to the Change of Control.
(3) Notwithstanding the foregoing, subject to subsection (d) below,
in the event of a Change of Control, the Committee may require that Grantees
surrender their outstanding Options in exchange for a payment by the Company, in
cash or Company Stock as determined by the Committee, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's outstanding Options exceeds the Exercise Price of the
Options.
(4) Notwithstanding the foregoing, the Committee making the
determinations under this Section 9 following a Change of Control must be
comprised of the same members as those on the Committee immediately before the
Change of Control. If the Committee members do not meet this requirement, the
automatic provisions of Subsections (a) and (b) shall apply, and the Committee
shall not have discretion to vary them.
(5) Notwithstanding anything in the Plan to the contrary, in the
event of a Change of Control, the Committee shall not have the right to take any
actions described in the Plan (including without limitation actions described in
Subsection (c) above) that would make the Change of Control ineligible for
pooling of interest accounting treatment or that would make the Change of
Control ineligible for desired tax treatment if, in the absence of such right,
the
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<PAGE> 30
Change of Control would qualify for such treatment and the Company intends to
use such treatment with respect to the Change of Control.
10. Amendment and Termination of the Plan
(1) Amendment. The Board may amend or terminate the Plan at any
time; provided, however, that if the Company Stock becomes publicly traded, the
Board shall not amend the Plan without shareholder approval if such approval is
required by Section 162(m) of the Code and if Section 162(m) is applicable to
the Plan.
(2) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended by the Board with the
approval of the shareholders.
(3) Termination and Amendment of Outstanding Options. A termination
or amendment of the Plan that occurs after an Option is granted shall not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 17(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Option. Whether or not the Plan has terminated, an outstanding Option may be
terminated or modified under Sections 9 and 17(b) or may be amended by agreement
of the Company and the Grantee consistent with the Plan.
(4) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
11. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Options under this Plan. In no event shall
interest be paid or accrued on any Options.
12. Rights of Participants
Nothing in this Plan shall entitle any Employee, Key Advisor or
other person to any claim or right to be granted an Option under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Company or
any other employment rights.
13. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Option. The Committee shall determine whether cash,
other awards or other
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<PAGE> 31
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
14. Requirements for Issuance of Shares
No Company Stock shall be issued or transferred in connection with
any Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Option granted to any Grantee hereunder on such Grantee's undertaking in
writing to comply with such restrictions on his or her subsequent disposition of
such shares of Company Stock as the Committee shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation thereof
and certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations and interpretations, including any
requirement that a legend or legends be placed thereon.
15. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
16. Effective Date of the Plan.
Subject to the approval of the Company's shareholders, this Plan
shall be effective on October 15, 1996.
17. Miscellaneous
(1) Options in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to grant Options under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purpose, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may grant Options to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The Committee shall prescribe
the provisions of the substitute Options.
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<PAGE> 32
(2) Compliance with Law. The Plan, the grant and exercise of
Options, and the obligations of the Company to issue or transfer shares of
Company Stock under Options shall be subject to all applicable laws and to
approvals by any governmental or regulatory agency as may be required. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
(3) Ownership of Stock. A Grantee or Successor Grantee shall have
no rights as a shareholder with respect to any shares of Company Stock covered
by an Option until the shares are issued or transferred to the Grantee or
Successor Grantee on the stock transfer records of the Company.
(4) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the State of
Delaware.
18. Non-Officer Grant Committee
The Board of Directors may establish a Non-Officer Grant Committee
which, notwithstanding anything in this Plan to the contrary, shall have the
power, solely with respect to employees of the Company that are not officers of
the Company, to grant options, subject to the following terms and limitations:
(1) The Non-Officer Grant Committee may grant options only in
connection with the hiring of new employees or in connection with the promotion
of employees to non-officer positions.
(2) The maximum number of shares of Company Stock underlying option
grants made to any individual employee by the Non-Officer Grant Committee may
not exceed 25,000 in any calendar year.
(3) The Non-Officer Grant Committee shall grant Incentive Stock
Options to the extent permissible under the Code; otherwise, such options shall
be Non-Qualified Stock Options.
(4) The Non-Officer Grant Committee may set such vesting terms with
respect to the options as it deems appropriate; provided, however, that no more
than one-third of the shares of Company Stock underlying an option (subject to
adjustment to avoid fractional shares) may vest in any calendar year, and no
options may vest until the first anniversary of the date of grant.
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<PAGE> 33
(5) The Exercise Price per share of any options granted by the
Non-Officer Grant Committee shall be at least equal to the Fair Market Value of
a share of Company Stock on the date of grant.
(6) The Non-Officer Grant Committee may provide for an option term
shorter than ten years.
(7) In all other respects, the options granted by the Non-Officer
Grant Committee shall be governed by the terms of the Grant Instruments relating
to Incentive Stock Options or Non-Qualified Stock Options, as appropriate and in
the form then authorized by the Committee.
(8) The Non-Officer Grant Committee powers shall be as enumerated
in this section; the Non-Officer Grant Committee shall not otherwise perform the
functions of the Committee under this Plan.
(9) The Committee may also grant options to non-officer employees
in accordance with the provisions of the Plan.
(10) The maximum number of shares underlying options that may be
granted by the Non-Officer Grant Committee in any calendar quarter shall not
exceed 100,000.
Amended: June 5, 1997
July 25, 1997
September 12, 1997
June 5, 1998
March 27, 2000
April 25, 2000
June 20, 2000
- 13 -
<PAGE> 34
Please date, sign and mail your proxy
card back as soon as possible!
Annual Meeting of Stockholders
healthgrades.com, inc.
June 20, 2000
o Please Detach and Mail in the Envelope Provided o
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked to vote for all nominees
to the contrary) listed at right. NOMINEES:
1. Election Kerry R. Hicks
of [ ] [ ] Patrick M. Jaeckle
Directors. Peter H. Cheesbrough
Leslie S. Matthews, M.D.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR Mats Wahlstrom
ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THAT Parag Saxena
NOMINEE'S NAME IN THE LIST AT RIGHT.) Marc S. Sandroff
ABSTAIN FOR AGAINST
2. PROPOSAL TO AMEND THE HealthGrades.com, Inc. 1996 equity compensation plan.
[ ] [ ] [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF HEALTHGRADES.COM, INC.
Signature (SEAL) Signature if held jointly Date: , 2000
------------------------ --------------------- -------------- ------------------
NOTE: Please sign this proxy exactly as name appears hereon. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name
by authorized person.
</TABLE>
<PAGE> 35
PROXY PROXY
HEALTHGRADES.COM, INC.
ANNUAL MEETING OF STOCKHOLDERS, JUNE 20, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kerry R. Hicks and Patrick M. Jaeckle,
or either of them, proxy, with full power of substitution, to vote, as
designated on the reverse side hereof, all shares of Common Stock which the
undersigned is entitled to vote if personally present at the 2000 Annual Meeting
of Stockholders of HealthGrades.com, Inc. or any adjournment or postponement
thereof, subject to the directions indicated on the reverse.
IF INSTRUCTIONS ARE GIVEN IN THE SPACES ON THE REVERSE SIDE HEREOF, THE
SHARES WILL BE VOTED IN ACCORDANCE THEREWITH; IF INSTRUCTIONS ARE NOT GIVEN, THE
SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS NAMED IN PROPOSAL 1 ON
THE REVERSE SIDE AND IN FAVOR OF PROPOSAL 2 SET FORTH ON THE REVERSE SIDE
HEREOF. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT
TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
