<PAGE>
As filed with the Securities and Exchange Commission on January 4, 2000
Registration No. 333-90727
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 2
To
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
CHEMDEX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 5169 77-0465496
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1500 Plymouth Street
Mountain View, CA 94043
(650) 567-8900
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
David P. Perry
President and Chief Executive Officer
1500 Plymouth Street
Mountain View, CA 94043
(650) 567-8900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
<TABLE>
<S> <C> <C>
Jeffrey Y. Suto Geoffrey P. Leonard J. Casey McGlynn
Steven J. Tonsfeldt Lowell D. Ness David J. Saul
Kenneth D. Cramer Loren D. Danzis Wilson Sonsini Goodrich
Mavis L. Yee Orrick, Herrington & & Rosati
Daniel M. Friedland Sutcliffe LLP A Professional Corporation
Venture Law Group 1020 Marsh Road 650 Page Mill Road
A Professional Corporation Menlo Park, California 94025 Palo Alto, California 94304
2800 Sand Hill Road
Menlo Park, California 94025
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed Maximum
Title of each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(/1/) Per Unit Price(/2/) Fee(/3/)(/4/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.0002................ 13,307,366 $3,817 $100.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum number of shares of Chemdex common stock to be
issued in connection with the transaction.
(2) Estimated solely for the purposes of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended. This
fee has been computed pursuant to Rule 457 (f)(2) and is based on (i) the
par value of the capital stock of Promedix and SpecialtyMD and (ii) the
estimated number of shares of Promedix capital stock and SpecialtyMD
capital stock to be acquired by Chemdex pursuant to the mergers.
(3) Represents the minimum registration fee. Calculation of the registration
fee in accordance with Rule 457(f)(2) under the Securities Act of 1933
yields a registration fee of less than the minimum.
(4) Previously paid by Registrant on November 10, 1999.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CHEMDEX CORPORATION
Dear Chemdex Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Chemdex Corporation, a Delaware corporation, to be held at 10:00 a.m.,
Pacific Standard time, on February 10, 2000, at the Company's executive
offices at 1500 Plymouth Street, Mountain View, California.
At the special meeting, you will be asked to consider and vote on the
following proposals:
1. To approve the issuance of up to a maximum of 12,057,366 shares of
Chemdex common stock for all shares of outstanding Promedix.com, Inc.
capital stock, in connection with a merger whereby Promedix will become a
wholly-owned subsidiary of Chemdex and Chemdex will assume Promedix's stock
option plan.
2. To approve the issuance of 1,250,000 shares of Chemdex common stock
for all shares of outstanding SpecialtyMD.com Corporation capital stock in
connection with a merger whereby SpecialtyMD will become a wholly-owned
subsidiary of Chemdex and Chemdex will assume outstanding SpecialtyMD
warrants and the SpecialtyMD stock option plan.
3. To increase the number of shares of Chemdex common stock available
for issuance under the Chemdex 1999 Employee Stock Purchase Plan by 300,000
shares to a total of 1,050,000 shares.
4. To increase the number of shares of Chemdex common stock available
for issuance under the Chemdex 1998 Stock Plan by 4,250,000 shares to a
total of 10,375,000 shares.
5. To transact any other business that properly comes before the special
meeting or any adjournments or postponements thereof.
If the Chemdex/Promedix merger is approved, each outstanding share of
Promedix capital stock will be converted into the right to receive a fraction
of one share of Chemdex common stock and each outstanding option to purchase
Promedix common stock will become the right to acquire a number of shares of
Chemdex common stock at a price based on the same fraction. This fractional
amount or exchange ratio will be determined by dividing 12,057,366, the
maximum number of shares of Chemdex common stock to be issued as a result of
this merger, by the sum of the number of shares of Promedix capital stock
outstanding and the number of shares of capital stock issuable upon exercise
of outstanding Promedix options as of the closing date.
If the Chemdex/SpecialtyMD merger is approved, each outstanding share of
SpecialtyMD common stock and outstanding warrant will be converted into the
right to receive a fraction of one share of Chemdex common stock and each
outstanding option to purchase SpecialtyMD common stock will become the right
to acquire a number of shares of Chemdex common stock at a price based on the
same fraction. This fractional amount or exchange ratio will be determined by
dividing 1,250,000, the number of shares of Chemdex common stock to be issued
as of a result of this merger, by the sum of the number of shares of
SpecialtyMD capital stock outstanding and the number of shares of capital
stock issuable upon exercise of outstanding SpecialtyMD options and warrants,
as of the closing date.
Following the mergers, Chemdex stockholders will own approximately 74%,
Promedix stockholders will own approximately 24%, and SpecialtyMD stockholders
will own approximately 2%, of Chemdex.
Chemdex's board of directors has carefully reviewed and considered the
issuance of the proposed Chemdex common stock in connection with each of these
mergers and has concluded that such issuance is fair to and in the best
interests of Chemdex's stockholders. In reaching this determination for the
Chemdex/Promedix merger, Chemdex's board of directors received an advisory
opinion of Morgan Stanley. Such opinion was provided for the information and
assistance of Chemdex's board of directors and does not constitute a
recommendation as to
<PAGE>
how any holder of shares of Chemdex common stock should vote. The full text of
the opinion, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as Annex C to the proxy statement and prospectus. You are urged to
read this opinion in its entirety.
YOUR BOARD HAS APPROVED THE STOCK ISSUANCES IN CONNECTION WITH EACH OF
THESE MERGERS AND HAS DETERMINED THAT IT IS IN THE BEST INTERESTS OF CHEMDEX
AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD RECOMMENDS A VOTE
"FOR" APPROVAL OF THE COMMON STOCK ISSUANCES FOR THE CHEMDEX/PROMEDIX MERGER
AND THE CHEMDEX/SPECIALTYMD MERGER. CHEMDEX'S BOARD ALSO RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE OTHER CHEMDEX PROPOSALS BROUGHT BEFORE THE SPECIAL
MEETING.
The stock issuances require the affirmative vote of the holders of a
majority of the outstanding shares of Chemdex common stock represented at the
special meeting, in person or by proxy. Before you vote, you should read the
accompanying proxy statement and prospectus, which provides detailed
information concerning the proposed stock issuances, mergers and other
proposals, as well as additional information concerning Chemdex, Promedix and
SpecialtyMD. In particular, you should review the matters referred to under
the "Risk Factors" starting on page 18. The complete text of the
Chemdex/Promedix merger agreement, as amended, is attached as Annex A to the
proxy statement and prospectus. The complete text of the Chemdex/SpecialtyMD
merger agreement is attached as Annex D to the proxy statement and prospectus.
You may revoke your proxy at any time prior to its exercise by filing a
written notice of your revocation with the Secretary of Chemdex or by signing
and delivering to the Secretary a proxy bearing a later date. In addition, you
may attend the special meeting and vote your shares in person if you wish,
even though you have previously returned your proxy.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE.
If you have any questions or if you need assistance in voting your proxy,
please call Corporate Investor Communications, Inc. at (877) 842-2410.
On Behalf of the Board of Directors,
/s/ David P. Perry
-------------------------------------
David P. Perry
President and Chief Executive
Officer
The date of the proxy statement and prospectus is January 4, 2000. The
proxy statement and prospectus and the accompanying forms of proxy are first
being mailed to the stockholders of Chemdex and Promedix on or about January
11, 2000. All information contained in the proxy statement and prospectus with
respect to Chemdex has been provided by Chemdex. All information contained in
the proxy statement and prospectus with respect to Promedix has been provided
by Promedix. All information contained in the proxy statement and prospectus
with respect to SpecialtyMD has been provided by SpecialtyMD.
Chemdex common stock is traded on the Nasdaq National Market under the
symbol "CMDX." On December 31, 1999, the closing sale price for Chemdex common
stock as reported on the Nasdaq National Market was $111 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities being offered by
Chemdex under this proxy statement and prospectus or passed upon the adequacy
or accuracy of this proxy statement and prospectus. Any representation to the
contrary is a criminal offense.
<PAGE>
CHEMDEX CORPORATION
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 10, 2000
To the Stockholders of Chemdex:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
Chemdex Corporation, a Delaware corporation, will be held at 10:00 a.m.,
Pacific Standard time, on February 10, 2000, at the Company's executive
offices at 1500 Plymouth Street, Mountain View, California, to consider and
vote upon the following proposals:
1. To approve the issuance of up to a maximum of 12,057,366 shares of
Chemdex common stock for all shares of outstanding Promedix.com, Inc.
capital stock, in connection with a merger whereby Promedix will become a
wholly-owned subsidiary of Chemdex and Chemdex will assume Promedix's stock
option plan
2. To approve the issuance of 1,250,000 shares of Chemdex common stock
for all shares of outstanding SpecialtyMD.com Corporation capital stock in
connection with a merger whereby SpecialtyMD will become a wholly-owned
subsidiary of Chemdex and Chemdex will assume SpecialtyMD's outstanding
warrants and stock option plan.
3. To increase the number of shares of Chemdex common stock available
for issuance under the Chemdex 1999 Employee Stock Purchase Plan by 300,000
shares to a total of 1,050,000 shares.
4. To increase the number of shares of Chemdex common stock available
for issuance under the Chemdex 1998 Stock Plan by 4,250,000 shares to a
total of 10,375,000 shares.
5. To transact any other business that properly comes before the special
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on January 4, 2000
as the record date for the determination of the holders of Chemdex common
stock entitled to notice of, and to vote at, the special meeting. Accordingly,
only stockholders of record at the close of business on such date are entitled
to notice of and to vote at the special meeting and any adjournment or
postponement. The affirmative vote of the holders of a majority of the shares
of Chemdex common stock represented at the special meeting, in person or by
proxy, is necessary for approval and adoption of proposals (1), (2), (3) and
(4) above.
Details of the proposed stock issuances, mergers and other proposals, and
other important information concerning Chemdex, Promedix and SpecialtyMD are
more fully described in the accompanying proxy statement and prospectus.
Please give this material your careful attention.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING. HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING
THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A
PROXY.
By Order of the Board of Directors,
/s/ Jeffrey Y. Suto
-------------------------------
Jeffrey Y. Suto
Secretary
Mountain View, California
January 4, 2000
<PAGE>
PROMEDIX.COM, INC.
448 East Winchester Avenue, Suite 200
Salt Lake City, Utah 84107
January 4, 2000
Dear Fellow Stockholder,
You are cordially invited to attend a special meeting of the stockholders
of Promedix.com, Inc., to be held at 10:00 a.m., local time, on February 10,
2000, at the Company's executive offices.
At the special meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger that Promedix
has entered into with Chemdex Corporation. The merger agreement provides for
the merger of a wholly-owned subsidiary of Chemdex with and into Promedix,
resulting in Promedix becoming a subsidiary of Chemdex and Promedix
stockholders becoming Chemdex stockholders.
If this merger is approved, each outstanding share of Promedix common stock
and preferred stock will be converted into the right to receive a fraction of
one share of Chemdex common stock and each outstanding option to purchase
Promedix capital stock will become the right to acquire a number of shares of
Chemdex common stock at a price based on the same fraction. This fractional
amount or exchange ratio will be determined by dividing 12,057,366, the
maximum number of shares of Chemdex common stock to be issued as a result of
this merger, by the number of shares of Promedix capital stock outstanding and
the number of shares of capital stock issuable upon exercise of Promedix
options outstanding as of the date of the merger. There is no public trading
market for Promedix common stock or Promedix preferred stock. Chemdex common
stock is quoted on the Nasdaq Stock Market under the symbol "CMDX." The
closing price for Chemdex common stock reported on the Nasdaq Stock Market on
December 31, 1999, was $111 per share.
This is a proxy statement for each of Promedix and Chemdex and it is also
Chemdex's prospectus relating to its offering of shares of Chemdex common
stock to Promedix stockholders in the proposed merger. It contains important
information concerning Chemdex, Promedix, the terms of the proposed merger and
the conditions which must be satisfied before the merger can occur. You should
carefully consider the "Risk Factors" that are described starting on page 18
of this prospectus and proxy statement.
YOUR BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF PROMEDIX AND ITS
STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The affirmative vote of the holders of a majority of the shares of Promedix
preferred stock and the holders of a majority of the shares of Promedix
preferred stock and common stock, voting together, is necessary for approval
and adoption of the merger agreement. Stockholders of Promedix holding in the
aggregate approximately 70.7% of the Promedix common stock and 99.2% of the
Promedix preferred stock have agreed to vote all of their shares in favor of
the adoption of the merger agreement and approval of the merger. Consequently,
adoption of the merger agreement and approval of the merger by the Promedix
stockholders is assured.
Your vote is important regardless of the number of shares you own. We urge
you to read the enclosed materials carefully and to complete, sign and date
the enclosed proxy card and return it promptly in the enclosed prepaid
envelope, whether or not you plan to attend the special meeting of
stockholders. Your prompt cooperation and continued support of Promedix.com,
Inc. is greatly appreciated.
Sincerely,
/s/ William C. Klintworth, Jr.
-----------------------------------------
William C. Klintworth, Jr.
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities being offered by
Chemdex under this proxy statement and prospectus or passed upon the adequacy
or accuracy of this proxy statement and prospectus. Any representation to the
contrary is a criminal offense.
<PAGE>
PROMEDIX.COM, INC.
448 East Winchester Avenue, Suite 200
Salt Lake City, Utah 84107
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 10, 2000
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Promedix.com, Inc. will be held on February 10, 2000, at 10:00 a.m., local
time, at the offices of Promedix.com, 448 East Winchester Avenue, Suite 2000,
Salt Lake City, Utah 84107.
Only Promedix stockholders of record as of January 4, 2000 are entitled to
attend and vote at the special meeting. At the special meeting, you will be
asked to consider and vote upon the following proposal:
To approve and adopt the Agreement and Plan of Merger dated as of September
21, 1999 and amended December 21, 1999 by and among Chemdex Corporation, a
Delaware corporation, Popcorn Acquisitions Corp., a Delaware corporation and
wholly-owned subsidiary of Chemdex, and Promedix.com, Inc., and to approve the
merger of Popcorn Acquisitions with and into Promedix pursuant to the merger
agreement. Pursuant to the merger agreement,
(a) Popcorn Acquisitions will merge with and into Promedix,
(b) each outstanding share of Promedix capital stock, $.0001 par value
per share, will be converted into the right to receive a fraction of one
share of Chemdex common stock, $.0002 par value per share, based on an
exchange ratio which is discussed below, and
(c) each outstanding option to purchase Promedix capital stock will be
deemed to constitute the right to acquire, on the same terms and
conditions, a number of shares of Chemdex common stock at a price based on
the same exchange ratio.
The exchange ratio for converting Promedix securities into Chemdex common
stock will be determined by dividing 12,057,366, the maximum number of shares
of Chemdex common stock to be issued as a result of this merger, by the number
of Promedix capital stock outstanding and the number of shares of capital
stock issuable upon exercise of Promedix options outstanding as of the date of
the merger.
THE BOARD OF DIRECTORS OF PROMEDIX UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF PROMEDIX
PREFERRED STOCK AND A MAJORITY OF THE SHARES OF PROMEDIX PREFERRED STOCK AND
COMMON STOCK, VOTING TOGETHER, IS NECESSARY FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. STOCKHOLDERS OF PROMEDIX HOLDING IN THE AGGREGATE
APPROXIMATELY 70.7% OF THE PROMEDIX COMMON STOCK AND 99.2% OF THE PROMEDIX
PREFERRED STOCK HAVE AGREED TO VOTE ALL OF THEIR SHARES IN FAVOR OF THE
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. CONSEQUENTLY,
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER BY THE PROMEDIX
STOCKHOLDERS IS ASSURED.
<PAGE>
Detailed information concerning the merger agreement and the merger is
contained in the accompanying proxy statement and prospectus. We encourage you
to read this entire document carefully.
For the Board of Directors,
/s/ William C. Klintworth,
Jr.
-----------------------------
William C. Klintworth, Jr.
Chief Executive Officer
Salt Lake City, Utah
January 4, 2000
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE,
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE
IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO PROMEDIX, BY
SUBSEQUENTLY DELIVERING ANOTHER PROXY OR BY ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXIES. A TRANSMITTAL
LETTER FOR YOUR STOCK WILL BE SENT TO YOU BY THE EXCHANGE AGENT AFTER THE
MERGER.
<PAGE>
SPECIALTYMD.COM CORPORATION
1510 Page Mill Road
Palo Alto, California 94304
January 4, 2000
Dear Fellow Stockholder,
You are cordially invited to attend a special meeting of the stockholders of
SpecialtyMD.com Corporation, to be held at 10:00 a.m., local time, on February
10, 2000, at the Company's executive offices.
At the special meeting, you will be asked to consider and vote on a proposal
to approve and adopt an Agreement and Plan of Merger, as amended, that
SpecialtyMD has entered into with Chemdex Corporation. The merger agreement
provides for the merger of a wholly-owned subsidiary of Chemdex with and into
SpecialtyMD, resulting in SpecialtyMD becoming a subsidiary of Chemdex and
SpecialtyMD stockholders becoming Chemdex stockholders. You will also be asked
to approve an acceleration of vesting of options held by SpecialtyMD Board
members, and certain payments and benefits pursuant to the employment
agreements between Chemdex and, respectively, two officers of SpecialtyMD, the
Chief Executive Officer and President, Ashfaq Munshi, and the Vice President of
Business Development, Joseph Meresman, which approval is sought to avoid
adverse tax consequences to such individuals under Section 280G of the Internal
Revenue Code of 1986, as amended.
If this merger is approved, each outstanding share of SpecialtyMD common
stock and preferred stock will be converted into the right to receive a
fraction of one share of Chemdex common stock and each outstanding option and
warrant to purchase SpecialtyMD capital stock will become the right to acquire
a number of shares of Chemdex common stock at a price based on the same
fraction. This fractional amount or exchange ratio will be determined by
dividing 1,250,000, the number of shares of Chemdex common stock to be issued
as a result of this merger, by the number of shares of SpecialtyMD capital
stock outstanding and the number of shares of capital stock issuable upon
exercise of SpecialtyMD options and warrants outstanding. There is no public
trading market for SpecialtyMD common stock or SpecialtyMD preferred stock.
Chemdex common stock is quoted on the Nasdaq Stock Market under the symbol
"CMDX." The closing price for Chemdex common stock reported on the Nasdaq Stock
Market on December 31, 1999, was $111 per share.
This is a proxy statement for each of SpecialtyMD and Chemdex and it is also
Chemdex's prospectus relating to its offering of shares of Chemdex common stock
to SpecialtyMD stockholders in the proposed merger. It contains important
information concerning Chemdex, SpecialtyMD, the terms of the proposed merger
and the conditions which must be satisfied before the merger can occur. You
should carefully consider the "Risk Factors" that are described starting on
page 18 of this prospectus and proxy statement.
YOUR BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF SPECIALTYMD AND ITS
STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Stockholders of SpecialtyMD holding in the aggregate over two-thirds of the
SpecialtyMD common stock and preferred stock have agreed to vote all of their
shares in favor of the adoption of the merger agreement and approval of the
merger. Consequently, adoption of the merger agreement and approval of the
merger by the SpecialtyMD stockholders is assured.
<PAGE>
Your vote is important regardless of the number of shares you own. We urge
you to read the enclosed materials carefully and to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed prepaid envelope,
whether or not you plan to attend the special meeting of stockholders. Your
prompt cooperation and continued support of SpecialtyMD.com Corporation is
greatly appreciated.
Sincerely,
/s/ Ashfaq Munshi
-------------------------------------
Ashfaq Munshi
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of the Chemdex common stock to be issued
under this prospectus and proxy statement or passed upon the adequacy or
accuracy of this prospectus and proxy statement. Any representation to the
contrary is a criminal offense.
<PAGE>
SPECIALTYMD.COM CORPORATION
1510 Page Mill Road
Palo Alto, California 94304
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 10, 2000
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
SpecialtyMD.com Corporation will be held on February 10, 2000, at 10:00 a.m.,
local time, at the offices of SpecialtyMD, 1510 Page Mill Road, Palo Alto,
California 94304.
Only SpecialtyMD stockholders of record as of January 4, 2000 are entitled
to attend and vote at the special meeting. At the special meeting, you will be
asked to consider and vote upon the following proposals:
1. To approve and adopt the Agreement and Plan of Merger dated as of
December 10, 1999 by and among Chemdex, Spinach Acquisitions Corp., a Delaware
corporation and wholly-owned subsidiary of Chemdex, and SpecialtyMD.com
Corporation, and to approve the merger of Spinach Acquisitions with and into
SpecialtyMD pursuant to the merger agreement. Pursuant to the merger agreement,
(a) Spinach Acquisitions will merge with and into SpecialtyMD,
(b) each outstanding share of SpecialtyMD capital stock, $.001 par value
per share, will be converted into the right to receive a fraction of one
share of Chemdex common stock, $.0002 par value per share, based on an
exchange ratio which is discussed below, and
(c) each outstanding option and warrant to purchase SpecialtyMD capital
stock will be deemed to constitute the right to acquire, on the same terms
and conditions, a number of shares of Chemdex common stock and prices based
on the same exchange ratio.
The exchange ratio for converting SpecialtyMD securities into Chemdex common
stock will be determined by dividing 1,250,000, the number of shares of Chemdex
common stock to be issued as a result of this merger, by the number of
SpecialtyMD capital stock outstanding and the number of shares of capital stock
issuable upon exercise of SpecialtyMD options and warrants outstanding.
2. To approve an acceleration of vesting of options held by SpecialtyMD
Board members, and certain payments and benefits pursuant to the employment
agreements between Chemdex and, respectively, two officers of SpecialtyMD, the
Chief Executive Officer and President, Ashfaq Munshi, and the Vice President of
Business Development, Joseph Meresman.
THE BOARD OF DIRECTORS OF SPECIALTYMD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
STOCKHOLDERS OF SPECIALTYMD HOLDING IN THE AGGREGATE OVER TWO-THIRDS OF THE
SPECIALTYMD COMMON STOCK AND PREFERRED STOCK HAVE AGREED TO VOTE ALL OF THEIR
SHARES IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER. CONSEQUENTLY, ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER BY THE SPECIALTYMD STOCKHOLDERS IS ASSURED.
Detailed information concerning the merger agreement and the merger is
contained in the accompanying proxy statement and prospectus. We encourage you
to read this entire document carefully.
For the Board of Directors,
/s/ Ashfaq Munshi
-----------------------------------
Ashfaq Munshi
Chief Executive Officer
Palo Alto, California
January 4, 2000
<PAGE>
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE,
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE
IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO SPECIALTYMD, BY
SUBSEQUENTLY DELIVERING ANOTHER PROXY OR BY ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXIES. A TRANSMITTAL
LETTER FOR YOUR STOCK WILL BE SENT TO YOU BY THE EXCHANGE AGENT AFTER THE
CLOSING.
<PAGE>
SPECIALTYMD.COM
CHEMDEX CORPORATION PROMEDIX.COM, INC. CORPORATION
---------------- ---------------- ----------------
PROXY STATEMENT/PROSPECTUS PROXY STATEMENT PROXY STATEMENT
This proxy statement and prospectus is being furnished to the holders of
common stock of Chemdex Corporation, a Delaware corporation, in connection
with the solicitation of proxies by the Board of Directors of Chemdex for use
at the special meeting of stockholders of Chemdex to be held at Chemdex's
executive offices at 1500 Plymouth Street, Mountain View, California, on
February 10, 2000, commencing at 10:00 a.m., Pacific Standard time.
This proxy statement and prospectus is also being furnished to the holders
of capital stock of Promedix.com, Inc., a Delaware corporation, in connection
with the solicitation of proxies by the Board of Directors of Promedix for use
at the special meeting of stockholders of Promedix to be held at Promedix's
executive offices at 448 East Winchester Avenue, Suite 200, Salt Lake City,
Utah on February 10, 2000, commencing at 10:00 a.m., Mountain Standard time.
This proxy statement and prospectus is also being furnished to the holders
of capital stock of SpecialtyMD.com Corporation, a Delaware corporation, in
connection with the solicitation of proxies by the Board of Directors of
SpecialtyMD for use at the special meeting of stockholders of SpecialtyMD to
be held at SpecialtyMD's executive offices at 1510 Page Mill Road, Palo Alto,
California on February 10, 2000, commencing at 10:00 a.m., Pacific Standard
time.
This proxy statement and prospectus relates to the proposed merger of
Popcorn Acquisitions Corp., a Delaware corporation and a wholly-owned
subsidiary of Chemdex, with and into Promedix, which will become a wholly-
owned subsidiary of Chemdex pursuant to an Agreement and Plan of Merger dated
as of September 21, 1999, and amended as of December 21, 1999, by and among
Chemdex, Popcorn and Promedix. In the Chemdex/Promedix merger, each
outstanding share of Promedix capital stock will be converted into and
represent the right to receive a fraction of a share of Chemdex common stock
based on an exchange ratio, and each outstanding option to purchase Promedix
capital stock will be converted into an option to purchase shares of Chemdex
common stock in accordance with the same exchange ratio. This exchange ratio
will be determined by dividing 12,057,366, the maximum number of shares of
Chemdex common stock to be issued as a result of this merger, by the number of
shares of Promedix capital stock outstanding and the number of shares of
capital stock issuable upon exercise of Promedix options outstanding as of the
date of the merger.
This proxy statement and prospectus also relates to the proposed merger of
Spinach Acquisitions Corp., a Delaware corporation and a wholly-owned
subsidiary of Chemdex, with and into SpecialtyMD, which will become a wholly-
owned subsidiary of Chemdex pursuant to an Agreement and Plan of Merger dated
as of December 10, 1999 by and among Chemdex, Spinach and SpecialtyMD. In the
Chemdex/SpecialtyMD merger, each outstanding share of SpecialtyMD common
stock, assuming the conversion of all outstanding SpecialtyMD preferred stock
into common stock, will be converted into and represent the right to receive a
fraction of a share of Chemdex common stock based on an exchange ratio, and
each outstanding option and warrant to purchase SpecialtyMD capital stock will
be converted into an option and a warrant, respectively, to purchase shares of
Chemdex common stock in accordance with the same exchange ratio. This exchange
ratio will be determined by dividing 1,250,000, the number of shares of
Chemdex common stock to be issued as a result of this merger, by the sum of
the number of shares of SpecialtyMD capital stock outstanding and the number
of shares of capital stock issuable upon exercise of outstanding options and
warrants to purchase SpecialtyMD capital stock as of the date of the merger.
Following the mergers, Chemdex stockholders will own approximately 74%,
Promedix stockholders will own approximately 24% and SpecialtyMD stockholders
will own approximately 2% of Chemdex.
Consummation of the mergers are subject to various conditions, including
approval of the Chemdex common stock issuance by a majority of the shares of
Chemdex common stock entitled to vote at the Chemdex
<PAGE>
special meeting, approval and adoption of the Chemdex/Promedix merger
agreement by the requisite majorities of the shares of Promedix capital stock
and approval of the Chemdex/SpecialtyMD merger agreement by the requisite
majorities of the shares of SpecialtyMD capital stock entitled to vote at the
SpecialtyMD special meeting.
Stockholders of Promedix holding in the aggregate approximately 70.7% of
the Promedix common stock and 99.2% of the Promedix preferred stock have
agreed to vote all of their shares in favor of the adoption of the merger
agreement and approval of the merger. Consequently, adoption of the merger
agreement and approval of the merger by the Promedix stockholders is assured.
Stockholders of SpecialtyMD holding in the aggregate over two-thirds of the
SpecialtyMD common stock and preferred stock have agreed to vote all of their
shares in favor of the adoption of the merger agreement and approval of the
merger. Consequently, adoption of the merger agreement and approval of the
merger by the SpecialtyMD stockholders is assured.
This proxy statement and prospectus also constitutes a prospectus of
Chemdex with respect to up to 13,307,366 shares of Chemdex common stock to be
issued in connection with the mergers. Chemdex common stock is traded on the
Nasdaq National Market under the symbol "CMDX." On December 31, 1999, the
closing sale price for Chemdex common stock as reported on the Nasdaq market
was $111 per share.
All information contained in this proxy statement and prospectus with
respect to Chemdex has been provided by Chemdex. All information contained in
this proxy statement and prospectus with respect to Promedix has been provided
by Promedix. All information contained in this proxy statement and prospectus
with respect to SpecialtyMD has been provided by SpecialtyMD. This proxy
statement and prospectus and the accompanying forms of proxy are first being
mailed to the stockholders of Chemdex, Promedix and SpecialtyMD on or about
January 11, 2000. A stockholder who has given a proxy may revoke it at any
time prior to its exercise. See "The Chemdex Special Meeting--Solicitation of
Proxies and Expenses" "The Promedix Special Meeting--Solicitation of Proxies
and Expenses" and "The SpecialtyMD Special Meeting -- Solicitation of Proxies
and Expense."
See "Risk Factors" beginning on page 18 for a discussion of certain factors
that should be considered by Chemdex, Promedix and SpecialtyMD stockholders.
If you are a Chemdex stockholder and have any questions concerning the
mergers or if you need assistance in voting your proxy, please call Corporate
Investor Communications, Inc. at (877) 842-2410. If you are a Promedix
stockholder and have any questions concerning the Chemdex/Promedix merger or
need assistance in voting your proxy, please call Steve Johnson at (800) 453-
1264. If you are a SpecialtyMD stockholder and have any questions concerning
the Chemdex/SpecialtyMD merger or need assistance in voting your proxy, please
contact Joe Meresman at (650) 213-4100.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this proxy statement and prospectus is January 4, 2000.
The date this proxy statement and prospectus was first mailed to stockholders
was January 11, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE CHEMDEX/PROMEDIX MERGER................... v
QUESTIONS AND ANSWERS ABOUT THE CHEMDEX/SPECIALTYMD MERGER................ viii
SUMMARY OF THE MERGERS.................................................... 1
The Companies........................................................... 1
The Special Meetings.................................................... 2
THE CHEMDEX/PROMEDIX MERGER............................................... 3
Stockholder Vote Required............................................... 3
Dissenters' Rights...................................................... 3
Tax Treatment........................................................... 4
Interests of Officers and Directors in the Chemdex/Promedix Merger...... 4
Conditions of the Chemdex/Promedix Merger............................... 4
Termination of the Chemdex/Promedix Merger.............................. 5
No-Solicitation Provisions; Termination Fee and Expenses................ 5
Accounting Treatment.................................................... 5
Opinion of Chemdex's Financial Advisor.................................. 5
Indemnification and Escrow.............................................. 5
Sale of Pro Med Co., Inc................................................ 6
Certain Legal Matters................................................... 6
Listing of Chemdex Common Stock......................................... 6
THE CHEMDEX/SPECIALTYMD MERGER............................................ 6
Stockholder Vote Required............................................... 6
Dissenters' Rights...................................................... 7
Tax Treatment........................................................... 7
Interests of Officers and Directors in the Chemdex/SpecialtyMD Merger... 7
Conditions of the Chemdex/SpecialtyMD Merger............................ 7
Termination of the Chemdex/SpecialtyMD Merger........................... 8
No Solicitation Provisions; Termination Fee and Expenses................ 8
Accounting Treatment.................................................... 8
Indemnification and Escrow.............................................. 8
Listing of Chemdex Common Stock......................................... 9
Ownership of Chemdex Following the Chemdex/Promedix and
Chemdex/SpecialtyMD Mergers............................................ 9
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION AND COMPARATIVE PER
SHARE DATA............................................................... 10
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION..... 15
HISTORICAL AND PRO FORMA PER SHARE DATA................................... 17
RISK FACTORS.............................................................. 18
FORWARD-LOOKING INFORMATION............................................... 39
THE PROMEDIX SPECIAL MEETING.............................................. 40
General; Date, Time and Place........................................... 40
Matters to be Considered................................................ 40
Board of Directors' Recommendation...................................... 40
Record Date and Outstanding Shares...................................... 40
Solicitation of Proxies; Expenses....................................... 41
Recommendation of the Board of Directors of Promedix.................... 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE SPECIALTYMD SPECIAL MEETING........................................... 42
General; Date, Time and Place........................................... 42
Matters to be Considered................................................ 42
Board of Directors' Recommendation...................................... 42
Record Date and Outstanding Shares...................................... 42
Solicitation of Proxies; Expenses....................................... 43
Recommendation of the SpecialtyMD Board of Directors of SpecialtyMD..... 43
THE CHEMDEX SPECIAL MEETING............................................... 44
General; Date, Time and Place........................................... 44
Matters to be Considered................................................ 44
Board of Directors' Recommendation...................................... 44
Record Date and Outstanding Shares...................................... 44
Solicitation of Proxies; Expenses....................................... 45
Board of Directors' Recommendations..................................... 45
THE CHEMDEX/PROMEDIX MERGER............................................... 46
Background of the Chemdex/Promedix Merger............................... 46
Reasons of Promedix for the Merger; Recommendation of the Board of
Directors of Promedix.................................................. 47
Reasons of Chemdex for the Chemdex/Promedix Merger; Recommendation of
the Board of Directors of Chemdex...................................... 48
Opinion of Financial Advisor to Chemdex................................. 49
Interests of Certain Persons in the Chemdex/Promedix Merger............. 55
Indemnification and Escrow.............................................. 57
Voting Agreements....................................................... 57
Affiliate Agreements.................................................... 57
Certain Material U.S. Federal Income Tax Consequences................... 58
Accounting Treatment.................................................... 60
Certain Legal Matters................................................... 60
U.S. Federal Securities Law Consequences................................ 60
Dividends............................................................... 61
Stock Market Listing.................................................... 61
Dissenters' Rights...................................................... 61
OTHER TERMS OF THE CHEMDEX/PROMEDIX MERGER AGREEMENT...................... 64
Effective Time of the Merger............................................ 64
Conversion of Securities................................................ 64
Stock Options........................................................... 64
Warrants................................................................ 65
Exchange of Shares; No Fractional Shares................................ 65
Representations and Warranties.......................................... 66
Conduct of Business by Promedix......................................... 68
Conduct of Business by Chemdex.......................................... 69
Joint Conduct........................................................... 70
No Solicitation......................................................... 70
Certain Other Covenants................................................. 71
Public Announcements.................................................... 72
Conditions to the Chemdex/Promedix Merger............................... 72
Termination............................................................. 73
Expenses; Cancellation Fees............................................. 73
Amendment; Waiver....................................................... 74
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE CHEMDEX/SPECIALTYMD MERGER............................................ 75
Background of the Chemdex/SpecialtyMD Merger............................ 75
Reasons of SpecialtyMD for the Merger; Recommendation of the Board of
Directors of SpecialtyMD............................................... 75
Opinion of Financial Advisor to SpecialtyMD............................. 77
Reasons of Chemdex for the Merger; Recommendation of the Board of
Directors of Chemdex................................................... 77
Interests of Certain Persons in the Chemdex/SpecialtyMD Merger.......... 78
Indemnification and Escrow.............................................. 79
Voting Agreements....................................................... 80
Certain Material U.S. Federal Income Tax Consequences................... 80
Accounting Treatment.................................................... 82
Certain Legal Matters................................................... 82
U.S. Federal Securities Law Consequences................................ 82
Dividends............................................................... 83
Stock Market Listing.................................................... 83
Dissenter's Rights...................................................... 83
OTHER TERMS OF THE CHEMDEX/SPECIALTYMD MERGER AGREEMENT................... 86
Effective Time of the Chemdex/SpecialtyMD Merger........................ 86
Conversion of Securities................................................ 86
Stock Options........................................................... 86
Warrants................................................................ 87
Exchange of Shares; No Fractional Shares................................ 87
Representations and Warranties.......................................... 88
Conduct of Business by SpecialtyMD...................................... 89
Conduct of Business by Chemdex.......................................... 91
Joint Conduct........................................................... 92
No Solicitation......................................................... 92
Certain Other Covenants................................................. 92
Chemdex/Promedix Merger................................................. 93
Public Announcements.................................................... 93
Conditions to the Chemdex/SpecialtyMD Merger............................ 94
Termination............................................................. 94
Expenses; Cancellation Fees............................................. 95
Amendment; Waiver....................................................... 95
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY......................... 96
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 97
INFORMATION ABOUT PROMEDIX................................................ 110
Promedix's Business..................................................... 110
Promedix.Com, Inc. Selected Financial Information....................... 114
Promedix.Com, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 115
Promedix Management..................................................... 120
Promedix Related Party Transactions..................................... 120
Principal Stockholders of Promedix...................................... 122
INFORMATION ABOUT SPECIALTYMD............................................. 123
SpecialtyMD's Business.................................................. 123
SpecialtyMD's Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 126
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SpecialtyMD Management.................................................. 130
Principal Stockholders of SpecialtyMD................................... 131
INFORMATION ABOUT CHEMDEX................................................. 133
Chemdex's Business...................................................... 133
Chemdex Selected Financial Information.................................. 150
Chemdex Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 151
Chemdex Management...................................................... 162
Chemdex Related Party Transactions...................................... 169
Principal Stockholders of Chemdex....................................... 172
Description of Chemdex Capital Stock.................................... 175
COMPARISON OF RIGHTS OF CHEMDEX STOCKHOLDERS AND PROMEDIX STOCKHOLDERS.... 176
COMPARISON OF RIGHTS OF CHEMDEX STOCKHOLDERS AND SPECIALTYMD
STOCKHOLDERS............................................................. 178
EXPERTS................................................................... 180
CHANGE IN INDEPENDENT ACCOUNTANTS......................................... 180
LEGAL MATTERS............................................................. 180
OTHER MATTERS............................................................. 181
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY CHEMDEX
STOCKHOLDERS............................................................. 182
Chemdex Proposal No. 3--Approval of Amendment to the 1999 Employee Stock
Purchase Plan.......................................................... 182
Description of the 1999 Employee Stock Purchase Plan.................... 182
Certain United States Federal Tax Information........................... 183
Recommendation of the Chemdex Board of Directors........................ 183
Chemdex Proposal No. 4--Approval of Amendment to the 1998 Stock Plan.... 184
Description of the 1998 Stock Option Plan............................... 184
Certain United States Federal Tax Information........................... 185
Recommendation of the Chemdex Board of Directors........................ 186
ADDITIONAL MATTER BEING SUBMITTED TO A VOTE OF ONLY SPECIALTYMD
STOCKHOLDERS............................................................. 187
Approval of Parachute Payments.......................................... 187
WHERE YOU CAN FIND MORE INFORMATION....................................... 190
INDEX TO FINANCIAL STATEMENTS............................................. F-1
ANNEX A--AGREEMENT AND PLAN OF MERGER FOR PROMEDIX DATED AS OF SEPTEMBER
21, 1999 AS AMENDED BY THE FIRST AMENDMENT DATED AS OF DECEMBER 21,
1999..................................................................... A-1
ANNEX B--ESCROW AGREEMENT FOR PROMEDIX.................................... B-1
ANNEX C--OPINION OF FINANCIAL ADVISOR TO CHEMDEX.......................... C-1
ANNEX D--AGREEMENT AND PLAN OF MERGER FOR SPECIALTYMD DATED AS OF DECEMBER
10, 1999................................................................. D-1
ANNEX E--DELAWARE DISSENTERS' RIGHTS PROVISIONS........................... E-1
ANNEX F--ESCROW AGREEMENT FOR SPECIALTYMD................................. F-1
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE CHEMDEX/PROMEDIX MERGER
Q. WHY ARE CHEMDEX AND PROMEDIX PROPOSING THE CHEMDEX/PROMEDIX MERGER?
A.Promedix's online business-to-business e-commerce services for specialty
healthcare products are complementary to Chemdex's online business-to-business
e-commerce services for life sciences products. With the greater financial and
technology resources available to Chemdex, the Chemdex/Promedix merger should
provide a means to enhance and accelerate significantly the development and
distribution of Promedix's products and services. The merger will also give
Promedix stockholders the opportunity to participate in a substantially larger
and more diversified publicly traded company.
Q. WHAT WILL PROMEDIX STOCKHOLDERS RECEIVE IN THE CHEMDEX/PROMEDIX MERGER?
A.Promedix stockholders will receive a fraction of a Chemdex common share for
each share of Promedix capital stock. This fraction is referred to as the
"exchange ratio." The exchange ratio is designed so that Promedix stockholders
and option holders will collectively own approximately 24% of Chemdex's
outstanding capital stock following the merger. Cash will be paid instead of
the distribution of fractional shares.
Q. WHAT IS THE PROMEDIX EXCHANGE RATIO?
A.The exchange ratio will equal 12,057,366, the maximum number of shares of
Chemdex common stock to be issued to the Promedix stockholders in the merger,
divided by the total number of shares of Promedix capital stock outstanding
plus shares of Promedix capital stock issuable upon exercise of Promedix
options outstanding as of the date of the merger. Based on the share
calculations set forth in the September 30, 1999 Unaudited Pro Forma Combined
Condensed Financial Statements, each outstanding share of Promedix capital
stock would be exchanged for approximately 1.2795 shares of Chemdex common
stock. See Note 1 to Unaudited Pro Forma Combined Condensed Financial
Statements, on page 103.
Q. DOES THE BOARD OF DIRECTORS OF PROMEDIX RECOMMEND VOTING IN FAVOR OF THE
CHEMDEX/PROMEDIX MERGER?
A.Yes. After careful consideration, the Promedix board of directors recommends
that its stockholders vote in favor of the merger agreement and the
Chemdex/Promedix merger.
Stockholders of Promedix holding the requisite majority of each class of
Promedix capital stock have agreed to vote all of their shares in favor of the
adoption of the merger agreement and approval of the merger. Consequently,
adoption of the merger agreement and approval of the merger by the Promedix
stockholders is assured.
Q. DOES THE BOARD OF DIRECTORS OF CHEMDEX RECOMMEND VOTING IN FAVOR OF THE
ISSUANCE OF SHARES OF CHEMDEX COMMON STOCK IN THE CHEMDEX/PROMEDIX MERGER?
A.Yes. After careful consideration, the Chemdex board of directors recommends
that its stockholders vote in favor of the issuance of the shares of Chemdex
common stock to the stockholders of Promedix in the Chemdex/Promedix merger.
Q. WHY IS PROMEDIX SELLING ITS SUBSIDIARY, PRO MED CO., INC.?
A.Pro Med Co., Inc., a wholly-owned subsidiary of Promedix, Inc., is in the
business of marketing and distributing medical equipment and supplies through
its warehouse. Chemdex provides e-commerce solutions to the life sciences
market. Together with Promedix, Chemdex intends to extend its pure Internet-
based purchasing solution to the specialty medical products market, but does
not plan to operate a distribution or fulfillment business.
v
<PAGE>
Q. WHAT SHOULD I DO NOW?
A.You should cast your vote on the Chemdex/Promedix merger by completing,
signing and dating your proxy card. The completed proxy card should be returned
in the enclosed self-addressed postage paid envelope. You can also attend your
company's special meeting and vote in person.
Promedix stockholders should not send in stock certificates now. After the
Chemdex/Promedix merger is completed, Promedix stockholders will be sent
written instructions for exchanging their share certificates.
Q. WHEN SHOULD I SEND IN MY PROXY CARD? CAN I CHANGE MY VOTE?
A.You should send in your proxy card as soon as possible so that your shares
will be voted at the special meeting. You can change your vote at any time
prior to your company's special meeting by submitting a later dated signed
proxy card. You can also change your vote by attending your company's special
meeting and voting in person.
Q. WHEN WILL THE CHEMDEX/PROMEDIX MERGER TAKE EFFECT?
A.The Chemdex/Promedix merger is expected to take effect on the date Promedix
stockholders approve and adopt the merger agreement and Chemdex stockholders
approve the issuance of common stock in the Chemdex/Promedix merger at special
meetings of each company's stockholders.
Q. WILL THE PROMEDIX STOCKHOLDERS RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE
MERGER?
A.Promedix stockholders will not recognize gain or loss for U.S. federal income
tax purposes if the Chemdex/Promedix merger is completed, except Promedix
stockholders will recognize gain with respect to cash received instead of
fractional shares or received after the exercise of appraisal rights. However,
all stockholders are urged to consult their own tax advisor to determine their
particular tax consequences.
Q. WHEN WILL I RECEIVE SHARES OF CHEMDEX COMMON STOCK IN THE CHEMDEX/PROMEDIX
MERGER?
A.If the Chemdex/Promedix merger is completed, Chemdex will issue up to a
maximum of 12,057,366 shares of Chemdex common stock to Promedix stockholders
who have returned their Promedix stock certificates together with a completed
letter of transmittal supplied by Chemdex or Chemdex's exchange agent, Boston
EquiServe LP. Ten percent (10%) of such shares will be held in escrow for one
year after consummation of the merger as security of Promedix's indemnification
obligations. Promedix made statements or promises about itself, called
representations and warranties, in the merger documents. If these statements or
promises turn out to be incorrect, Chemdex may have a claim against former
Promedix stockholders which would be satisfied solely out of the escrowed 10%
portion of the shares.
Q. ARE THE PROMEDIX STOCKHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A.Chemdex stockholders will not be entitled to dissenters' rights in connection
with the merger. Promedix stockholders who do not wish to accept the Chemdex
common stock to be issued in the merger have dissenters' rights, the right to
have the "fair value" of their shares determined by the Delaware Chancery
Court. However, holders of Promedix preferred stock may not be entitled to
dissenters' rights. These dissenters' rights are subject to a number of
restrictions and technical requirements. Generally, in order to exercise
dissenters' rights:
. Promedix stockholders must not vote in favor of the merger; and
. Promedix stockholders must make a written demand for appraisal before the
vote on the merger.
vi
<PAGE>
Merely voting against the merger will not protect Promedix stockholders'
right of appraisal. Annex E contains the text of the Delaware appraisal
statute. Please note that Chemdex has the right to abandon the transaction if
the holders of 5% or more of Promedix stock exercise their dissenters' rights.
See "The Chemdex/Promedix Merger--Dissenters' Rights" on page 3.
Q. WHAT SHOULD I DO IF I HAVE QUESTIONS?
A.If you are a Chemdex stockholder, you should call Corporate Investor
Communications, Inc. at (877) 842-2410. If you are a Promedix stockholder, you
should call Steve Johnson at (800) 453-1264.
vii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE CHEMDEX/SPECIALTYMD MERGER
Q. WHY ARE CHEMDEX AND SPECIALTYMD PROPOSING THE MERGER?
A. SpecialtyMD's proprietary software enables delivery of comprehensive,
unbiased information about medical products and procedures, providing easy to
use search and content for the purchaser of complex technical products. This
technology should be a valuable complement to Chemdex's scalable e-commerce
platform and procurement application, and has enormous potential to deliver
added value to markets beyond healthcare. The Chemdex/SpecialtyMD merger should
also enable SpecialtyMD to expand their offering to a broad range of users who
can access and benefit from enhanced product information. The merger will also
give SpecialtyMD stockholders the opportunity to participate in a substantially
larger and more diversified publicly traded company.
Q. WHAT WILL SPECIALTYMD STOCKHOLDERS RECEIVE IN THE CHEMDEX/SPECIALTYMD
MERGER?
A. SpecialtyMD stockholders will receive a fraction of a Chemdex common share
for each share of SpecialtyMD capital stock. This fraction is referred to as
the "exchange ratio." The exchange ratio is designed so that SpecialtyMD
stockholders, warrant holders and option holders will collectively own
approximately 2% of Chemdex's outstanding capital stock following the merger.
Cash will be paid instead of the distribution of fractional shares.
Q. WHAT IS THE SPECIALTYMD EXCHANGE RATIO?
A. The exchange ratio will equal 1,250,000, the number of shares of Chemdex
common stock being issued to the SpecialtyMD stockholders in the merger,
divided by the total number of shares of outstanding SpecialtyMD capital stock
plus shares of SpecialtyMD capital stock issuable upon exercise of outstanding
SpecialtyMD options and warrants as of the closing of the merger. Based on
12,277,355 shares of common stock issued and outstanding as of December 10,
1999, on an as converted basis and including all issued options and warrants,
each outstanding share of SpecialtyMD capital stock would be exchanged for
approximately 0.1018 shares of Chemdex common stock.
Q. DOES THE BOARD OF DIRECTORS OF SPECIALTYMD RECOMMEND VOTING IN FAVOR OF THE
CHEMDEX/SPECIALTYMD MERGER?
A. Yes. After careful consideration, the SpecialtyMD board of directors
recommends that its stockholders vote in favor of the merger agreement and the
proposed merger.
Stockholders of SpecialtyMD holding the requisite majority of the
outstanding common stock and preferred stock on an as converted basis have
agreed to vote all of their shares in favor of the adoption of the merger
agreement and approval of the merger. Consequently, adoption of the merger
agreement and approval of the merger by the SpecialtyMD stockholders is
assured.
Q. DOES THE BOARD OF DIRECTORS OF CHEMDEX RECOMMEND VOTING IN FAVOR OF THE
CHEMDEX/SPECIALTYMD MERGER?
A. Yes. After careful consideration, the Chemdex board of directors recommends
that its stockholders vote in favor of the issuance of the shares of Chemdex
common stock to the stockholders of SpecialtyMD.
Q. WHAT SHOULD I DO NOW?
A. You should cast your vote on the Chemdex/SpecialtyMD merger by completing,
signing and dating your proxy card. The completed proxy card should be returned
in the enclosed self-addressed postage paid envelope.
viii
<PAGE>
You can also attend your company's special meeting and vote in person.
SpecialtyMD stockholders should not send in stock certificates now. After
the Chemdex/SpecialtyMD merger is completed, SpecialtyMD stockholders will be
sent written instructions for exchanging their share certificates.
Q. WHEN SHOULD I SEND IN MY PROXY CARD? CAN I CHANGE MY VOTE?
A. You should send in your proxy card as soon as possible so that your shares
will be voted at the special meeting. You can change your vote at any time
prior to your company's special meeting by submitting a later dated signed
proxy card. You can also change your vote by attending your company's special
meeting and voting in person.
Q. WHEN WILL THE CHEMDEX/SPECIALTYMD MERGER TAKE EFFECT?
A. The Chemdex/SpecialtyMD merger is expected to take effect on the date
Chemdex and SpecialtyMD stockholders each approve and adopt the merger
agreement at special meetings of each company's stockholders.
Q. WILL THE SPECIALTYMD STOCKHOLDERS RECOGNIZE AN INCOME TAX GAIN OR LOSS ON
THE MERGER?
A. SpecialtyMD stockholders will not recognize gain or loss for U.S. federal
income tax purposes if the merger is completed, except SpecialtyMD stockholders
will recognize gain with respect to cash received instead of fractional shares
or received after the exercise of appraisal rights. However, all stockholders
are urged to consult their own tax advisor to determine their particular tax
consequences.
Q. WHEN WILL I RECEIVE SHARES OF CHEMDEX COMMON STOCK IN THE MERGER?
A. If the merger is completed, Chemdex will issue 1,250,000 shares of Chemdex
common stock to SpecialtyMD stockholders who have returned their SpecialtyMD
stock certificates together with a completed letter of transmittal supplied by
Chemdex or Chemdex's exchange agent, Boston EquiServe LP. Ninety percent (90%)
of such shares will be held in escrow until July 1, 2000, so that the
SpecialtyMD stockholders will not be able to begin trading their Chemdex shares
before that date. The remaining ten percent (10%) of such shares will be held
in escrow until the earlier of one year after consummation of the merger or
March 31, 2001, as security for SpecialtyMD's indemnification obligations.
SpecialtyMD made statements or promises about itself, called representations
and warranties, in the merger documents. If these statements or promises turn
out to be incorrect, Chemdex may have a claim against SpecialtyMD which would
be satisfied solely out of the escrowed 10% portion of the shares.
Q. ARE THE SPECIALTYMD STOCKHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL
RIGHTS?
A. Chemdex stockholders will not be entitled to dissenters' rights in
connection with the merger. SpecialtyMD stockholders who do not wish to accept
the Chemdex common stock to be issued in the merger have dissenters' rights,
the right to have the "fair value" of their shares determined by the Delaware
Chancery Court. However, holders of SpecialtyMD preferred stock may not be
entitled to dissenters' rights. These dissenters' rights are subject to a
number of restrictions and technical requirements. Generally, in order to
exercise dissenters' rights:
. SpecialtyMD stockholders must not vote in favor of the merger; and
. SpecialtyMD stockholders must make a written demand for appraisal before
the vote on the merger.
ix
<PAGE>
Merely voting against the merger will not protect SpecialtyMD stockholders'
right of appraisal. Annex E contains the text of the Delaware dissenters
statute. Please note that Chemdex has the right to abandon the transaction if
the holders of 5% or more of SpecialtyMD stock exercise their dissenters'
rights. See "Dissenters' Rights" on page 6.
Q. WHAT SHOULD I DO IF I HAVE QUESTIONS?
A. If you are a Chemdex stockholder, you should call Corporate Investor
Communications, Inc. at (877) 842-2410. If you are a SpecialtyMD stockholder,
you should call Joe Meresman at (650) 213-4100.
x
<PAGE>
SUMMARY OF THE MERGERS
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the Chemdex/Promedix and the Chemdex/ SpecialtyMD mergers and for a more
complete description of the legal terms of the mergers, you should read
carefully this entire document and the documents to which you have been
referred. See "Where You Can Find More Information" on page 190.
The Companies
Chemdex Corporation
1500 Plymouth Street
Mountain View, California 94043
(650) 567-8900
Chemdex is a leading provider of business-to-business e-commerce solutions
to the life sciences industry. Chemdex enables life sciences enterprises, such
as biotechnology and pharmaceutical companies and academic and research
institutions, researchers and suppliers to efficiently buy and sell research
products through the Chemdex Marketplace. The Chemdex Marketplace is a database
of laboratory research products that may be sold and purchased through a
secure, Internet-based purchasing solution. The Chemdex Marketplace utilizes an
advanced search engine and software to allow users to easily identify, locate
and purchase life sciences research products, such as chemicals and equipment
used in laboratory experiments. Chemdex was incorporated in Delaware in
September 1997.
As used herein the term "Chemdex" refers to Chemdex Corporation and its
subsidiaries, unless the context otherwise requires. For additional information
regarding the business of Chemdex, please see "Where to Find More Information"
on page 190 and "Information about Chemdex" beginning on page 133, and
Chemdex's Form S-1, Form 10-Qs, Form 8-K and other filings of Chemdex with the
SEC.
Promedix.com, Inc.
488 East Winchester Avenue, Suite 200
Salt Lake City, UT 84107
(800) 453-1264
Based in Salt Lake City, Utah, Promedix is a leading provider of business-
to-business e-commerce solutions to the specialty healthcare products industry.
Promedix enables healthcare enterprises, such as hospitals and surgery centers
to efficiently buy and sell specialty healthcare products online. Promedix
maintains a database of specialty healthcare products that may be sold and
purchased through a secure, Internet-based purchasing solution. Promedix was
incorporated in Utah in December 1996.
On November 9, 1999, Promedix agreed to sell all of the outstanding shares
of capital stock of Pro Med Co., Inc., a Utah corporation and a wholly-owned
subsidiary of Promedix, for $3,500,000. The sale will be completed prior to the
closing of the merger. Pro Med Co. is in the business of marketing and
distributing medical equipment and supplies and is referred to herein as the
"fulfillment business." As a result of such sale, Promedix will no longer own
or operate the fulfillment business.
For additional information regarding the business of Promedix, please see
"Information about Promedix" beginning on page 110.
1
<PAGE>
SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
(650) 213-4100
Based in Palo Alto, California, SpecialtyMD provides business-to-business e-
commerce solutions to the specialty healthcare products industry. SpecialtyMD
enables physicians and healthcare enterprises, such as hospitals and surgery
centers, to efficiently exchange timely clinical information regarding medical
devices, procedures and techniques online through a portfolio of specialty-
specific web sites. SpecialtyMD provides content from the latest clinical
conferences, outcome studies, normalized product information and clinical trial
information along with vendor sponsored online symposia, user groups and
training. SpecialtyMD was incorporated in Delaware in May 1998.
For additional information regarding the business of SpecialtyMD, please see
"Information about SpecialtyMD" beginning on page 123.
The Special Meetings
Time, Place and Date. A special meeting of stockholders of Chemdex will be
held at Chemdex's executive offices at 1500 Plymouth Street, Mountain View,
California, on February 10, 2000 at 10:00 a.m., Pacific Standard time. A
special meeting of stockholders of Promedix will be held at Promedix's
executive offices at 448 East Winchester Avenue, Suite 200, Salt Lake City,
Utah, on February 10, 2000 at 10:00 a.m., Mountain Standard time. A special
meeting of stockholders of SpecialtyMD will be held at SpecialtyMD's executive
offices at 1510 Page Mill Road, Palo Alto, California on February 10, 2000 at
10:00 a.m., Pacific Standard Time.
Purpose of the Special Meetings. At the Chemdex special meeting, holders of
Chemdex common stock will be asked to consider and vote upon the following
proposals to approve: (1) the issuance of up to a maximum of 12,057,366 shares
of Chemdex common stock in connection with the merger of Promedix and a wholly-
owned subsidiary of Chemdex described below; (2) the issuance of 1,250,000
shares of Chemdex common stock in connection with the merger of SpecialtyMD and
a wholly-owned subsidiary described below; (3) an increase in the number of
shares available under the 1999 Employee Stock Purchase Plan by 300,000 shares
to a total of 1,050,000 shares; and (4) an increase in the number of shares
available under the 1998 Stock Plan by 4,250,000 shares to a total of
10,375,000 shares. At the Promedix special meeting, holders of Promedix capital
stock will be asked to consider and vote upon a proposal to approve the
Chemdex/Promedix merger agreement, as amended. At the SpecialtyMD special
meeting, SpecialtyMD stockholders will be asked to consider and vote upon a
proposal to approve the Chemdex/SpecialtyMD merger agreement as well as a
proposal to approve the accelerated vesting of directors' stock and certain
potential and actual benefits to the two SpecialtyMD officers.
Record Dates. Holders of Chemdex common stock are entitled to one vote per
share. Only holders of Chemdex common stock at the close of business on the
record date, January 4, 2000, are entitled to notice of and to vote at the
Chemdex special meeting. Holders of Promedix capital stock are entitled to one
vote per share. Only holders of Promedix capital stock at the close of business
on the record date, January 4, 2000 are entitled to notice of and to vote at
the Promedix special meeting. Holders of SpecialtyMD capital stock are entitled
to one vote per share. Only holders of SpecialtyMD at the close of business on
the record date, January 4, 2000 are entitled to notice of and to vote at the
SpecialtyMD special meeting.
Voting; Proxies. Chemdex stockholders can vote shares by attending the
Chemdex special meeting and voting in person or by signing and mailing the
enclosed proxy card with their votes. Chemdex stockholders can revoke their
proxy at any time before the vote is taken. Promedix stockholders can vote
shares by attending the
2
<PAGE>
Promedix special meeting and voting in person or by signing and mailing the
enclosed proxy card with their votes. Promedix stockholders can revoke their
proxy at any time before the vote is taken. SpecialtyMD stockholders can vote
shares by attending the SpecialtyMD special meeting and voting in person or by
signing and mailing the enclosed proxy card with their votes. SpecialtyMD
stockholders can revoke their proxy at any time before the vote is taken.
I. The Chemdex/Promedix Merger (Page 46)
If the Chemdex/Promedix merger is completed, a wholly-owned subsidiary of
Chemdex formed for the purpose of the merger will merge with Promedix, Promedix
will continue as the surviving entity and will become a wholly-owned subsidiary
of Chemdex, and Chemdex will issue up to a maximum of 12,057,366 shares of its
common stock in exchange for all of the Promedix capital stock outstanding and
all Promedix capital stock issuable upon exercise of Promedix options
outstanding on the date of the merger.
Upon completion of the merger, the former holders of Promedix capital stock
and options convertible into Promedix capital stock will own approximately 24%
of the fully diluted securities of Chemdex. The exact number of shares of
Chemdex common stock that will be exchanged for Promedix securities will not be
known at the time you vote on the merger because the exchange ratio depends on
the number of fully diluted shares of Promedix capital stock outstanding
immediately prior to the merger. Based on the number of fully diluted shares of
capital stock outstanding as of September 30, 1999, Chemdex would issue
approximately 1.2795 shares of its common stock for each share of Promedix
common stock outstanding.
Stockholder Vote Required (Page 40)
To approve the Chemdex stock issuance in connection with the
Chemdex/Promedix merger, the holders of a majority of the outstanding shares of
Chemdex common stock represented at the special meeting, in person or by proxy,
must vote for the common stock issuance. To approve the increase in the number
of shares of Chemdex common stock available for issuance under the Chemdex 1999
Employee Stock Purchase Plan, the holders of a majority of the outstanding
shares of Chemdex common stock represented at the special meeting, in person or
by proxy, must vote for the increase. To approve the increase in the number of
shares of Chemdex common stock available for issuance under the Chemdex 1998
Stock Plan, the holders of a majority of the outstanding shares of Chemdex
common stock represented at the special meeting, in person or by proxy, must
vote for the increase.
The holders of a majority of the outstanding shares of Promedix preferred
stock and the holders of a majority of all the outstanding shares (preferred
stock and common stock combined) of Promedix stock must vote for the approval
and adoption of the merger agreement to approve the merger.
Stockholders of Promedix holding in the aggregate approximately 70.7% of the
Promedix common stock and 99.2% of the Promedix preferred stock have agreed to
vote all of their shares in favor of the adoption of the merger agreement and
approval of the merger. Consequently, adoption of the merger agreement and
approval of the merger by the Promedix stockholders is assured.
Dissenters' Rights (Page 61)
Under Delaware law, any Promedix stockholder who does not wish to accept the
consideration provided for in the merger agreement is entitled to exercise
dissenters' rights. Such rights entitle the stockholder to require Promedix to
purchase the dissenting shares for cash at their fair market value, excluding
any element of value arising from the accomplishment or expectation of the
merger.
3
<PAGE>
Annex E contains the pertinent provisions of Delaware law addressing
dissenters' rights. Any Promedix stockholder intending to exercise statutory
dissenter's rights is urged to review Annex E carefully and to consult with
legal counsel so as to assure strict compliance with its provisions.
A vote in favor of the merger agreement and the merger will constitute a
waiver of your dissenters' right. For further information regarding dissenters'
rights, see "The Chemdex/Promedix Merger--Dissenters' Rights."
Tax Treatment (Page 58)
It is anticipated that the merger will constitute a "reorganization" for
federal income tax purposes and, accordingly, that no gain or loss will be
recognized by Promedix stockholders (except with respect to cash received by
dissenting stockholders or in lieu of fractional shares), Chemdex stockholders,
Chemdex or Promedix as a result of the merger. Consummation of the merger is
conditioned upon the delivery of opinions of counsel to this effect. See "The
Chemdex/Promedix Merger--Certain Material U.S. Federal Income Tax Consequences"
and "Other Terms Of The Chemdex/Promedix Merger Agreement--Conditions To The
Chemdex/Promedix Merger."
Interests of Officers and Directors in the Chemdex/Promedix Merger (Page 55)
In considering the recommendation of the Promedix board of directors in
favor of the Chemdex/Promedix merger, stockholders should be aware that members
of the Promedix board and Promedix management will receive benefits as a result
of the merger that will be in addition to or different from benefits received
by Promedix stockholders generally. See "The Chemdex/Promedix Merger--Interests
of Certain Persons in the Chemdex/Promedix Merger."
Conditions of the Chemdex/Promedix Merger (Page 72)
The consummation of the Chemdex/Promedix merger depends upon satisfaction of
a number of conditions, including:
. approval and adoption of the merger agreement by the Promedix
stockholders and approval of the issuance of shares by Chemdex;
. receipt of all necessary government authorizations and consents;
. the absence of legal restraints to the consummation of the merger;
. approval for quotation by the Nasdaq Stock Market of the shares to be
issued in the merger;
. effectiveness of the registration statement filed in connection with the
shares to be issued in the merger;
. receipt of opinions regarding the tax-free nature of the merger in
respect of the Chemdex common shares received;
. expiration of the waiting period applicable to the merger under the Hart-
Scott-Rodino Antitrust Improvements Act;
. execution and delivery of certain ancillary agreements, including an
escrow agreement;
. receipt of legal opinions;
. resignation of the Promedix directors and appointment of William C.
Klintworth, Jr. to the Chemdex board of directors;
. sale of Promedix's Pro Med Co. subsidiary; and
. conversion or repayment of all of Promedix's convertible debt.
4
<PAGE>
Termination of the Chemdex/Promedix Merger (Page 73)
Either Promedix or Chemdex may call off the merger if:
. both parties consent in writing;
. a court or government agency prohibits the merger;
. the other company breaches in a material way its representations,
warranties, covenants or agreements and that breach is not remedied
within 10 business days or cannot be remedied;
. the merger does not close before March 31, 2000 because the other
company's stockholders do not approve the merger, or due to a failure of
any of the conditions listed above applicable to both parties or to the
other company's failure to satisfy its closing obligations; or
. the other party's board of directors recommends an alternative
transaction meeting certain criteria specified in the merger agreement.
For further details, see "Other Terms of The Chemdex/Promedix Merger
Agreement--Termination."
No-Solicitation Provisions; Termination Fee and Expenses (Pages 70 and 73)
Promedix and Chemdex each agreed that it will not solicit or encourage the
initiation of any inquiries or proposals regarding any alternative acquisition
transactions with third parties. Each company may respond to unsolicited
transaction proposals if required by the fiduciary duties of its board of
directors. Each company must promptly notify the other if it receives proposals
for any alternative acquisition transactions. If the merger is terminated under
specified circumstances, generally involving an alternative acquisition
transaction, Chemdex or Promedix may be required to pay the other a
cancellation fee of $10 million.
See "Other Terms of The Chemdex/Promedix Merger Agreement--Expenses;
Cancellation Fees" for a discussion of the circumstances in which the
cancellation fee is payable. The cancellation fee and the no-solicitation
provisions may have the effect of discouraging persons who might be interested
in entering into an acquisition transaction with Promedix or Chemdex from
proposing an alternative acquisition transaction.
Accounting Treatment (Page 59)
The merger will be accounted for as a purchase by Chemdex in accordance with
United States generally accepted accounting principles.
Opinion of Chemdex's Financial Advisor (Page 49)
In determining that the merger is fair to and in the best interests of
Chemdex and its stockholders, the Chemdex board considered an opinion from its
financial advisor, Morgan Stanley & Co. Incorporated, that, as of the date of
such opinion, the consideration issued by Chemdex pursuant to the merger
agreement is fair from a financial point of view to Chemdex. See "The
Chemdex/Promedix Merger--Opinion of Financial Advisor to Chemdex." The full
text of the written opinion of Morgan Stanley is attached as Annex C. YOU
SHOULD READ THIS OPINION.
Indemnification and Escrow (Page 56)
If the merger agreement is approved and the merger occurs, all holders of
Promedix capital stock will be deemed to have agreed personally to indemnify
Chemdex against losses in excess of $150,000 due to the breach of any of
Promedix's representations, warranties or agreements in the merger agreement
that occurs or becomes known to Chemdex within one year of the closing. This
obligation to indemnify Chemdex is limited
5
<PAGE>
to no more than 10% of the total number of shares of Chemdex common stock
issued in the merger. An escrow arrangement will be established at closing to
hold these shares of Chemdex common stock. The escrow agreement is attached as
Annex B to this proxy statement and prospectus. The escrow and indemnification
obligations will end one year after closing. At that time, if Chemdex has not
made a claim for the escrowed shares, the escrowed shares will be released to
the former Promedix stockholders. See "The Chemdex/Promedix Merger--
Indemnification and Escrow."
Sale of Pro Med Co., Inc. (Page 113)
On November 9, 1999, Promedix agreed to sell all of the outstanding shares
of capital stock of Pro Med Co., Inc., a Utah corporation and wholly-owned
subsidiary of Promedix, to an unrelated third party for $3,500,000. One or more
of Promedix's stockholders, including William C. Klintworth, Promedix's Chief
Executive Officer may own a minority interest in such third party. The sale
will be completed prior to the closing of the merger.
Certain Legal Matters (Page 60)
U.S. antitrust laws may prohibit Chemdex and Promedix from completing the
merger until each has furnished information to the Antitrust Division of the
U.S. Department of Justice and Federal Trade Commission and a required waiting
period has ended. See "The Chemdex/Promedix Merger--Certain Legal Matters."
Listing of Chemdex Common Stock (Page 61)
The shares of Chemdex common stock issued in connection with the
Chemdex/Promedix merger will be quoted on the Nasdaq National Market.
II. The Chemdex/SpecialtyMD Merger (Page 75)
If the Chemdex/SpecialtyMD merger is completed, a wholly-owned subsidiary of
Chemdex formed for the purpose of the merger will merge with SpecialtyMD,
SpecialtyMD will continue as the surviving entity and will become a wholly-
owned subsidiary of Chemdex, and Chemdex will issue 1,250,000 shares of its
common stock in exchange for all of the SpecialtyMD capital stock outstanding,
and issuable upon exercise of all SpecialtyMD options and warrants outstanding,
on the closing date of the merger. Upon completion of the merger, the former
holders of SpecialtyMD capital stock and securities convertible into
SpecialtyMD capital stock will own approximately 2% of the fully diluted
securities of the combined company.
Stockholder Vote Required (Page 42)
To approve the Chemdex stock issuance in connection with the
Chemdex/SpecialtyMD merger, the holders of a majority of the outstanding shares
of Chemdex common stock represented at the special meeting, in person or by
proxy, must vote for the common stock issuance.
The holders of a majority of the outstanding shares of SpecialtyMD common
stock and preferred stock on an as-converted basis must both vote for the
approval and adoption of the merger agreement to approve the merger.
SpecialtyMD stockholders holding in aggregate over two-thirds of the
outstanding SpecialtyMD common stock and preferred stock on an as-converted
basis have signed voting agreements requiring them to vote all of their shares
in favor of the adoption of the merger agreement. Consequently, adoption of the
merger agreement and approval of the merger by SpecialtyMD is assured.
6
<PAGE>
Dissenters' Rights (Page 83)
Under Delaware law, any SpecialtyMD stockholder who does not wish to accept
the consideration provided for in the merger agreement is entitled to exercise
dissenters' rights. Such rights entitle the stockholder to require SpecialtyMD
to purchase the dissenting shares for cash at their fair market value,
excluding any element of value arising from the accomplishment or expectation
of the merger.
Annex E contains the pertinent provisions of Delaware law addressing
dissenters' rights. Any SpecialtyMD stockholder intending to exercise statutory
dissenter's rights is urged to review Annex E carefully and to consult with
legal counsel so as to assure strict compliance with its provisions.
A vote in favor of the Chemdex/SpecialtyMD merger agreement and the merger
will constitute a waiver of your dissenters' right. For further information
regarding dissenters' rights, see "The Chemdex/SpecialtyMD Merger--Dissenters'
Rights."
Tax Treatment (Page 80)
It is anticipated that the merger will constitute a "reorganization" for
federal income tax purposes and, accordingly, that no gain or loss will be
recognized by SpecialtyMD stockholders (except with respect to cash received by
dissenting stockholders or cash received in lieu of fractional shares), Chemdex
stockholders, Chemdex or SpecialtyMD as a result of the merger. Consummation of
the merger is conditioned upon the delivery of opinion of counsel to
SpecialtyMD to this effect. See "The Chemdex/SpecialtyMD Merger--Certain
Material U.S. Federal Income Tax Consequences" and "Other Terms Of The
Chemdex/SpecialtyMD Merger Agreement--Conditions To The Chemdex/SpecialtyMD
Merger."
Interests of Officers and Directors in the Chemdex/SpecialtyMD Merger (Page 78)
In considering the recommendation of the SpecialtyMD board of directors in
favor of the Chemdex/SpecialtyMD merger, stockholders should be aware that
members of the SpecialtyMD board and SpecialtyMD management will receive
benefits as a result of the merger that will be in addition to or different
from benefits received by SpecialtyMD stockholders generally. See "The
Chemdex/SpecialtyMD Merger--Interests of Certain Persons in the
Chemdex/SpecialtyMD Merger."
Conditions of the Chemdex/SpecialtyMD Merger (Page 94)
The consummation of the Chemdex/SpecialtyMD merger depends upon satisfaction
of a number of conditions, including:
. approval and adoption of the merger agreement by the Chemdex and
SpecialtyMD stockholders;
. receipt of all necessary government authorizations and consents;
. the absence of legal restraints to the consummation of the merger;
. approval for quotation by the Nasdaq Stock Market of the shares to be
issued in the merger;
. effectiveness of the registration statement filed in connection with the
shares to be issued in the merger;
. receipt of opinion from SpecialtyMD's counsel regarding the tax-free
nature of the merger in respect of the Chemdex common shares received;
. execution and delivery of certain ancillary agreements, including escrow
agreements; and
. receipt of legal opinions.
7
<PAGE>
Termination of the Chemdex/SpecialtyMD Merger (Page 94)
Either SpecialtyMD or Chemdex may call off the merger if:
. both parties consent in writing;
. a court or government agency prohibits the merger;
. the other company breaches in a material way its representations,
warranties, covenants or agreements and that breach is not remedied
within 10 business days or cannot be remedied;
. the merger does not close before March 31, 2000 because the other
company's stockholders do not approve the merger, or due to a failure of
any of the conditions listed above applicable to both parties or to the
other company's failure to satisfy its closing obligations; or
. the other party's board of directors recommends an alternative
transaction meeting certain criteria specified in the merger agreement.
For further details, see "Other Terms of The Chemdex/SpecialtyMD Merger
Agreement--Termination."
No-Solicitation Provisions; Termination Fee and Expenses (Pages 92 and 95)
SpecialtyMD and Chemdex each agreed that it will not solicit or encourage
the initiation of any inquiries or proposals regarding any alternative
acquisition transactions with third parties. Each company may respond to
unsolicited transaction proposals if required by the fiduciary duties of its
board of directors. Each company must promptly notify the other if it receives
proposals for any alternative acquisition transactions. If the merger is
terminated under specified circumstances, generally involving an alternative
acquisition transaction or breach, Chemdex or SpecialtyMD may be required to
pay the other a cancellation fee of $1,500,000.
See "Other Terms of The Chemdex/SpecialtyMD Merger Agreement--Expenses;
Cancellation Fees" for a discussion of the circumstances in which the
cancellation fee is payable. The cancellation fee and the no-solicitation
provisions may have the effect of discouraging persons who might be interested
in entering into an acquisition transaction with SpecialtyMD from proposing an
alternative acquisition transaction.
Accounting Treatment (Page 82)
The Chemdex/SpecialtyMD merger will be accounted for as a purchase by
Chemdex in accordance with United States generally accepted accounting
principles.
Indemnification and Escrow (Page 79)
If the Chemdex/SpecialtyMD merger agreement is approved and the merger
occurs, all holders of SpecialtyMD capital stock who have not perfected
dissenter's rights under Delaware law, by their receipt of Chemdex common
stock in the merger, will be deemed to have agreed personally to indemnify
Chemdex, the surviving corporation of the merger and its affiliates against
losses due to the breach of any of SpecialtyMD's representations, warranties
or agreements in the merger agreement that occurs or becomes known to Chemdex
within one year of the closing. This obligation to indemnify Chemdex is
limited to no more than 10% of the total number of shares of Chemdex common
stock issued in the merger. An escrow arrangement will be established at
closing to hold these shares of Chemdex common stock. The form of escrow
agreement is attached as Annex F to this proxy statement. The escrow and
indemnification obligations will end the earlier of one year after closing or
March 31, 2001. At that time, if Chemdex has not made a claim for the escrowed
shares, the escrowed shares will be released to the former SpecialtyMD
stockholders. See "The Chemdex/SpecialtyMD Merger Indemnification and Escrow."
8
<PAGE>
Listing of Chemdex Common Stock (Page 83)
The shares of Chemdex common stock issued in connection with the
Chemdex/SpecialtyMD merger will be quoted on the Nasdaq National Market.
Ownership of Chemdex Following the Chemdex/Promedix and Chemdex/SpecialtyMD
Mergers
Upon completion of the Chemdex/Promedix and Chemdex/SpecialtyMD mergers,
existing Chemdex stockholders, warrant holders and option holders will own
approximately 74%, and former holders of Promedix capital stock and options
will own approximately 24%, and former SpecialtyMD stockholders and option
holders will own approximately 2%, of the fully diluted securities of Chemdex.
9
<PAGE>
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION
AND COMPARATIVE PER SHARE DATA
The tables on the following three pages present selected historical
condensed financial information and comparative per share data for Chemdex
Corporation, Promedix.com, Inc., Pro Med Co., Inc. (a subsidiary of Promedix
which was independent of Promedix prior to 1999 and is being sold by Promedix
prior to the Chemdex/Promedix merger) and SpecialtyMD.com Corporation. This
information has been derived from their respective financial statements and
notes, which are included in this proxy statement and prospectus.
The financial information of Chemdex, Promedix and SpecialtyMD, except for
the interim financial information dated September 30, 1999 and 1998, has been
derived from audited financial statements. The financial information of Pro Med
Co. has been derived from audited financial statements.
All unaudited financial information presented has been derived from
unaudited financial statements, and in the opinion of Chemdex's, Promedix's and
SpecialtyMD's management reflects all normal recurring adjustments necessary
for a fair presentation.
10
<PAGE>
CHEMDEX CORPORATION SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended
September 4, 1997 September 30,
(Inception) Year Ended (unaudited)
through December December 31, ----------------
31, 1997 1998 1998 1999
----------------- ------------ ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statements of Operations
Data:
Net revenues................. $ -- $ 29 $ 4 $11,561
Operating loss............... (403) (8,796) (4,298) (34,790)
Net loss..................... (403) (8,488) (4,090) (33,313)
Basic and diluted net loss
per share................... $(0.24) $(4.79) $ (2.37) $ (3.33)
Weighted average common
shares--basic and diluted... 1,704 1,772 1,724 10,007
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------- 1999
1997 1998 (unaudited)
------ ------ -------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $1,346 $5,990 $125,563
Working capital................................... 1,116 4,490 117,913
Total assets...................................... 1,728 8,168 154,795
Long-term debt and capital lease obligations, net
of current portion............................... 6 -- 590
Total liabilities................................. 280 1,820 15,582
Total stockholders' equity........................ 1,448 6,348 139,213
</TABLE>
11
<PAGE>
PROMEDIX.COM, INC. SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, (unaudited)
-------------- ---------------
1997 1998 1998 1999
------ ------ ------ -------
(In thousands, except per
share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues.................................. $ 197 $ 14 $ 14 $ 7,876
Operating loss................................ (135) (60) (54) (6,636)
Loss before extraordinary item................ (141) (60) (54) (6,801)
Extraordinary item............................ -- 86 86 --
Net Income (loss)............................. (141) 26 32 (6,801)
Basic net income (loss) per share:
Loss before extraordinary item.............. $(0.10) $(0.02) $(0.02) $ (1.94)
Extraordinary item.......................... $ -- $ 0.03 $ 0.03 $ --
Net income (loss)........................... $(0.10) $ 0.01 $ 0.01 $ (1.94)
Weighted average common shares.............. 1,380 2,696 2,448 3,502
Diluted net income (loss) per share
Loss before extraordinary items............. $(0.10) $(0.01) $(0.02) $ (1.94)
Extraordinary item.......................... $ -- $ 0.01 $ 0.03 $ --
Net income (loss)........................... $(0.10) $ -- $ 0.01 $ (1.94)
Weighted average common shares.............. 1,380 6,693 2,448 3,502
</TABLE>
<TABLE>
<CAPTION>
December
31, September 30,
------------ 1999
1997 1998 (unaudited)
---- ------ -------------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $127 $3,002 $ 987
Working capital...................................... (24) 3,001 (670)
Total assets......................................... 20 3,035 9,158
Preferred Stock--Series A............................ -- 3,002 3,738
Total liabilities and preferred stock................ 41 3,033 9,158
Total stockholders' equity (deficit)................. (21) 2 (628)
</TABLE>
12
<PAGE>
PRO MED CO., INC. SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues.......................... $12,062 $14,778 $15,153 $18,019 $19,355
Operating income...................... 517 741 784 685 857
Net income............................ 304 544 442 335 469
Basic and diluted net loss per share.. $ 3.04 $ 10.51 $ 8.54 $ 6.47 $ 9.07
Weighted average common shares--basic
and diluted.......................... 100 52 52 52 52
Balance Sheet Data:
Cash and cash equivalents............. $ 548 $ 34 $ -- $ -- $ --
Working capital....................... 1,457 1,128 1,419 1,271 1,578
Total assets.......................... 3,166 3,436 4,528 5,028 5,166
Long-term debt and capital lease
obligations, net of current portion.. 208 689 1,203 789 771
Total liabilities..................... 1,600 2,597 3,247 3,413 3,285
Total stockholders' equity............ 1,566 839 1,281 1,615 1,881
</TABLE>
Information for the Nine Months Ended September 30, 1999 is not included
because Promedix acquired Pro Med Co., Inc. in 1999.
13
<PAGE>
SPECIALTYMD.COM CORPORATION SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period From
Period From Inception
Inception May 27, 1998 Nine Months
(May 27, 1998) through Ended
through September 30, September 30,
December 31, 1998 1999
1998 (unaudited) (unaudited)
-------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Statements of Operations Data:
Net revenues....................... $ -- $ -- $ --
Operating loss..................... (604) (208) (2,293)
Net loss........................... (595) (204) (2,362)
Basic and diluted net loss per
share............................. $(0.21) $(0.08) $ (0.72)
Weighted average common shares-
basic and diluted................. 2,830 2,506 3,279
</TABLE>
<TABLE>
<CAPTION>
September 30,
December 31, 1999
1998 (unaudited)
------------ -------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......................... $ 886 $ 1,391
Working capital.................................... 853 1,261
Total assets....................................... 936 1,737
Long-term debt and capital lease obligations, net
of current portion................................ -- --
Total liabilities.................................. 1,507 4,499
Total stockholders' equity......................... (571) (2,762)
</TABLE>
14
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following selected unaudited pro forma combined condensed financial
information for Chemdex is derived from the Unaudited Pro Forma Combined
Condensed Statements of Operations for the nine months ended September 30, 1999
and for the year ended December 31, 1998 and the Unaudited Pro Forma Combined
Condensed Balance Sheet as of September 30, 1999 included elsewhere in this
proxy statement and prospectus. These pro forma financial statements give
effect to Chemdex's acquisition of Promedix and SpecialtyMD through mergers and
exchanges of shares. The Promedix exchange ratio will be determined by dividing
12,057,366, the maximum number of shares of Chemdex common stock to be issued
as a result of this merger, by the sum of the number of shares of Promedix
capital stock outstanding and the number of shares of capital stock issuable
upon exercise of outstanding options and warrants to purchase Promedix capital
stock as of the date of the merger. The SpecialtyMD exchange ratio will be
determined by dividing the 1,250,000 shares, the number of shares of Chemdex
common stock to be issued as a result of this merger, by the sum of the number
of shares of SpecialtyMD capital stock outstanding and the number of shares of
capital stock issuable upon exercise of outstanding warrants and options to
purchase SpecialtyMD capital stock as of the date of the merger. In addition,
the pro forma financial statements give effect to (i) the sale by Promedix of
its subsidiary, Pro Med Co., (ii) the repayment and conversion of Promedix's
subordinated convertible notes, and charge related to the subordinated
convertible notes discount, (iii) the conversion of Promedix's redeemable
convertible preferred stock to common stock, (iv) the charge related to the
reduction and acceleration of options held by Pro Med Co. employees and two
officers, (v) the sale of Promedix Series C preferred stock subsequent to
September 30, 1999, and (vi) the conversion of SpecialtyMD's redeemable
convertible preferred stock to common stock.
The Unaudited Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1998 and for the nine months ended September 30, 1999
reflect these transactions as if they had taken place on January 1, 1998 and
January 1, 1999, respectively. The Unaudited Pro Forma Combined Condensed
Balance Sheet gives effect to these transactions as if they had taken place on
September 30, 1999.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Chemdex's historical results of operations for the year ended December 31, 1998
with Promedix's historical results of operations for the year ended December
31, 1998, and SpecialtyMD's historical results of operations for the year ended
December 31, 1998 plus the unaudited results of operations for the nine months
ended September 30, 1999 for each.
The Chemdex Pro Forma Financial Statements are based upon information set
forth in this proxy statement and prospectus and assumptions included in the
accompanying notes. After consummation of the mergers, Chemdex anticipates
completion of the valuations and other studies of the significant assets,
liabilities and business operations of Promedix and SpecialtyMD. Using this
information, Chemdex will make a final purchase price allocation between
tangible assets and liabilities, identifiable intangible assets and goodwill.
The impact of these changes, principally affecting intangible assets and
related amortization, could be material.
If the mergers with Promedix and SpecialtyMD are approved, the mergers will
be accounted for using the purchase method of accounting. Accordingly,
Chemdex's cost to acquire Promedix is calculated to be $315,776,410, assuming a
Chemdex common stock price of $26.125 per share, which is the average of the
closing price per share during the period beginning three days before and
ending three days after September 21, 1999, the day the merger was announced.
Chemdex's cost to acquire SpecialtyMD is calculated to be $104,120,425 assuming
a Chemdex common stock price of $93.48 per share, which is the average of the
closing price per share during the period beginning three days before and
ending three days after December 13, 1999, the day the merger was announced.
The costs to acquire Promedix and SpecialtyMD will be allocated to the assets
acquired and liabilities assumed according to their respective fair values,
with the excess purchase price being allocated to goodwill. As noted above, the
final allocation of the purchase price is dependent upon
15
<PAGE>
valuations and other studies that are not yet complete. Accordingly, the
purchase price allocation adjustments made in connection with the development
of the Chemdex Pro Forma Financial Statements are preliminary and have been
made solely for the purpose of developing the Chemdex Pro Forma Financial
Statements.
The $310,296,316 pro forma excess of purchase price over net tangible
Promedix assets acquired as of September 30, 1999 is being amortized over a
period of two to three years at a rate of $103,652,105 per year. Goodwill is
being amortized over a three-year life which Chemdex believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
As a result of Promedix's sale of Pro Med Co., Promedix expects to incur a
loss of $1,390,260 on the sale of Pro Med Co. and incur a charge of $3,201,686
related to the reduction and acceleration of options held by Pro Med Co.
employees and two officers. In addition, Promedix expects to incur a charge of
$2,699,163 for the discount on the subordinated convertible notes when these
notes are repaid and converted. These one-time charges will occur prior to the
consummation of the Chemdex/Promedix merger and will therefore be reflected on
Promedix's financial statements. The Balance Sheet of Promedix After Sale of
Pro Med Co. and Related Transactions included in the Unaudited Pro Forma
Combined Condensed Balance Sheet includes the effect of these charges. However,
the Unaudited Pro Forma Combined Condensed Statements of Operations do not
reflect these one-time charges.
The $102,681,295 pro forma excess of purchase price over net tangible
SpecialtyMD assets acquired as of September 30, 1999 is being amortized over a
period of two to three years at a rate of $34,393,765 per year. Goodwill is
being amortized over a three-year life which Chemdex believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
The Chemdex Pro Forma Financial Statements should be read in conjunction
with the related notes included in this document and the audited and unaudited
financial statements and notes of Chemdex, Promedix, Pro Med Co., and
SpecialtyMD included elsewhere in this document.
The Chemdex Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1998, January 1,
1999 or September 30, 1999, nor do they purport to indicate results of future
operations.
Selected Unaudited Pro Forma Combined
Condensed Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Statement of Operations Data
Revenues.............................. $ 43 $ 11,561
Total costs and expenses.............. 139,428 166,183
Operating loss........................ (139,385) (154,622)
Loss before extraordinary item........ (139,066) (156,010)
Net loss.............................. (138,980) (156,010)
Basic and Diluted net loss per share
before extraordinary item............ $ (25.20) $ (10.52)
Basic and Diluted net loss per share.. $ (25.18) $ (10.52)
Shares used in computing basic and
diluted net loss per share........... 5,518 14,832
Balance Sheet Data (at end of period)
Total Assets.......................... 576,411
Total Stockholders' Equity............ 557,509
Book value per share.................. $ 12.14
</TABLE>
16
<PAGE>
Historical and Pro Forma Per Share Data
The table below presents historical and pro forma per share financial
information for Chemdex, Promedix and SpecialtyMD. This information should be
read in conjunction with the audited financial statements and unaudited interim
financial statements and the notes thereto of Chemdex, Promedix and SpecialtyMD
which are included in this document. In addition, it is important that you read
the Unaudited Pro Forma Combined Condensed Financial Information included in
this document. However, pro forma information is not necessarily indicative of
what the actual financial results would have been had the Promedix and
SpecialtyMD mergers taken place on September 30, 1999, January 1, 1999 or
January 1, 1998, nor do they purport to indicate results of future operations.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
or as of or as of
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Historical--Chemdex
Basic and diluted net loss per share.... $ (4.79) $ (3.33)
Book value per share.................... $ 0.41 $ 4.25
<CAPTION>
Nine Months
Year Ended Ended
or as of or as of
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Historical--Promedix
Basic loss before extraordinary item per
share.................................. $ (0.02) $ (1.94)
Basic extraordinary item per share...... $ 0.03 $ 0.00
Basic net income (loss) per share....... $ 0.01 $ (1.94)
Diluted loss before extraordinary item
per share.............................. $ (0.01) $ (1.94)
Diluted extraordinary item per share.... $ 0.01 $ 0.00
Diluted income (loss) per share......... $ 0.00 $ (1.94)
Book value per share.................... $ 0.00 $ (0.18)
<CAPTION>
Period from
inception Nine months
(May 27, 1998) Ended
through or as of or as of
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Historical--SpecialtyMD
Basic and diluted net loss per share.... $ (0.13) $ (0.52)
Book value per share.................... $ (0.50) $ (0.85)
<CAPTION>
Nine Months
Year Ended Ended
or as of or as of
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Pro forma combined net loss per share
Pro forma combined net loss per Chemdex
share.................................. $ (25.18) $ (10.52)
Equivalent pro forma net loss per
Promedix share......................... $ (19.69) $ (8.22)
Equivalent pro forma net loss per
SpecialtyMD share...................... $(240.34) $(100.37)
Pro forma combined book value per share
Pro forma book value per Chemdex share.. $ 12.14
Equivalent pro forma book value per
Promedix share......................... $ 9.48
Equivalent pro forma book value per
SpecialtyMD share...................... $ 115.80
</TABLE>
17
<PAGE>
RISK FACTORS
The following risk factors should be considered by stockholders of Chemdex,
Promedix and SpecialtyMD in evaluating whether to approve the merger
agreements. The risks related to the combined company will be additional risks
faced by the Chemdex stockholders, the Promedix stockholders and the
SpecialtyMD stockholders following the mergers. The risks described which are
currently specific to Promedix or SpecialtyMD will be additional risks faced by
the Chemdex stockholders, and the risks currently specific to Chemdex will be
additional risks faced by the Promedix stockholders and SpecialtyMD
stockholders following the mergers. These factors should be considered in
conjunction with the other information included in this proxy statement and
prospectus.
Risks Related to the Mergers
There are uncertainties associated with the integration of Promedix and
SpecialtyMD
The mergers involve the integration of Promedix and SpecialtyMD into
Chemdex. Among the factors considered by the Chemdex board, Promedix board and
SpecialtyMD board in connection with their approval of the merger agreements
were the opportunities for operating efficiencies that they expect will
ultimately result from the mergers. The integration of Promedix's operations
and SpecialtyMD's operations into Chemdex following the merger will require the
dedication of management resources in order to achieve the anticipated
operating efficiencies of the merger. No assurance can be given that
difficulties encountered in integrating the operations of Promedix into Chemdex
will be overcome or that the benefits expected from such integration will be
realized. The difficulties of combining the Promedix operations and the
SpecialtyMD operations into Chemdex are exacerbated by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures. The
process of integrating operations could cause an interruption of, or loss of
momentum in, the activities of the combined company's business, including the
business acquired in the mergers. Difficulties encountered or additional costs
incurred in connection with the merger and the integration of the operations of
Promedix and SpecialtyMD could have an adverse effect on the business, results
of operations or financial condition of the combined company.
The issuance of Chemdex common stock in the mergers may result in dilution for
stockholders
Although the companies believe that beneficial synergies will result from
the mergers, there can be no assurance that the combining of the companies'
businesses, even if achieved in an efficient, effective and timely manner, will
result in combined results of operations and financial condition superior to
what would have been achieved by each company independently, or as to the
period of time required to achieve such result. The issuance of Chemdex common
stock in connection with the mergers may have the effect of increasing
Chemdex's net loss per share from levels otherwise expected and could reduce
the market price of the Chemdex common stock unless revenue growth or cost
savings and other business synergies sufficient to offset the effect of such
issuance can be achieved.
The Promedix stockholders will be relinquishing control over Promedix and the
SpecialtyMD stockholders will be relinquishing control over SpecialtyMD
As a result of the mergers, the stockholders of Promedix will effectively
relinquish direct control over the business of Promedix and the stockholders of
SpecialtyMD will effectively relinquish direct control over the business of
SpecialtyMD. Promedix and SpecialtyMD will become wholly-owned subsidiaries of
Chemdex, and thus, the continuing interest of the Promedix stockholders and
SpecialtyMD stockholders in the business and financial condition of Chemdex
will be an indirect interest, as stockholders of Chemdex. As Chemdex
stockholders, Promedix stockholders and SpecialtyMD stockholders will be
entitled to vote on all matters submitted to a vote by the Chemdex
stockholders, together with all other Chemdex stockholders. The Promedix
stockholders and SpecialtyMD stockholders will lose the separate right to vote
on any matter relating to the business of Promedix and SpecialtyMD after the
mergers.
18
<PAGE>
As a consequence of the mergers, Promedix stockholders and SpecialtyMD
stockholders will each lose the chance to invest in the development and
exploitation of Promedix's business and SpecialtyMD's business, respectively,
on a stand-alone basis. Additionally, the combined company will have different
management than Promedix's and SpecialtyMD's respective current management
teams and consequently the management of the combined company may make
strategic and operational decisions that differ from those of Promedix's and
SpecialtyMD's respective current management teams. It is possible that Promedix
and SpecialtyMD, if they remained independent, could each achieve economic
performance superior to that of the combined company. Consequently, there can
be no assurance that stockholders of Promedix and the stockholders of
SpecialtyMD would not achieve greater returns on investment if each were to
remain an independent company.
The combined company will need to manage its growth, and to a certain extent
the growth of the joint venture, and may also need to manage additional
integration challenges
Since inception, Chemdex has experienced expansion of its operations that
has placed significant demands on Chemdex's administrative, operational and
financial resources, which demands are expected to intensify as a result of the
mergers. To manage future growth, the combined company must improve its
financial and management controls, reporting systems and procedures on a timely
basis and expand, train and manage its work force. There can be no assurance
that the combined company will be able to perform such actions successfully.
The combined company intends to continue to invest in improving its financial
systems and controls in connection with higher levels of operations. In the
future, the combined company may make additional acquisitions of complementary
companies, products or technologies, and enter into additional joint ventures.
Managing acquired businesses and joint ventures entails numerous operational
and financial risks, including difficulties in assimilating acquired
operations, diversion of management's attention to other business concerns,
amortization of acquired intangible assets and potential loss of key employees
or customers of acquired operations. There can be no assurance that the
combined company will be able to effectively achieve growth, or manage any such
growth, and failure to do so could have a material adverse effect on the
combined company's operating results.
Chemdex, Promedix and SpecialtyMD have limited operating histories, which makes
it difficult for you to evaluate the combined business and prospects
Chemdex was founded in September 1997. Promedix was founded in December 1996
and for its first two years provided Web design and hosting services for
specialty medical manufacturing clients. Promedix's current strategy--providing
a Java-based product research and purchasing system--is being developed and has
yet to generate any revenue. SpecialtyMD was founded in May 1998. SpecialtyMD
was previously known as Healthcare Transaction Systems, Inc. and provided tools
and content for supply chain re-engineering of physician preference products.
SpecialtyMD terminated the re-engineering segment of its business in early 1999
to concentrate on aggregating comprehensive content by medical specialty.
SpecialtyMD's current strategy--providing an Internet-based website for
specialist physicians that contains comprehensive clinical content in each
specialty--is being developed and has yet to generate any significant revenue.
All three companies have limited operating histories. The combined company
will face risks and difficulties as an early stage company in new and rapidly
evolving markets. Some of these specific risks and difficulties include the
following:
. we may be unable to significantly increase and maintain physician and
customer adoption and use of our Internet-based product information and
purchasing solution;
. we depend substantially on a product information and purchasing solution
that has been present in the market for a limited time and may not be
successful;
. we may be unable to develop and enhance the Chemdex, Promedix and
SpecialtyMD brands;
19
<PAGE>
. we may be unable to maintain existing or establish new relationships with
suppliers of life sciences research products and specialty medical
products;
. we will depend substantially on revenues from product sales and we may be
unable to significantly increase revenues from product sales or generate
revenues from other sources;
. we may be unable to significantly increase revenues from product sales
or generate revenues from supplier sponsorship of clinical content,
supplier payment for placement of additional product support information
or from other sources;
. we will depend substantially on physicians and medical societies for
clinical content and we may be unable to significantly increase the
amount of clinical content on our web sites;
. we may be unable to adapt to rapidly changing technologies and developing
markets;
. we may be unable to effectively manage our rapidly expanding operations
and the increasing use of our services;
. we may be unable to attract, retain and motivate qualified personnel,
particularly people who understand specialized life sciences research
products, specialty healthcare products, the process of specialty product
selection, or the life sciences and healthcare industries in general;
. we may be unable to compete in a highly competitive market dominated by
larger, more established companies with substantial financial resources
and significant customer relationships; and
. we may be unable to comply with applicable laws and regulations to
economically compete in a highly competitive market.
In 1998, Chemdex generated revenues of $29,000, Promedix generated revenues
of $14,000 and SpecialtyMD generated no revenues. In the nine months ended
September 30, 1999 Chemdex generated revenues of $11.6 million and neither
Promedix (excluding Pro Med Co.) nor SpecialtyMD generated any revenues. Due to
the companies' limited operating histories, we believe that period-to-period
comparisons of the combined company's revenues and results of operation are not
meaningful. As a result, you should not rely on revenues or results of
operations for any prior period as an indication of future performance or
prospects.
Risks Related to the Combined Company
All three companies have a history of losses and anticipate continued losses
for the foreseeable future
All three companies have had substantial losses since inception. We
currently expect the combined company's losses to increase in the future and we
cannot assure you that the combined company will ever achieve or sustain
profitability. The extent of these losses in the future will be contingent, in
part, on the amount of growth in revenue. The extent of these losses in the
future will also be contingent, in part, on the amount of growth in operating
expenses, which the combined company plans to increase. As of September 30,
1999, Chemdex had an accumulated deficit of approximately $42.2 million,
Promedix had an accumulated deficit of approximately $6.9 million and
SpecialtyMD had an accumulated deficit of approximately $2.8 million. If
revenues fail to grow at anticipated rates or operating expenses increase
without a commensurate increase in revenues, or the combined company fails to
adjust operating expense levels accordingly, the imbalance between revenues and
operating expenses will negatively affect the combined company's business,
revenues, results of operations and financial condition. The combined company's
pro forma historical financial information is of limited value in projecting
future operating results because of the lack of an operating history as a
combined organization and the emerging nature of its markets.
To date, Chemdex has derived revenues primarily from product sales. Promedix
and SpecialtyMD have had minimal revenues. In order to increase the combined
company's revenues, we must, among other things:
. attract new enterprise customers and retain existing enterprise
customers;
. encourage users employed by our enterprise customers to adopt our
Internet-based purchasing solution and to use it frequently;
20
<PAGE>
. satisfy the need of the physicians to obtain the latest clinical
information that is easy to use and readily available;
. increase our product offering by adding and maintaining supplier and
content partner relationships; and
. develop new sources of revenues beyond our existing revenue sources.
If we are unable to accomplish one or more of these objectives, our revenues
may not grow as we anticipate, if at all, and our business, revenues, financial
condition and results of operations will be negatively affected. We may not be
able to build on our current sources of revenues by adding additional products
or services. Even if we do add additional products or services, there are
economic, legal, regulatory and other risks associated with adding these new
revenue sources. For example, we may post advertisements on our web site to
generate advertising revenue. However, our supplier relationships may be harmed
if our suppliers associate advertisements posted on our web site with a bias in
our offering of life sciences research products or specialty healthcare
products.
The combined company's business model is not proven and may not be successful
The combined company's business-to-business e-commerce model is based on the
development of the Chemdex Marketplace for the purchase and sale of life
sciences research products and the Promedix marketplace for specialty medical
products and the SpecialtyMD.com website for physician product information.
This business model is new and not proven and depends upon our ability to,
among other things:
. sell our purchasing solution to pharmaceutical and biotechnology
companies, hospitals and other healthcare providers, and academic and
research institutions;
. achieve high rates of adoption by users within life sciences and
healthcare enterprise customers and among associated physicians;
. maintain our current suppliers and enter into agreements with additional
suppliers;
. maintain our current content partners and enter into agreements with
additional content partners;
. generate significant revenues from the use of our Internet-based
purchasing solution and specialty website; and
. obtain higher website traffic and transaction volumes and increase
productivity.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. The success of
this business model will require, among other things, that we develop and
market solutions with broad market acceptance by our customers, suppliers,
users and strategic partners. We cannot be certain that business-to-business
commerce on the Internet generally, or our purchasing and product information
solution, services and brand in particular, will achieve broad market
acceptance. For example, purchasers may continue obtaining product information
and purchasing products through their existing methods and may not adopt an
Internet-based specialty products purchasing solution because of their comfort
with existing information gathering and purchasing habits and direct supplier
relationships, the costs and resources required to switch purchasing methods,
the need for products and product information not offered through the Chemdex
and Promedix marketplaces or the SpecialtyMD.com website, security and privacy
concerns, general reticence about technology or the Internet or the failure of
the market to develop the necessary infrastructure for Internet-based
communications, such as wide-spread Internet access, high-speed modems, high-
speed communication lines and computer availability.
Our gross margins are low and we will have to increase productivity in our
business to be profitable
Chemdex's gross margin for the nine months ended September 30, 1999 was
approximately 4.9% and Promedix (excluding Pro Med Co.) and SpecialtyMD have
had no gross margins to date. The combined company will be dependent on the
price discounts we receive from our suppliers, and thus we are vulnerable to
any decrease in these discount rates.
21
<PAGE>
Any decrease would have a significant negative impact on our financial results.
Our gross margins on sales of life sciences research products are small
relative to the margins earned by traditional distributors of life sciences
research products. If we do not increase these discounts, substantially
increase our revenues, and scale our business in a manner that generates
increased productivity, including further automation of our purchasing
solution, we may never achieve profitability. Distributors, in general, operate
with low margins. This is especially true in the life sciences research
products and specialty healthcare products markets.
In addition, due to our low gross margins, unexpected costs or expenses we
incur would substantially affect our ability to achieve or maintain operating
profits. For example, we generally bear the risks of the loss of products upon
shipment by our suppliers to our customers, of product returns and refunds to
our customers, and of non-collection of accounts receivable. Although we
maintain insurance for claims for damages to our customers or others caused by
our products we do not have insurance coverage for product returns or
uncollectable accounts receivable or have adequate insurance coverage for the
costs of products lost during shipment.
We are subject to government regulation that exposes us to potential liability
and negative publicity
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping
and licensing requirements applicable to our business during the entire
transaction. Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are held to need our own
licenses. For example, if we are held to be seller or a distributor of
regulated products because we did take legal title, we may have inadvertently
violated some governmental regulations by not having the appropriate license or
permit and may be subject to potentially severe civil or criminal penalties and
fines for each offense. We are aware that some of our prior sales may have been
made in the absence of our having the requisite local, state, or federal
license or permit. We may be subject to potentially severe civil and criminal
penalties and fines for each of these sales, which could have a material
adverse impact on our business, revenues, results of operations and financial
condition. In addition to these prior sales, we are unable to verify that our
suppliers have in the past complied, or will in the future comply, with the
applicable governmental regulatory requirements, or that their actions are
adequate or sufficient to satisfy all governmental or other legal requirements
that may be applicable to our sales. We could be fined or exposed to civil or
criminal liability, including monetary fines and injunctions, and we could
receive potential negative publicity, if the applicable governmental regulatory
requirements have not been, or are not being, fully met by our suppliers or by
us directly. Negative publicity, fines and liabilities could also occur if an
unqualified person, or even a qualified customer, lacks the appropriate license
or permits to sell, use or ship, or improperly receives a dangerous or
unlicensed product through the Chemdex or Promedix marketplace. We do not
maintain any reserve for potential liabilities resulting from government
regulation. It is also possible that a number of laws and regulations may be
adopted or interpreted in the United States and abroad with particular
applicability to the Internet.
We rely on a limited number of enterprise customers, and any loss of an
enterprise customer could have a negative effect on us
We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of enterprise customers. Further,
our enterprise customers are not obligated to use our purchasing solution
exclusively or for any minimum number of transactions or dollar amounts. We
currently do not offer all of the life science research products required by
our customers, and we expect that our customers will continue to use multiple
sources to meet their needs. In addition, our contracts with our customers are
for limited terms and our customers may discontinue use of our Chemdex or
Promedix marketplace at any time upon short notice and without penalty. If we
lose any of our enterprise customers, or if we are unable to add new enterprise
customers, our revenues will not increase as expected, we will lose access to
the users employed by these enterprises, we could lose a number of our product
suppliers, and our brand name and customer and supplier perceptions of our
purchasing solution would be harmed.
22
<PAGE>
We will be very dependent on our strategic relationship with VWR for the
foreseeable future
We recently entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products using
the Chemdex Marketplace. The agreement gives us the right to offer
approximately 350,000 VWR-distributed products to our customers through the
Chemdex Marketplace. VWR and Chemdex are also jointly developing an Internet
purchasing solution for VWR's existing and future customers that will provide
access to three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third- party products).
The extent to which our operations are integrated with VWR and the potential
financial impact on us of this strategic relationship makes us very dependent
on VWR for the foreseeable future. We may experience technical or logistical
difficulties in integrating VWR's suppliers, products and services with the
Chemdex Marketplace. If we are unable to do so in a timely manner, our
business, revenues, financial condition and results of operations could be
negatively affected. In addition, our agreement with VWR is nonexclusive except
as to the purchase of third-party products by VWR and some other provisions and
has a limited term. We cannot be certain that VWR will not enter into a similar
relationship with one of our competitors, or that VWR will renew our agreement
at the end of its term.
We receive no fee for orders for VWR core products through the Chemdex
Marketplace from VWR's 40 largest customers and we receive a minimal fee for
all other orders for VWR core products forwarded to VWR. Under the terms of the
agreement, VWR provides some support services for purchasing third-party
products in exchange for a fee which approximates VWR's costs incurred.
Since we receive minimal gross margins for sales of third-party products,
our gross profit margins on these sales are lower than our margins on sales of
Chemdex core products. To the extent sales of VWR core products or third-party
products increase relative to, or displace our sales of Chemdex core products,
our revenues and gross margins will likely decline, which would make it more
difficult for us to achieve profitability.
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us. For example, we plan to provide the greatest number and
variety of products from the greatest number of suppliers possible; however,
our strategic relationship with VWR may deter other suppliers, particularly
those that offer products that compete directly with VWR products, from
entering into agreements with us. In addition, as noted above, our agreement
with VWR is nonexclusive, and it is possible that VWR could enter into similar
relationships with one or more of our competitors, or develop its own
purchasing solution that would compete with ours.
The Chief Executive Officer of VWR is a member of our Board of Directors, which
may lead to conflicts of interest that could be detrimental to us
Paul Nowak, the Chief Executive Officer of VWR, is a member of our Board of
Directors. This may lead to conflicts of interest, as VWR is one of the
laboratory supply industry's largest distributors and is a potential competitor
of ours. In addition, VWR has entered into and may in the future enter into
relationships with our competitors, other suppliers or our customers. Although
we intend to have Mr. Nowak recuse himself from Board discussions that involve
potential conflicts of interest, we cannot be sure that this will minimize
these conflicts of interests or that Mr. Nowak's position as a member of our
Board of Directors will not operate to our detriment.
23
<PAGE>
The time it takes to sell and implement our solution is long, which could
negatively affect our revenue growth, if any, and make it difficult to predict
our revenues and results of operations
A key element of our strategy is to market our solution directly to life
sciences and specialty medical products organizations, hospitals and surgery
centers, and to succeed we must satisfy the enterprise purchasing departments,
the information technology groups and the individual users of our Internet-
based purchasing solution. The time it takes to sell and implement our solution
is long and we devote significant sales, marketing and management resources to
the sales process without any assurance that the customer will use the Chemdex
or Promedix marketplace or the SpecialtyMD.com website. We are generally
required to provide a significant level of education to our customers and
potential customers regarding the use and benefits of our Internet-based
purchasing solution. Furthermore, potential enterprise customers and a number
of their departments typically engage in extensive internal reviews and
analyses before making purchase decisions. The sale and implementation of our
solution are subject to delays due to our customers' internal budgeting and
procedures for approving capital expenditures and deploying new technologies
within their networks. These delays also could impair our ability to generate
revenue.
Even if enterprise customers adopt our purchasing solution, we may not increase
our revenues if users within these enterprises do not use the Chemdex and
Promedix marketplaces
The combined company's revenues will be primarily derived from purchases of
life sciences research products by researchers, research assistants and other
users within our enterprise customers and by purchases of specialty healthcare
products as directed by healthcare purchasing professionals. These persons may
or may not use the Chemdex and Promedix marketplaces to purchase their research
products and specialty healthcare products. Even if we successfully maintain
existing enterprise customers and add new enterprise customers, we may not be
able to increase revenues if users within our enterprise customers do not adopt
and use the Chemdex and Promedix marketplaces. Once an enterprise customer
adopts our Internet-based purchasing solution, it takes time for researchers
and other users within the enterprise to become aware of, learn to use and
begin using our Chemdex and Promedix marketplaces. The long sales cycle and the
time it takes for researchers and purchasing professionals to begin using our
Internet-based purchasing solution could negatively affect our revenue growth,
if any, and makes it difficult to predict our results of operations. Also, our
efforts to attract users to adopt and to increase their use of our solution may
not be successful, which would limit our ability to generate revenues from
these customers.
Reductions in the research and development budgets and government research
funding of our customers will negatively affect our revenues
The Chemdex purchasing solution is used by researchers and their assistants
and staff at pharmaceutical and biotechnology companies, and academic and
research institutions. Changes in the research and development budgets of these
companies and institutions and the timing of spending under these budgets can
have a significant effect on the demand for life sciences research products.
These budgets are based on a wide variety of factors including the resources
available to make these expenditures, the spending priorities among various
types of research, and the policies regarding these expenditures during
recessionary periods. Any decrease in life sciences research and development
expenditures by these companies and institutions could have a negative effect
on our revenues.
A significant portion of our sales are expected to be to research scientists
and entities whose funding is dependent on grants from government agencies such
as the U.S. National Institute of Health and similar domestic and international
agencies. The funding associated with approved NIH grants generally becomes
available at particular times of the year, as determined by the federal
government, and may result in fluctuations in our revenues and results of
operations. Although NIH research funding has increased during the past several
years, grants have, in the past, been frozen for extended periods or have
otherwise become unavailable to various institutions, sometimes without advance
notice. Furthermore, recent government proposals designed to reduce or
eliminate budgetary deficits have included reduced allocations to the NIH and
24
<PAGE>
other government agencies that fund research and development activities. If
government funding, especially NIH grants, were to become unavailable to
researchers for any extended period of time, or if overall research funding
were to decrease, there could be a negative effect on our business, revenues,
results of operations and financial condition.
If we cannot build a critical mass of suppliers and customers, we will not be
able to increase our product offering and draw more customers
Our business model depends in large part on our ability to build a critical
mass of products and suppliers. To attract and maintain suppliers, we must
build a critical mass of customers. However, customers must perceive value in
our purchasing solution which, in part, depends upon the breadth of our product
offerings from our suppliers. If we are unable to increase the number of
suppliers and draw more customers to the Chemdex and Promedix marketplaces, we
will not be able to benefit from any network effect, where the value to each
participant in the Chemdex and Promedix marketplaces increases with the
addition of each new participant. As a result, the overall value of the Chemdex
and Promedix marketplaces and our purchasing solutions would be harmed, which
would negatively affect our business, revenues, financial condition and results
of operations.
The ability of Promedix and SpecialtyMD to increase the number of suppliers
and products offered on the Promedix marketplace might be limited by several
factors, including: reluctance of suppliers to offer medical products and
product information in an online marketplace that potentially includes their
competitors; exclusive or preferential arrangements signed by suppliers with
our competitors; perceptions by suppliers that preferred treatment is given to
other suppliers; and consolidation among suppliers.
SpecialtyMD website traffic depends on our ability to obtain new content of
interest to physician specialists
The time it takes to develop comprehensive content in a given specialty
varies with:
. the ease with which leading physician advisors can be recruited;
. the willingness of conferences to provide video content;
. the availability of product information; and
. the technological sophistication of the physician specialists vis-a-vis
internet usage.
The content that SpecialtyMD hosts on its website is obtained through a
combination of exclusive and non-exclusive license agreements. Much of this
content is in the form of continuing medical education, which is required for
physicians to renew their licenses. SpecialtyMD is building the capability to
offer CME on its website. In addition, content must be refreshed frequently for
the website to retain the interest of physicians. SpecialtyMD's inexperience in
the hosting of CME and its lack of control over the source of professional
content may complicate its ability to differentiate its website from emerging
competitors.
The success of our business depends on maintaining and expanding our supplier
base
Our future success depends in large part upon our ability to offer and
deliver a broad and deep product offering to our customers. We rely on
independent suppliers and manufacturers for products offered through our
Chemdex and Promedix marketplaces. To increase the breadth of our product
offering, including related products that we do not currently offer such as
medical devices, laboratory equipment and supplies, we must establish
relationships with additional suppliers. Some potential suppliers may view us
as detrimental to their business, since suppliers compete with one another and
with us for sales and customers. Our agreements with suppliers are typically
for one-year terms and we cannot assure you that these agreements will be
renewed beyond the initial term. In addition, these suppliers are not required
to accept purchase orders from us. If we fail to secure products from our
suppliers or if a significant number of suppliers do not renew their agreements
25
<PAGE>
with us, the breadth and depth of products that we can offer users would be
decreased. In addition, there are significant costs, difficulties and risks
associated with adding new products in related markets, such as the difficulty
of signing up new suppliers, obtaining necessary permits, complying with
governmental regulation, pressures on margins, new competition and integration
of these new products into the Chemdex and Promedix marketplaces. These events
could result in decreased adoption and use of our purchasing solution and
decreased revenues, which could have a negative effect on our business, results
of operations and financial condition.
Our cost of revenues includes cost of goods payable to suppliers. We cannot
assure you that our suppliers will enter into or renew agreements with us on
the same or similar terms as those currently in effect or that the cost of
goods payable to our suppliers will remain the same. Less favorable terms will
make it difficult for us to achieve profitable operations. Any decreases in our
already low gross margins will have a significant negative effect on our
results of operations and financial condition.
Our supplier agreements are nonexclusive and many of our suppliers sell
their products directly to our customers. In addition, the growing reach and
use of the Internet has further intensified competition in this industry. Some
suppliers provide customers with direct access to products, and if suppliers,
including our current suppliers, provide products to enterprise customers and
their users at a cost lower than ours, our revenues, results of operations and
financial condition could be negatively affected.
If we cannot timely and accurately add supplier product data to our purchasing
solution database we may lose sales and customers, which would adversely affect
our revenues
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. This process
entails a number of risks, including dependence on our suppliers to provide us
in a timely manner with accurate, complete and current information about their
products, and to promptly update this information when it changes. We will not
derive revenue from these products until these data are loaded in our system.
Timely loading of these products in our database depends upon a number of
factors, including the file formats of the data provided to us by suppliers and
our ability to further automate and expand our operations to accurately load
these data in our product database, any of which could delay the actual loading
of these products beyond the dates estimated by us. Promedix and SpecialtyMD
may in the future use an independent company to input data provided by
suppliers. If this company fails to accurately input the data accurately,
Promedix's and SpecialtyMD's reputations might suffer and each could lose
customers.
In addition, we are generally obligated under our supplier agreements to
load updated product data onto our database for access through the Chemdex and
Promedix marketplaces within a specified period of time following their
delivery from the supplier. Our current supplier data backlog could make it
difficult for us to meet these data update obligations to our suppliers. While
we intend to further automate the loading and updating of supplier data on our
system, we cannot assure you that we will be able to do so in a timely manner,
in part because achieving the highest level of this automation is dependent
upon our suppliers' automating their delivery of product data to us. If our
suppliers do not provide us in a timely manner with accurate, complete and
current information about the products we offer, our database may be less
useful to our customers and users and may expose us to liability. Although we
screen our suppliers' information before we make it available to our customers
and users, we cannot guarantee that the product information available in our
Chemdex and Promedix marketplaces will always be accurate, complete and
current, or comply with governmental regulations. This could expose us to
liability or result in decreased adoption and use of our Internet-based
purchasing solution, which could reduce our revenues and therefore have a
negative effect on our results of operations and financial condition.
26
<PAGE>
If our suppliers do not provide timely and professional delivery of products to
our customers, our business will be harmed
We also rely on our suppliers and manufacturers to deliver products to our
customers in a professional, safe and timely manner. If our suppliers do not
deliver the products to our customers in a professional, safe and timely
manner, then our service will not meet customer expectations and our reputation
and brand will be damaged. In addition, deliveries that are nonconforming, late
or are not accompanied by information required by applicable law or
regulations, could expose us to liability or result in decreased adoption and
use of our Internet-based purchasing solution, which could have a negative
effect on our business, results of operations and financial condition. Further
we, and not our suppliers, typically bear the responsibility for product
refunds and returns and the risk of non-collectibility of accounts receivable
from our customers.
To attract customers and suppliers to our Chemdex and Promedix marketplaces, we
must not favor one supplier over another
The life sciences research products market and the specialty medical
products market consist of complex sets of relationships among manufacturers,
suppliers, distributors and customers. Adoption of our solution by suppliers
and customers is dependent on their perception that we provide a neutral,
unbiased marketplace to purchase and sell life sciences research and specialty
medical products. To the extent that we are perceived by our customers or
suppliers as favoring one supplier over another, customers and suppliers may
lose confidence in the Chemdex or Promedix marketplace as fair and neutral
marketplaces and choose alternative solutions. Our relationship with VWR,
including the fact that VWR is a stockholder and is represented on our Board of
Directors, may compromise the perception that we provide a neutral and unbiased
marketplace for life sciences research products. Any bias, whether perceived or
actual, could have a negative impact on our ability to maintain or increase our
supplier base, which in turn may limit our ability to maintain or increase our
customer base. This would reduce revenues and therefore have a negative impact
on our business, results of operations and financial condition.
Promedix and SpecialtyMD are currently in the process of developing
relationships with their manufacturers, content providers, suppliers,
distributors and customers. It is possible that customers or suppliers may
perceive favoritism toward a particular supplier or customer. For example,
privately negotiated terms between a particular supplier and customer may
result in private terms not available on the open market place.
We face intense competition that could limit our ability to expand our base of
customers and users
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. We face competition from four
main areas: other companies with e-commerce offerings, traditional suppliers
and distributors of life sciences research products, life sciences companies
that have developed their own purchasing solutions and enterprise software
companies that offer, or may develop, alternative purchasing solutions. We may
not be able to compete successfully against our current or future competitors
and competition could have a material adverse effect on our business, results
of operations and financial condition. Our competitors and potential
competitors may develop superior Internet purchasing solutions that achieve
greater market acceptance than our solution. In addition, substantially all of
our prospective customers have established long-standing relationships with
some of our competitors or potential competitors, including most of our
suppliers. Accordingly, we cannot be certain that we will be able to expand our
customer list and user base, or retain our current customers or suppliers.
The online market for specialty medical products, supplies and equipment is
new, rapidly evolving and intensely competitive. Our primary competition
includes e-commerce providers that are developing or have already established
online marketplaces. Many companies that have created websites to serve the
information needs of healthcare professionals are introducing e-commerce
functions that may compete with our services. In addition, providers of online
marketplaces and online auction services that currently focus on other
industries could expand the scope of their services to include specialty
medical products. Existing suppliers of specialty medical products may also
establish online marketplaces that offer services to suppliers and purchasers,
either
27
<PAGE>
on their own or by partnering with other companies. Moreover, live auction
houses focusing on specialty medical products may establish online auction
services.
Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:
. enter into strategic or commercial relationships with larger, more
established specialty medical products and Internet companies and content
providers;
. secure services and products from suppliers on more favorable terms;
. devote greater resources to marketing and promotional campaigns;
. secure exclusive or preferential arrangements with purchasers or
suppliers that limit sales through our marketplace; and
. devote substantially more resources to web site and systems development.
Many of our existing and potential competitors have longer operating
histories in the specialty medical products market, greater name recognition,
larger customer bases and greater financial, technical and marketing resources
than we do. As a result of these factors, our competitors and potential
competitors may be able to respond more quickly to market forces, undertake
more extensive marketing campaigns for their brands and services and make more
attractive offers to purchasers and suppliers, potential employees and
strategic partners. In addition, new technologies may increase competitive
pressures. We cannot be certain that we will be able to maintain or expand our
user base. We may not be able to compete successfully against current and
future competitors and competition could result in price reductions, reduced
sales, gross margins and operating margins and loss of market share.
Our solution and services are new and face rapid technological changes and if
we do not respond appropriately, we may lose customers
The market for our solution is characterized by rapid technological
advances, evolving standards in the Internet and software markets, changes in
customer requirements and frequent new product and service introductions and
enhancements. As a result, our future success depends upon our ability to
enhance our current Internet-based purchasing solution and services, to develop
and introduce new solutions and services that will achieve market acceptance,
and where necessary to integrate our Internet-based purchasing solution with
our customers' enterprise resource planning systems. If we do not adequately
respond to the need to develop and introduce new solutions or services, or to
integrate with our customers' enterprise resource planning systems, then our
business, revenues, results of operations and financial condition will be
negatively affected. For example, we may lose market share and ultimately
revenue as our customers switch to our competitors' offerings if:
. we are unable to develop technology that is a success in the marketplace;
. our technology does not integrate with our customers' and suppliers'
systems; and
. our technology is surpassed by the superior technology of a competitor.
Further, we may incur significant expense to integrate our purchasing
solution with our customers' enterprise resource planning systems and business
rules, and to maintain this integration as our customers' enterprise resource
planning systems evolve. Failure to provide this integration may delay or
altogether dissuade the market or a particular customer from adopting our
Internet-based purchasing solution, which could negatively affect our revenues
and therefore have a material adverse effect on our business, results of
operations and financial condition.
28
<PAGE>
We lack brand recognition and must devote significant resources toward
attracting users
Recognition and positive perception of our brand names in the life sciences
and specialty medical products industries are important to our success. We
intend to significantly expand our advertising and publicity efforts in the
near future. However, we may not achieve our desired goal of increasing the
awareness of our brand names. Even if recognition of our name increases, it may
not lead to an increase in the number of visitors to our online marketplace or
increase the number of users of our services.
It will take a long time for customers to become comfortable using the
Promedix Marketplace. A key element of Promedix's strategy is to market its
solution directly to healthcare organizations, and to succeed it must satisfy
the purchasing departments and the clinical groups who are the users of
Promedix's Internet-based purchasing solution. The time it takes to sell and
implement Promedix's solution is long and Promedix will devote significant
sales, marketing and management resources to the sales process without any
assurance that the customer will use the Specialty Medical Product Exchange.
Promedix will generally be required to provide a significant level of education
regarding the use and benefits or its Internet-based purchasing solution, due
in part to the significant departure from traditional means of commerce and
communications entailed by its adoption and use. The sale and implementation of
Promedix's solution are expected to be subject to delays due to Promedix's
customers' internal budgets and procedures for deploying new technologies
within their networks. These delays may impair Promedix's ability to generate
revenue and could negatively affect Promedix's results of operations. Once an
enterprise customer adopts Promedix's Internet-based purchasing solution, it
will take time for users within the enterprise to become aware of, learn to use
and begin using Promedix's Specialty Medical Product Exchange. The long sales
cycle and the time it takes to begin using Promedix's Internet-based purchasing
solution could negatively affect Promedix's revenue growth, and make it
difficult to predict Promedix's results of operations.
If we do not successfully develop and timely introduce new versions of our
purchasing and product information website solutions in the next several months
our business will be harmed
We are currently in the process of developing and integrating new technology
into our Internet-based purchasing and product information website solutions as
part of our planned release of several enhanced versions of the Chemdex
Marketplace and product information website over the next few months. These new
releases are planned to include significant enhancements to the user
interfaces, database management and search technology, and security controls,
and will allow us to offer VWR's products to our customers. The planned timing
of introduction of new releases of our purchasing and product information
website solutions is a forward-looking statement that is subject to risks and
uncertainties, and actual timing may differ materially from that set forth in
these forward-looking statements as a result of a number of factors. Enhancing
and introducing new technology into our purchasing and product information
website solutions involve numerous technical challenges and substantial
personnel resources, and often takes many months to complete. We cannot be
certain that we will be successful at enhancing or integrating this technology
into our Internet-based purchasing and product information website solutions on
a timely basis, or in accordance with our milestones or our product release
objectives. In addition, we cannot be certain that, once integrated, this
technology or our Internet-based purchasing and product information website
solutions will function as expected. If we are unable to enhance and integrate
this new technology into our purchasing and product information website
solutions on a timely basis, we may lose customers or experience difficulty
obtaining new customers, which could adversely affect our business, revenues,
financial condition and results of operations. Major enhancements and new
solutions and services often require long development and testing periods. In
addition, our Internet-based purchasing and product information website
solutions are complex and, despite vigorous testing and quality control
procedures, may contain undetected errors or "bugs" when first introduced or
updated. Any inability to timely deliver quality solutions and services could
have a negative effect on our business, revenues, financial condition and
results of operations.
29
<PAGE>
We may not be able to determine or design the features and functionality that
our enterprise customers and users require or prefer
Our success depends upon our ability to accurately determine the features
and functionality that our enterprise and research customers require or prefer
in an e-commerce solution, and our ability to successfully design and implement
purchasing solutions that include these features and functionality. If we are
unable to determine or design in the features and functionality that enterprise
and research customers require or prefer in an e-commerce solution, our
business will be negatively affected. We have designed the Chemdex and Promedix
marketplaces and the SpecialtyMD product information website based upon
internal development efforts and feedback from a relatively limited number of
enterprise and users. We cannot be certain, however, that the features and
functionality that we currently offer in the Chemdex and Promedix marketplaces,
and the SpecialtyMD product information website or those that we may offer in
future releases of our solution, will satisfy the requirements or preferences
of our current or potential enterprise and research customers.
We will need to manage our expanding business effectively in order to meet
customer and investor expectations
We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and is expected to continue to
place, a significant demand on our sales, marketing, managerial, operational,
financial and other resources. If we cannot manage our growth effectively, it
is likely that our revenues and results of operations will not meet customer
and investor expectations. As of September 30, 1999, we had grown to 175
employees. We expect to hire a significant number of new employees to support
our business.
Our current information systems, procedures and controls may not continue to
support our operations and may hinder our ability to exploit the market for
selling products to the life sciences and specialty medical products
industries. We are in the process of implementing a new enterprise resource
planning system that will replace our existing accounting and management
information systems and allow for future scalability and enhancements. In
addition, we anticipate requiring additional space to accommodate our growth in
the next six months. We could experience interruptions to our business when we
transition to the new enterprise resource planning system and when we relocate
to new facilities. Even after we implement our new system and relocate to new
facilities, our personnel, systems, procedures, controls and facilities may be
inadequate to support our future operations.
We depend on our key personnel to manage our business effectively in a rapidly
changing market
Our performance is substantially dependent on the performance of our
executive officers and other key employees. We do not have any employment
agreements with our executive officers and key employees, except for certain
agreements with former Promedix and SpecialtyMD executives, although some of
our executives and employees have severance arrangements. Our failure to
successfully manage our personnel requirements would have a negative effect on
our business, revenues, financial condition and results of operations. We have
experienced difficulty from time to time in hiring the personnel necessary to
support the growth of our business, and we may experience similar difficulty in
hiring and retaining personnel in the future. Seven of our eleven executive
officers have only been employed by us since January 1999 or later. Competition
for senior management, experienced sales and marketing personnel, software
developers, qualified engineers and other employees is intense, and we cannot
be certain that we will be successful in attracting and retaining our
personnel. The loss of the services of any of our executive officers or other
key employees could have a negative effect on our business. In particular, the
loss of services of David Perry, our President and Chief Executive Officer, and
Pierre Samec, our Chief Information Officer, would have a detrimental effect on
our business. Mr. Perry is one of the co-founders and is primarily responsible
for our vision and future direction, and Mr. Samec is responsible for all of
our technology systems and software. Promedix relies on the services of many
key employees, including William C. Klintworth, Thomas Sherry and Jamie Locke.
SpecialtyMD relies on the services of many key employees, including Ashfaq
Munshi, Joseph Meresman, Ralph Lemke and Robert Cathcart.
30
<PAGE>
The unpredictability of our quarterly results may negatively affect the trading
price of our common stock
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
. demand for and market acceptance of our Internet-based purchasing
solution and services;
. introduction of new and enhanced purchasing solutions and services by us
or our competitors;
. budgeting cycles of customers and users;
. loss of one or more of our key suppliers, content partners, customers or
strategic relationships;
. changes in our pricing policy or those of our competitors or suppliers;
. amount and timing of capital expenditures and other costs relating to the
expansion of our operations;
. timing and number of new hires;
. ability to comply with applicable laws and regulations or obtain
necessary permits and licenses to sell or ship products to customers;
. technical difficulties with our web site or Internet-based purchasing
solution;
. level of activity and funding in the life sciences and specialty medical
products industries; and
. general economic conditions.
We may from time to time make pricing, service or marketing decisions or
enter into strategic business combinations that could have a negative effect on
our business, revenues, financial condition or results of operations for any
number of quarterly periods. For example, we intend to significantly expand our
development and engineering expenses to improve our Internet-based purchasing
solution. In addition, in order to accelerate the promotion of the Chemdex
brand, we intend to increase our marketing budget significantly. These
increases in expenses may negatively affect our results of operations for a
number of quarterly periods and we cannot assure that these measures will
increase our revenues.
Due to our relatively short operating history, combined with the short
operating history of both Promedix and SpecialtyMD, we have limited meaningful
historical financial data upon which to base our planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues from new customers and are relatively fixed in the short term.
We cannot be certain that we will be able to accurately predict our revenues,
particularly in light of our limited operating history, the intense competition
in the life sciences and specialty medical products industries, and the
resulting uncertainty as to the success of our business model. If we fail to
accurately predict revenues in relation to fixed expense levels and we are
unable to adjust our operating expenses in a timely manner in response to
lower-than-expected revenues, our results of operations and financial condition
could be negatively affected.
Our business will suffer if the life sciences, specialty medical products, or
healthcare industries do not accept Internet solutions
Business-to-business e-commerce is a new and emerging business practice that
remains largely untested in the marketplace. Growth in the demand for our
Internet-based purchasing solution and services depends on the adoption of e-
commerce and Internet solutions by life sciences, specialty medical products or
healthcare industry participants, which requires the acceptance of a new way of
conducting business and purchasing supplies. Our business could suffer
dramatically if e-commerce and Internet solutions are not accepted or not
perceived to be effective.
31
<PAGE>
The Internet may not prove to be a viable commercial marketplace for the
life sciences and specialty medical products industries for a number of
reasons, including:
. inadequate development of the necessary infrastructure for Internet-based
communications within life sciences and specialty medical products
organizations;
. security and confidentiality concerns of customers and suppliers;
. lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
. implementation of competing purchasing solutions;
. lack of human contact that current, traditional suppliers provide; and
. governmental regulation.
The accelerated growth and increasing volume of Internet traffic may cause
performance problems that may slow adoption of our Internet-based purchasing
and product information solution
The growth of Internet traffic to very high volumes of use over a relatively
short period of time has caused frequent periods of decreased Internet
performance, delays and, in some cases, system outages. This decreased
performance is caused by limitations inherent in the technology infrastructure
supporting the Internet and the internal networks of Internet users. If
Internet usage continues to grow rapidly, the infrastructure of the Internet
and its users may be unable to support the demands of growing e-commerce usage,
and the Internet's performance and reliability may decline. If our existing or
potential enterprise and research customers experience frequent outages or
delays on the Internet, the adoption or use of our Internet-based, e-commerce
purchasing and product information solution may grow more slowly than we expect
or even decline. Our ability to increase the speed and reliability of our
Internet-based purchasing and product information solution is limited by and
depends upon the reliability of both the Internet and the internal networks of
our existing and potential customers. As a result, if improvements in the
infrastructure supporting both the Internet and the internal networks of our
enterprise customers and their users are not made in a timely fashion, we may
have difficulty obtaining new customers, or maintaining our existing customers,
either of which could reduce our potential revenues and have a negative impact
on our business, results of operations and financial condition.
Security and disruption problems with the Internet or transacting business over
the Internet may inhibit the growth of our Internet-based purchasing solution
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence in our Chemdex and
Promedix marketplaces and our SpecialtyMD.com product information website.
Customers generally are concerned with security and privacy on the Internet and
any publicized security problems could inhibit the growth of the Internet, and
therefore our purchasing and product information solution, as a means of
conducting transactions. Substantial security breaches on our system could
significantly harm our business. A party that is able to circumvent our
security systems could misappropriate proprietary information or cause
interruptions in our operations. We incur substantial expense to protect
against and remedy security breaches and their consequences. Despite the
implementation of security measures, our networks may be vulnerable to
unauthorized and illegal access, computer viruses and other disruptive
problems. Eliminating computer viruses and alleviating other security problems
may require interruptions, delays or cessation of service to users accessing
our solution.
Internet service providers and on-line service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may be required to expend significant capital or
other resources to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Although we intend to continue to
implement industry-standard security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
32
<PAGE>
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand may be damaged and we
may be exposed to a risk of loss or litigation and possible liability. Damage
to our reputation and brand could cause us to lose suppliers and customers and
negatively affect our business, results of operations and financial condition.
Our insurance policies may not be adequate to reimburse us for losses caused by
security breaches or service disruption.
System failure may cause interruption of our services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service, and attract and
retain customers, suppliers, users and strategic partners. Currently our
infrastructure and systems are located at one site at Exodus Communications in
Sunnyvale, California. We anticipate adding a mirror site at a different,
distant location. Until then, we depend on our single-site infrastructure and
any disruption to this infrastructure resulting from a natural disaster or
other event could result in an interruption in our service, fewer transactions
and, if sustained or repeated, could impair our reputation and the
attractiveness of our services.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures, break-
ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan or alternative provider
of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any
failure on our part to expand our system or Internet infrastructure to keep up
with the demands of our customers and users, or any system failure that causes
an interruption in service or a decrease in responsiveness of our Internet-
based purchasing solution or web site, could result in fewer transactions and,
if sustained or repeated, could impair our reputation and the attractiveness of
our brand name, which would adversely affect our business, revenues, financial
condition and results of operations.
We face year 2000 risks associated with our own systems and those of our
customers, suppliers and the Internet
Significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance problems. Any year 2000 compliance
problems faced by us, our customers, suppliers and strategic partners could
have a negative effect on our business, revenues, and results of operations and
financial condition. In addition, our ability to operate is dependent upon
delivery of accurate, electronic information via the Internet. To the extent
year 2000 issues result in the long-term inoperability of the Internet, the
Chemdex or Promedix marketplace, the SpecialtyMD.com product information
website, or the systems of our suppliers, our business, revenues, financial
condition and results of operations could be seriously harmed.
Although we believe that our internally developed applications and systems
are designed to be year 2000 compliant, we use third-party equipment and
software that may not be year 2000 compliant. In addition, until some of the
billing and cash collection functions for spot buying services are transitioned
to Chemdex, we are dependent upon VWR's systems for receiving payment for
products purchased using the spot buying services. Failure of our applications
and services, VWR's billing and collection system, or third-party equipment and
software that we use, to be year 2000 compliant could result in the Chemdex and
Promedix marketplaces not being used for purchasing products, the termination
of our customer agreements or in liability for damages, any of which could have
a material adverse effect on our business, results of operations and financial
condition. Many of our customers' systems with which the Chemdex and Promedix
marketplaces integrate may not yet be year 2000 compliant. In addition, our
suppliers' systems may not be year 2000 compliant. Any negative effects on our
customers' or suppliers' systems as a result of the year 2000 problem, or
unknown, non-compliance of our own systems, could have a negative effect on our
business, results of operations and financial condition and we do not have a
formal contingency plan to address year 2000 issues. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
33
<PAGE>
We may require additional capital for our operations
We currently anticipate that our existing borrowing arrangements and
available funds will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months. This is a
forward-looking statement that is subject to risks and uncertainties and actual
results may differ materially from those described in this forward-looking
statement. We may need to raise additional funds in the future in order to fund
rapid expansion, to pursue customer sales and implementation, to develop new or
enhanced solutions and services, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. The Tenet joint
venture, in particular, may require us to raise additional funds because we
will be responsible, at our own expense, for building and growing the
infrastructure that will be required to support the joint venture.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and these securities may have
powers, preferences and rights that are senior to those of the rights of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available or not
available on acceptable terms, we may be unable to fund our expansion, promote
our brand identity, take advantage of unanticipated acquisition opportunities,
develop or enhance services or respond to competitive pressures. Any inability
to do so could have a negative effect on our business, revenues, financial
condition and results of operations.
Future acquisitions could dilute our stockholders and could result in adverse
accounting consequences
The combined company intends to pay for some of its acquisitions by issuing
additional common stock and this would dilute its stockholders. The combined
company may also use cash to buy companies or technologies, and it may need to
incur debt to pay for these acquisitions. Acquisition financing may not be
available on favorable terms or at all. In addition, the combined company may
be required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would materially increase
its operating expenses.
Future sales of shares could affect the stock price
The market price of Chemdex common stock could fall dramatically if
stockholders sell large amounts of stock in the public market following the
mergers. These sales, or the possibility that these sales may occur, could make
the combined company's stockholders unable to realize the value of the merger
consideration received, as measured prior to completion of the mergers, and may
make it more difficult for Chemdex to sell equity or equity-related securities
in the future. Before the mergers, a significant portion of the common stock of
Chemdex was subject to restrictions on transfer under federal securities law
and "lock-up" agreements with the underwriters of our initial public offering,
and there was no public market for the capital stock of Promedix or
SpecialtyMD. After the mergers, approximately 35,761,926 of the approximately
44,154,583 outstanding shares of Chemdex will be eligible for immediate sale.
However, shares held by affiliates of Chemdex will be subject to limitations on
the volume of sales under federal securities laws. Some Chemdex stockholders
will also have the right to demand registration of their shares for resale.
Our planned international expansion may make it more difficult to manage our
business
We expect to enter the international market. To do so, we plan to establish
international operations, hire additional personnel and establish relationships
with additional suppliers and partners. This expansion will require significant
management attention and financial resources and could have a negative effect
on our business, revenues, financial condition and results of operations. We
cannot assure you that we will be able to create or sustain international
demand for our Internet-based purchasing solution and services. In addition,
our international business may be subject to a variety of risks, including
applicable government regulation, difficulties in collecting international
accounts receivable, longer payment cycles, increased costs associated with
maintaining international marketing efforts, the introduction of non-tariff
barriers and higher duty rates
34
<PAGE>
and difficulties in enforcement of contractual obligations and intellectual
property rights. We cannot assure you that these factors will not have a
negative effect on any future international sales and, consequently, on our
business, results of operations and financial condition.
We may be exposed to product liability claims
We face potential liability for claims based on the type and adequacy of the
information and data that we obtain from suppliers and make available, and the
nature of the products that we sell and distribute utilizing the Internet,
including claims for breach of warranty, product liability, misrepresentation,
violation of governmental regulations and other commercial claims. In
particular, we bear the risk of liability for product loss, spill, or release,
and resulting damages to persons and property during delivery by the supplier
to the customer and return by the customer to the supplier. We do not pass
through the manufacturers' warranties on the products we distribute. However,
we bear the risk of loss of revenue from the product sale if a purchaser does
not pay for a defective product. We also bear some risk if our suppliers have
not obtained appropriate approvals for products regulated by the U. S. Food &
Drug Administration, or do not comply with the requirements relating to those
approvals. The failure to obtain or comply with those approvals, or other
failures by these products themselves, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities, and negative
publicity. Although we maintain general liability insurance, our insurance may
not cover some claims, penalties, or spills, is subject to policy limits and
exclusions, and may not be adequate to fully indemnify us or our employees for
any civil, governmental or criminal liability that may be imposed. Furthermore,
this insurance may not be available at commercially reasonable rates in the
future. Any liability not covered by our insurance or in excess of our
insurance coverage could have a negative effect on our business, results of
operations and financial condition. Our liability is potentially greater with
respect to sales to users and others that are not affiliated with an enterprise
customer.
Because we facilitate the sale of many different life sciences and specialty
medical products by suppliers, and publish information about medical products,
we may become subject to legal proceedings regarding defects in these products
or the information provided. In addition, Promedix takes title to certain
products between the period of time after the supplier has delivered the
product but before the product has been accepted by the customer. Any claims,
with or without merit, could be time-consuming to defend, result in costly
litigation or divert management's attention and resources.
We also seek to obtain indemnification from our suppliers against some of
these claims. However, the scope of the indemnification is limited, a few of
our suppliers have not agreed to indemnify us, and some suppliers may be unable
or unwilling to indemnify us in the future. In addition, we are not in a
position to monitor our suppliers' activities. Therefore, we are exposed to
liability and risk for these claims.
We depend on our intellectual property rights and are subject to the risk of
infringement or loss of rights
Our intellectual property is important to our business, and we seek to
protect our intellectual property through copyrights, trademarks, trade
secrets, confidentiality provisions in our customer, supplier and strategic
relationship agreements, nondisclosure agreements with third parties, and
invention assignment agreements with our employees and contractors. We cannot
assure that measures we take to protect our intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Our
failure to protect against misappropriation of our intellectual property, or
claims that we are infringing the intellectual property of third parties could
have a negative effect on our business, revenues, financial condition and
results of operations.
The only federally registered intellectual property Promedix owns is the
trademark "Promedix." Promedix will license its client software to customers
which may complicate Promedix's ability to protect its intellectual property
rights.
35
<PAGE>
Promedix licenses the software for the Promedix web site from third party
developers. The use of this software is an integral part of Promedix's
Internet solution. A positive relationship with the third party developers is
important to maintaining Promedix's access to source code needed to operate
the web site. Without the cooperation of these third party developers the
functionality of the Internet site would be impaired.
The only federally registered intellectual property SpecialtyMD owns is the
trademark "SpecialtyMD."
SpecialtyMD's website uses proprietary software to organize, search, and
display content. The use of this software is an integral part of SpecialtyMD's
Internet solution, and therefore SpecialtyMD relies heavily on its ability to
continue to develop this proprietary software.
Chemdex will be licensing its technology to the Chemdex/Tenet joint
venture, thus losing some control over the use of the technology. Pursuant to
the license, Chemdex has also made certain representations and warranties with
respect to the technology it is licensing to the new company, and has agreed
to defend and indemnify the new company against claims of infringement. As
such, the combined company may be exposed to a greater risk of liability for
intellectual property infringement claims by others, which could have a
negative impact on our business, revenues, financial condition and results of
operation.
Regulation or taxation of the Internet or transacting business over the
Internet may inhibit the growth of our Internet-based purchasing solution
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that a number of taxes, laws and regulations may be adopted in
the U.S. and abroad with particular applicability to the Internet and e-
commerce transactions. It is possible that governments will adopt taxes and
enact legislation that may be applicable to us in areas such as content,
product distribution, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and re-transmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation and
personal privacy is uncertain. Taxes, laws or regulations may limit the growth
of the Internet, dampen e-commerce and reduce the number of transactions,
increase our cost of doing business or increase our legal exposure. Any of
these factors could have a negative effect on our business, revenues, and
results of operations and financial condition.
Officers and directors of Chemdex, Promedix and SpecialtyMD may have different
interests from yours
The directors and officers of Chemdex, Promedix and SpecialtyMD may have
interests in the mergers and may participate in arrangements that are
different from, or are in addition to, those of Chemdex, Promedix and
SpecialtyMD stockholders generally. For further information regarding these
interests, see the section entitled "The Chemdex/Promedix Merger--Interests of
Certain Persons in the Chemdex/Promedix Merger" on page 55.
You will not know the exchange ratios for the Chemdex common stock to be
issued to Promedix and SpecialtyMD stockholders until after the stockholder
meetings
The number of shares received by securityholders of Promedix and
SpecialtyMD depends upon how many shares of Promedix and SpecialtyMD stock are
outstanding and are issuable upon exercise of options outstanding at the time
of the closing of the mergers. As such, you will not know the exchange ratio
for the Chemdex common stock to be issued to Promedix and SpecialtyMD
stockholders until after the stockholder meetings. Based on the shares of
Promedix capital stock outstanding and options to purchase shares of Promedix
capital stock, and giving effect to the pro forma adjustments included in the
Unaudited Pro Forma Combined Condensed Financial Statements (see Note 1 of
Notes to Unaudited Pro Forma Combined Condensed Financial Statements on page
103), Chemdex would issue 10,362,434 shares in respect of the Promedix common
stock and would assume options for 1,694,932 shares of Chemdex common stock.
The exchange ratio would be approximately 1.2795 shares of Chemdex common
stock for each outstanding share of
36
<PAGE>
Promedix capital stock. Based on the shares of SpecialtyMD capital stock
outstanding and options and warrants to purchase shares of SpecialtyMD capital
stock, giving effect to the pro forma adjustments included in the Unaudited Pro
Forma Combined Condensed Financial Statements as of September 30, 1999 (see
Note 13 of Notes to Unaudited Pro Forma Combined Condensed Financial Statements
on page 106), Chemdex would issue 909,407 shares in respect of the SpecialtyMD
common stock and would assume restricted stock subject to repurchase, options
and warrants for 340,593 shares of Chemdex common stock. The exchange ratio
would be approximately one share of Chemdex stock for every .1048 shares of
SpecialtyMD capital stock.
We expect the price of our common stock to be volatile
The market price of the common stock may fluctuate significantly in response
to a number of factors, some which are beyond our control, including:
. quarterly variations in our operating results;
. changes in estimates of our financial performance by securities analysts;
. changes in market valuation of Internet commerce companies generally;
. announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. loss of a major customer, supplier or strategic partner, or failure to
complete a sale of our purchasing solution to a significant customer;
. additions or departures of any of our key personnel;
. future sales of our common stock; and
. stock market price and volume fluctuations, which are particularly common
among highly volatile securities of Internet companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a negative effect on our business,
results of operations and financial condition.
We may be subject to litigation arising out of products sold through our
marketplace or information published on our website
Because we facilitate the sale of many different life sciences and special
medical products by suppliers and the publication of medical information, we
may become subject to legal proceedings regarding defects in these products or
information, even though Chemdex may not take title to these products. Note
however that Promedix does take title to these products between the period of
time after the supplier has delivered the product but before the product has
been accepted by the customer. Any claims, with or without merit, could be
time-consuming to defend, result in costly litigation; or divert management's
attention and resources.
Anti-Takeover Provisions
Anti-takeover provisions may adversely effect the combined company's stock
price and make it more difficult for a third party to acquire the combined
company.
Provisions of Chemdex's charter documents may have the effect of delaying or
preventing a change in control of the combined company or its management, which
could have a material adverse effect on the market price of the combined
company's common stock. These include provisions:
. relating to a classified board of directors and provisions eliminating
cumulative voting;
. eliminating the ability of stockholders to take actions by written
consent; and
. limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving advance notice.
37
<PAGE>
In addition, the combined company's board of directors has authority to
issue up to 2,500,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of
the holders of Chemdex common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that Chemdex may
issue in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of Chemdex's outstanding voting stock, thereby delaying,
deferring or preventing a change in control of Chemdex. Chemdex has no present
plan to issue shares of preferred stock.
38
<PAGE>
FORWARD-LOOKING INFORMATION
Certain statements contained in or incorporated by reference into this
document are "forward looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995. All forward looking
statements involve risks and uncertainties. In particular, any statements
regarding the benefits of the Chemdex/Promedix and Chemdex/SpecialtyMD mergers,
as well as expectations with respect to future sales, operating efficiencies
and product expansion, are subject to known and unknown risks, uncertainties
and contingencies, many of which are beyond the control of Chemdex, Promedix
and SpecialtyMD which may cause actual results, performance or achievements to
differ materially from anticipated results, performance or achievements.
Factors that might affect such forward looking statements include, among other
things:
. the ability to integrate Promedix and SpecialtyMD into Chemdex's
operations,
. overall economic and business conditions,
. the demand for Chemdex's, Promedix's and SpecialtyMD's goods and
services,
. competitive factors in the industries in which Chemdex, Promedix and
SpecialtyMD compete,
. changes in government regulation,
. changes in tax requirements, including tax rate changes, new tax laws and
revised tax law interpretations,
. interest rate fluctuations, foreign currency rate fluctuations and other
capital market conditions, economic and political conditions in
international markets, including governmental changes and restrictions on
the ability to transfer capital across borders,
. the ability to achieve anticipated synergies and other cost savings in
connection with acquisitions,
. the timing, impact and other uncertainties of future acquisitions by
Chemdex,
. the ability of Chemdex, Promedix and SpecialtyMD, and the ability of
their respective customers and suppliers, to replace, modify or upgrade
computer programs in order to adequately address the Year 2000 issue, and
.the risk factors set forth above under "Risk Factors."
39
<PAGE>
THE PROMEDIX SPECIAL MEETING
General; Date, Time and Place
This proxy statement and prospectus is being furnished to holders of
Promedix stock in connection with the solicitation of proxies by the Promedix
board of directors for use at the Promedix special meeting to be held on
February 10, 2000 at the offices of Promedix, 448 East Winchester Avenue, Suite
2000 Salt Lake City, Utah 84107 commencing at 10:00 a.m., local time, and at
any adjournment or postponement of the meeting.
This proxy statement and prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Promedix on or about January 11, 2000.
Matters to be Considered
At the Promedix special meeting, Promedix stockholders will be asked to
adopt the merger agreement and approve the merger and to approve such other
matters as may properly be brought before the meeting.
Board of Directors' Recommendation
The Promedix board has unanimously approved the terms of the merger
agreement. The Promedix board of directors believes that the terms of the
merger agreement are fair to and in the best interests of Promedix and its
stockholders, and unanimously recommends that holders of shares of Promedix
common stock and preferred stock vote FOR approval and adoption of the merger
agreement.
Record Date and Outstanding Shares
The Promedix board of directors has fixed January 4, 2000 as the record date
for determining the holders of Promedix stock who are entitled to notice of and
to vote at the special meeting. As of the close of business on the record date,
there were 3,546,520 shares of common stock and 4,030,089 shares of Series A
preferred stock outstanding and entitled to vote. The holders of common stock
are entitled to cast one vote for each share of common stock they hold on each
matter submitted to a vote at the special meeting. The holders of the Series A
preferred stock are entitled to cast one vote for each share of common stock
into which each share of preferred stock could then be converted on each matter
submitted to a vote at the special meeting. The presence in person or by proxy
of the holders of a majority of the shares of Promedix stock entitled to vote
is necessary to constitute a quorum for the transaction of business at the
special meeting. Under the Delaware corporation statute, the affirmative vote
of at least a majority of the outstanding shares of Promedix stock is required
for the adoption of the merger agreement. In addition, the affirmative vote of
the holders of at least a majority of the outstanding shares of Series A
preferred stock is required for adoption of the merger agreement pursuant to
Promedix's certificate of incorporation. If a stockholder abstains from voting,
that abstention will have the practical effect of voting against the adoption
of the merger agreement.
As of the record date, 3,105,867 (approximately 87.6%) of the outstanding
shares of common stock and 3,996,800 (approximately 99.2%) of the outstanding
shares of Series A preferred stock were beneficially owned by directors and
executive officers of Promedix and their affiliates. Stockholders of Promedix
holding in the aggregate approximately 70.7% of the Promedix common stock and
99.2% of the Promedix preferred stock have agreed to vote all of their shares
in favor of the adoption of the merger agreement and approval of the merger.
Consequently, adoption of the merger agreement and approval of the merger by
the Promedix stockholders is assured.
40
<PAGE>
Solicitation of Proxies; Expenses
This proxy statement and prospectus is being furnished to Promedix
stockholders in connection with the solicitation of proxies by the Promedix
board of directors for use at the Promedix special meeting, and is accompanied
by a form of proxy.
All shares of Promedix stock that are entitled to vote and are represented
at the Promedix special meeting by properly executed proxies received prior to
or at the meeting, and not revoked, will be voted at the meeting in accordance
with the instructions indicated on the proxies. If no instructions are so
indicated, the proxies will be voted for approval and adoption of the merger
agreement, except for proxies submitted by record holders of shares of Promedix
stock who indicate that they have not received voting instructions from the
beneficial holders of those shares.
If any other matters are properly presented for consideration at the
Promedix special meeting, the persons named in the enclosed form of proxy will
have the discretion to vote on those matters using their best judgment.
Additional matters which may come before the meeting include consideration of a
motion to adjourn the meeting to another time and/or place, which may be
necessary for the purpose of soliciting additional proxies from Promedix
stockholders. The proxy holders will not adjourn the meeting if there are
insufficient votes to approve the proposals at the date of the meeting.
Any person who gives a proxy may revoke it at any time before it is voted.
To revoke a proxy, you must (1) submit a later dated proxy with respect to the
same shares at any time prior to the vote on the adoption of the merger
agreement, (2) deliver written notice of revocation to the Secretary of
Promedix at any time prior to the vote or (3) attend the special meeting and
vote in person. Your attendance at the special meeting alone is not sufficient
to revoke a proxy.
Promedix will bear all expenses of its solicitation of proxies, including
the cost of mailing this proxy statement and prospectus. In addition to
solicitation by mail, directors, officers and employees of Promedix may solicit
proxies in person or by telephone, fax or other means of communication. These
directors, officers and employees will not receive additional compensation.
However, they may be reimbursed for reasonable out-of-pocket expenses that they
incur in connection with this solicitation.
PROMEDIX STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
Recommendation of the Board of Directors of Promedix
THE BOARD OF DIRECTORS OF PROMEDIX HAS UNANIMOUSLY DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF PROMEDIX AND ITS STOCKHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
41
<PAGE>
THE SPECIALTYMD SPECIAL MEETING
General; Date, Time and Place
This proxy statement and prospectus is being furnished to holders of
SpecialtyMD stock in connection with the solicitation of proxies by the
SpecialtyMD board of directors for use at the SpecialtyMD special meeting to be
held on February 10, 2000 at the offices of SpecialtyMD, 1510 Page Mill Road,
Palo Alto, California 94304, commencing at 10:00 a.m., local time, and at any
adjournment or postponement of the meeting.
This proxy statement and prospectus and the accompanying forms of proxy are
first being mailed to stockholders of SpecialtyMD on or about January 11, 2000.
Matters to be Considered
At the SpecialtyMD special meeting, SpecialtyMD stockholders will be asked
to adopt the merger agreement and approve the merger, to approve an
acceleration of vesting of restricted stock held by SpecialtyMD board members,
certain payments and benefits pursuant to employment agreements between Chemdex
and, respectively, two officers of SpecialtyMD, the Chief Executive Officer and
President, Ashfaq Munshi, and the Vice President of Business Development,
Joseph Meresman, and to approve such other matters as may properly be brought
before the meeting.
Board of Directors' Recommendation
The SpecialtyMD board has unanimously approved the adoption of the proposals
listed above. In particular, the SpecialtyMD board of directors believes that
the terms of the merger agreement are advisable, fair to and in the best
interests of SpecialtyMD and its stockholders, and unanimously recommends that
holders of shares of SpecialtyMD common stock and preferred stock vote FOR
approval and adoption of the merger agreement and each of the other proposals.
Record Date and Outstanding Shares
The SpecialtyMD board of directors has fixed January 4, 2000 as the record
date for determining the holders of SpecialtyMD stock who are entitled to
notice of and to vote at the special meeting. As of the close of business on
the record date, there were 5,032,420 shares of common stock, 3,050,000 shares
of Series A preferred stock outstanding and entitled to vote and 2,522,333
shares of Series B preferred stock outstanding and entitled to vote. The
holders of common stock are entitled to cast one vote for each share of common
stock they hold on each matter submitted to a vote at the special meeting. The
holders of each series of preferred stock are entitled to cast one vote for
each share of common stock into which each share of preferred stock could then
be converted on each matter submitted to a vote at the special meeting. The
presence in person or by proxy of the holders of a majority of the shares of
SpecialtyMD stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the special meeting. Under the Delaware corporation
statute, the affirmative vote of at least a majority of the outstanding shares
of SpecialtyMD stock is required for the adoption of the merger agreement. In
addition, the affirmative vote of the holders of at least a majority of the
outstanding shares of preferred stock is required for adoption of the merger
agreement pursuant to SpecialtyMD's certificate of incorporation. If a
stockholder abstains from voting, that abstention will have the practical
effect of voting against the adoption of the merger agreement.
As of the record date, 4,270,455 (approximately 84.9%) of the outstanding
shares of common stock and 1,200,582 (approximately 21.5%) of the outstanding
shares of preferred stock were beneficially owned by directors and executive
officers of SpecialtyMD and their affiliates. Stockholders of SpecialtyMD
holding in the aggregate over two-thirds of the SpecialtyMD common stock and
preferred stock have agreed to vote all of their shares in favor of the
adoption of the merger agreement and approval of the merger. Consequently,
adoption of the merger agreement and approval of the merger by the SpecialtyMD
stockholders is assured.
42
<PAGE>
Solicitation of Proxies; Expenses
This proxy statement and prospectus is being furnished to SpecialtyMD
stockholders in connection with the solicitation of proxies by the SpecialtyMD
board of directors for use at the SpecialtyMD special meeting, and is
accompanied by a form of proxy.
All shares of SpecialtyMD stock that are entitled to vote and are
represented at the SpecialtyMD special meeting by properly executed proxies
received prior to or at the meeting, and not revoked, will be voted at the
meeting in accordance with the instructions indicated on the proxies. If no
instructions are so indicated, the proxies will be voted for approval and
adoption of the merger agreement, except for proxies submitted by record
holders of shares of SpecialtyMD stock who indicate that they have not received
voting instructions from the beneficial holders of those shares.
If any other matters are properly presented for consideration at the
SpecialtyMD special meeting, the persons named in the enclosed form of proxy
will have the discretion to vote on those matters using their best judgment.
Additional matters which may come before the meeting include consideration of a
motion to adjourn the meeting to another time and/or place, which may be
necessary for the purpose of soliciting additional proxies from SpecialtyMD
stockholders. The proxy holders will not adjourn the meeting if there are
insufficient votes to approve the proposals at the date of the meeting.
Any person who gives a proxy may revoke it at any time before it is voted.
To revoke a proxy, you must (1) submit a later dated proxy with respect to the
same shares at any time prior to the vote on the adoption of the merger
agreement, (2) deliver written notice of revocation to the Secretary of
SpecialtyMD at any time prior to the vote or (3) attend the special meeting and
vote in person. Your attendance at the special meeting alone is not sufficient
to revoke a proxy.
SpecialtyMD will bear all expenses of its solicitation of proxies, including
the cost of mailing this proxy statement and prospectus. In addition to
solicitation by mail, directors, officers and employees of SpecialtyMD may
solicit proxies in person or by telephone, fax or other means of communication.
These directors, officers and employees will not receive additional
compensation. However, they may be reimbursed for reasonable out-of-pocket
expenses that they incur in connection with this solicitation.
SPECIALTYMD STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
Recommendation of the SpecialtyMD Board of Directors
THE SPECIALTYMD BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF SPECIALTYMD AND ITS STOCKHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
THE SPECIALTYMD BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
ACCELERATION OF VESTING OF RESTRICTED STOCK HELD BY BOARD MEMBERS, AND CERTAIN
PAYMENTS AND BENEFITS TO SPECIALTYMD OFFICERS, IS FAIR AND IN THE BEST
INTERESTS OF SPECIALTYMD AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE APPROVAL AND ADOPTION OF SUCH ARRANGEMENTS.
43
<PAGE>
THE CHEMDEX SPECIAL MEETING
General; Date, Time and Place
This proxy statement and prospectus is being furnished to holders of Chemdex
stock in connection with the solicitation of proxies by the Chemdex board of
directors for use at the Chemdex special meeting to be held on February 10,
2000 at the offices of Chemdex, 1500 Plymouth Street, Mountain View,
California, commencing at 10:00 a.m., local time, and at any adjournment or
postponement of the meeting.
This proxy statement and prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Chemdex on or about January 11, 2000.
Matters to be Considered
At the Chemdex special meeting, holders of Chemdex common stock will be
asked to consider and vote on the following proposals:
1. approve the issuance of up to a maximum of 12,057,366 shares of
Chemdex common stock for all shares of outstanding Promedix capital stock,
in connection with the merger whereby Promedix will become a wholly-owned
subsidiary of Chemdex and Chemdex will assume Promedix's stock option plan;
2. approve the issuance of up to a maximum of 1,250,000 shares of
Chemdex common stock for all shares of outstanding SpecialtyMD capital
stock, in connection with the merger whereby SpecialtyMD will become a
wholly-owned subsidiary of Chemdex and Chemdex will assume a SpecialtyMD
stock option plan;
3. an increase in the number of shares available for issuance under the
Chemdex 1999 Employee Stock Purchase Plan by 300,000 shares to a total of
1,050,000 shares;
4. an increase in the number of shares of Chemdex common stock available
for issuance under the Chemdex 1998 Stock Plan by 4,250,000 shares to a
total of 10,375,000 shares; and
5. any other matter that may properly come before the meeting.
Board of Directors' Recommendation
The Chemdex board has approved the adoption of the proposals listed above.
In particular, the Chemdex board of directors believes that the terms of the
issuance of stock in connection with the Chemdex/Promedix merger and the
Chemdex/SpecialtyMD merger is advisable, fair to and in the best interests of
Chemdex and its stockholders, and recommends that holders of shares of Chemdex
common stock vote FOR approval and adoption of the stock issuances and each of
the other proposals.
Record Date and Outstanding Shares
The Chemdex board of directors has fixed January 4, 2000 as the record date
for determining the holders of Chemdex stock who are entitled to notice of and
to vote at the special meeting. As of the close of business on the record date,
there were approximately 44,154,583 shares of common stock outstanding and
entitled to vote. The holders of common stock are entitled to cast one vote for
each share of common stock they hold on each matter submitted to a vote at the
special meeting. The presence in person or by proxy of the holders of a
majority of the shares of Chemdex stock entitled to vote is necessary to
constitute a quorum for the transaction of business at the special meeting.
As of the record date, approximately 13,708,328 (approximately 42%) of the
outstanding shares of common stock were beneficially owned by directors and
executive officers of Chemdex and their affiliates.
44
<PAGE>
Solicitation of Proxies; Expenses
This proxy statement and prospectus is being furnished to Chemdex
stockholders in connection with the solicitation of proxies by the Chemdex
board of directors for use at the Chemdex special meeting, and is accompanied
by a form of proxy.
All shares of Chemdex stock that are entitled to vote and are represented at
the Chemdex special meeting by properly executed proxies received prior to or
at the meeting, and not revoked, will be voted at the meeting in accordance
with the instructions indicated on the proxies. If no instructions are so
indicated, the proxies will be voted for approval of the proposals, except for
proxies submitted by record holders of shares of Chemdex stock who indicate
that they have not received voting instructions from the beneficial holders of
those shares.
If any other matters are properly presented for consideration at the Chemdex
special meeting, the persons named in the enclosed form of proxy will have the
discretion to vote on those matters using their best judgment. Additional
matters which may come before the meeting include consideration of a motion to
adjourn the meeting to another time and/or place, which may be necessary for
the purpose of soliciting additional proxies from Chemdex stockholders. The
proxy holders will not adjourn the meeting if there are insufficient votes to
approve the proposals at the date of the meeting.
Any person who gives a proxy may revoke it at any time before it is voted.
To revoke a proxy, you must (1) submit a later dated proxy with respect to the
same shares at any time prior to the vote on the adoption of the merger
agreement, (2) deliver written notice of revocation to the Secretary of Chemdex
at any time prior to the vote or (3) attend the special meeting and vote in
person. Your attendance at the special meeting alone is not sufficient to
revoke a proxy.
Chemdex will bear all expenses of its solicitation of proxies, including the
cost of mailing this proxy statement and prospectus. In addition to
solicitation by mail, directors, officers and employees of Chemdex may solicit
proxies in person or by telephone, fax or other means of communication. These
directors, officers and employees will not receive additional compensation.
However, they may be reimbursed for reasonable out-of-pocket expenses that they
incur in connection with this solicitation.
Board of Directors' Recommendations
THE CHEMDEX BOARD OF DIRECTORS HAS DETERMINED THAT THE ISSUANCE OF STOCK IN
CONNECTION WITH THE CHEMDEX/PROMEDIX MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF CHEMDEX AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE
STOCK ISSUANCE.
THE CHEMDEX BOARD OF DIRECTORS HAS DETERMINED THAT THE ISSUANCE OF STOCK IN
CONNECTION WITH THE CHEMDEX/SPECIALTYMD MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF CHEMDEX AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE
STOCK ISSUANCE.
THE CHEMDEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1999 EMPLOYEE STOCK PURCHASE PLAN.
THE CHEMDEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1998 STOCK OPTION PLAN.
45
<PAGE>
Proposal No. 1
THE CHEMDEX/PROMEDIX MERGER
This section, as well as the section "Other Terms of The Chemdex/Promedix
Merger Agreement," describe the material aspects of the proposed
Chemdex/Promedix merger. These discussions are qualified in their entirety by
reference to the merger agreement, as amended, which is attached as Annex A to
this document, and to the other agreements and documents that are discussed in
this document and that are filed as exhibits to the registration statement of
which this document forms a part. YOU SHOULD READ THE CHEMDEX/PROMEDIX MERGER
AGREEMENT IN ITS ENTIRETY AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
Background of the Chemdex/Promedix Merger
Beginning in August 1999, senior executives of Chemdex and Promedix
conducted discussions concerning possible strategic alliances between Chemdex
and Promedix. On various occasions during August 1999, members of each
company's management team met to discuss a possible merger between the two
companies.
On August 31, 1999, Chemdex formally retained Morgan Stanley to provide
financial advisory services in connection with a possible merger of Promedix by
Chemdex.
On September 2, 1999, senior executives of Chemdex and representatives of
Morgan Stanley conducted business and financial due diligence on Promedix with
senior executives of Promedix. In addition, David Perry, the Chief Executive
Officer of Chemdex, and a representative of Morgan Stanley also met with
William C. Klintworth, the Chief Executive Officer of Promedix and its legal
advisors to negotiate the material terms of a merger between the two companies.
At this meeting, a non-binding term sheet memorializing the material terms of
the merger was agreed to. The terms of the non-binding term sheet were subject
to the satisfactory completion of due diligence and board approval by both
companies.
On September 3, 1999, representatives of Morgan Stanley and Venture Law
Group negotiated with representatives of Orrick, Herrington & Sutcliffe LLP the
principal terms of an exclusivity agreement, which was executed by the Chief
Executive Officers of both Chemdex and Promedix later that day. Pursuant to the
exclusivity agreement, Promedix agreed not to solicit or enter into a financing
transaction or an alternative sale transaction, and Chemdex agreed not to
solicit or enter into an alternative acquisition transaction for a defined
period of time.
On September 7, 1999, representatives of Chemdex and Morgan Stanley, in a
series of telephonic meetings, conducted further business and financial due
diligence with Promedix.
On September 8, 1999, senior executives of Chemdex and representatives of
Morgan Stanley presented an overview of the possible merger of Promedix to the
Chemdex board of directors. Following an extended discussion, the Chemdex board
of directors authorized the Chemdex management team and Morgan Stanley to
continue their discussions regarding a possible transaction with Promedix. On
the same day, Promedix executives described the material terms of the proposed
merger to the Promedix board of directors. The board members and executives
discussed the transaction structure, negotiations, strategic merit and risks of
the proposed merger.
On September 10, 1999, senior executives of Chemdex held a telephonic
meeting with the Chemdex board of directors to review the status of the merger
discussions between Chemdex and Promedix.
On September 14, 1999, senior executives of Chemdex and a representative of
Morgan Stanley met with senior executives of Promedix in Salt Lake City to
conduct financial due diligence.
On the morning of September 21, 1999, the Chemdex board of directors held a
special meeting to discuss the status of the Promedix merger. Senior management
of Chemdex and representatives of Morgan Stanley and Venture Law Group reviewed
the status of negotiations with Promedix, the potential benefits and risks of
the transaction with Promedix and the principal terms of the draft merger
agreement and related documents.
46
<PAGE>
Morgan Stanley reviewed the strategic rationale for, and the financial analyses
relating to, the proposed merger. At the meeting, Morgan Stanley provided its
opinion that the consideration paid pursuant to the merger agreement was fair,
from a financial point of view, to Chemdex. Following the discussion, the
Chemdex board of directors determined that the proposed merger was advisable
and approved the merger agreement and related documents. Also on September 21,
1999, the Promedix board of directors held a telephonic meeting where they
approved the merger agreement and the merger.
In the afternoon of September 21, 1999, senior executives of Chemdex and
Promedix signed and delivered to each other the final merger agreement and
certain ancillary agreements, and on September 22, the companies jointly
announced the transaction.
On December 21, 1999, the first amendment to the merger agreement was
entered into.
Reasons of Promedix for the Chemdex/Promedix Merger; Recommendation of the
Board of Directors of Promedix
The Promedix board has based its approval of the merger and its
determination that the merger agreement is in the best interests of Promedix
and its stockholders upon a number of factors, including the following
advantages of the merger:
. Technological Synergies. The overlap of research and development efforts
and the potential synergy of Chemdex's technologies with Promedix's
technologies will enable the combined company to more effectively respond
to customer needs and compete in the dynamic marketplace and reach the
marketplace more quickly with a catalog-based purchasing solution;
. Increased Market Presence and Greater Economies of Scale. The merger will
create a combined company with significantly greater resources, most
notably, a larger addressable market for the Chemdex purchasing solution.
With expanded resources, the combined company should be able to achieve
greater sales, greater leverage of current and future infrastructure,
operational efficiencies, and better service of its customers;
. Strength of Combined Management Team. The merger will potentially create
a combined company with an experienced management team that has the
breadth and depth to effectively lead and manage the combined company's
growth and extend its leadership in the business to business marketplace.
Promedix believes that the experience of the Chemdex management team will
provide significant benefits from both an operational and strategic
standpoint;
. Premium. The merger provides Promedix stockholders with the opportunity
to receive a significant premium over the most recent price for shares of
Promedix capital stock;
. Future Appreciation. Promedix stockholders will have the ability to
continue to participate in the growth of the business conducted by
Chemdex and Promedix after the merger and to benefit from the potential
appreciation in the value of Chemdex common shares;
. Increased Visibility as a Public Company. The merger will enable Promedix
to achieve a measure of visibility as a public company that will enhance
its position with customers, partners, and employees; and
. Increased Liquidity. The public float and trading volume of Chemdex
common stock provide Promedix stockholders the opportunity to gain
greater liquidity in their investment.
The Promedix board also considered the following potentially negative
factors:
. the potential disruption of Promedix's business that might result from
both employee and customer uncertainty as a result of the announcement of
the merger;
. the risk that, despite the intentions and efforts of the parties to
reassure Promedix's customers and distributors regarding the combined
company's intention to support their future sales efforts, the
announcement of the merger could result in customer decisions to delay or
cancel purchases of Promedix's products;
47
<PAGE>
. the possibility that the merger might not be completed and customer's
potentially negative response to the interrupted merger;
. the effects of the public announcement of the merger on Promedix's
ability to attract and retain key management, marketing and technical
personnel; and
. the other risks described above under "Risk Factors."
After detailed consideration of these factors, the Promedix board concluded
that the potential benefits of the merger outweighed these considerations and
determined that the merger was fair to and in the best interests of Promedix
and its stockholders.
The above discussion of the information and factors considered by the
Promedix board is not exhaustive and does not include all factors considered by
the Promedix board. In view of the variety of factors considered in connection
with its evaluation of the merger, the Promedix board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Promedix board may have given different weights to
different factors. Based on the factors outlined above, the Promedix board
determined that the merger is fair to and in the best interests of Promedix and
its stockholders.
THE PROMEDIX BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF PROMEDIX AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "Background of the Chemdex/Promedix Merger" on page 46, "Material U.S.
Federal Income Tax Consequences" on page 58 and "Comparative Stock Price Data
and Dividend History" on page 96.
Reasons of Chemdex for the Chemdex/Promedix Merger; Recommendation of the Board
of Directors of Chemdex
At a meeting of the Chemdex board of directors held on September 21, 1999,
the Chemdex board determined that the acquisition of Promedix was in keeping
with its corporate strategy of complementing its internal growth with
acquisitions that are likely to benefit from leveraging Chemdex's technology,
services and operations expertise when combined with Chemdex's existing
operations.
In reaching its decision to approve the Chemdex/Promedix merger, the Chemdex
board considered the following material factors:
. the expectation that Promedix's online healthcare specialty products
business, management team and employees could be readily integrated with
Chemdex's operations, enabling the combined company to broaden its served
markets;
. that the merger, before restructuring and similar charges, and assuming
the realization of certain expected benefits, including accelerated time
to market, cost savings and other synergies would enhance the combined
company's position in the general online business-to-business e-commerce
market;
. the belief that the combined company will be able to achieve economies by
scaling and leveraging Chemdex's technology, customer service,
professional service and account development processes in Promedix's
specialty healthcare products market; and
. the detailed financial and pro forma analysis and other information with
respect to the companies presented by Morgan Stanley to the Chemdex board
of directors, including Morgan Stanley's opinion that the consideration
to be paid by Chemdex pursuant to the merger agreement is fair from a
financial point of view to Chemdex as of the date of the opinion.
In view of the variety of factors considered in connection with the
evaluation of the merger, the Chemdex board did not find it practical to and
did not quantify or otherwise assign relevant weights to specific factors
48
<PAGE>
considered in reaching its determination. After detailed consideration of these
factors, the Chemdex board concluded that the potential benefits of the merger
outweighed these considerations and determined that the merger was fair to and
in the best interests of Chemdex and its stockholders.
The above discussion of the information and factors considered by the
Chemdex board is not exhaustive and does not include all factors considered by
the Chemdex board. In view of the variety of factors considered in connection
with its evaluation of the merger, the Chemdex board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Chemdex board may have given different weights to
different factors. Based on the factors outlined above, the Chemdex board
determined that the merger is fair to and in the best interests of Chemdex and
its stockholders.
THE CHEMDEX BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF CHEMDEX AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "Background of the Chemdex/Promedix Merger" on page 46, "Material U.S.
Federal Income Tax Consequences" on page 58 and "Comparative Stock Price Data
and Dividend History" on page 96.
Opinion of Financial Advisor to Chemdex
Under an engagement letter dated August 31, 1999, Chemdex retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the merger. The Chemdex board of directors selected
Morgan Stanley to act as Chemdex's financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of Chemdex. At the meeting of the Chemdex board on September 21, 1999,
Morgan Stanley rendered its oral opinion, subsequently confirmed in writing,
that as of September 21, 1999, based upon and subject to the various
considerations set forth in the opinion, the consideration to be paid by
Chemdex pursuant to the Chemdex/Promedix merger agreement is fair from a
financial point of view to Chemdex.
The full text of the written opinion of Morgan Stanley dated September 21,
1999 that is attached as Annex C to this document sets forth, among other
things, the assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by Morgan Stanley in
rendering its opinion. Chemdex stockholders are urged to, and should, read the
opinion carefully and in its entirety. Morgan Stanley's opinion is directed to
the Chemdex board and addresses only the fairness of the consideration to be
paid by Chemdex pursuant to the merger agreement from a financial point of view
to Chemdex as of the date of the opinion. It does not address any other aspect
of the merger and does not constitute a recommendation to any holder of Chemdex
common stock as to how to vote at the Chemdex special meeting. The summary of
the opinion of Morgan Stanley set forth in this document, while materially
complete, is qualified in its entirety by reference to the full text of the
opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
. reviewed certain publicly available financial statements and other
information of Chemdex;
. analyzed certain financial projections relating to Promedix prepared by
the management of Promedix;
. reviewed certain internal financial statements and other financial and
operating data concerning Chemdex and Promedix prepared by the
managements of Chemdex and Promedix, respectively;
. discussed the past and current operations and financial condition and the
prospects of Promedix, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger, with senior executives of Promedix;
. discussed the past and current operations and financial condition and the
prospects of Chemdex, including information relating to certain
strategic, financial and operational synergies and benefits anticipated
from the merger, with senior executives of Chemdex;
49
<PAGE>
. reviewed the pro forma impact of the merger on the earnings per share and
balance sheet of Chemdex;
. reviewed the reported prices and trading activity of the Chemdex common
stock;
. reviewed the stock prices and trading activity of certain other publicly-
traded companies comparable to Promedix and Chemdex;
. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
. reviewed and discussed with the senior managements of Chemdex and
Promedix the strategic rationale for the merger;
. participated in negotiations and discussions among representatives of
Chemdex and Promedix and their legal advisors;
. reviewed the draft merger agreement and certain related documents; and
. performed such other analysis and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the internal
financial statements and other financial and operating data and estimates of
the strategic, financial and operational benefits anticipated from the merger
provided by Chemdex and Promedix, Morgan Stanley assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the prospects of Chemdex and Promedix, respectively. Morgan
Stanley relied upon the assessment by the managements of Chemdex and Promedix
of their ability to retain key employees of Promedix. Morgan Stanley also
relied upon, without independent verification, the assessment by the
managements of Chemdex and Promedix of:
. the strategic and other benefits expected to result from the merger;
. Promedix's technologies, products and intellectual property;
. the timing and risks associated with the integration of Chemdex and
Promedix; and
. the validity of, and risks associated with, Chemdex's and Promedix's
existing and future technologies, products and intellectual property.
Morgan Stanley did not make any independent valuation or appraisal of the
assets, liabilities, technologies and intellectual property of Promedix, nor
was it furnished with any such appraisals. In addition, Morgan Stanley assumed
that the merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the merger agreement. Morgan Stanley's opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to it as of September 21, 1999.
The following is a brief summary of certain of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated September 21, 1999. Certain of these summaries of
financial analyses include information presented in tabular format. In order to
understand fully the financial analyses used by Morgan Stanley, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of Chemdex and compared its performance with that of
four groups of companies, as well as the S&P 500 Index and the Morgan Stanley
High Technology Index.
50
<PAGE>
The first group (the Internet Procurement Index) included:
-- Ariba
-- VerticalNet
-- CommerceOne
-- pcOrder
The second group (the e-Commerce Index) included:
-- Amazon.com
-- eBay
-- Drugstore.com
-- Insweb
-- Allscripts
-- Claimsnet.com
The third group (the Connectivity Index) included:
-- Careinsite
-- Healtheon
-- Cybear
The fourth group (the Content Providers Index) included:
-- Drkoop.com
-- Mediconsult.com
-- Onhealth Network
As of September 17, 1999, the closing price of the Chemdex common stock was
$21.13, and Morgan Stanley observed the following:
<TABLE>
<CAPTION>
Indexed Price Change
Since Chemdex's
IPO (7/27/99)
--------------------
<S> <C>
Chemdex................................................. 41%
Internet Procurement Index.............................. 31%
e-Commerce Index........................................ 24%
Morgan Stanley High Technology Index.................... 11%
S&P 500 Index........................................... (2)%
Connectivity Index...................................... (12)%
Content Providers Index................................. (29)%
</TABLE>
51
<PAGE>
Peer Group Comparison. Morgan Stanley compared certain financial information
of Chemdex and Promedix with publicly available information for the companies
comprising the Internet Procurement Index, the e-Commerce Index, the
Connectivity Index and the Content Providers Index. For Promedix, Morgan
Stanley examined two cases: a case prepared by the management of Promedix
(Management Case) and a case in which certain operational assumptions were
reduced by approximately 25% from the Management Case (Adjusted Case). Based on
estimates from securities research analysts, with median values shown except
for Chemdex, implied aggregate values for Promedix based on the Management Case
and Adjusted Case, and the closing price of Chemdex common stock on September
17, 1999 of $21.13, such analysis showed that as of September 17, 1999:
<TABLE>
<CAPTION>
Aggregate Value/Revenue
------------------------
Calendar Year
------------------------
1999E 2000E
------------ -----------
<S> <C> <C>
Chemdex................................................ 28.7x 4.7x
Internet Procurement Index............................. 115.8x 51.5x
e-Commerce Index....................................... 28.1x 10.9x
Connectivity Index..................................... 37.4x 22.2x
Content Providers Index................................ 36.2x 11.1x
Promedix Management Case............................... NM 6.1x
Promedix Adjusted Case................................. NM 7.9x
</TABLE>
No company utilized in the peer group comparison analysis is identical to
Chemdex or Promedix. In evaluating the peer groups, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Chemdex and Promedix, such as the impact of
competition on the businesses of Chemdex and Promedix and the industry
generally, industry growth and the absence of any adverse material change in
the financial condition and prospects of Chemdex and Promedix or the industry
or in the financial markets in general. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of
using peer group data.
Analysis of Selected Precedent Transactions. Morgan Stanley compared the
publicly available statistics for selected transactions in the Internet
industry to the relevant financial statistics for Promedix based on the value
of Promedix implied by the closing share price for Chemdex common stock on
September 17, 1999. Among eleven selected Internet merger transactions, the
median ratio of aggregate value to the estimated calendar year 2000 revenue,
based on equity research estimates, was 9.8. Among 29 early stage Internet
private company acquisitions, the median ratio of aggregate value to the
estimated last post money valuation, was 5.0. This compares to the following:
<TABLE>
<CAPTION>
Promedix Aggregate Value to
---------------------------------------------------------------------------
Calendar Year 2000
Estimated Revenues Last Post Money Valuation
--------------------------------------------------------------------------
<S> <C> <C> <C>
Selected Internet Transactions: 9.8x Selected Internet Transactions: 5.0x
Promedix Management Case: 6.1x Promedix Transaction Price: 2.7x
Promedix Adjusted Case: 7.9x
</TABLE>
No company utilized in the transactions analysis as a comparison is
identical to Chemdex or Promedix. In evaluating the transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond control of Chemdex and Promedix, such as the impact of
competition on the business of Chemdex and Promedix and the industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of Chemdex and Promedix or the industry or in the
financial markets in general. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using precedent
transactions data.
52
<PAGE>
Discounted Equity Value. Morgan Stanley performed an analysis of the present
value of the implied value of Promedix on a stand alone basis based on
Promedix's future equity value. Morgan Stanley observed the following for the
calendar year 2002:
<TABLE>
<CAPTION>
Promedix Fully Converted Equity Value
-------------------------------------------
Next Twelve Months Discount Management Adjusted
Aggregate Value to Revenues Rates Case Case Sensitivities
--------------------------- -------- -------------- -------------- -------------
($ in millions)
<S> <C> <C> <C> <C>
2.0x-4.0x 35%-50% $554 to $1,371 $426 to $1,054 $212 to $842
Implied Annual Growth Rate
from Calendar
Year 2000 Estimated
Revenue: 282% 235% 137% to 200%
</TABLE>
Morgan Stanley performed an analysis of the present value per share of the
implied value of Chemdex on a standalone basis. Morgan Stanley observed the
following, based on a range of revenue estimates based on Morgan Stanley equity
research estimates for the calendar years 2001 and 2002:
<TABLE>
<CAPTION>
Chemdex
Fully Diluted Equity Value
Next Twelve Months Discount ----------------------------------
Aggregate Value to Revenues Rates CY2001 CY2002
- --------------------------- --------------- ---------------- -----------------
<S> <C> <C> <C>
4.0x-10.0x 35%-50% $21.51 to $80.47 $27.47 to $120.40
Preliminary IPO Valuation. Morgan Stanley performed an analysis of the
estimated IPO valuation of Promedix based on aggregate value as a multiple of a
range of estimated calendar year 2001 revenues. Morgan Stanley observed the
following implied IPO valuation, assuming revenue multiples of approximately
2.5 to 4.5:
<CAPTION>
Present Value of Current
Promedix Stockholders' Equity
--------------------------------
Multiple Range Management Case Adjusted Case
-------------- --------------- ----------------
($ in millions)
<S> <C> <C> <C>
2.5x-4.5x $220 to $410 $ 200 to $400
</TABLE>
Relative Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of Chemdex and Promedix to the combined company assuming
consummation of the merger and based on estimates of certain financial metrics
such as revenue and gross profit from securities research analysts for Chemdex,
management estimates for Promedix and the Chemdex closing share price as of
September 17, 1999. The analysis showed, among other things, the following:
<TABLE>
<CAPTION>
Management Case Adjusted Case
---------------------------- ----------------------------
% Pro Forma Contribution % Pro Forma Contribution
---------------------------- ----------------------------
Chemdex Promedix Chemdex Promedix
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Projected Calendar Year
2000
Revenue............... 75% 25% 80% 20%
Gross Profit.......... 74% 26% 78% 22%
Projected Calendar Year
2001
Revenue............... 58% 42% 64% 36%
Gross Profit.......... 62% 38% 68% 32%
Projected Calendar Year
2002
Revenue............... 51% 49% 57% 43%
Gross Profit.......... 59% 41% 65% 35%
Projected Calendar Year
2003
Revenue............... 44% 56% 51% 49%
Gross Profit.......... 54% 46% 60% 40%
Promedix Transaction
Price.................. 75% 25% 75% 25%
</TABLE>
53
<PAGE>
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact of
the merger on the combined company's projected gross profit for calendar year
1999 and 2000. Such analysis was based on gross profit projections by
securities research analysts for Chemdex and the Management Case and the
Adjusted Case for Promedix.
. Morgan Stanley observed that the merger, under the Management Case, would
result in gross profit dollar accretion for Chemdex, prior to giving
effect to any synergies, of 1% for calendar year 2000 and 20% for
calendar year 2001.
. Morgan Stanley observed that the merger, under the Adjusted Case, would
result in gross profit dilution for Chemdex, prior to giving effect to
any synergies, of 5% for calendar year 2000 and gross profit accretion of
6% for calendar year 2001.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of Chemdex or Promedix. In
performing its analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Chemdex or Promedix. Any
estimates contained in Morgan Stanley's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the consideration to be paid pursuant to the merger
agreement from a financial point of view to Chemdex and were conducted in
connection with the delivery of the Morgan Stanley opinion. The analyses do not
purport to be appraisals or to reflect the prices at which Chemdex or Promedix
might actually be sold.
The consideration pursuant to the merger agreement was determined through
arm's-length negotiations between Chemdex and Promedix and was approved by the
Chemdex board of directors. Morgan Stanley provided advice to Chemdex during
such negotiations; however, Morgan Stanley did not recommend to Chemdex any
specific consideration to be paid or that any specific consideration to be paid
constituted the only appropriate consideration to be paid for the merger.
In addition, Morgan Stanley's opinion and presentation to the Chemdex board
of directors was one of many factors taken into consideration by Chemdex's
board of directors in making its decision to approve the merger. Consequently,
the Morgan Stanley analyses as described above should not be viewed as
determinative of the opinion of the Chemdex board of directors with respect to
the consideration or of whether the Chemdex board would have been willing to
agree to a different consideration to be paid.
The Chemdex board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate, estate and other purposes. In the past, Morgan Stanley and its
affiliates have provided financing services for Chemdex and have received fees
for the rendering of these services. In the ordinary course of Morgan Stanley's
trading and brokerage activities, Morgan Stanley or its affiliates may at any
time hold long or short positions, may trade or otherwise effect transactions,
for its own account or for the account of customers in the equity securities of
Chemdex or any other parties involved in the transaction.
54
<PAGE>
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and
Chemdex agreed to pay Morgan Stanley a customary fee. Chemdex has also agreed
to reimburse Morgan Stanley for its expenses incurred in performing its
services. In addition, Chemdex has also agreed to indemnify Morgan Stanley and
its affiliates, their respective directions, officers, agents and employees and
each person, if any controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, arising out of Morgan Stanley's engagement.
Interests of Certain Persons in the Chemdex/Promedix Merger
General
Certain Promedix executive officers and certain members of the Promedix
board of directors will receive benefits as a result of the Chemdex/Promedix
merger that will be in addition to or different from their interests as
stockholders of Promedix generally. These include, among other things,
provisions in the Chemdex/Promedix merger agreement relating to indemnification
and severance benefits for members of Promedix's board and management. The
Promedix board was aware of these interests and considered them, among other
matters, in approving the merger agreement and the merger.
Employment Agreements
In connection with the Chemdex/Promedix merger agreement, several senior
officers of Promedix have entered into employment agreements with Chemdex.
Below is a chart listing each officer's position and annual compensation:
<TABLE>
<CAPTION>
Annual Annual
Person Position Compensation Bonus
------ -------- ------------ -------
(at Promedix, as a
subsidiary of Chemdex)
<S> <C> <C> <C>
William C. Klintworth... Chief Executive Officer $150,000
J. Barrie Keiser........ President and Chief Operating Officer $200,000 $50,000
Thomas J. Sherry........ Senior Vice President, Sales and Service $180,000 $50,000
Henry M. Clanton........ Vice President, Vendor Relations $100,000
Stephen J. Woodard...... Vice President, Buyer Relations $100,000
Bradford Bond........... Vice President, Marketing and Public Relations $100,000
Jamie Locke............. Vice President, Technology $100,000
</TABLE>
The employment agreements provide that Chemdex will pay severance benefits
equal to the greater of six months salary or $100,000 in the event of
termination without cause or as a result of a constructive termination. The
employment agreements also provide that if such employee's employment is either
terminated without cause or constructively terminated during the first year
after the closing of the Chemdex/Promedix merger, then the employee's stock and
options will vest in full. If the employee is terminated without cause or
constructively terminated after the initial one-year period, then vesting of
the employee's unvested stock and options shall be accelerated twelve months.
In consideration for the commitments to him, each individual listed above has
agreed for one year following his termination of employment from Chemdex for
any reason he will not:
. own or participate in any business which competes with Chemdex;
. solicit any Chemdex employee to leave the employ of Chemdex; or
. solicit or interfere with any customer of Chemdex.
Change of Control Agreements
In connection with the Chemdex/Promedix merger agreement, the senior
officers of Promedix listed above also entered into change of control
agreements with Chemdex. The change of control agreements provide that in the
event more than fifty percent of Chemdex's voting securities or all or
substantially all of Chemdex's assets are acquired and such employee's
employment is terminated with or without cause or constructively terminated
within 12 months after such acquisition, then vesting of the employee's
unvested stock and options shall be accelerated six months.
55
<PAGE>
Sale of Pro Med Co., Inc.
Promedix has agreed to sell all of the outstanding shares of capital stock
of its wholly-owned subsidiary, Pro Med Co., Inc., a Utah corporation, to an
unrelated third party for $3,500,000. One or more of Promedix's stockholders,
including William C. Klintworth, Promedix's Chief Executive Officer may own a
minority interest in such third party.
In connection with the sale of Pro Med Co., Inc., Promedix is repaying the
$5,000,000 subordinated convertible notes originally issued to Brad Brewer,
Barrie Brewer and Jean Brewer when Promedix purchased Pro Med Co., Inc., from
the Brewers. $3,500,000 of the $5,000,000 will be repaid out of the proceeds
received from the sale of Pro Med Co. In addition, $1,000,000 of the
subordinated convertible notes is being converted to 346,020 shares of Promedix
preferred stock and $499,835 of the subordinated convertible notes is being
used to pay for the exercise of the Brewers' warrants to purchase 333,334
shares of Promedix preferred stock.
Acceleration of Stock Options
All options held by the 43 employees of Promedix's subsidiary, Pro Med Co.,
Inc., which is being sold prior to the closing of the merger, will be reduced
by one half and such remaining options will immediately become 100% vested upon
the sale of such subsidiary. Options held by Brad Brewer and Barrie Brewer, a
Director of Promedix, will be reduced by two thirds and the remaining portion
will become 100% vested upon the sale of such subsidiary.
CMGI
CMGI and/or its affiliates beneficially own 2,740,857 shares of Chemdex
common stock, representing approximately 8.3% of the outstanding Chemdex common
stock, and 3,996,800 shares of Promedix preferred stock, representing
approximately 52.8% of the outstanding Promedix capital stock. Following
consummation of the merger, CMGI and its affiliates will beneficially own
approximately 15% of the outstanding Chemdex common stock. Jonathan D.
Callaghan is a general partner of the CMGI affiliate, CMG@Ventures, and is a
member of both the Chemdex board of directors and Promedix board of directors.
Peter Mills is a managing partner of the CMGI affiliate, CMG@Ventures, and is a
member of the Promedix board of directors.
Election of Directors
Upon closing of the merger, William C. Klintworth and one outside director
to be mutually agreed upon will become members of Chemdex's Board of Directors.
Stock and Options Held by Promedix Executive Officers and Non-Employee
Directors
As of November 30, 1999, Promedix's directors and executive officers
collectively beneficially owned 7,102,667 shares of Promedix capital stock and
options or other convertible securities to acquire an aggregate of 361,413
shares of Promedix common stock, which upon consummation of the merger will
represent approximately 21% of the combined company's outstanding capital
stock.
Indemnification
Under the merger agreement, Chemdex has agreed that, from and after the
effective time of the merger, Chemdex will cause Promedix to fulfill and honor
in all respects the obligations of Promedix under (1) any indemnification
agreements that exist between Promedix and its officers and directors as of the
date of the Chemdex/Promedix merger agreement and (2) any indemnification
provisions under Promedix's certificate of incorporation or bylaws that are in
effect on the date of the merger agreement.
56
<PAGE>
Indemnification and Escrow
Under the Chemdex/Promedix merger agreement, the Promedix stockholders, will
be deemed to have agreed personally to indemnify Chemdex against all claims,
losses, and liabilities, in excess of $150,000 incurred as a result of any
breach of a representation, warranty, covenant or agreement of Promedix
contained in the merger agreement that occurs or becomes known to Chemdex
within one year of the closing. This obligation to indemnify Chemdex is limited
to no more than 10% of the total number of shares of Chemdex common stock
issued in the merger. An escrow arrangement will be established at closing to
hold these shares of Chemdex common stock. The escrow agreement is attached as
Annex B to this proxy statement and prospectus. The escrow and indemnification
obligations will end one year after closing. At that time, if Chemdex has not
made a claim for the escrowed shares, the escrowed shares will be released to
the former Promedix stockholders.
The total amount available for indemnification may not exceed the amount
deposited in the escrow fund (referred to below) and no stockholder is required
to indemnify Chemdex for an amount greater than his pro rata share of the
Chemdex stock deposited in the escrow fund. The escrow fund is available to
compensate Chemdex for any losses. The stockholders will have no right of
contribution from Promedix with respect to any loss claimed by Chemdex after
the closing date. Nothing in the merger agreement limits the liability of
Promedix for any breach of any representation, warranty or covenant if the
merger is not consummated.
As security for the indemnity referred to above and to provide security to
satisfy any contingencies arising from the representations and warranties of
Promedix, each of the stockholders who received Chemdex common stock in the
merger will be deemed to have received and deposited with U.S. Bank Trust,
National Association, the escrow agent, 10% of their Chemdex shares (plus any
additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by Chemdex after the closing date with respect to
those shares). The escrow amount will be deposited with the original escrow
agent or another institution acceptable to Chemdex and the stockholder agents
appointed under the escrow agreement to act on behalf of the former Promedix
stockholders. The deposit with the escrow agent constitutes an escrow fund to
be governed by the terms in the escrow agreement. The portion of the escrow
amount contributed on behalf of each stockholder must be proportional to the
total number of shares of Chemdex common stock to which that individual would
otherwise be entitled. The form of escrow agreement is attached to this proxy
statement and prospectus as Annex B.
The escrow amount held under the escrow agreement provides the sole and
exclusive remedy for any and all damages Chemdex suffers as the result of any
breach by Promedix of the merger agreement. The merger agreement does not,
however, limit any claim for fraud:
Voting Agreements
Concurrently with the execution of the Chemdex/Promedix merger agreement,
William C. Klintworth, John B. Benear II, Ed Kuklenski, Barrie Brewer and
@Ventures III, LP, who collectively hold approximately 99.2% of the issued and
outstanding preferred stock of Promedix, approximately 70.7% of the issued and
outstanding common stock of Promedix and approximately 85.8% of the combined
issued and outstanding preferred and common stock of Promedix, entered into a
voting agreement with Chemdex. Each party to the voting agreement has agreed to
vote any shares of Promedix capital stock beneficially owned by them in favor
of approval of the merger agreement, the merger and any matter that could
reasonably be expected to facilitate the merger. The voting agreement also
requires these stockholders to take all reasonable actions necessary to call a
meeting to approve the merger and appoints Chemdex or its nominee to vote the
stockholders' shares of Promedix in any matter permitted or required by
Delaware law.
Affiliate Agreements
Concurrently with the execution of the Chemdex/Promedix merger agreement,
each of William C. Klintworth, John B. Benear, Ed Kuklenski, Peter Mills, and
Brad Brewer entered into an affiliate agreement
57
<PAGE>
with Chemdex, in which each of these affiliates agreed not to dispose of any
shares of Chemdex common stock owned by them or acquired in the merger except
in accordance with the federal securities laws. Each affiliate also made
representations and warranties in the affiliate agreement with respect to their
ownership of shares of Chemdex common stock.
Certain Material U.S. Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the Chemdex/Promedix merger that are generally applicable to
holders of Promedix capital stock that hold their shares as capital assets,
assuming that the merger is consummated as contemplated herein. This discussion
does not deal with all federal income tax considerations that may be relevant
to particular Promedix stockholders in light of their specific circumstances,
such as stockholders who are dealers in securities or foreign currency, banks,
insurance companies, or tax-exempt organizations, who are subject to the
alternative minimum tax provisions of the Internal Revenue Code, who hold their
shares as a hedge or as part of a hedging, straddle, conversion or other risk
reduction transaction, who are foreign persons, or who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the merger (whether
or not such transactions are in connection with the merger), including without
limitation transactions in which shares of Chemdex common stock were or are
acquired or shares of Promedix capital stock were or are disposed of.
Furthermore, no foreign, state or local tax considerations are addressed
herein. The discussion is based on federal income tax law as currently in
effect, which could change at any time (possibly with retroactive effect).
ACCORDINGLY, PROMEDIX STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
TO THEM OF THE MERGER AND TAX REPORTING REQUIREMENTS WITH RESPECT THERETO.
The parties are not requesting a ruling from the Internal Revenue Service in
connection with the Chemdex/Promedix merger. As a condition to consummation of
the merger, Venture Law Group, A Professional Corporation, counsel to Chemdex,
and Orrick, Herrington & Sutcliffe LLP, special counsel to Promedix, will
deliver opinions to Chemdex and Promedix, respectively, that the merger will be
treated for federal income tax purposes as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code. The tax opinions will
neither bind the IRS nor preclude the IRS from adopting a contrary position. In
addition, the tax opinions are subject to certain assumptions and
qualifications and are based on the truth and accuracy of certain
representations and covenants made by Chemdex and Promedix in certificates to
be delivered to counsel by the respective managements of Chemdex and Promedix
prior to the effective time.
Provided that the Chemdex/Promedix merger qualifies as a reorganization,
then the following federal income tax consequences will result:
. No gain or loss will be recognized by Promedix stockholders solely as a
result of their receipt of Chemdex common stock in the merger in exchange
for Promedix capital stock (except to the extent of cash received in lieu
of a fractional share).
. The aggregate tax basis of the Chemdex common stock received in the
merger (including any fractional share not actually received) will equal
the aggregate tax basis of Promedix capital stock surrendered in
exchange.
. For purposes of determining the character of gain or loss as long term
capital gain, the holding period of the Chemdex common stock received in
the merger by a Promedix stockholder will include the period during which
the stockholder held the Promedix capital stock surrendered in exchange,
provided that the Promedix capital stock is held as a capital asset at
the time of the merger.
. A fractional share of Chemdex common stock for which cash is received
will be treated as if a fractional share of Chemdex common stock had been
issued in the merger and then redeemed by Chemdex. A Promedix stockholder
receiving such cash will generally recognize gain or loss upon
58
<PAGE>
payment equal to the difference (if any) between the amount of cash
received and the stockholder's tax basis in the fractional share. The gain
or loss will be a capital gain or loss if, at the time of the merger, the
Promedix capital stock is held as a capital asset.
. A Promedix stockholder who exercises dissenters' rights with respect to
all of the holder's shares of Promedix capital stock will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the holder's basis in
the shares, provided that the payment is neither essentially equivalent
to a dividend within the meaning of Section 302 of the Code nor has the
effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Code. The gain or loss will be capital gain or loss,
provided that the Promedix capital stock is held as a capital asset at
the time of the merger.
A successful IRS challenge to the "reorganization" status of the
Chemdex/Promedix merger would result in all Promedix stockholders being
treated as if they sold their Promedix capital stock in a fully taxable
transaction. In such event, each Promedix stockholder would recognize gain or
loss with respect to each share of Promedix capital stock surrendered equal to
the difference between (i) the fair market value, as of the effective time of
the merger, of the Chemdex common stock received in exchange and any cash
received instead of fractional shares, and (ii) the stockholder's adjusted tax
basis. In such event, a Promedix stockholder's aggregate basis in the Chemdex
common stock so received would equal its fair market value as of the effective
time and the stockholder's holding period for the Chemdex common stock would
begin the day after the merger.
Irrespective of the Chemdex/Promedix merger's status as a reorganization, a
Promedix stockholder will recognize gain to the extent shares of Chemdex
common stock received in the merger are treated as received in exchange for
services or property other than solely Promedix capital stock. All or a
portion of any such gain could be taxable as ordinary income. Gain also will
be recognized to the extent a Promedix stockholder is treated as receiving,
directly or indirectly, consideration other than Chemdex common stock in
exchange for Promedix capital stock or to the extent the Promedix capital
stock surrendered in the merger is not equal in value to the Chemdex common
stock and cash received in exchange therefor.
Backup Withholding. Certain noncorporate holders of Promedix capital stock
may be subject to backup withholding at a 31% rate on cash payments received
in lieu of fractional shares of Chemdex common stock. Backup withholding will
not apply, however, to a stockholder who (i) furnishes a correct taxpayer
identification number and certifies that he or she is not subject to backup
withholding on the substitute Form W-9 (or successor form) included in the
letter of transmittal to be delivered to Promedix stockholders following
consummation of the merger, (ii) provides a certification of foreign status on
Form W-8 (or successor form), or (iii) otherwise establishes an exemption from
backup withholding. Any amount withheld under these rules will be credited
against the stockholder's federal income tax liability.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. IN
ADDITION, IT DOES NOT DISCUSS THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY
BE RELEVANT TO CERTAIN PERSONS, INCLUDING HOLDERS OF OPTIONS OR WARRANTS, AND
MAY NOT APPLY TO CERTAIN HOLDERS SUBJECT TO SPECIAL TAX RULES, INCLUDING
HOLDERS WHO ACQUIRED PROMEDIX COMMON STOCK PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR RIGHTS OR OTHERWISE RECEIVED SUCH STOCK AS
COMPENSATION, DEALERS IN SECURITIES AND FOREIGN HOLDERS.
EACH PROMEDIX STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
59
<PAGE>
Accounting Treatment
The Chemdex/Promedix merger will be treated as a purchase for accounting and
financial reporting purposes. Under this method of accounting, the assets and
liabilities of Promedix will be recorded on Chemdex's books at their estimated
fair market value with the remaining purchase price reflected as goodwill. For
more information, see the notes to the Unaudited Pro Forma Combined Condensed
Financial Information beginning on page .
Certain Legal Matters
Chemdex and Promedix have committed to use their reasonable good faith
efforts to obtain necessary regulatory approvals of the Chemdex/Promedix
merger. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 may prohibit
Chemdex and Promedix from completing the merger until certain information and
materials have been furnished to the U.S. Federal Trade Commission and the
Antitrust Division of the U.S. Department of Justice and a required waiting
period is observed. Even after the waiting period expires or terminates, the
FTC or the Antitrust Division could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking
divestiture of substantial assets of Chemdex or Promedix. Neither Chemdex nor
Promedix believes that consummation of the merger will result in a violation of
any applicable antitrust laws. However, there is no assurance that a challenge
to the merger on antitrust grounds will not be made or, if such a challenge is
made, of the result. Chemdex and Promedix do not believe that any additional
material governmental filings in the United States, other than the certificate
of merger in Delaware, are required with respect to the merger.
U.S. Federal Securities Law Consequences
Recipients of Chemdex common shares issued in connection with the
Chemdex/Promedix merger can freely transfer such shares under the U.S.
Securities Act of 1933, except that persons who are deemed to be "affiliates,"
as such term is defined under the Securities Act, of Promedix prior to the
merger may only sell shares they receive in the merger in transactions
permitted by the resale provisions of Rule 145 under the Securities Act, or as
otherwise permitted under the Securities Act. Individuals or entities that
control, are controlled by, or are under common control with, Promedix,
including directors and certain officers of Promedix, are typically considered
to be affiliates.
In general, under Rule 145, for one year following the consummation of the
merger, Promedix affiliates will be subject to the following restrictions on
the public sale of Chemdex common shares acquired in the merger:
. a Promedix affiliate, together with certain related persons, may sell
only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144
under the Securities Act,
. the number of shares a Promedix affiliate may sell, together with certain
related persons and certain persons acting in concert, within any three-
month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding Chemdex common shares or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale,
and
. a Promedix affiliate may sell only if Chemdex remains current with its
informational filings with the SEC under the Exchange Act.
After the end of one year from the consummation of the merger, a Promedix
affiliate may sell Chemdex common shares received in the merger without such
manner of sale or volume limitations provided that Chemdex is current with its
Exchange Act informational filings and such Promedix affiliate is not then an
affiliate of Chemdex. Two years after the consummation of the merger, an
affiliate of Promedix may sell such Chemdex common shares without any
restrictions so long as such affiliate had not been an affiliate of Chemdex for
at least three months prior to such sale.
60
<PAGE>
Pursuant to an escrow agreement between Chemdex and the Promedix
stockholders, ten percent of the Chemdex common stock to be issued in the
Chemdex/Promedix merger will be held in escrow one year after the consummation
of the merger.
Dividends
Chemdex has never paid a dividend on its capital stock. The payment of
dividends by Chemdex in the future will depend on business conditions,
Chemdex's financial condition and earnings and other factors. The
Chemdex/Promedix merger agreement restricts each of Promedix and Chemdex from
declaring, setting aside, making or paying any dividend or other distribution
in respect of its capital stock, during the period from the date of the merger
agreement until the earlier of the termination of the merger agreement or the
consummation of the merger.
Stock Market Listing
The Chemdex/Promedix merger agreement provides that the common shares to be
delivered in connection with the merger shall be authorized for quotation on
the Nasdaq National Market upon completion of the Market.
Dissenters' Rights
If the Chemdex/Promedix merger is approved by the required vote at the
special meeting of Promedix stockholders, a holder of record of shares of
Promedix common stock who does not vote in favor of the merger and who follows
the procedures set forth in Section 262 of the Delaware General Corporation Law
may be entitled to exercise dissenters' rights under Delaware Law. If
dissenter's rights are determined to be available in connection with the
merger, these rights entitle the holder to require Promedix to purchase the
holder's shares for cash at their fair market value. The fair market value of
the Promedix common stock will be determined as of the day before the first
announcement of the terms of the merger, excluding any element of value arising
from the accomplishment or expectation of the merger.
The following is a summary description of the provisions of the applicable
Delaware law. This summary is complete in all material respects but should be
read with the full text of the applicable law, a copy of which is attached
hereto as Annex E. Any holder of shares of Promedix common stock intending to
exercise statutory dissenters' rights is urged to review Annex E carefully and
to consult with legal counsel so as to assure strict compliance with its
provisions.
A vote in favor of the merger agreement and the merger will constitute a
waiver of dissenters' rights. If a Promedix stockholder delivers a proxy that
has been left blank, the proxy will be voted for the approval and adoption of
the merger agreement, unless the proxy is revoked before the special meeting.
Therefore, any Promedix stockholder that intends to exercise dissenters' rights
and to vote by proxy should not leave the proxy blank. The stockholder should
either vote against the merger or abstain from voting for or against the
approval and adoption of the merger agreement.
Notification of Approval and Adoption of Merger Agreement
Within 10 days after approval and adoption of the merger agreement by the
Promedix stockholders, Promedix must mail a notice of the approval to holders
of shares of Promedix common stock which were not voted in favor of the merger,
together with a statement of the price determined by Promedix to represent the
fair market value of the shares for which dissenters' rights remain available,
a brief description of the procedures to be followed in order for the holder to
pursue dissenters' rights, and a copy of Section 262 of the Delaware General
Corporation Law. The statement of price by Promedix constitutes an offer by
Promedix to purchase all shares for which dissenters' rights remain available
at the stated amount. Only a holder of record of shares of Promedix common
stock on the record date (or the holder's duly appointed representative) is
entitled to exercise dissenters' rights.
61
<PAGE>
Electing Dissenters' Rights
To exercise dissenters' rights, the record holder of Promedix common stock
must
. not vote to approve and adopt the merger agreement, and
. within 20 days after the date the approval notice is mailed to the
holder, deliver a written demand for purchase demanding that Promedix
purchase the holder's shares of common stock and a statement as to what
the holder claims to be the fair market value of such shares.
The statement of the fair market value of the shares of Promedix common
stock constitutes an offer by the stockholder to sell the shares of Promedix at
that price.
The written demand for purchase must be delivered to Promedix at 448 East
Winchester Avenue, Suite 200, Salt Lake City, Utah 84107.
If Promedix and the dissenting holder agree upon the purchase price of the
shares, the dissenting holder is entitled to the agreed upon price with
interest thereon at the legal rate on judgments from the date of such
agreement. Payment for the dissenting shares must be made within 30 days after
the later date of such agreement or the date on which all statutory and
contractual conditions to the merger are satisfied, and is subject to surrender
to Promedix of the certificates for the dissenting shares.
Appraisal Proceeding By Delaware Court
If Promedix and the record holder of Promedix common stock fail to agree
upon the fair market value of such holder's shares of Promedix common stock,
then within six months after the date of the approval notice from Promedix, any
stockholder who has not voted in favor of approval and adoption of the merger
agreement and who has made a valid written demand for purchase may file a
complaint in the Delaware Court of Chancery requesting a determination as to
whether the shares are dissenting shares or as to the fair market value of such
holder's shares of Promedix common stock, or both.
Effect of Exercise of Dissenters' Rights on Voting and Right to Dividends
Any stockholder who has duly exercised dissenters' rights in compliance with
Delaware Law will not, after the effective time of the merger, be entitled to
vote the dissenting shares for any purpose. The dissenting shares will not be
entitled to the payment of dividends or other distributions, other than those
payable or deemed payable to stockholders of record as of the date prior to the
effective time of the merger.
Loss, Waiver or Withdrawal of Dissenters' Rights
If a holder of shares of Promedix common stock who demands the purchase of
shares under Section 262 of the Delaware General Corporation Law fails to
perfect, or effectively withdraws or loses the right to such purchase, such
holder will be entitled to receive the consideration otherwise payable pursuant
to the merger.
Dissenting shares lose their status as dissenting shares if:
. the merger is abandoned;
. the shares are transferred prior to their submission for the required
endorsement;
. the dissenting stockholder fails to make a timely written demand for
purchase, along with a statement of fair market value;
. the dissenting shares are voted in favor of the merger;
. the dissenting stockholder and Promedix do not agree upon the status of
the shares as dissenting shares or do not agree on the purchase price,
but neither Promedix nor the stockholder files a complaint or intervenes
in a pending action within six months after mailing of the approval
notice; or
. with Promedix's consent, the stockholder delivers to Promedix a written
withdrawal of the stockholder's written demand for purchase.
62
<PAGE>
Although Section 262 provides that "any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) . . . shall be entitled to an appraisal . . . of the fair
value of the stockholder's shares of stock . . . ," Delaware courts have
determined that under certain circumstances holders of preferred stock do not
have the right to seek appraisal of their shares. Chancellor Allen stated in
the Matter of the Appraisal of Ford Holdings, Inc. Preferred Stock, 698 A.2d
973, 975 (1997) that "insofar as preferred stock is concerned, the provisions
of Section 262 may be modified by provisions of the certificate of rights,
etc., which define the security." Promedix's certificate of incorporation
provides that in the event of a "change in control," as defined in the
certificate of incorporation, holders of Promedix preferred stock will have the
right to receive a liquidation preference. The merger would constitute a change
in control as the term is defined. Accordingly, although not free from doubt,
the certificate of incorporation of Promedix may contractually limit the amount
that a preferred stockholder is entitled to receive to the liquidation
preference of the shares which could limit the right of holders of Promedix
preferred stock to seek judicial appraisal of their shares in the merger.
63
<PAGE>
OTHER TERMS OF THE CHEMDEX/PROMEDIX MERGER AGREEMENT
The following is a brief summary of certain provisions of the
Chemdex/Promedix merger agreement, as amended, a copy which is attached as
Annex A to this proxy statement and prospectus and is incorporated by
reference. This summary is qualified in its entirety by reference to the full
text of the merger agreement.
Effective Time of the Merger
The closing of the transactions contemplated by the merger agreement will
take place as soon as practicable following the later of (a) the date on which
both Promedix and Chemdex stockholders meetings approving the merger have
occurred, or (b) the second business day after which all of the conditions to
the merger are satisfied or waived, or (c) at such other date as Chemdex and
Promedix agree.
As soon as practicable after the closing, Chemdex and Promedix will file a
certificate of merger with the Secretary of State of the State of Delaware as
provided by the relevant sections of the Delaware General Corporation Law. The
time at which the certificate of merger is filed in Delaware is referred to as
the effective time.
Conversion of Securities
As a result of the Chemdex/Promedix merger and without any action on the
part of the Promedix stockholders, each share of Promedix capital stock issued
and outstanding immediately prior to the effective time, other than shares held
by Chemdex or Promedix or their subsidiaries and shares held by a dissenting
holder as to which appraisal rights have been perfected, will be converted into
the right to receive fully-paid and nonassessable shares of Chemdex common
stock, will cease to be outstanding, and will be canceled and retired, except
as described below. This amount or exchange ratio will be determined by
dividing 12,057,366 shares of Chemdex common stock, the maximum number of
shares of Chemdex common stock to be issued as a result of this merger, by the
number of shares of Promedix capital stock outstanding and the number of shares
of capital stock issuable upon exercise of Promedix options outstanding as of
the effective time of the merger.
If the merger is approved, the stockholders of Promedix will receive up to a
maximum of 12,057,366 shares of Chemdex common stock, which will represent
approximately 24% of the outstanding common stock of Chemdex following the
merger. Based on the share calculations set forth in the Unaudited Pro Forma
Combined Condensed Financial Statements, each share of Promedix capital stock
would be exchanged for approximately 1.2795 shares of Chemdex common stock. See
Note 1 to Unaudited Pro Forma Combined Condensed Financial Statements, page
103.
Each holder of a certificate representing any shares of Promedix capital
stock other than shares held by a dissenting stockholder will upon consummation
of the merger cease to have any rights with respect to the Promedix capital
stock, except for the right to receive, without interest, shares of Chemdex
common stock and cash instead of fractional shares, as described below in "No
Fractional Shares," upon the surrender of the certificate. If prior to the
effective time, Chemdex should split or combine the shares of Chemdex common
stock, or pay a stock dividend or other stock distribution in, or in exchange
of shares of Chemdex common stock, or engage in any similar transaction, then
the total number of shares to be issued to the Promedix stockholders will be
appropriately adjusted to reflect such split, combination, dividend, exchange
or other distribution or similar transaction.
Stock Options
As of the effective time, each of the options to acquire Promedix common
stock outstanding as of the effective date will be converted into an option, or
a new substitute option shall be issued, to purchase the number of shares of
Chemdex common stock, rounded down to the nearest whole share, equal to the
number of shares of Promedix common stock subject to such option multiplied by
the exchange ratio, at an exercise price
64
<PAGE>
per share of Chemdex common stock, rounded up to the nearest penny, equal to
the former exercise price per share of Promedix immediately prior to the
effective time divided by the exchange ratio; provided that in the case of any
Promedix stock option to which Section 421 of the Internal Revenue Code applies
by reason of its qualification under Section 422 of the Internal Revenue Code,
the conversion formula shall be adjusted, if necessary, to comply with Section
424(a) of the Internal Revenue Code. Except as provided above, the converted or
substituted Promedix stock options will be subject to the same terms and
conditions as were applicable to Promedix stock options immediately prior to
the effective time.
As soon as practicable after the effective time, Chemdex will file one or
more registration statements on Form S-8 under the Securities Act, or
amendments to its existing registration statements on Form S-8 or amendments to
such other registration statements as may be available, in order to register
the shares of Chemdex common stock issuable upon exercise of the converted
Promedix stock options. The consummation of the merger will not be treated as a
termination of employment for purposes of the option plans. The sale of Pro Med
Co., which will occur immediately prior to the consummation of the merger with
Chemdex, will, however, be treated as a termination of employment for the
employees of Pro Med Co. Upon the sale of Pro Med Co., all options held by Pro
Med Co. employees will be reduced by one half and such remaining options will
immediately become 100% vested upon the sale of such subsidiary. Options held
by Brad Brewer and Barrie Brewer will be reduced by two thirds and the
remaining portion will become 100% vested upon the sale of Pro Med Co. Pro Med
Co. employees will have 30 days to exercise their Promedix stock options (which
will become options to purchase Chemdex Common Stock, after adjusting the
exercise price and number of shares based on the exchange ratio, upon
effectiveness of the merger) following the sale of Pro Med Co. After such date,
pursuant to their terms, such options will lapse and will no longer be
exercisable.
Warrants
As of the effective time, each of the warrants to acquire Promedix capital
stock outstanding (if any) as of the effective date that will by its terms
survive the merger will be converted into a warrant to purchase the number of
shares of Chemdex common stock, rounded down to the nearest whole share, equal
to the number of shares of Promedix capital stock subject to such warrant
multiplied by the exchange ratio. The exercise price per share for each
Promedix warrant will equal the former exercise price per share immediately
prior to the effective time divided by the exchange ratio. It is anticipated
that all the warrants will be exercised prior to the effective time of the
merger for 333,334 shares of Promedix preferred stock. See "Interests of
Certain Persons in the Chemdex/Promedix Merger." on page 55.
Exchange of Shares; No Fractional Shares
As soon as reasonably practicable after the effective time, the exchange
agent will mail to each holder of record of Promedix capital stock (1) a letter
of transmittal and (2) instructions for use in effecting the surrender of the
certificates in exchange for certificates representing shares of Chemdex common
stock. Upon surrender of a certificate to the exchange agent together with such
letter of transmittal, duly executed, the holder of the certificate will be
entitled to receive in exchange therefor (1) a certificate representing that
number of whole shares of Chemdex common stock and (2) a check representing the
amount of cash instead of fractional shares, if any, which the holder has the
right to receive in respect of the certificate surrendered. Promedix
stockholders should not send in their certificates until they receive a letter
of transmittal.
No fractional shares of Chemdex common stock will be issued pursuant to the
merger. Instead, cash adjustments will be paid in an amount equal to the
product of the fraction of a share of Chemdex common stock that would otherwise
be issuable multiplied by the average closing price of Chemdex's common stock
on the Nasdaq National Market for the 10 trading day period ending two trading
days prior to the closing date.
No dividends on shares of Chemdex common stock will be paid to persons
entitled to receive certificates representing shares of Chemdex common stock
until such persons surrender their certificates. Upon the surrender, the person
in whose name the certificates representing such shares of Chemdex common stock
will
65
<PAGE>
be issued will also receive any dividends that have become payable with respect
to the shares of Chemdex common stock between the effective time and the time
of the surrender. In no event will the person entitled to receive such
dividends be entitled to receive interest on such dividends.
If any certificates for shares of Chemdex common stock are to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, the person requesting the exchange must (1) pay to the exchange
agent any transfer or other taxes required by reason thereof, or (2) establish
that the tax has been paid or is not applicable.
At the effective time, the stock transfer books of Promedix will be closed
and no further transfers of shares of Promedix capital stock will be made.
Neither the exchange agent nor any party to the merger agreement is liable
to a holder of shares of Promedix capital stock for any shares of Chemdex
common stock or dividends or the cash payment for fractional interests
delivered to a public official pursuant to applicable escheat laws.
In the event that any certificate has been lost, stolen or destroyed, upon
(1) the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed, and (2) if required by Chemdex, in
its discretion, the posting by the person of a bond in the sum as Chemdex may
direct as indemnity, or the other form of indemnity as Chemdex may reasonably
direct, against any claim that may be made against Chemdex with respect to the
certificate, Chemdex will issue or cause to be issued in exchange for the
certificate the number of whole shares of Chemdex common stock and cash instead
of fractional shares into which the shares of Promedix capital stock
represented by the certificate are converted in the merger.
If holders of Promedix capital stock are entitled to dissent from the merger
and demand appraisal of any Promedix capital stock in accordance with the
provisions of Section 262 of the Delaware General Corporation Law, any excluded
shares will not be converted, but will from and after the effective time
represent only the right to receive such consideration as may be determined to
be due to the dissenting holder pursuant to the Delaware Law; provided,
however, that each share of Promedix capital stock held by a dissenting holder
who, after the effective time withdraws his demand for appraisal or lose his
rights of appraisal with respect to the shares of Promedix capital stock, in
either case pursuant to the Delaware Law, will not be deemed to be an excluded
share but will be deemed to be converted, as of the effective time, into the
right to receive Chemdex common stock in accordance with the exchange ratio.
Representations and Warranties
Promedix and Chemdex have made various customary mutual representations and
warranties in the Chemdex/Promedix merger agreement about themselves.
The merger agreement contains certain representations and warranties by
Promedix relating to, among other things:
. due organization, power and standing;
. capital structure and ownership of subsidiaries;
. the authorization, execution, delivery and enforceability of the merger
agreement, and required consents and approvals and the absence of
breaches or violations of the certificate of incorporation and bylaws,
agreements and instruments, and law;
. financial statements and absence of undisclosed liabilities;
. tax matters;
. the absence of certain changes or events;
66
<PAGE>
. title and related matters;
. intellectual property rights;
. employee benefit plans;
. bank accounts;
. contracts;
. compliance with applicable law;
. labor and employment matters;
. interested party transactions;
. employees, independent contractors and consultants;
. insurance;
. litigation;
. governmental authorizations and regulations;
. subsidiaries;
. compliance with environmental requirements;
. trade regulation;
. year 2000 compliance;
. corporate documents;
. no brokers;
. action by Promedix board of director;
. termination of other acquisition negotiations;
. complete disclosure; and
. the accuracy of information in this proxy statement and prospectus.
The merger agreement also contains certain representations and warranties by
Chemdex and Popcorn relating to, among other things:
. due organization, power and standing;
. capital structure;
. the authorization, execution, delivery and enforceability of the merger
agreement, and required consents and approvals and the absence of
breaches or violations of the certificate of incorporation and bylaws;
. the filing of required reports with the SEC and financial statements;
. compliance with applicable law;
. interim operations of Popcorn;
. complete disclosure;
. the accuracy of information in this proxy statement and prospectus;
. no brokers;
. actions of the Chemdex board of directors;
. termination of competitive acquisition negotiations;
67
<PAGE>
. litigation; and
. absence of certain changes or events.
Conduct of Business by Promedix
Promedix agreed to advise Chemdex promptly of any event that would make any
representation or warranty of Promedix contained in the merger agreement untrue
or inaccurate. Promedix also agreed that prior to the effective time it will,
among other things: (a) carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted; (b)
pay its debts and taxes, and pay or perform its other obligations, when due;
and (c) use its reasonable efforts to preserve intact its business
organization, to retain its present officers and key employees, and preserve
its relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it. Promedix also agreed that through
the effective time, it will promptly notify Chemdex of any event or occurrence
not in the ordinary course in its business. In particular, unless the merger
agreement provides otherwise and subject in certain cases to specified
exceptions, Promedix agreed that, prior to the effective time, it will not,
without the prior written consent of Chemdex, among other things:
. accelerate, amend or change the period of exercisability or the vesting
schedule of restricted stock or options except as specifically required
by the terms of such agreements;
. declare or pay any dividends on or make or agree to make any other
distributions in respect of any of its capital stock, or split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities, or purchase or otherwise acquire any shares of
its capital stock except from former employees, directors and consultants
in accordance with agreements providing for the repurchase of shares in
connection with any termination of service by such party;
. issue or sell any shares of its capital stock or securities convertible
into shares of its capital stock other than: issuance of securities
issuable upon conversion of Promedix preferred stock or exercise of
options warrants outstanding on the date of the merger agreement, or the
repurchase of shares of common stock from terminated employees pursuant
to the terms of outstanding stock restriction or similar agreements, or
the grant of options or issuance of restricted stock under the Promedix
stock option plan in the ordinary course of business in accordance with
prior practice;
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets;
. sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the
business of Promedix, except non-exclusive licenses of Promedix's
products and services in the ordinary course of business consistent with
past practice;
. increase or agree to increase the compensation payable or to become
payable to its officers or employees (except to non-officer employees in
the ordinary course of business consistent with past practice),
. grant any additional severance or termination pay to, or enter into any
employment or severance agreements with, officers, employees or agents,
. enter into any collective bargaining agreement,
. establish, adopt, enter into or amend in any material respect any bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
. revalue any of its assets, including writing down the value of inventory
or writing off notes or accounts receivable;
68
<PAGE>
. incur, in excess of $25,000, any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities or guarantee any debt
securities of others;
. amend or propose to amend its certificate of incorporation or Bylaws;
. incur or commit to incur any capital expenditures in excess of $50,000 in
the aggregate or in excess of $25,000 as to any individual matter;
. lease, license, sell, transfer or encumber or permit to be encumbered any
asset, Promedix proprietary right or other property associated with the
business of Promedix, except non-exclusive licenses of Promedix's
products and services in the ordinary course of business consistent with
prior practice;
. enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business
consistent with past practice;
. fail to maintain its equipment and other assets in good working condition
and repair, subject only to ordinary wear and tear;
. change accounting methods;
. amend or terminate any material contract, agreement or license to which
it is a party;
. loan any amount to any person or entity, or guaranty or act as a surety
for any obligation;
. waive or release any material right or claim;
. make or change any tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any
amended return, enter into any closing agreement, settle any tax claim or
assessment relating to Promedix, surrender any right to claim refund of
taxes, consent to any extension or waiver of the limitation period
applicable to any tax claim or assessment relating to Promedix, or take
any other action or omit to take any action that would have the effect of
increasing the tax liability of Promedix or Chemdex;
. take any action or fail to take any action that would cause there to be a
material adverse change with respect to Promedix;
. enter into any agreement outside of the ordinary course of business in
which the obligation of Promedix exceeds $50,000 or shall not terminate
or be subject to termination for convenience within 180 days following
execution;
. enter into any agreement not in the ordinary course of business; or
. allow any intellectual property deadline, registrations or applications
to lapse.
Promedix also agreed that through the effective time, it will afford Chemdex
access to all of its records, and will furnish to Chemdex all information
concerning its business, properties and personnel as Chemdex may reasonably
request; and use its best efforts to satisfy all of the conditions to
consummate the merger and obtain all third-party consents and authorizations
necessary to consummate the merger.
Conduct of Business by Chemdex
Chemdex agreed to advise Promedix promptly of any event known to Chemdex
that would render any representation or warranty of Chemdex contained in the
merger agreement untrue or inaccurate. Chemdex also agreed that prior to the
effective time it will, among other things:
. reserve for issuance the maximum number of shares of Chemdex common stock
issuable upon consummation of the merger;
69
<PAGE>
. use its best efforts to satisfy all of the conditions to consummate the
merger and obtain all required consents and authorizations of, and make
all filings and give all notices to, third parties that are necessary to
consummate the merger; and
. cause the shares of Chemdex common stock issuable to the stockholders of
Promedix in the merger to be authorized for listing on the Nasdaq
National Market.
Chemdex agreed that, prior to the effective time, it will not, without the
prior written consent of Promedix, declare or pay any dividends on or make or
agree to make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock; or amend its certificate of incorporation.
Chemdex further agreed at or after the effective time to:
. assume all outstanding options and warrants to purchase Promedix capital
stock,
. provide Promedix employees with employee benefits that are no less
favorable than those provided by Chemdex to its similarly situated
employees;
. fulfill and honor the obligations of Promedix pursuant to any
indemnification agreements between Promedix and its directors and
officers; and
. maintain a significant presence in Salt Lake City for at least two years
following the closing of the merger.
Chemdex also agreed to provide Promedix with a $10 million line of credit
that is secured by Promedix's assets but subordinated to Promedix's and its
subsidiaries' existing secured creditors.
Joint Conduct
Chemdex and Promedix agreed that prior to the effective time they will,
among other things:
. jointly prepare and file a proxy statement and prospectus with the
Commission;
. convene stockholders' meetings to vote on the merger;
. maintain the confidentiality of each other's confidential information;
and
. use their reasonable good faith efforts to make all necessary filings and
notifications and obtain all necessary consents, waivers, approvals and
authorizations required to consummate the merger.
Chemdex and Promedix also agreed that neither Chemdex, Promedix nor any of
their respective subsidiaries will take, or allow to be taken or fail to take
any action, which act or failure to act would jeopardize qualification of the
merger as a reorganization within the meaning of Section 368(a) of the U.S.
Internal Revenue Code.
No Solicitation
Until the consummation of the merger or termination of the merger agreement
in accordance with its terms, and except with respect to certain specified
strategic investors, Promedix may not take any action to solicit or initiate
any inquiry, proposal or offer from, or participate in any negotiations with
any other party regarding any acquisition of Promedix stock or assets or any
material portion of the stock or assets of Promedix, or any material license of
Promedix's proprietary rights. Promedix has agreed to notify Chemdex of any
such potential acquisition proposals, including the identity of the persons
making such proposals and, subject to the fiduciary duties of the Promedix
board of directors, the terms of such proposals.
Until the consummation of the merger or termination of the merger agreement
in accordance with its terms, and except with respect to certain specified
exceptions, Chemdex may not take any action to solicit or initiate any inquiry,
proposal or offer from, or participate in any negotiations with any other party
regarding
70
<PAGE>
any acquisition of the stock or assets or any material portion of the stock or
assets of a direct competitor of Promedix. Chemdex has agreed to notify
Promedix of any such potential acquisition proposals, including the identity of
the persons making such proposals and, subject to the fiduciary duties of the
Chemdex board of directors, the terms of such proposals.
Certain Other Covenants
Consents; Approvals
Chemdex and Promedix will each use its reasonable good faith efforts to
obtain all consents, waivers, approvals, authorizations or orders, and Chemdex
and Promedix will make or cause to be made all filings, required in connection
with the authorization, execution and delivery of the merger agreement and the
consummation by each of them of the transactions contemplated thereby.
Director and Officer Indemnification
Chemdex has agreed that for acts occurring prior to the effective time, all
rights to indemnification and advancement of expenses existing in favor of the
directors and officers of Promedix under the provisions existing on the date of
the merger agreement, the certificate of incorporation, bylaws and
indemnification agreements of Promedix shall survive the effective time. In
addition, Chemdex has agreed to indemnify and advance expenses to directors and
officers of Promedix to the full extent required or permitted under the
provisions existing on the date of the merger agreement of Promedix's
certificate of incorporation and bylaws and indemnification agreements of
Promedix. See "Interests of Certain Persons in the Chemdex/Promedix Merger."
Chemdex will maintain, with respect to claims arising from facts or events
which occurred before the effective time, officers' and directors' liability
insurance covering directors and officers of Promedix who were covered as of
the date of the merger agreement by Promedix's existing officers' and
directors' liability insurance policies, on terms substantially no less
advantageous to such officers and directors than such existing insurance.
Notification of Certain Matters
Chemdex and Promedix will each give each other prompt notice of the
occurrence or non-occurrence of any event which would be reasonably expected to
cause any representation or warranty contained in the merger agreement to be
materially untrue or inaccurate, or any failure of Promedix, Chemdex or Popcorn
materially to comply with or satisfy any covenant, condition or agreement
contained in the merger agreement.
Further Action/Tax Treatment
The parties to the merger agreement will use all reasonable good faith
efforts to take, or cause to be taken, all actions and to do all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by the merger agreement, to obtain in
a timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to each of their obligations under the
merger agreement. In addition, Chemdex, Popcorn and Promedix have each agreed
to use their best efforts to cause the merger to qualify as a reorganization
under the provisions of Section 368(a) of the U.S. Internal Revenue Code, as
specified in the merger agreement, and will not, both before and after
consummation of the merger, take any actions which might reasonably be expected
to prevent the merger from so qualifying.
Chemdex/SpecialtyMD Merger
In connection with the Chemdex/Promedix merger, Chemdex agreed not to
acquire SpecialtyMD without Promedix's consent. Promedix has consented to
Chemdex's acquisition of SpecialtyMD so long as the
71
<PAGE>
Chemdex/SpecialtyMD merger does not close or become effective prior to the
effective time of the Chemdex/Promedix merger.
Formation of New Company with Tenet Healthcare
In connection with the Chemdex/Promedix merger, Chemdex agreed not to
provide Tenet with a business to business ecommerce solution that directly
competes with Promedix's ecommerce solution without Promedix's consent.
Promedix has consented to the formation of the new company with Tenet so long
as it does not close or become effective prior to the effective time of the
Chemdex/Promedix merger.
Public Announcements
Chemdex and Promedix agreed not to issue any press release or make any
public written statement with respect to the Chemdex/Promedix merger or the
merger agreement without the prior consent of the other party, except as
required by law or the regulations of the Nasdaq National Market.
Conditions to the Chemdex/Promedix Merger
Conditions to Obligation of Each Party to Effect the Merger
The obligations of Chemdex and Promedix to effect the merger are subject to
the satisfaction of certain conditions, including, among others:
. obtaining Chemdex and Promedix stockholder approvals;
. all authorizations, consents, orders or approvals of, or declarations or
filings with, and all expirations of waiting periods imposed by, any
governmental entity which are necessary for the consummation of the
merger, shall have been filed, occurred or been obtained;
. the absence of any injunction prohibiting consummation of the merger;
. the shares of Chemdex common stock to be issued in the merger shall have
been approved for quotation on the Nasdaq National Market;
. the registration statement shall have become effective and no stop order
shall have been issued by the Commission with respect to the registration
statement;
. Promedix shall have received an opinion of its counsel, Orrick,
Herrington & Sutcliffe LLP, and Chemdex shall have received the opinion
of its counsel, Venture Law Group, each to the effect that the merger,
for federal income tax purposes, will constitute a "reorganization"
within the meaning of Section 368(a) of the U.S. Internal Revenue Code;
and
. the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall
have expired or been terminated.
The obligation of each of Chemdex and Promedix to effect the merger is also
subject to the satisfaction of the following additional conditions by the other
party, including, among other things:
. the other party has performed its obligations under the merger agreement
prior to the effective time and the representations and warranties of the
other party contained in the merger agreement are true and correct in all
material respects as of the effective time, except as contemplated by the
merger agreement; and
. each of Chemdex and Promedix has received a legal opinion from the other
party's counsel.
72
<PAGE>
Additional Conditions To Obligations Of Chemdex And Popcorn
In addition, Chemdex's and Popcorn's obligation to effect the merger is
subject to the following:
. no more than 5% of the outstanding shares of Promedix capital stock shall
have elected to, or continue to have contingent rights to, exercise
appraisal rights under Delaware Law;
. an escrow agent and representatives of the Promedix stockholders shall
have executed and delivered to Chemdex an escrow agreement;
. the voting agreements, employment agreements and affiliate agreements
executed and delivered concurrently with the execution of the merger
agreement shall remain in full force and effect;
. Promedix shall have obtained all material consents necessary to
consummate the merger;
. Promedix shall have received written letters of resignation from each of
the current members of its board of directors;
. Promedix shall have closed the sale of its Pro Med Co. subsidiary; and
. all of Promedix's outstanding convertible debt shall have converted into
Promedix capital stock or have been repaid.
Additional Conditions to Obligation of Promedix
Promedix's obligation to effect the merger is subject to William C.
Klintworth and one outside director to be mutually agreed upon becoming members
of the Chemdex board of directors.
Termination
The Chemdex/Promedix merger agreement may be terminated and the merger
abandoned at any time prior to the effective time, whether before or after
approval by the stockholders of Chemdex and Promedix:
. by mutual written consent of Chemdex and Promedix;
. by either Chemdex or Promedix, by giving written notice to the other
party, if a court or governmental agency prohibits the merger;
. by either Chemdex or Promedix if the other company breaches in a material
way its representations, warranties, covenants or agreements and that
breach is not remedied within 10 business days or cannot be remedied;
. by either Chemdex or Promedix, if the merger does not close before March
31, 2000 because the other company's stockholders do not approve the
merger or the other company fails to satisfy its conditions to closing
(unless the failure results primarily from a breach by the other party of
any representation, warranty, or covenant contained in the merger
agreement or the other party's failure to fulfill a condition precedent
to closing or other default); or
. by either Chemdex or Promedix, if the other party's board of directors
recommends an alternative transaction that meets certain criteria
specified in the merger agreement or the required approvals of the other
party's stockholders shall not have been obtained.
In the event of termination, the merger agreement is of no further effect
and except as specifically provided in the merger agreement and described in
"Cancellation Fees; Expenses" below, there is no liability or obligation on the
part of either Chemdex or Promedix or their respective officers or directors.
Expenses; Cancellation Fees
Except with respect to the cancellation fee described below, all costs and
expenses incurred in connection with the Chemdex/Promedix merger agreement and
the transactions contemplated by the merger agreement (whether or not the
merger is consummated) will be paid by the party incurring such expenses.
73
<PAGE>
If the merger agreement is terminated by Promedix either (a) because of an
intentional or willful material breach by Chemdex of the Chemdex/Promedix
merger agreement, (b) because Chemdex recommended an alternative transaction or
tender offer described above, or (c) the required approvals of the Chemdex
stockholders shall not have been obtained, then within two business days after
such termination Chemdex shall pay Promedix a fee equal to $10 million.
If the merger agreement is terminated by Chemdex either (a) because of an
intentional or willful material breach by Promedix of the Chemdex/Promedix
merger agreement, (b) because Promedix recommended an alternative transaction
or tender offer described above, or (c) the required approvals of the Promedix
stockholders shall not have been obtained, then within two business days after
such termination Promedix shall pay Chemdex a fee equal to $10 million.
Payment of the fee by either party is in addition to any other available
legal or equitable remedies. Any amounts that are not paid within two business
days after termination accrue interest at a rate of 9% per annum until paid.
Amendment; Waiver
The merger agreement may be amended in writing by Chemdex and Promedix at
any time before or after approval by the stockholders of Promedix, but, after
any such approval, no amendment may be made that by law requires the further
approval of the Promedix or Chemdex stockholders.
At any time prior to the effective time, Chemdex and Promedix may, to the
extent legally allowed, extend the time for the performance of any of the
obligations or the other acts of the other parties hereto, waive any
inaccuracies in the representations or warranties contained in the merger
agreement or in any document delivered pursuant to the merger agreement, and
waive compliance with any of the agreements or conditions contained in the
merger agreement.
74
<PAGE>
Proposal No. 2
THE CHEMDEX/SPECIALTYMD MERGER
This section, as well as the section "Other Terms of The Chemdex/SpecialtyMD
Merger Agreement," describe the material aspects of the proposed
Chemdex/SpecialtyMD merger. These discussions are qualified in their entirety
by reference to the Chemdex/SpecialtyMD merger agreement, which is attached as
Annex D to this document, and to the other agreements and documents that are
discussed in this document and that are filed as exhibits to the registration
statement of which this document forms a part. YOU SHOULD READ THE
CHEMDEX/SPECIALTYMD MERGER AGREEMENT IN ITS ENTIRETY AS IT IS THE LEGAL
DOCUMENT THAT GOVERNS THE MERGER.
Background of the Chemdex/SpecialtyMD Merger
Beginning in August 1999, senior executives of Promedix and SpecialtyMD
conducted discussions concerning possible strategic alliances between Promedix
and SpecialtyMD. On various occasions during that month, members of each
company's management team met to discuss a possible merger between the two
companies. In September, Chemdex reached a definitive agreement to merge with
Promedix, without consideration of a potential prior merger between Promedix
and SpecialtyMD.
Beginning in September, senior executives of Chemdex, Promedix and
SpecialtyMD conducted discussions concerning possible strategic alliances among
Chemdex, Promedix and SpecialtyMD. On various occasions during September and
October 1999, members of each company's management team met to discuss a
possible merger among the three companies.
On November 29, 1999, SpecialtyMD formally retained Alliant Partners to
provide financial advisory services in connection with a possible acquisition
of SpecialtyMD by Chemdex.
On the evening of December 8, 1999 and the morning of December 9, 1999, the
SpecialtyMD board of directors held a special meeting to discuss the status of
the Chemdex merger. Senior management of SpecialtyMD and representatives of
Alliant Partners, Cooley Godward, LLP and Wilson Sonsini Goodrich & Rosati
reviewed the status of negotiations with Chemdex, the potential benefits and
risks of the transaction with Chemdex and the principal terms of the draft
merger agreement and related documents.
Alliant Partners reviewed the strategic rationale for, and the financial
analyses relating to, the proposed merger. At the meeting, Alliant Partners
provided its opinion that the proposed consideration to be paid pursuant to the
merger agreement was fair, from a financial point of view, to SpecialtyMD.
Following the discussion, the SpecialtyMD board of directors determined that
the proposed merger was advisable and approved the merger agreement and related
documents. On December 10, 1999, the Chemdex board of directors approved the
merger. In the afternoon of December 10, 1999, senior executives of Chemdex and
SpecialtyMD signed and delivered to each other the final merger agreement and
certain ancillary agreements, and on December 13, the companies jointly
announced the transaction.
Reasons of SpecialtyMD for the Merger; Recommendation of the Board of Directors
of SpecialtyMD
The SpecialtyMD board has based its approval of the merger and its
determination that the merger agreement is in the best interests of SpecialtyMD
and its stockholders upon a number of factors, including the following
advantages of the merger:
. Technological Synergies. The overlap of research and development efforts
and the potential synergy of Chemdex's and Promedix's technologies with
SpecialtyMD's technologies will enable the combined company to more
effectively respond to customer needs and compete in the dynamic
marketplace and reach the marketplace more quickly with an overall
specialty medical products information and catalog-based purchasing
solution;
75
<PAGE>
. Increased Market Presence and Greater Economies of Scale. The merger will
create a combined company with significantly greater resources, most
notably, a larger addressable market for the Chemdex purchasing solution.
With expanded resources, the combined company should be able to achieve
greater sales, greater leverage of current and future infrastructure,
operational efficiencies and better service of its customers;
. Strength of Combined Management Team. The merger will potentially create
a combined company with an experienced management team that has the
breadth and depth to effectively lead and manage the combined company's
growth and extend its leadership in the business-to-business marketplace.
SpecialtyMD believes that the experience of the Chemdex management team
will provide significant benefits from both an operational and strategic
standpoint;
. Premium. The merger provides SpecialtyMD stockholders with the
opportunity to receive a significant premium over the fair market value
of SpecialtyMD capital stock;
. Future Appreciation. SpecialtyMD stockholders will have the ability to
continue to participate in the growth of the business conducted by
Chemdex and SpecialtyMD after the merger and to benefit from the
potential appreciation in the value of Chemdex common shares;
. Increased Visibility as a Public Company. The merger will enable
SpecialtyMD to achieve a measure of visibility as a public company that
will enhance its position with customers, partners and employees; and
. Increased Liquidity. The public float and trading volume of Chemdex
common stock provide SpecialtyMD stockholders the opportunity to gain
greater liquidity in their investment.
The SpecialtyMD board also considered the following potentially negative
factors:
. the potential disruption of SpecialtyMD's business that might result from
both employee and customer uncertainty as a result of the announcement of
the merger;
. the risk that, despite the intentions and efforts of the parties to
reassure SpecialtyMD's customers regarding the combined company's
intention to support SpecialtyMD's existing business strategy, the
announcement of the merger could result in customer decisions to delay or
cancel content sponsorship or placement of additional product information
on the SpecialtyMD website;
. the risk that, despite the intentions and efforts of the parties to
reassure SpecialtyMD's content partners, the announcement of the merger
could result in content partner decisions to delay or cancel SpecialtyMD
content licenses;
. the possibility that the merger might not be completed and customer's and
content partner's potentially negative response to the interrupted
merger;
. the risk that the publicly-traded Chemdex stock might decline in price;
. the effects of the public announcement of the merger on SpecialtyMD's
ability to attract and retain key management, marketing and technical
personnel; and
. the other risks described above under "Risk Factors."
After detailed consideration of these factors, the SpecialtyMD board
concluded that the potential benefits of the merger outweighed these negative
factors and determined that the merger was fair to and in the best interests of
SpecialtyMD and its stockholders.
The above discussion of the information and factors considered by the
SpecialtyMD board is not exhaustive and does not include all factors considered
by the SpecialtyMD board. In view of the variety of factors considered in
connection with its evaluation of the merger, the SpecialtyMD board did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the SpecialtyMD board may have given different
weights to different factors. Based on the factors outlined above, the
SpecialtyMD board determined that the
76
<PAGE>
merger is fair to and in the best interests of SpecialtyMD and its
stockholders. In view of the wide variety of factors considered, the
SpecialtyMD board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered.
THE SPECIALTYMD BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF SPECIALTYMD AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of Financial Advisor to SpecialtyMD
Under an engagement letter dated November 29, 1999, SpecialtyMD retained
Alliant Partners to provide it with a financial fairness opinion in connection
with the merger. The SpecialtyMD board of directors selected Alliant Partners
to act as SpecialtyMD's financial advisor based on Alliant Partners'
qualifications, expertise and reputation and its knowledge of the business and
affairs of similar businesses. At the meeting of the SpecialtyMD board on
December 8, 1999, Alliant Partners rendered its oral opinion, subsequently
confirmed in writing, that as of December 8, 1999, based upon and subject to
the various considerations set forth in the opinion, the consideration to be
paid by Chemdex pursuant to the Chemdex/SpecialtyMD merger agreement is fair
from a financial point of view to SpecialtyMD.
Reasons of Chemdex for the Chemdex/SpecialtyMD Merger; Recommendation of the
Board of Directors of Chemdex
At a meeting of the Chemdex board of directors held on December 10, 1999,
the Chemdex board determined that the acquisition of SpecialtyMD was in keeping
with its corporate strategy of complementing its internal growth with
acquisitions that are likely to benefit from leveraging Chemdex's technology,
services and operations expertise when combined with Chemdex's existing
operations.
In reaching its decision to approve the Chemdex/SpecialtyMD merger, the
Chemdex board considered the following material factors:
. the expectation that SpecialtyMD's online specialty clinical content,
management team and employees could be readily integrated with Chemdex's
operations, enabling the combined company to broaden its served markets;
. that the merger, before restructuring and similar charges, and assuming
the realization of certain expected benefits, including accelerated time
to market, cost savings and other synergies would enhance the combined
company's position in the general online business-to-business e-commerce
market;
. the belief that the combined company will be able to achieve economies by
scaling and leveraging Chemdex's technology, customer service,
professional service and account development processes in SpecialtyMD's
specialty clinical content market; and
. the determination that the consideration to be paid by Chemdex pursuant
to the merger agreement is fair from a financial point of view to Chemdex
as of the date of the opinion.
In view of the variety of factors considered in connection with the
evaluation of the merger, the Chemdex board did not find it practical to and
did not quantify or otherwise assign relevant weights to specific factors
considered in reaching its determination. After detailed consideration of these
factors, the Chemdex board concluded that the potential benefits of the merger
outweighed these considerations and determined that the merger was fair to and
in the best interests of Chemdex and its stockholders.
The above discussion of the information and factors considered by the
Chemdex board is not exhaustive and does not include all factors considered by
the Chemdex board. In view of the variety of factors considered
77
<PAGE>
in connection with its evaluation of the merger, the Chemdex board did not find
it practicable to, and did not, quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. In addition,
individual members of the Chemdex board may have given different weights to
different factors. Based on the factors outlined above, the Chemdex board
determined that the merger is fair to and in the best interests of Chemdex and
its stockholders.
THE CHEMDEX BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF CHEMDEX AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Interests of Certain Persons in the Chemdex/SpecialtyMD Merger
General
Certain SpecialtyMD executive officers and certain members of the
SpecialtyMD board of directors will receive benefits as a result of the
Chemdex/SpecialtyMD merger that will be in addition to or different from their
interests as stockholders of SpecialtyMD generally. These include, among other
things, provisions in the Chemdex/SpecialtyMD merger agreement relating to
indemnification and severance benefits for members of SpecialtyMD's board and
management. These benefits also included acceleration of vesting and other
potential and actual benefits discussed in greater detail in the section
entitled "Additional matter being submitted to a vote of only SpecialtyMD
stockholders" located elsewhere in this prospectus. The SpecialtyMD board was
aware of these interests and considered them, among other matters, in approving
the merger agreement and the merger.
Employment Agreements
In connection with the Chemdex/SpecialtyMD merger agreement, two officers of
SpecialtyMD, Ashfaq Munshi and Joseph Meresman, have entered into employment
agreements with Chemdex. Mr. Munshi, Chief Executive Officer and President of
SpecialtyMD, will serve as Chemdex's Vice President, Content Engineering and
Chief Executive Officer of the SpecialtyMD subsidiary. Mr. Munshi's annual
compensation will be $180,000. Mr. Meresman, Vice President, Business
Development of SpecialtyMD, will serve as Chemdex's Vice President, Business
Development of the SpecialtyMD subsidiary. Mr. Meresman's annual compensation
will be $180,000. The employment agreements also provide that Chemdex will pay
severance benefits equal to the greater of one year's salary or $100,000 and
will release all of that individual's Chemdex stock from stock restriction
agreement in the event of termination without cause or as a result of a
constructive termination. In consideration for these commitments, each
individual has agreed that until the earlier to occur of three years from the
closing of the Chemdex/SpecialtyMD merger or one year following his termination
of employment from Chemdex for any reason he will not:
. own or participate in any business which competes with Chemdex;
. solicit any Chemdex employee to leave the employ of Chemdex; or
. solicit or interfere with any customer of Chemdex.
Change of Control
In connection with the Chemdex/SpecialtyMD merger agreement, Ashfaq Munshi
and Joseph Meresman entered into change of control agreements with Chemdex. The
change of control agreements provide that in the event more than fifty percent
of Chemdex's voting securities or all or substantially all of Chemdex's assets
are acquired and such employee's employment is constructively or actively
terminated within 12 months after such acquisition, then vesting of employee's
unvested stock options shall be accelerated six months.
78
<PAGE>
Stock Held by SpecialtyMD Executive Officers and Non-Employee Directors
As of November 30, 1999, SpecialtyMD's directors and executive officers
collectively beneficially owned 5,471,137 shares of SpecialtyMD capital stock
which upon consummation of the merger will represent approximately 1% of the
combined company's outstanding capital stock.
Indemnification
Under the merger agreement, Chemdex has agreed that, from and after the
effective time of the merger, Chemdex will cause SpecialtyMD to fulfill and
honor in all respects the obligations of SpecialtyMD under (1) any
indemnification agreements that exist between SpecialtyMD and its officers and
directors at the effective time of the merger and (2) any indemnification
provisions under SpecialtyMD's certificate of incorporation or bylaws that are
in effect on the date of the merger agreement.
Indemnification and Escrow
Under the Chemdex/SpecialtyMD merger agreement, the SpecialtyMD
stockholders, other than dissenting stockholders who exercise rights of
appraisal under Section 262 of the Delaware General Corporation Law who do not
receive Chemdex common stock in the merger, will be deemed to have agreed
personally to indemnify Chemdex and its officers, directors and affiliates
against all claims, losses and liabilities incurred as a result of any breach
of a representation, warranty, covenant or agreement of SpecialtyMD contained
in the merger agreement that occurs or becomes known to Chemdex within one year
of the closing. Except to the extent a claim or loss results from fraud, the
obligation to indemnify Chemdex is limited to no more than 10% of the total
number of shares of Chemdex common stock issued in the merger. An escrow
arrangement will be established at closing to hold these shares of Chemdex
common stock. The escrow agreement is attached as Annex F to this proxy
statement. The escrow and indemnification obligations will end either one year
after closing or March 31, 2001, whichever is earlier. At that time, if Chemdex
has not made a claim for the escrowed shares, the escrowed shares will be
released to the former SpecialtyMD stockholders.
Except to the extent a claim or loss results from fraud, the total amount
available for indemnification may not exceed the amount deposited in the escrow
fund (referred to below) and no stockholder is required to indemnify the
indemnified parties for an amount greater than his pro rata share of the
Chemdex stock deposited in the escrow fund. The escrow fund is available to
compensate the indemnified parties for any losses. The stockholders will have
no right of contribution from SpecialtyMD with respect to any loss claimed by
Chemdex after the closing date. Nothing in the merger agreement limits the
liability of SpecialtyMD for any breach of any representation, warranty or
covenant if the merger is not consummated.
As security for the indemnity referred to above and to provide security to
satisfy any contingencies arising from the representations and warranties of
SpecialtyMD, each of the stockholders who received Chemdex common stock in the
merger will be deemed to have received and deposited with U.S. Bank Trust,
National Association, the escrow agent, 10% of their Chemdex shares (plus any
additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by Chemdex after the closing date with respect to
those shares). The escrow amount will be deposited with the original escrow
agent or another institution acceptable to Chemdex and the stockholder agents
appointed under the escrow agreement to act on behalf of the former SpecialtyMD
stockholders. The deposit with the escrow agent constitutes an escrow fund to
be governed by the terms in the escrow agreement. The portion of the escrow
amount contributed on behalf of each stockholder must be proportional to the
total number of shares of Chemdex common stock to which that individual would
otherwise be entitled. The form of escrow agreement is attached to this
prospectus and proxy statement as Annex F. Under the escrow agreement, the
stockholder agents may sell Chemdex shares under certain circumstances, but the
proceeds of the sale must be maintained in the escrow until it expires.
The escrow amount held under the escrow agreement provides the sole and
exclusive remedy for any and all damages Chemdex suffers as the result of any
breach of the merger agreement or any claim of negligent
79
<PAGE>
misrepresentation against SpecialtyMD or the stockholders in connection with
the merger agreement or the merger. The merger agreement does not, however,
limit any:
. equitable remedies; or
. any type of statutory or common law remedy with respect to any actually
known or intentional breaches of the representations and warranties or
covenants of SpecialtyMD or the SpecialtyMD stockholders in the event of
fraud, provided the remedy may only be pursued against the person who
committed or authorized the breaches of the representations, warranties
or covenants.
Voting Agreements
Concurrently with the execution of the merger agreement, individuals and
entities holding in the aggregate over two-thirds of the outstanding
SpecialtyMD common stock and preferred stock on an as-converted basis have
entered into a voting agreement with Chemdex. Each party to the voting
agreement has agreed to vote any shares of SpecialtyMD capital stock
beneficially owned by them in favor of approval of the merger agreement, the
merger and any matter that could reasonably be expected to facilitate the
merger. The voting agreement also requires these stockholders to take all
reasonable actions necessary to call a meeting to approve the merger and
appoints Chemdex or its nominee to vote the stockholders' shares of SpecialtyMD
in any matter permitted or required by Delaware law.
Certain Material U.S. Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the Chemdex/SpecialtyMD merger that are generally applicable to
holders of SpecialtyMD capital stock that hold their shares as capital assets,
assuming that the merger is consummated as contemplated herein. This discussion
does not deal with all federal income tax considerations that may be relevant
to particular SpecialtyMD stockholders in light of their specific
circumstances, such as stockholders who are dealers in securities or foreign
currency, banks, insurance companies, or tax-exempt organizations, who are
subject to the alternative minimum tax provisions of the Internal Revenue Code,
who hold their shares as a hedge or as part of a hedging, straddle, conversion
or other risk reduction transaction, who are foreign persons, or who acquired
their shares in connection with stock option or stock purchase plans or in
other compensatory transactions. In addition, the following discussion does not
address the tax consequences of transactions effectuated prior to or after the
merger (whether or not such transactions are in connection with the merger),
including without limitation transactions in which shares of Chemdex common
stock were or are acquired or shares of SpecialtyMD capital stock were or are
disposed of. Furthermore, no foreign, state or local tax considerations are
addressed herein. The discussion is based on federal income tax law as
currently in effect, which could change at any time, possibly with retroactive
effect.
ACCORDINGLY, SPECIALTYMD STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
TO THEM OF THE MERGER AND TAX REPORTING REQUIREMENTS WITH RESPECT THERETO.
The parties are not requesting a ruling from the Internal Revenue Service in
connection with the Chemdex/SpecialtyMD merger. As a condition to consummation
of the merger, Wilson Sonsini Goodrich & Rosati, counsel to SpecialtyMD, will
deliver an opinion to SpecialtyMD that the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. The tax opinion will neither bind the IRS nor
preclude the IRS from adopting a contrary position. In addition, the tax
opinion is subject to certain assumptions and qualifications and is based on
the truth and accuracy of certain representations and covenants made by Chemdex
and SpecialtyMD in certificates to be delivered to counsel by the respective
managements of Chemdex and SpecialtyMD prior to the effective time.
80
<PAGE>
Provided that the Chemdex/SpecialtyMD merger qualifies as a reorganization,
then the following federal income tax consequences will result:
. No gain or loss will be recognized by SpecialtyMD stockholders solely as
a result of their receipt of Chemdex common stock in the merger in
exchange for SpecialtyMD capital stock (except to the extent of cash
received in lieu of a fractional share).
. The aggregate tax basis of the Chemdex common stock received in the
merger (including any fractional share not actually received) will equal
the aggregate tax basis of SpecialtyMD capital stock surrendered in
exchange.
. For purposes of determining the character of gain or loss as long term
capital gain, the holding period of the Chemdex common stock received in
the merger by a SpecialtyMD stockholder will include the period during
which the stockholder held the SpecialtyMD capital stock surrendered in
exchange, provided that the SpecialtyMD capital stock is held as a
capital asset at the time of the merger.
. A fractional share of Chemdex common stock for which cash is received
will be treated as if a fractional share of Chemdex common stock had been
issued in the merger and then redeemed by Chemdex. A SpecialtyMD
stockholder receiving such cash will generally recognize gain or loss
upon payment equal to the difference (if any) between the amount of cash
received and the stockholder's tax basis in the fractional share. The
gain or loss will be a capital gain or loss if, at the time of the
merger, the SpecialtyMD capital stock is held as a capital asset.
. A SpecialtyMD stockholder who exercises dissenters' rights with respect
to all of the holder's shares of SpecialtyMD capital stock will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the holder's basis in
the shares, provided that the payment is neither essentially equivalent
to a dividend within the meaning of Section 302 of the Internal Revenue
Code nor has the effect of a distribution of a dividend within the
meaning of Section 356(a)(2) of the Code. The gain or loss will be
capital gain or loss, provided that the SpecialtyMD capital stock is held
as a capital asset at the time of the merger.
A successful IRS challenge to the "reorganization" status of the
Chemdex/SpecialtyMD merger would result in all SpecialtyMD stockholders being
treated as if they sold their SpecialtyMD capital stock in a fully taxable
transaction. In such event, each SpecialtyMD stockholder would recognize gain
or loss with respect to each share of SpecialtyMD capital stock surrendered
equal to the difference between (i) the fair market value, as of the effective
time of the merger, of the Chemdex common stock received in exchange and any
cash received instead of fractional shares, and (ii) the stockholder's adjusted
tax basis. In such event, a SpecialtyMD stockholder's aggregate basis in the
Chemdex common stock so received would equal its fair market value as of the
effective time and the stockholder's holding period for the Chemdex common
stock would begin the day after the merger.
Certain noncorporate holders of SpecialtyMD capital stock may be subject to
backup withholding at a 31% rate on cash payments received in lieu of
fractional shares of Chemdex common stock. Backup withholding will not apply,
however, to a stockholder who (i) furnishes a correct taxpayer identification
number and certifies that he or she is not subject to backup withholding on the
substitute Form W-9 (or successor form) included in or with the letter of
transmittal to be delivered to SpecialtyMD stockholders following consummation
of the merger, (ii) provides a certification of foreign status on Form W-8 (or
successor form), or (iii) otherwise establishes an exemption from backup
withholding. Any amount withheld under these rules will be credited against the
stockholder's federal income tax liability.
Irrespective of the Chemdex/SpecialtyMD merger's status as a reorganization,
a SpecialtyMD stockholder will recognize gain to the extent shares of Chemdex
common stock received in the merger are treated as received in exchange for
services or property other than solely SpecialtyMD capital stock. All or a
portion of any such income or gain could be taxable as ordinary income. Gain
also will be recognized to the extent a SpecialtyMD stockholder is treated as
receiving, directly or indirectly, consideration other than Chemdex
81
<PAGE>
common stock in exchange for SpecialtyMD capital stock or to the extent the
SpecialtyMD capital stock surrendered in the merger is not equal in value to
the Chemdex common stock and cash received in exchange therefor.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. IN
ADDITION, IT DOES NOT DISCUSS THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE
RELEVANT TO CERTAIN PERSONS, INCLUDING HOLDERS OF OPTIONS OR WARRANTS, AND MAY
NOT APPLY TO CERTAIN HOLDERS SUBJECT TO SPECIAL TAX RULES, INCLUDING HOLDERS
WHO ACQUIRED SPECIALTYMD COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR RIGHTS OR OTHERWISE RECEIVED SUCH STOCK AS COMPENSATION,
DEALERS IN SECURITIES AND FOREIGN HOLDERS.
EACH SPECIALTYMD STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
Accounting Treatment
The Chemdex/SpecialtyMD merger will be treated as a purchase for accounting
and financial reporting purposes. Under this method of accounting, the assets
and liabilities of SpecialtyMD will be recorded on Chemdex's books at their
estimated fair market value with the remaining purchase price reflected as
goodwill. For more information, see the notes to the Unaudited Pro Forma
Combined Condensed Financial Information beginning on page 102.
Certain Legal Matters
Chemdex and SpecialtyMD have committed to use their reasonable good faith
efforts to obtain necessary regulatory approvals of the merger. Neither Chemdex
nor SpecialtyMD believes that consummation of the merger will result in a
violation of any applicable antitrust laws. However, there is no assurance that
a challenge to the merger on antitrust grounds will not be made or, if such a
challenge is made, of the result. Chemdex and SpecialtyMD do not believe that
any additional material governmental filings in the United States, other than
the agreement of merger in Delaware, are required with respect to the merger.
U.S. Federal Securities Law Consequences
Recipients of Chemdex common shares issued in connection with the
Chemdex/SpecialtyMD merger can freely transfer such shares under the U.S.
Securities Act of 1933, except that persons who are deemed to be "affiliates,"
as such term is defined under the Securities Act, of SpecialtyMD prior to the
merger may only sell shares they receive in the merger in transactions
permitted by the resale provisions of Rule 145 under the Securities Act, or as
otherwise permitted under the Securities Act. Individuals or entities that
control, are controlled by, or are under common control with, SpecialtyMD,
including directors and certain officers of SpecialtyMD, are typically
considered to be affiliates.
In general, under Rule 145, for one year following the consummation of the
Chemdex/Specialty MD merger, SpecialtyMD affiliates will be subject to the
following restrictions on the public sale of Chemdex common shares acquired in
the merger:
. a SpecialtyMD affiliate, together with certain related persons, may sell
only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144
under the Securities Act,
82
<PAGE>
. the number of shares a SpecialtyMD affiliate may sell, together with
certain related persons and certain persons acting in concert, within any
three-month period for purposes of Rule 145 may not exceed the greater of
1% of the outstanding Chemdex common shares or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale,
and
. a SpecialtyMD affiliate may sell only if Chemdex remains current with its
informational filings with the SEC under the Exchange Act.
After the end of one year from the consummation of the Chemdex/Specialty MD
merger, a SpecialtyMD affiliate may sell Chemdex common shares received in the
merger without such manner of sale or volume limitations provided that Chemdex
is current with its Exchange Act informational filings and such SpecialtyMD
affiliate is not then an affiliate of Chemdex. Two years after the consummation
of the merger, an affiliate of SpecialtyMD may sell such Chemdex common shares
without any restrictions so long as such affiliate had not been an affiliate of
Chemdex for at least three months prior to such sale.
Pursuant to an escrow agreement between Chemdex and the SpecialtyMD
stockholders, the shares of Chemdex common stock to be issued in the
Chemdex/Specialty MD merger will be held in escrow. Ninety percent of the
shares will be released from the escrow on July 1, 2000. The remaining 10% of
the Chemdex common stock to be issued in the merger will be held in escrow
until the earlier of March 31, 2001 or one year after the consummation of the
merger.
Dividends
Chemdex has never paid a dividend on its capital stock. The payment of
dividends by Chemdex in the future will depend on business conditions,
Chemdex's financial condition and earnings and other factors. The
Chemdex/SpecialtyMD merger agreement restricts each of SpecialtyMD and Chemdex
from declaring, setting aside, making or paying any dividend or other
distribution in respect of its capital stock, during the period from the date
of the merger agreement until the earlier of the termination of the merger
agreement or the consummation of the Chemdex/Specialty MD merger.
Stock Market Listing
The Chemdex/Specialty MD merger agreement provides that the common shares to
be delivered in connection with the merger shall be authorized for quotation on
the Nasdaq National Market upon completion of the merger.
Dissenters' Rights
If the Chemdex/Specialty MD merger is approved by the required vote at the
special meeting of SpecialtyMD stockholders, a holder of record of shares of
SpecialtyMD common stock who does not vote in favor of the merger and who
follows the procedures set forth in Section 262 of the Delaware General
Corporation Law may be entitled to exercise dissenters' rights under Delaware
Law. If dissenter's rights are determined to be available in connection with
the merger, these rights entitle the holder to require SpecialtyMD to purchase
the holder's shares for cash at their fair market value. The fair market value
of the SpecialtyMD common stock will be determined as of the day before the
first announcement of the terms of the merger, excluding any element of value
arising from the accomplishment or expectation of the merger.
The following is a summary description of the provisions of the applicable
Delaware law. This summary is complete in all material respects but should be
read with the full text of the applicable law, a copy of which is attached
hereto as Annex D. Any holder of shares of SpecialtyMD common stock intending
to exercise statutory dissenters' rights is urged to review Annex D carefully
and to consult with legal counsel so as to assure strict compliance with its
provisions.
83
<PAGE>
A vote in favor of the merger agreement and the merger will constitute a
waiver of dissenters' rights. If a SpecialtyMD stockholder delivers a proxy
that has been left blank, the proxy will be voted for the approval and adoption
of the merger agreement, unless the proxy is revoked before the special
meeting. Therefore, any SpecialtyMD stockholder that intends to exercise
dissenters' rights and to vote by proxy should not leave the proxy blank. The
stockholder should either vote against the merger or abstain from voting for or
against the approval and adoption of the merger agreement.
Notification of Approval and Adoption of Merger Agreement
Within 10 days after approval and adoption of the merger agreement by the
SpecialtyMD stockholders, SpecialtyMD must mail a notice of the approval to
holders of shares of SpecialtyMD common stock which were not voted in favor of
the merger, together with a statement of the price determined by SpecialtyMD to
represent the fair market value of the shares for which dissenters' rights
remain available, a brief description of the procedures to be followed in order
for the holder to pursue dissenters' rights, and a copy of Section 262 of the
Delaware General Corporation Law. The statement of price by SpecialtyMD
constitutes an offer by SpecialtyMD to purchase all shares for which
dissenters' rights remain available at the stated amount. Only a holder of
record of shares of SpecialtyMD common stock on the record date (or the
holder's duly appointed representative) is entitled to exercise dissenters'
rights.
Electing Dissenters' Rights
To exercise dissenters' rights, the record holder of SpecialtyMD common
stock must
. not vote to approve and adopt the merger agreement, and
. within 20 days after the date the approval notice is mailed to the
holder, deliver a written demand for purchase demanding that SpecialtyMD
purchase the holder's shares of common stock and a statement as to what
the holder claims to be the fair market value of such shares.
The statement of the fair market value of the shares of SpecialtyMD common
stock constitutes an offer by the stockholder to sell the shares of SpecialtyMD
at that price.
The written demand for purchase must be delivered to SpecialtyMD at 1510
Page Mill Road, Palo Alto, California 94304.
If SpecialtyMD and the dissenting holder agree upon the purchase price of
the shares, the dissenting holder is entitled to the agreed upon price with
interest thereon at the legal rate on judgments from the date of such
agreement. Payment for the dissenting shares must be made within 30 days after
the later date of such agreement or the date on which all statutory and
contractual conditions to the merger are satisfied, and is subject to surrender
to SpecialtyMD of the certificates for the dissenting shares.
Appraisal Proceeding By Delaware Court
If SpecialtyMD or Chemdex and the record holder of SpecialtyMD common stock
fail to agree upon the fair market value of such holder's shares of SpecialtyMD
common stock, then within six months after the date of the approval notice from
SpecialtyMD, any stockholder who has not voted in favor of approval and
adoption of the merger agreement and who has made a valid written demand for
purchase may file a complaint in the Delaware Court of Chancery requesting a
determination as to whether the shares are dissenting shares or as to the fair
market value of such holder's shares of SpecialtyMD common stock, or both.
Effect of Exercise of Dissenters' Rights on Voting and Right to Dividends
Any stockholder who has duly exercised dissenters' rights in compliance with
Delaware Law will not, after the effective time of the merger, be entitled to
vote the dissenting shares for any purpose. The dissenting shares will not be
entitled to the payment of dividends or other distributions, other than those
payable or deemed payable to stockholders of record as of the date prior to the
effective time of the merger.
84
<PAGE>
Loss, Waiver or Withdrawal of Dissenters' Rights
If a holder of shares of SpecialtyMD common stock who demands the purchase
of shares under Section 262 of the Delaware General Corporation Law fails to
perfect, or effectively withdraws or loses the right to such purchase, such
holder will be entitled to receive the consideration otherwise payable pursuant
to the merger.
Dissenting shares lose their status as dissenting shares if:
. the merger is abandoned;
. the shares are transferred prior to their submission for the required
endorsement;
. the dissenting stockholder fails to make a timely written demand for
purchase, along with a statement of fair market value;
. the dissenting shares are voted in favor of the merger;
. the dissenting stockholder and SpecialtyMD do not agree upon the status
of the shares as dissenting shares or do not agree on the purchase price,
but neither SpecialtyMD nor the stockholder files a complaint or
intervenes in a pending action within six months after mailing of the
approval notice; or
. with SpecialtyMD's consent, the stockholder delivers to SpecialtyMD a
written withdrawal of the stockholder's written demand for purchase.
Although Section 262 provides that "any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) . . . shall be entitled to an appraisal . . . of the fair
value of the stockholder's shares of stock . . . ," Delaware courts have
determined that under certain circumstances holders of preferred stock do not
have the right to seek appraisal of their shares. Chancellor Allen stated in
the Matter of the Appraisal of Ford Holdings, Inc. Preferred Stock, 698 A.2d
973, 975 (1997) that "insofar as preferred stock is concerned, the provisions
of Section 262 may be modified by provisions of the certificate of rights,
etc., which define the security." SpecialtyMD's certificate of incorporation
provides that in the event of a "liquidation," as defined in the certificate of
incorporation, holders of SpecialtyMD preferred stock will have the right to
receive a liquidation preference. The merger would constitute a liquidation as
the term is defined. Accordingly, although not free from doubt, the certificate
of incorporation of SpecialtyMD may contractually limit the amount that a
preferred stockholder is entitled to receive to the liquidation preference of
the shares which could limit the right of holders of SpecialtyMD preferred
stock to seek judicial appraisal of their shares in the merger.
85
<PAGE>
OTHER TERMS OF THE CHEMDEX/SPECIALTYMD MERGER AGREEMENT
The following is a brief summary of certain provisions of the
Chemdex/SpecialtyMD Agreement and Plan of Merger, a copy which is attached as
Annex D to this proxy statement and prospectus and is incorporated by
reference. This summary is qualified in its entirety by reference to the full
text of the merger agreement.
Effective Time of the Chemdex/SpecialtyMD Merger
The closing of the transactions contemplated by the merger agreement will
take place as soon as practicable following the later of (a) the date on which
both SpecialtyMD and Chemdex stockholders meetings approving the merger have
occurred, or (b) the second business day after which all of the conditions to
the merger are satisfied or waived, or (c) at such other date as Chemdex and
SpecialtyMD agree. See "--Conditions To the Merger."
As soon as practicable after the closing, Chemdex and SpecialtyMD will file
a certificate of merger with the Secretary of State of the State of Delaware as
provided by the relevant sections of the Delaware General Corporation Law. The
time at which the certificate of merger is filed in Delaware is referred to as
the effective time.
Conversion of Securities
As a result of the Chemdex/SpecialtyMD merger and without any action on the
part of the SpecialtyMD stockholders, each share of SpecialtyMD capital stock
issued and outstanding immediately prior to the effective time, other than
shares held by Chemdex or SpecialtyMD or their subsidiaries and shares held by
a dissenting holder as to which appraisal rights have been perfected, will be
converted into the right to receive a fraction of a fully-paid and
nonassessable share of Chemdex common stock, will cease to be outstanding, and
will be canceled and retired, except as described below. This amount or
exchange ratio will be determined by dividing 1,250,000 shares of Chemdex
common stock, the total number of shares of Chemdex common stock to be issued
as a result of this merger, by the number of shares of SpecialtyMD capital
stock outstanding and the number of shares of capital stock issuable upon
exercise of outstanding SpecialtyMD options and warrants.
If this merger is approved, the stockholders of SpecialtyMD will receive
1,250,000 shares of Chemdex common stock, which will represent approximately
2% of the outstanding common stock of Chemdex following the merger. Based on
the share calculations set forth in the Unaudited Pro Forma Combined Condensed
Financial Statements, each share of SpecialtyMD capital stock would be
exchanged for approximately 0.1048 shares of Chemdex common stock. See Note 1
to Unaudited Pro Forma Combined Condensed Financial Statements, page 103.
Each holder of a certificate representing any shares of SpecialtyMD capital
stock other than shares held by a dissenting stockholder will upon consummation
of the merger cease to have any rights with respect to the SpecialtyMD capital
stock, except for the right to receive, without interest, shares of Chemdex
common stock and cash instead of fractional shares, as described below in
"Exchange of Shares; No Fractional Shares," upon the surrender of the
certificate. If prior to the effective time, Chemdex should split or combine
the shares of Chemdex common stock, or pay a stock dividend or other stock
distribution in, or in exchange of shares of Chemdex common stock, or engage in
any similar transaction, then the total number of shares to be issued to the
SpecialtyMD stockholders will be appropriately adjusted to reflect such split,
combination, dividend, exchange or other distribution or similar transaction.
Stock Options
As of the effective time, each of the options to acquire SpecialtyMD common
stock then outstanding will be converted into an option, or a new substitute
option shall be issued, to purchase the number of shares of Chemdex common
stock, rounded down to the nearest whole share, equal to the number of shares
of SpecialtyMD common stock subject to such option multiplied by the exchange
ratio, at an exercise price per
86
<PAGE>
share of Chemdex common stock, rounded up to the nearest penny, equal to the
former exercise price per share of SpecialtyMD immediately prior to the
effective time divided by the exchange ratio; provided that in the case of any
SpecialtyMD stock option to which Section 421 of the Internal Revenue Code
applies by reason of its qualification under Section 422 of the Code, the
conversion formula shall be adjusted, if necessary, to comply with Section
424(a) of the Code. Except as provided above, the converted or substituted
SpecialtyMD stock options will be subject to the same terms and conditions as
were applicable to SpecialtyMD stock options immediately prior to the effective
time.
As soon as practicable after the effective time, Chemdex will file one or
more registration statements on Form S-8 under the Securities Act, or
amendments to its existing registration statements on Form S-8 or amendments to
such other registration statements as may be available, in order to register
the shares of Chemdex common stock issuable upon exercise of the converted
SpecialtyMD stock options. The consummation of the merger will not be treated
as a termination of employment for purposes of the option plans.
Warrants
As of the effective time, each of the warrants to acquire SpecialtyMD
capital stock outstanding (if any) as of the effective date that will by its
terms be converted into a warrant to purchase the number of shares of Chemdex
common stock, rounded down to the nearest whole share, equal to the number of
shares of SpecialtyMD capital stock subject to such warrant multiplied by the
exchange ratio. The exercise price per share for each SpecialtyMD warrant will
equal the former exercise price per share immediately prior to the effective
time divided by the exchange ratio.
Exchange of Shares; No Fractional Shares
As soon as reasonably practicable after the effective time, the exchange
agent will mail to each holder of record of SpecialtyMD capital stock (1) a
letter of transmittal and (2) instructions for use in effecting the surrender
of the certificates in exchange for certificates representing shares of Chemdex
common stock. Upon surrender of a certificate to the exchange agent together
with such letter of transmittal, duly executed, the holder of the certificate
will be entitled to receive in exchange therefor (1) a certificate representing
that number of whole shares of Chemdex common stock and (2) a check
representing the amount of cash instead of fractional shares, if any, which the
holder has the right to receive in respect of the certificate surrendered.
SpecialtyMD stockholders should not send in their certificates until they
receive a letter of transmittal.
No fractional shares of Chemdex common stock will be issued pursuant to the
merger. Instead, cash adjustments will be paid in an amount equal to the
product of the fraction of a share of Chemdex common stock that would otherwise
be issuable multiplied by the average closing price of Chemdex's common stock
on the Nasdaq National Market for the 10 trading day period ending two trading
days prior to the closing date.
No dividends on shares of Chemdex common stock will be paid to persons
entitled to receive certificates representing shares of Chemdex common stock
until such persons surrender their certificates. Upon the surrender, the person
in whose name the certificates representing such shares of Chemdex common stock
will be issued will also receive any dividends that have become payable with
respect to the shares of Chemdex common stock between the effective time and
the time of the surrender. In no event will the person entitled to receive such
dividends be entitled to receive interest on such dividends.
If any certificates for shares of Chemdex common stock are to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, the person requesting the exchange must (1) pay to the exchange
agent any transfer or other taxes required by reason thereof, or (2) establish
that the tax has been paid or is not applicable.
At the effective time, the stock transfer books of SpecialtyMD will be
closed and no further transfers of shares of SpecialtyMD capital stock will be
made.
87
<PAGE>
Neither the exchange agent nor any party to the merger agreement is liable
to a holder of shares of SpecialtyMD capital stock for any shares of Chemdex
common stock or dividends or the cash payment for fractional interests
delivered to a public official pursuant to applicable escheat laws.
In the event that any certificate has been lost, stolen or destroyed, upon
(1) making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen or destroyed, and (2) if required by Chemdex, in its
discretion, the posting by the person of a bond in the sum as Chemdex may
direct as indemnity, or the other form of indemnity as Chemdex may reasonably
direct, against any claim that may be made against Chemdex with respect to the
certificate, Chemdex will issue or cause to be issued in exchange for the
certificate the number of whole shares of Chemdex common stock and cash instead
of fractional shares into which the shares of SpecialtyMD capital stock
represented by the certificate are converted in the merger.
If holders of SpecialtyMD capital stock are entitled to dissent from the
merger and demand appraisal of any the SpecialtyMD capital stock in accordance
with the provisions of Section 262 of the Delaware General Corporation Law, any
excluded shares will not be converted, but will from and after the effective
time represent only the right to receive such consideration as may be
determined to be due to the dissenting holder pursuant to the Delaware Law;
provided, however, that each share of SpecialtyMD capital stock held by a
dissenting holder who, after the effective time withdraws his demand for
appraisal or lose his rights of appraisal with respect to the shares of
SpecialtyMD capital stock, in either case pursuant to the Delaware Law, will
not be deemed to be an excluded share but will be deemed to be converted, as of
the effective time, into the right to receive Chemdex common stock in
accordance with the exchange ratio.
Representations and Warranties
SpecialtyMD and Chemdex have made various customary mutual representations
and warranties in the Chemdex/Specialty merger agreement about themselves.
The merger agreement contains certain representations and warranties by
SpecialtyMD relating to, among other things:
. due organization, power and standing;
. capital structure and ownership of subsidiaries;
. the authorization, execution, delivery and enforceability of the merger
agreement, and required consents and approvals and the absence of
breaches or violations of the certificate of incorporation and bylaws,
agreements and instruments, and law;
. financial statements and absence of undisclosed liabilities;
. tax matters;
. the absence of certain changes or events;
. title and related matters;
. intellectual property rights;
. employee benefit plans;
. bank accounts;
. contracts;
. compliance with applicable law;
. labor and employment matters;
. interested party transactions;
88
<PAGE>
. employees, independent contractors and consultants;
. insurance;
. litigation;
. governmental authorizations and regulations;
. subsidiaries;
. compliance with environmental requirements;
. trade regulation;
. year 2000 compliance;
. corporate documents;
. no brokers;
. action by SpecialtyMD board of director;
. termination of other acquisition negotiations;
. complete disclosure; and
. the accuracy of information in this proxy statement and prospectus.
The merger agreement also contains certain representations and warranties by
Chemdex and Spinach relating to, among other things;
. due organization, power and standing;
. capital structure;
. the authorization, execution, delivery and enforceability of the merger
agreement, and required consents and approvals and the absence of
breaches or violations of the certificate of incorporation and bylaws;
. the filing of required reports with the SEC and financial statements;
. compliance with applicable law;
. interim operations of Spinach;
. complete disclosure;
. the accuracy of information in this proxy statement and prospectus;
. no brokers;
. actions of the Chemdex board of directors;
. termination of competitive acquisition negotiations;
. litigation; and
. absence of certain changes or events.
Conduct of Business by SpecialtyMD
SpecialtyMD agreed to advise Chemdex promptly of any event that would make
any representation or warranty of SpecialtyMD contained in the merger agreement
untrue or inaccurate. SpecialtyMD also agreed that prior to the effective time
it will, among other things: (a) carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted;
(b) pay its debts and taxes, and pay or perform its other obligations, when
due; and (c) use its reasonable efforts to preserve intact its business
89
<PAGE>
organization, to retain its present officers and key employees, and preserve
its relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it. SpecialtyMD also agreed that
through the effective time, it will promptly notify Chemdex of any event or
occurrence not in the ordinary course in its business. In particular, unless
the merger agreement provides otherwise and subject in certain cases to
specified exceptions, SpecialtyMD agreed that, prior to the effective time, it
will not, without the prior written consent of Chemdex, among other things:
. accelerate, amend or change the period of exercisability or the vesting
schedule of restricted stock or options except as specifically required
by the terms of such agreements;
. declares or pay any dividends on or make or agrees to make any other
distributions in respect of any of its capital stock, or split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities, or purchase or otherwise acquire any shares of
its capital stock except from former employees, directors and consultants
in accordance with agreements providing for the repurchase of shares in
connection with any termination of service by such party;
. issue or sell any shares of its capital stock or securities convertible
into shares of its capital stock other than: the issuance of shares of
SpecialtyMD common stock issuable upon exercise of Specialty MD stock
options or warrants or upon conversion of SpecialtyMD preferred stock, or
the repurchase of shares of common stock from terminated employees
pursuant to the terms of outstanding stock restriction or similar
agreements, or the grant of options or issuance of restricted stock under
the SpecialtyMD stock option plan in the ordinary course of business in
accordance with prior practice;
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets;
. sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the
business of specialtyMD, except non-exclusive licenses of SpecialtyMD's
products and services in the ordinary course of business consistent with
past practice;
. increase or agree to increase the compensation payable or to become
payable to its officers or employees (except to non-officer employees in
the ordinary course of business consistent with past practice);
. other than in the ordinary course of business, grant any additional
severance or termination pay to, or enter into any employment or
severance agreements with, officers, employees or agents;
. enter into any collective bargaining agreement;
. other than in the ordinary course of business establish, adopt, enter
into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
. revalue any of its assets, including writing down the value of inventory
or writing off notes or accounts receivable;
. incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities or guarantee any debt securities of
others;
. amend or propose to amend its certificate of incorporation or bylaws;
. incur or commit to incur any capital expenditures in excess of $50,000 in
the aggregate or in excess of $25,000 as to any individual matter;
. lease, license, sell, transfer or encumber or permit to be encumbered any
asset, SpecialtyMD proprietary right or other property associated with
the business of SpecialtyMD, except non-exclusive licenses of
SpecialtyMD's products and services in the ordinary course of business
consistent with prior practice;
90
<PAGE>
. enter into any lease or contract for the purchase of sale of any
property, real or personal, except in the ordinary course of business
consistent with past practice;
. fail to maintain its equipment and other assets in good working condition
and repair, subject only to ordinary wear and tear;
. change accounting methods;
. amend or terminate any material contract, agreement or license to which
it is a party;
. loan any amount to any person or entity, or guaranty or act as a surety
for any obligation;
. waive or release any material right or claim;
. make or change any tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any
amended return, enter into any closing agreement, settle any tax claim or
assessment relating to SpecialtyMD, surrender any right to claim refund
of taxes, consent to any extension or waiver of the limitation period
applicable to any tax claim or assessment relating to SpecialtyMD;
. take any action or fail to take any action that would cause there to be a
material adverse change with respect to SpecialtyMD;
. enter into any agreement outside of the ordinary course of business in
which the obligation of SpecialtyMD exceeds $50,000 or shall not
terminate or be subject to termination for convenience within 180 days
following execution;
. enter into any agreement not in the ordinary course of business; or
. allow any intellectual property deadline, registrations or applications
to lapse.
SpecialtyMD also agreed that through the effective time, it will afford
Chemdex access to all of its records, and will furnish to Chemdex all
information concerning its business, properties and personnel as Chemdex may
reasonably request; and use its best efforts to satisfy all of the conditions
to consummate the merger and obtain all third-party consents and authorizations
necessary to consummate the merger.
Conduct of Business by Chemdex
Chemdex agreed to advise SpecialtyMD promptly of any event known to Chemdex
that would render any representation or warranty of Chemdex contained in the
merger agreement untrue or inaccurate. Chemdex also agreed that prior to the
effective time it will, among other things:
. reserve for issuance the maximum number of shares of Chemdex common stock
issuable upon consummation of the merger,
. use its best efforts to satisfy all of the conditions to consummate the
merger and obtain all required consents and authorizations of, and make
all filings and give all notices to, third parties that are necessary to
consummate the merger, and
. cause the shares of Chemdex common stock issuable to the stockholders of
SpecialtyMD in the merger to be authorized for listing on the Nasdaq
National Market.
Chemdex agreed that, prior to the effective time, it will not, without the
prior written consent of SpecialtyMD, declare or pay any dividends on or make
or agree to make any other distributions (whether in cash, stock or property)
in respect of any of its capital stock, or amend its certificate of
incorporation.
Chemdex further agreed at or after the effective time to:
. assume all outstanding options and warrants to purchase SpecialtyMD
capital stock
. provide SpecialtyMD employees with employee benefits that are no less
favorable than those provided by Chemdex to its similarly situated
employees; and
91
<PAGE>
. fulfill and honor the obligations of SpecialtyMD pursuant to any
indemnification agreements between SpecialtyMD and its directors and
officers;
Chemdex also agreed to provide SpecialtyMD with a $4.0 million line of
credit which will call for interest at 9.0% compounded annually. SpecialtyMD
was entitled to draw up to $1,333,333 within 5 business days of the execution
of the merger agreement (December 10, 1999), and SpecialtyMD is entitled to
draw up to $1,333,333 on or after January 15, 2000 and up to an additional
$1,333,334 on or after February 15, 2000.
Joint Conduct
Chemdex and SpecialtyMD agreed that prior to the effective time they will,
among other things:
. jointly prepare and file a proxy statement and prospectus with the
Commission;
. convenue a meeting of SpecialtyMD's stockholders to vote on the merger;
. maintain the confidentiality of each other's confidential information;
and
. use their reasonable good faith efforts to make all necessary filings and
notifications and obtain all necessary consents, waivers, approvals and
authorizations required to consummate the merger.
Chemdex and SpecialtyMD also agreed that neither Chemdex, SpecialtyMD nor
any of their respective subsidiaries will take, or allow to be taken or fail to
take any action, which act or failure to act would jeopardize qualification of
the merger as a reorganization within the meaning of Section 368(a) of the U.S.
Internal Revenue Code.
No Solicitation
Until the consummation of the Chemdex/Promedix merger or termination of the
merger agreement in accordance with its terms, and except with respect to
certain specified strategic investors, SpecialtyMD may not take any action to
solicit or initiate any inquiry, proposal or offer from, or participate in any
negotiations with any other party regarding any acquisition of SpecialtyMD
stock or assets or any material portion of the stock or assets of SpecialtyMD,
or any material license of SpecialtyMD's proprietary rights. SpecialtyMD has
agreed to notify Chemdex of any such potential acquisition proposals, including
the identity of the persons making such proposals and, subject to the fiduciary
duties of the SpecialtyMD board of directors, the terms of such proposals.
Until the consummation of the merger or termination of the merger agreement
in accordance with its terms, and except with respect to certain specified
exceptions, including the Chemdex/Promedix merger, Chemdex may not take any
action to solicit or initiate any inquiry, proposal or offer from, or
participate in any renegotiations with any other party other than Promedix
regarding any acquisition of the stock or assets or any material portion of the
stock or assets of a direct competitor of SpecialtyMD. Chemdex has agreed to
notify SpecialtyMD of any such potential acquisition proposals, including the
identity of the persons making such proposals and, subject to the fiduciary
duties of the Chemdex board of directors, the terms of such proposals.
Certain Other Covenants
Consents: Approvals
Chemdex and SpecialtyMD will each use its reasonable good faith efforts to
obtain all consents, waivers, approvals, authorizations or orders, and Chemdex
and SpecialtyMD will make or cause to be made all filings, required in
connection with the authorization, execution and delivery of the merger
agreement and the consummation by each of them of the transactions contemplated
thereby.
92
<PAGE>
Directors and Officer Indemnification
Chemdex has agreed that for acts occurring prior to the effective time, all
rights to indemnification and advancement of expenses existing in favor of the
directors nd officers of SpecialtyMD under the provisions existing on the date
of the merger agreement, the certificate of incorporation, bylaws and
indemnification agreements of SpecialtyMD shall survive the effective time. In
addition, Chemdex has agreed to indemnify and advance expenses to directors and
officers of SpecialtyMD to the full extent required or permitted under the
provisions existing on the date of the merger agreement of SpecialtyMD's
certificate of incorporation and bylaws and indemnification agreements of
SpecialtyMD. See "Interests of Certain Persons in the Merger."
Chemdex will maintain, with respect to claims arising from facts or events
which occurred before the effective time, officers' and directors' liability
insurance covering directors and officers of SpecialtyMD who were covered as of
the date of the merger agreement by SpecialtyMD's existing officers' and
directors' liability insurance policies, on terms substantially no less
advantageous to such officers and directors than such existing insurance.
Notification of Certain Matters
Chemdex and SpecialtyMD will each give each other prompt notice of the
occurrence or non-occurrence of any event which would be reasonably expected to
cause any representation or warranty contained in the merger agreement to be
materially untrue or inaccurate, or any failure of SpecialtyMD, Chemdex or
Spinach materially to comply with or satisfy any covenant, condition or
agreement contained in the merger agreement.
Further Action/Tax Treatment
The parties to the merger agreement will use all reasonable good faith
efforts to take, or cause to be taken, all actions and to do all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by the merger agreement, to obtain in
a timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to each of their obligations under the
merger agreement. In addition, Chemdex, Spinach and SpecialtyMD have each
agreed to use their best efforts to cause the merger to qualify as
reorganization under the provisions of Section 368(a) of the U.S. Internal
Revenue Code, as specified in the merger agreement, and will not, both before
and after consummation of the merger, take any actions which might reasonably
be expected to prevent the merger from so qualifying.
Chemdex/Promedix Merger
In connection with the Chemdex/Promedix merger, Chemdex agreed not to
acquire SpecialtyMD without Promedix's consent. Promedix has consented to
Chemdex's acquisiton of SpecialtyMD so long as the Chemdex/SpecialtyMD merger
does not close or become effective prior to the effective time of the
Chemdex/Promedix merger.
Public Announcements
Chemdex and SpecialtyMD agreed not to issue any press release or make any
public written statement with respect to the Chemdex/SpecialtyMD merger or the
merger agreement without the prior consent of the other party, except as
required by law or the regulations of the Nasdaq National Market.
93
<PAGE>
Conditions to the Chemdex/SpecialtyMD Merger
Conditions to Obligation of Each Party to Effect the Merger
The obligations of Chemdex and SpecialtyMD to effect the merger are subject
to the satisfaction of certain conditions, including, among others:
. obtaining Chemdex and SpecialtyMD stockholder approvals;
. all authorizations, consents, orders or approvals of, or declarations or
filings with, and all expirations of waiting period imposed by, any
governmental entity which are necessary for the consummation of the
merger, shall have been filed, occurred or been obtained;
. the absence of any injunction prohibiting consummation of the merger;
. the shares of Chemdex common stock to be issued in the merger shall have
been approved for quotation on the Nasdaq National Market;
. the registration statement shall have become effective and no stop order
shall have been issued by the Commission with respect to the registration
statement; and
. SpecialtyMD shall have received an opinion of its counsel, Wilson Sonsini
Goodrich & Rosati, to the effect that the merger, for federal income tax
purposes, will constitute a "reorganization" within the meaning of
Section 368(a) of the U.S. Internal Revenue Code;
The obligation of each of Chemdex and SpecialtyMD to effect the merger is
also subject to the satisfaction of the following additional conditions by the
other party, including, among other things:
. the other party has performed its obligations under the merger agreement
prior to the effective time and the representations and warranties of the
other party contained in the merger agreement are true and correct in all
material respects as of the effective time, except as contemplated by the
merger agreement; and
. each of Chemdex and SpecialtyMD has received a legal opinion from the
other party's counsel.
Additional Conditions To Obligations of Chemdex And Spinach
In addition, Chemdex's and Spinach's obligation to effect the merger is
subject to the following:
. no more than 5% of the outstanding shares of SpecialtyMD capital stock
shall have elected to, or continue to have contingent rights to, exercise
appraisal rights under Delaware Law;
. an escrow agent and representatives of the SpecialtyMD stockholders shall
have executed and delivered to Chemdex the escrow agreements;
. the voting agreements, employment agreements, and stock restriction
agreements executed and delivered concurrently with the execution of the
merger agreement shall remain in full force and effect;
. SpecialtyMD shall have obtained all material consents necessary to
consummate the merger; and
. SpecialtyMD shall have received written letters of resignation from each
of the current members of its board of directors.
Termination
The Chemdex/SpecialtyMD merger agreement may be terminated and the merger
abandoned at any time prior to the effective time, whether before or after
approval by the stockholders of Chemdex and SpecialtyMD:
. by mutual written consent of Chemdex and SpecialtyMD;
94
<PAGE>
. by either Chemdex or SpecialtyMD, by giving written notice to the other
party, if a court or governmental agency prohibits the merger;
. by either Chemdex or SpecialtyMD if the other company breaches in a
material way its representations, warranties, covenants or agreements and
that breach is not remedied within 10 business days or cannot be
remedied;
. by either Chemdex or SpecialtyMD, if the merger does not close before
March 31, 2000 because SpecialtyMD's stockholders do not approve the
merger or the other company fails to satisfy its conditions to closing
(unless the failure results primarily from a breach by the other party of
any representation, warranty, or covenant contained in the merger
agreement or the other party's failure to fulfill a condition precedent
to closing or other default); or
. by either Chemdex or SpecialtyMD, if the other party's board of directors
recommends an alternative transaction that meets certain criteria
specified in the merger agreement.
In the event of termination, the merger agreement is of no further effect
and except as specifically provided in the merger agreement and described in
"Expenses; Cancellation Fees" below, there is no liability or obligation on the
part of either Chemdex or SpecialtyMD or their respective officers or
directors.
Expenses; Cancellation Fees
Except with respect to the cancellation fee described below, all costs and
expenses incurred in connection with the Chemdex/SpecialtyMD merger agreement
and the transactions contemplated by the merger agreement (whether or not the
merger is consummated) will be paid by the party incurring such expenses.
If the merger agreement is terminated by SpecialtyMD either (a) because of
an intentional or willful material breach by Chemdex, (b) because Chemdex
recommended an alternative transaction described above, or (c) the required
approvals of the Chemdex stockholders shall not have been obtained, then within
two business days after such termination Chemdex shall pay SpecialtyMD a fee
equal to $1,500,000.
If the merger agreement is terminated by Chemdex either (a) because of an
intentional or willful material breach by SpecialtyMD, (b) because SpecialtyMD
recommended an alternative transaction or tender offer described above, or (c)
the required approvals of the SpecialtyMD stockholders shall not have been
obtained, then within two business days after such termination SpecialtyMD
shall pay Chemdex a fee equal to $1,500,000.
Payment of the fee by either party is in addition to any other available
legal or equitable remedies. Any amounts that are not paid within two business
days after termination accrue interest at a rate of 9% per annum until paid.
Amendment; Waiver
The merger agreement may be amended in writing by Chemdex and SpecialtyMD at
any time before or after approval by the stockholders of SpecialtyMD, but,
after any such approval, no amendment may be made that by law requires the
further approval of the SpecialtyMD or Chemdex stockholders.
At any time prior to the effective time, Chemdex and SpecialtyMD may, to the
extent legally allowed, extend the time for the performance of any of the
obligations or the other acts of the other parties hereto, waive any
inaccuracies in the representations or warranties contained in the merger
agreement or in any document delivered pursuant to the merger agreement, and
waive compliance with any of the agreements or conditions contained in the
merger agreement.
95
<PAGE>
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY
The Chemdex common stock is quoted on Nasdaq under the trading symbol
"CMDX." The following table sets forth, for the periods indicated, the
quarterly high and low sale prices per share of Chemdex common stock.
<TABLE>
<CAPTION>
Chemdex
common stock
----------------
High Low
-------- -------
<S> <C> <C>
Calendar 1999
First Quarter............................................. NA NA
Second Quarter............................................ NA NA
Third Quarter............................................. $ 32.125 $16.875
Fourth Quarter............................................ $130.00 $31.50
</TABLE>
On September 20, 1999, the last trading day prior to the announcement by
Chemdex and Promedix that they had reached an agreement concerning the merger,
the closing sales price of Chemdex common stock as reported on the Nasdaq
National Market was $22.750 per share. On December 31, 1999, the closing sales
price of Chemdex common stock as reported on the Nasdaq National Market was
$111 per share. Based on the December 31, 1999 closing sales price of Chemdex
common stock and an exchange ratio of 1.2795, the equivalent per share value of
Promedix common stock as of such date was approximately $142.
On December 10, 1999, the last trading day prior to the announcement by
Chemdex and SpecialtyMD that they had reached an agreement concerning the
Chemdex/SpecialtyMD merger, the closing sales price of Chemdex common stock as
reported on the Nasdaq National Market was $92.4375 per share. On December 31,
1999, the closing price of Chemdex common stock as reported on the Nasdaq
National Market was $111 per share. Based on the December 31, 1999 closing
sales price of Chemdex common stock and an exchange ratio of 0.1018, the
equivalent per share value of SpecialtyMD common stock as of such date was
approximately $11.30.
As of November 30, 1999, there were approximately 8,000 stockholders of
record of Chemdex common stock.
Because the market price of Chemdex common stock is subject to fluctuation,
the market value of the shares of Chemdex common stock that the Promedix and
SpecialtyMD stockholders will receive in the merger may increase or decrease
prior to the merger. PROMEDIX AND SPECIALTYMD STOCKHOLDERS SHOULD OBTAIN A
CURRENT MARKET QUOTATION FOR CHEMDEX COMMON STOCK.
Following the mergers, Chemdex common stock will continue to be traded on
the Nasdaq National Market under the symbol "CMDX."
Chemdex, Promedix and SpecialtyMD have never paid cash dividends on their
capital stock. Chemdex has no present plans to pay cash dividends on its
capital stock. Under the terms of the merger agreements, Chemdex is not
permitted to declare, set aside, make or pay any dividend or distribution in
respect of its capital stock from the date of the merger agreements until the
earlier of the termination of the merger agreements and the consummation of the
mergers.
96
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information for Chemdex
gives effect to Chemdex's acquisitions of Promedix and SpecialtyMD through
mergers and exchanges of shares. The Promedix exchange ratio will be determined
by dividing 12,057,366, the maximum number of shares of Chemdex common stock to
be issued as a result of this merger, by the number of shares of Promedix
capital stock outstanding and the number of shares of capital stock issuable
upon exercise of outstanding options to purchase Promedix capital stock as of
the date of the merger. The SpecialtyMD exchange ratio will be determined by
dividing the 1,250,000 shares, the number of shares of Chemdex common stock to
be issued as a result of this merger, by the sum of the number of shares of
SpecialtyMD capital stock outstanding and the number of shares of capital stock
issuable upon exercise of outstanding options and warrants to purchase
SpecialtyMD capital stock as of the closing date. In addition, the pro forma
financial statements give effect to (i) the sale by Promedix of its subsidiary,
Pro Med Co., (ii) the repayment and conversion of Promedix's subordinated
convertible notes, and charge related to the subordinated convertible notes
discount, (iii) the conversion of Promedix's redeemable convertible preferred
stock to common stock, (iv) the charge related to the reduction and
acceleration of options held by Pro Med Co. employees and two officers, (v) the
sale of Promedix Series C preferred stock subsequent to September 30, 1999, and
(vi) the conversion of SpecialtyMD's redeemable convertible preferred stock to
common stock.
The Unaudited Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1998 and for the nine months ended September 30, 1999
reflect these transactions as if they had taken place on January 1, 1998 and
January 1, 1999, respectively. The Unaudited Pro Forma Combined Condensed
Balance Sheet gives effect to these transactions as if they had taken place on
September 30, 1999.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Chemdex's historical results of operations for the year ended December 31,
1998, with Promedix historical results of operations for the year ended
December 31, 1998, and SpecialtyMD historical results of operations for the
year ended December 31, 1998 plus the unaudited results of operations for the
nine months ended September 30, 1999 for each.
The Chemdex pro forma financial Statements are based upon information set
forth in this proxy statement and prospectus and assumptions included in the
accompanying notes. After consummation of the mergers, Chemdex anticipates
completion of the valuations and other studies of the significant assets,
liabilities and business operations of Promedix and SpecialtyMD. Using this
information, Chemdex will make final purchase price allocations among tangible
assets and liabilities, identifiable intangible assets and goodwill. The impact
of these changes, principally affecting intangible assets and related
amortization, could be material.
If the Chemdex/Promedix merger is approved, the merger will be accounted for
using the purchase method of accounting. Accordingly, Chemdex's cost to acquire
Promedix is calculated to be $315,776,410 assuming a Chemdex common stock price
of $26.125 per share, which is the average of the closing price per share
during the period beginning three days before and ending three days after
September 21, 1999, the day the merger was announced. Chemdex's cost to acquire
SpecialtyMD is calculated to be $104,120,425 assuming a Chemdex common stock
price of $93.48 per share, which is the average of the closing price per share
during the period beginning three days before and ending three days after
December 13, 1999, the day the merger was announced. The costs to acquire
Promedix and SpecialtyMD will be allocated to the assets acquired and
liabilities assumed according to their respective fair values, with the excess
purchase price being allocated to goodwill. As noted above, the final
allocations of the purchase prices are dependent upon valuations and other
studies that are not yet complete. Accordingly, the purchase price allocations
and adjustments made in connection with the development of the Chemdex Pro
Forma Financial Statements are preliminary and have been made solely for the
purpose of developing the Chemdex Pro Forma Financial Statements.
97
<PAGE>
The $310,296,316 pro forma excess of purchase price over net tangible assets
acquired from Promedix as of September 30, 1999 is being amortized over a
period of two to three years at a rate of $103,652,105 per year. Goodwill is
being amortized over a three-year life which Chemdex believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
The $102,681,295 pro forma excess of purchase price over net tangible
SpecialtyMD assets acquired as of September 30, 1999 is being amortized over a
period of two to three years at a rate of $34,393,765 per year. Goodwill is
being amortized over a three-year life which Chemdex believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
As a result of Promedix's sale of Pro Med Co., Promedix expects to incur a
loss of $1,390,260 on the sale of Pro Med Co. and incur a charge of $3,201,686
related to the reduction and acceleration of options held by Pro Med Co.
employees and two officers. In addition, Promedix expects to incur a charge of
$2,699,163 for the discount on the subordinated convertible notes when these
notes are repaid or converted. These one-time charges will occur prior to the
consummation of the Promedix merger and will therefore be reflected on
Promedix's financial statements. The Promedix Balance Sheet After Sale of Pro
Med Co. included in the Unaudited Pro Forma Combined Condensed Balance Sheet
includes the effect of these charges. However, the Unaudited Pro Forma Combined
Condensed Statements of Operations do not reflect these one-time charges.
The Chemdex Pro Forma Financial Statements should be read in conjunction
with the related notes included in this document and the audited and unaudited
financial statements and notes of Chemdex, Promedix, Pro Med Co., and
SpecialtyMD included elsewhere in this document.
The Chemdex Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1998, January 1,
1999 or September 30, 1999, nor do they purport to indicate results of future
operations.
98
<PAGE>
CHEMDEX
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of September 30, 1999
<TABLE>
<CAPTION>
Promedix
--------------------------------------------------
Promedix Promedix
Before After
Sale of Sale of Sale of
Pro Med Co. Pro Med Co. Pro Med Co.
and Related and Related and Related Pro Forma Chemdex
Chemdex Transactions Transactions Transactions SpecialtyMD Adjustments Pro Forma
------------ ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $125,562,779 $ 987,367 $ -- (12) $ 987,367 $ 1,390,821 $ 4,999,998 (11) $132,940,965
Restricted
Cash........... -- -- -- -- 137,929 -- 137,929
Accounts
receivable,
net............ 3,629,144 2,143,092 (2,143,092)(9) -- -- -- 3,629,144
Notes receivable
from related
parties ....... -- 217,397 (217,397)(9) -- 2,000 -- 2,000
Inventories..... -- 1,931,066 (1,931,066)(9) -- -- -- --
Other current
assets......... 3,713,512 99,535 (83,983)(9) 15,552 28,322 -- 3,757,386
------------ ------------ ----------- ------------ ----------- ------------ ------------
Total current
assets......... 132,905,435 5,378,457 (4,375,538)(9) 1,002,919 1,559,072 4,999,998 140,467,424
Property and
Equipment, net.. 7,212,190 1,206,340 (328,896)(9) 877,444 141,770 -- 8,231,404
Intangible and
other assets.... 14,677,676 2,573,430 (2,512,537)(9) 60,893 36,000 310,256,316 (1) 427,712,180
102,681,295 (13)
------------ ------------ ----------- ------------ ----------- ------------ ------------
Total assets.... $154,795,301 $ 9,158,227 $(7,216,971) $ 1,941,256 $ 1,736,842 $417,937,609 $576,411,008
============ ============ =========== ============ =========== ============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts
payable........ $ 4,426,404 $ 1,727,957 $(1,396,396)(9) $ 331,561 $ 159,542 $ -- $ 4,917,507
Payable to Pro
Med Co......... -- -- 1,089,599 (9) 1,089,599 -- -- 1,089,599
Accrued
compensation... 2,475,442 349,638 (349,638)(9) -- -- -- 2,475,442
Other accrued
liabilities.... 7,711,635 138,584 (138,584)(9) -- 115,190 1,000,000 (3) 9,426,825
600,000 (14)
Deferred Rent... -- -- -- -- 22,980 -- 22,980
Current portion
of notes
payable........ 379,059 1,531,692 (1,531,692)(9) -- -- -- 379,059
Convertible
notes, net of
discount....... -- 2,300,672 (2,300,672)(2) -- -- -- --
------------ ------------ ----------- ------------ ----------- ------------ ------------
Total current
liabilities.... 14,992,540 6,048,543 (4,627,383) 1,421,160 297,712 1,600,000 18,311,412
Notes payable,
less current
portion......... 590,234 -- -- -- -- -- 590,234
Redeemable
preferred
stock........... -- 3,738,057 -- 3,738,057 4,200,946 (3,738,057)(4) --
Stockholders'
equity: (4,200,946)(15)
Common Stock.... 189,391,141 23,934,604 4,701,521 (2)(10) 28,636,125 4,089,305 286,140,285 (5) 607,687,976
99,431,120 (16)
Deferred
compensation... (6,926,489) (17,624,990) -- (17,624,990) (3,870,047) 17,624,990 (8) (6,926,489)
3,870,047 (18)
Notes receivable
from
stockholders... (1,047,047) -- -- -- -- -- (1,047,047)
Accumulated
deficit........ (42,205,078) (6,937,987) (7,291,109)(5)(9)(10) (14,229,096) (2,981,074) 14,229,096 (6) (42,205,078)
2,981,074 (19)
------------ ------------ ----------- ------------ ----------- ------------ ------------
Total
stockholders'
equity
(deficit)...... 139,212,527 (628,373) (2,589,588) (3,217,961) (2,761,816) 424,276,612 557,509,362
------------ ------------ ----------- ------------ ----------- ------------ ------------
Total
liabilities and
stockholders'
equity......... $154,795,301 $ 9,158,227 $(7,216,971) $ 1,941,256 $ 1,736,842 $417,937,609 $576,411,008
============ ============ =========== ============ =========== ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
99
<PAGE>
CHEMDEX
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Chemdex
Chemdex Promedix SpecialtyMD(1) Adjustments Pro Forma
----------- --------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 29,355 $ 14,034 $ -- $ -- $ 43,389
Cost of revenues........ 22,105 1,100 -- 308,333(7) 739,871
408,333(17)
----------- --------- --------- ------------- -------------
Gross Profit (loss) .. 7,250 12,934 -- (716,666) (696,482)
Operating expenses:
Research and
development............ 3,439,135 -- 374,006 420,000(7) 4,387,553
154,412(17)
Sales and marketing..... 3,247,136 -- 7,936 1,065,000(7) 4,388,699
68,627(17)
General and
administrative......... 1,744,898 73,236 222,278 140,000(7) 11,374,187
6,208,482(20)
2,985,293(17)
Amortization of
goodwill............... -- -- -- 101,718,772(7) 118,165,135
16,446,363(17)
Amortization of deferred
compensation........... 372,285 -- -- -- 372,285
----------- --------- --------- ------------- -------------
Total operating
expenses............. 8,803,454 73,236 604,220 129,206,949 138,687,859
----------- --------- --------- ------------- -------------
Operating loss.......... (8,796,204) (60,302) (604,220) (129,923,615) (139,384,341)
Interest expenses....... (2,620) -- -- -- (2,620)
Interest income and
other, net............. 310,410 398 10,576 -- 321,384
----------- --------- --------- ------------- -------------
Loss before Provision
for Income Taxes....... (8,488,414) (59,904) (593,644) (129,923,615) (139,065,577)
Provision for Income
Taxes.................. -- -- (861) -- (861)
----------- --------- --------- ------------- -------------
Loss before
extraordinary item..... (8,488,414) (59,904) (594,505) (129,923,615) (139,066,438)
Extraordinary item...... -- 86,204 -- -- 86,204
----------- --------- --------- ------------- -------------
Net income (loss)....... $(8,488,414) $ 26,300 $(594,505) $(129,923,615) $(138,980,234)
=========== ========= ========= ============= =============
Basic Net income (loss)
per share:
Loss before
extraordinary item... $ (4.79) $ (0.02) $ (0.21) $ (25.20)
Extraordinary item.... 0.00 0.03 -- 0.02
----------- --------- --------- -------------
Net income (loss)..... $ (4.79) $ 0.01 $ (0.21) $ (25.18)
=========== ========= ========= =============
Diluted Net income
(loss) per share:
Loss before
extraordinary item... $ (4.79) $ (0.01) $ (0.21) $ (25.20)
Extraordinary item.... 0.00 0.01 0.00 0.02
----------- --------- --------- -------------
Net income (loss)..... $ (4.79) $ 0.00 $ (0.21) $ (25.18)
=========== ========= ========= =============
Weighted average number
of shares outstanding
Basic................. 1,771,508 2,696,228 2,829,651 5,517,879
Diluted............... 1,771,508 6,693,028 2,829,651 5,517,879
</TABLE>
- --------
(1)Results for SpecialtyMD are from inception (May 27, 1998) to December 31,
1998.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
100
<PAGE>
CHEMDEX
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For The Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Promedix
-------------------------------------------
Promedix Promedix
Before After
Sale of Sale of Sale of
Pro Med Co. Pro Med Co. Pro Med Co.
and Related and Related and Related Pro Forma Chemdex
Chemdex Transactions Transactions Transactions SpecialtyMD Adjustments Pro Forma
------------ ------------ ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......... $ 11,561,238 $ 7,875,993 $(7,875,993)(9) $ -- $ 100 $ -- $ 11,561,338
Cost of revenues...... 10,994,266 5,776,465 (5,776,465)(9) -- -- 231,250(7) 11,750,516
525,000(17)
------------ ----------- ----------- ----------- ----------- ------------- -------------
Gross profit
(loss)............ 566,972 2,099,528 (2,099,528) -- 100 (756,250) (189,178)
Operating expenses:
Research and
development......... 11,397,939 118,568 -- 118,568 1,380,798 315,000(7) 13,410,835
198,530(17)
Sales and
marketing........... 15,315,708 1,574,886 (1,182,859)(9) 392,027 167,816 798,750(7) 16,762,536
88,235(17)
General and
administrative...... 7,198,047 3,063,818 (643,181)(9) 2,420,637 693,587 105,000(7) 21,350,911
3,838,235(17)
7,095,405(20)
Amortization of
goodwill............ -- 202,332 -- 202,332 -- 76,289,079(7) 97,636,735
21,145,324(17)
Amortization of
deferred
compensation........ 1,445,305 3,776,288 -- 3,776,288 50,487 -- 5,272,080
------------ ----------- ----------- ----------- ----------- ------------- -------------
Total operating
expenses.......... 35,356,999 8,735,892 (1,826,040) 6,909,852 2,292,688 109,873,558 154,433,097
------------ ----------- ----------- ----------- ----------- ------------- -------------
Operating loss........ (34,790,027) (6,636,364) (273,488) (6,909,852) (2,292,588) (110,629,808) (154,622,275)
Interest expenses..... (107,995) (236,603) 56,786 (9) (179,817) (79,743) (2,699,163) (3,066,718)
Interest income and
other, net........... 1,584,751 82,047 1,534 (9) 83,581 12,648 -- 1,680,980
------------ ----------- ----------- ----------- ----------- ------------- -------------
Loss before provision
for income taxes..... (33,313,271) (6,790,920) (215,168)(9) (7,006,088) (2,359,683) (113,328,971) (156,008,013)
Provision for income
taxes................ -- (10,000) 10,000 (9) -- (1,886) -- (1,886)
------------ ----------- ----------- ----------- ----------- ------------- -------------
Net Loss.............. (33,313,271) (6,800,920) (205,168) (7,006,088) (2,361,569) (113,328,971) (156,009,899)
Amortization of Series
A preferred stock
discount............. -- -- -- -- $ (25,000) $ 25,000 $ --
Loss applicable to
common stockholders.. $(33,313,271) $(6,800,920) $ (205,168) $(7,006,088) $(2,386,569) $(113,303,971) $(156,009,899)
============ =========== =========== =========== =========== ============= =============
Basis and diluted net
loss per share....... $ (3.33) $ (1.94) $ (2.00) $ (0.72) $ (10.52)
============ =========== =========== =========== =============
Weighted average
shares of common
stock used in
computing basic and
diluted net loss per
share................ 10,007,174 3,502,209 3,502,209 3,279,055 14,831,895
============ =========== =========== =========== =============
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
101
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The Chemdex Pro Forma Statements are based upon the financial statements of
Chemdex, Promedix, and SpecialtyMD, combined and adjusted to give effect to:
(i) Chemdex's proposed acquisition of Promedix capital stock through a merger,
(ii) the sale by Promedix of its subsidiary, Pro Med Co., (iii) the repayment
and conversion of Promedix's subordinated convertible notes and the charge
related to the subordinated convertible notes discount, (iv) conversion of
Promedix's redeemable convertible preferred stock to common stock, (v) the
charge related to the reduction and acceleration of options held by Pro Med Co.
employees, an Officer and Director, (vi) the sale of Promedix Series C
preferred stock subsequent to September 30, 1999, (vii) Chemdex's proposed
acquisition of SpecialtyMD capital stock through a merger, and (viii) the
conversion of SpecialtyMD's convertible preferred stock to common stock.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to
these transactions as if they had taken place on September 30, 1999 and
reflects the total purchase costs of the fair value of assets and liabilities
based on preliminary valuations. The Unaudited Pro Forma Combined Condensed
Statements of Operations for the year ended December 31, 1998 and the nine
months ended September 30, 1999 reflect these transactions as if they had taken
place on January 1, 1998.
On September 21, 1999, Chemdex and Promedix entered into an Agreement and
Plan of Merger, as amended as of December 21, 1999 pursuant to which 12,057,366
shares of Chemdex common stock will be issued in exchange for the shares of
Promedix capital stock outstanding and issuable upon exercise of outstanding
options to purchase Promedix capital stock as of the date of the merger. The
merger will be accounted for using the purchase method of accounting.
Accordingly, Chemdex's cost to acquire Promedix is calculated to be
approximately $315,776,410 assuming a Chemdex common stock price of $26.125 per
share, which is the average of the closing price per share during the period
beginning three days before and ending three days after September 21, 1999, the
day the merger was announced. On December 10, 1999, Chemdex entered into an
agreement to acquire SpecialtyMD pursuant to which 1,250,000 shares of Chemdex
common stock will be issued in exchange for the shares of SpecialtyMD capital
stock outstanding and issuable upon exercise of outstanding options and
warrants to purchase SpecialtyMD capital stock as of the closing date. The
merger will be accounted for using the purchase method of accounting. Chemdex's
cost to acquire SpecialtyMD is calculated to be $104,120,425 assuming a Chemdex
common stock price of $93.48 per share, which is the average of the closing
price per share during the period beginning three days before and ending three
days after December 13, 1999, the day the merger was announced.
The costs to acquire Promedix and SpecialtyMD will be allocated to the
assets acquired and liabilities assumed according to their respective fair
values, with the excess purchase price being allocated to goodwill. As noted
above, the final allocation of the purchase price is dependent upon valuations
and other studies that are not yet complete. Accordingly, the purchase price
allocation adjustments made in connection with the development of the Chemdex
Pro Forma Statements are preliminary and have been made solely for the purpose
of developing the Chemdex Pro Forma Statements.
The pro forma excess of purchase price over net tangible assets acquired as
of September 30, 1999 is being amortized over two to three years at a rate of
per year. Goodwill is being amortized over a three-year life which Chemdex
believes is responsive to the rapid rate of change in the Internet industry and
is consistent with other recent mergers of a comparable nature.
As a result of Promedix's sale of Pro Med Co., Promedix expects to incur a
loss of $1,390,260 on the sale of Pro Med Co. and incur a charge of $3,201,686
related to the reduction and acceleration of options held by Pro Med Co.
employees and two officers. In addition, Promedix expects to incur a charge of
$2,699,163 for the discount on the subordinated convertible notes when these
notes are repaid or converted. These one-time charges will occur prior to the
consummation of the Promedix merger and will therefore be reflected on
Promedix's financial statements. The Promedix Balance Sheet After Sale of Pro
Med Co. included in the Unaudited Pro Forma Combined Condensed Balance Sheet
includes the effect of these charges. However, the Unaudited Pro Forma Combined
Condensed Statements of Operations do not reflect these one-time charges.
102
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The Chemdex Pro Forma Financial Statements should be read in conjunction
with the related notes included in this document and the audited and unaudited
financial statements and notes of Chemdex, Promedix, Pro Med Co., and
SpecialtyMD included elsewhere in this document.
The Chemdex Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1998, January 1,
1999 or September 30, 1999 nor do they purport to indicate results of future
operations.
1. Below is a table of the estimated acquisition cost, purchase price
allocation and annual amortization of the intangible assets acquired from
Promedix:
<TABLE>
<CAPTION>
Years of Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost:
Estimated Purchase Price......... $314,776,410
Acquisition Expenses............. 1,000,000
------------
Total Estimated Acquisition
Cost........................... $315,776,410
============
Purchase Price Allocation:
Net tangible assets of Promedix
at September 30, 1999, after
sale of Pro Med Co. and
repayment and conversion of
subordinated convertible notes.. $ (3,217,961)
Conversion of redeemable
preferred stock................. 3,738,057
Sale of Series C stock subsequent
to September 30, 1999........... 4,999,998
------------
Pro forma net tangible assets of
Promedix at September 30, 1999.. 5,520,094
Intangible assets acquired:
Assembled workforce.............. 1,400,000 2 700,000
Customer relationships........... 2,800,000 3 933,333
Supplier relationships........... 900,000 3 300,000
Goodwill......................... 305,156,316 3 101,718,772
------------
Total........................... $315,776,410
============
</TABLE>
The unaudited pro forma combined condensed financial statements give effect
to the following pro forma adjustments:
Application of purchase accounting to the Promedix merger, reflecting
the estimated acquisition cost noted above and the issuance of Chemdex
common stock. Components of the estimated acquisition cost reflect the
following:
<TABLE>
<CAPTION>
Promedix Chemdex Fair Value
Shares Shares (in thousands)
--------- ---------- --------------
<S> <C> <C> <C>
Outstanding shares at September 30,
1999............................... 7,576,339 9,693,958 $253,254,653
Sales of Series C preferred stock .. 176,429 225,742 5,897,510
Stock options....................... 991,345 1,268,430 32,915,457
Warrants............................ 333,334 426,502 11,142,364
Subordinated convertible notes...... 346,020 442,734 11,566,426
--------- ---------- ------------
Totals.......................... 9,423,467 12,057,366 $314,776,410
========= ========== ============
</TABLE>
103
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
. Acquisition of Promedix capital stock through an exchange of 1.2795
shares of Chemdex common stock for each share of Promedix capital stock
or approximately 9,693,958 shares of Chemdex common stock in the
aggregate. The purchase price was based upon approximately 9,693,958
Chemdex shares, multiplied by a per share price of $26.125, the average
of the closing price per share during the period beginning three days
before and ending three days after September 21, 1999, the day the
merger was announced. The merger agreement provides for the merger of
Promedix with a wholly owned subsidiary of Chemdex, resulting in
Promedix becoming a wholly-owned subsidiary of Chemdex.
. Conversion of approximately 176,429 shares of Promedix Series C
preferred stock related to Tenet Healthcare Corporation's investment in
Promedix subsequent to September 30, 1999, or approximately 225,742
shares of Chemdex common stock, after giving effect to the 1.2795
exchange ratio in the merger. The purchase price was based upon a
Chemdex common stock price of $26.125 multiplied by the 225,742 shares.
. Conversion of approximately 991,345 outstanding and unexercised options
exercisable for shares of Promedix common stock into options exercisable
for an aggregate of approximately 1,268,430 shares of Chemdex common
stock having the same terms and conditions as the Promedix options,
after giving effect to the 1.2795 exchange ratio in the merger. The fair
value of the options assumed is based on the Black-Scholes option
pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Chemdex common stock closing price on September 21,
1999, the day the merger was announced, and three days prior and
subsequent to such date......................................... $26.125
Expected years until exercise.................................... 4
Expected stock volatility........................................ 100%
Risk free interest rate.......................................... 6%
Expected dividend rate........................................... --
</TABLE>
. Exercise of warrants to purchase 333,334 shares of Promedix's preferred
stock through the retirement of $499,835 of subordinated convertible
notes, or approximately 426,502 shares of Chemdex common stock, after
giving effect to the 1.2795 exchange ratio in the merger. The purchase
price was based upon a Chemdex common stock price of $26.125 multiplied
by the 426,502 shares.
. Conversion of approximately $1,000,000 of subordinated convertible notes
into 346,020 shares of Promedix preferred stock or approximately 442,734
shares of Chemdex common stock, after giving effect to the 1.2795
exchange ratio in the merger. The purchase price was based upon Chemdex
common stock share price of $26.125 multiplied by the 442,734 shares.
Components of the purchase price allocation listed above and reflected
in the Chemdex Pro Forma Financial Statements include the following:
Tangible assets of Promedix to be acquired principally include cash,
current and other assets and property and equipment. Liabilities of
Promedix assumed in the Promedix merger principally include accounts
payable, and a payable to Pro Med Co.
The value of customer and supplier relationships was derived by
attributing historical costs incurred, excluding technology development
costs, to each of the two respective relationships based upon Promedix
management's estimation of proportionate resources that had been
devoted to the development of each of the respective relationships. The
analysis yielded a valuation of approximately $3,700,000. The asset is
being amortized on a straight line basis over a three year period.
The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting and
hiring costs and training costs for each category of employee. The
analysis yielded a valuation of approximately $1,400,000 for the
assembled workforce. The asset is being amortized on a straight line
basis over a two year period.
104
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The preliminary goodwill allocation is approximately $305,156,316.
Amortization of goodwill will occur over three years. Chemdex believes that
a three-year life is responsive to the rapid rate of change in the Internet
industry and is consistent with other recent mergers of a comparable
nature.
2. Promedix is repaying $3,500,000 of the $5,000,000 subordinated
convertible notes ($2,300,672 net of discounts) from proceeds received from the
sale of Pro Med Co. In addition, $1,000,000 of the subordinated convertible
notes is being converted to 346,020 shares of Promedix preferred stock and
$499,835 of the subordinated convertible notes is being used to pay for the
exercise of the warrants to purchase 333,334 shares of Promedix preferred
stock. The $2,699,163 discount on the subordinated convertible notes will be
recognized in Promedix's financial statements when the subordinated notes are
converted and repaid. The Promedix Balance Sheet After Sale of Pro Med Co.
included in the Unaudited Pro Forma Combined Condensed Balance Sheet includes
the one-time charge related to the discount on the subordinated convertible
notes. However, the Unaudited Pro Forma Combined Condensed Statements of
Operations do not reflect this one-time charge.
3. The pro forma adjustment to "Other accrued liabilities" reflects the
accrual of acquisition costs arising from the merger, estimated to be
approximately $1,000,000.
4. The pro forma adjustment to "Redeemable convertible preferred stock"
reflects the conversion of Promedix's redeemable convertible preferred stock
($3,738,057) to common stock.
5. The pro forma adjustment to "Common stock" reflects the conversion of
redeemable convertible preferred stock to Promedix common stock ($3,738,057),
the conversion of $1,000,000 of the subordinated convertible notes to preferred
stock, exercise of Promedix warrants for 333,334 shares of Promedix preferred
and a $499,835 reduction in the subordinated convertible notes to pay for the
exercise price of the warrants, the $3,201,686 related to the acceleration of
Pro Med Co. stock options, the sale of Promedix Series C preferred stock for
$4,999,998, and the issuance of Chemdex common stock ($314,776,410) and the
elimination of Promedix common stock ($42,075,701).
6. The pro forma adjustment to "Accumulated deficit" reflects the
elimination of Promedix's accumulated deficit after the sale of Pro Med Co.
7. The pro forma adjustment is for the amortization of goodwill, customer
and supplier relationships and assembled workforce.
8. The pro forma adjustment is to eliminate deferred compensation related to
Promedix stock options.
9. Prior to the acquisition of Promedix by Chemdex, Promedix intends to sell
100% of the outstanding capital stock of its wholly owned subsidiary, Pro Med
Co. to an unrelated third party. The purchaser or purchasers may include one or
more of Promedix's stockholders, including William C. Klintworth, Promedix's
Chief Executive Officer. The loss on the sale of Pro Med Co. is estimated at
$1,390,260 based on the $3,500,000 purchase price less net tangible assets of
$3,800,661 and the $1,089,599 Promedix payable to Pro Med Co. at September 30,
1999. The Promedix Balance Sheet After Sale of Pro Med Co. included in the
Unaudited Pro Forma Combined Condensed Balance Sheet includes the loss on the
sale of Pro Med Co., Inc. However, the Unaudited Pro Forma Combined Condensed
Statements of Operations do not reflect this one-time loss on the sale of Pro
Med Co., Inc. The loss on the sale of Pro Med Co. will be reflected in
Promedix's financial statements when the sale of Pro Med Co. is consummated.
The Unaudited Pro Forma Combined Condensed Statement of Operations for the
nine months ended September 30, 1999 eliminates Pro Med Co.'s operating results
for the nine months ended September 30, 1999 due to the sale of Pro Med Co. to
an unrelated third party. In addition the Unaudited Pro Forma Combined
Condensed Balance Sheet at September 30, 1999 eliminates Pro Med Co.'s assets
of $7,216,971 and liabilities
105
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
of $3,416,310 and establishes a $1,089,599 payable to Pro Med Co. due to the
sale of Pro Med Co. to an unrelated third party.
10. As part of Promedix's sale of Pro Med Co., which is being sold prior to
the closing of the merger, 79,500 options held by Pro Med Co. employees will be
reduced by one half and such remaining options will immediately become 100%
vested (39,750). The 250,000 options held by Brad Brewer and Barrie Brewer, an
officer and director, respectively, will be reduced by two thirds and the
remaining portion will become 100% vested (83,334). The charge for the
accelerated vesting of stock options is estimated at $3,201,686. The Promedix
Balance Sheet After Sale of Pro Med Co. included in the Unaudited Pro Forma
Combined Condensed Balance Sheet indicates the effect of the charge for
accelerated options. However, the Unaudited Pro Forma Combined Condensed
Statements of Operations do not reflect this one-time charge. The charge
related to the accelerated options will be reflected in Promedix's financial
statements when the acceleration occurs.
11. Promedix is selling 176,429 shares of Series C preferred stock
subsequent to September 30, 1999 for $4,999,998.
12. Promedix is receiving $3,500,000 of cash for the sale of Pro Med Co. In
addition, Promedix is repaying $3,500,000 of the subordinated convertible
notes.
13. Below is a table of the estimated acquisition cost, purchase price
allocation and annual amortization of the intangible assets acquired from
SpecialtyMD:
<TABLE>
<CAPTION>
Years of Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost:
Estimated Purchase Price........ $ 103,520,425
Acquisition Expenses............ 600,000
-------------
Total Estimated Acquisition
Cost.......................... $ 104,120,425
=============
Purchase Price Allocation:
Net tangible assets of
SpecialtyMD at September 30,
1999........................... $ (2,761,816)
Conversion of redeemable
preferred stock................ 4,200,946
-------------
Pro forma net tangible assets of
SpecialtyMD at September 30,
1999........................... 1,439,130
Intangible assets acquired:
Assembled workforce............. 1,000,000 2 500,000
Developed Technology............ 2,100,000 3 700,000
Non-compete agreements.......... 15,000,000 3 5,000,000
Goodwill........................ 84,581,295 3 28,193,765
-------------
Total.......................... $ 104,120,425
=============
</TABLE>
106
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma combined condensed financial statements give effect
to the following pro forma adjustments:
Application of purchase accounting to the SpecialtyMD merger, reflecting the
estimated acquisition cost noted above and the issuance of Chemdex common
stock. Components of the estimated acquisition cost reflect:
The purchase price is determined as follows:
<TABLE>
<CAPTION>
SpecialtyMD Chemdex Fair Value
Shares Shares (in thousands)
----------- --------- --------------
<S> <C> <C> <C>
Outstanding shares at September
30, 1999........................ 8,673,632 909,407 $ 85,011,366
Restricted stock subject to
repurchase...................... 1,744,480 182,906 17,093,688
Stock options.................... 1,337,666 140,250 13,096,270
Warrants......................... 166,310 17,437 1,622,988
---------- --------- ------------
11,922,088 1,250,000 116,824,312
Less shares contingent on
service......................... (1,358,000) (142,318) (13,303,887)
---------- --------- ------------
Totals....................... 10,564,088 1,107,682 $103,520,425
========== ========= ============
</TABLE>
. Conversion of SpecialtyMD capital stock through an exchange of .1048
shares of Chemdex common stock for each share of SpecialtyMD outstanding
shares of common stock or approximately 909,407 shares of Chemdex common
stock in the aggregate. The purchase price was based upon the
approximately 909,407 Chemdex shares, multiplied by a per share price of
$93.48, the average of the closing price per share during the period
beginning three days before and ending three days after December 13,
1999, the day the merger was announced. The merger agreement provides
for the merger of SpecialtyMD with a wholly owned subsidiary of Chemdex,
resulting in SpecialtyMD becoming a wholly-owned subsidiary of Chemdex.
. Conversion of approximately 1,744,480 shares of SpecialtyMD restricted
common stock subject to repurchase for an aggregate of approximately
182,906 shares of Chemdex restricted common stock subject to repurchase,
under the same terms and conditions under the SpecialtyMD shares, after
giving effect to the .1048 exchange ratio in the merger. The fair value
of assumed shares of restricted stock subject to repurchase is based on
the Black-Scholes option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Chemdex common stock closing price on December 13, 1999,
the day the merger was announced, and three days prior and
subsequent to such date......................................... $ 93.48
Expected years until repurchase right lapse...................... 4
Expected stock volatility........................................ 100%
Risk free interest rate.......................................... 6%
Expected dividend rate........................................... --
</TABLE>
107
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
. Conversion of approximately 1,337,666 outstanding and unexercised
options exercisable for shares of SpecialtyMD common stock into options
exercisable for an aggregate of approximately 140,250 shares of Chemdex
common stock having the same terms and conditions as the SpecialtyMD
options, after giving effect to the .1048 exchange ratio in the merger.
The fair value of the options assumed is based on the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Chemdex common stock closing price on December 10, 1999,
the day the merger was announced, and three days prior and
subsequent to such date......................................... $ 93.48
Expected years until exercise.................................... 4
Expected stock volatility........................................ 100%
Risk free interest rate.......................................... 6%
Expected dividend rate........................................... --
</TABLE>
. Conversion of approximately 166,310 outstanding and unexercised warrants
for shares of SpecialtyMD Series B preferred stock into warrants
exercisable for an aggregate of approximately 17,437 shares of Chemdex
common stock having the same terms and conditions as the SpecialtyMD
warrants, after giving effect to the .1048 conversion ratio. The fair
value of the warrants assumed is based on the Black-Scholes option
pricing model using the following assumptions.
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Chemdex common stock closing price on December 10, 1999,
the day the merger was announced, and three days prior and
subsequent to such date......................................... $ 93.48
Expected years until exercise.................................... 10
Expected stock volatility........................................ 100%
Risk free interest rate.......................................... 6.6%
Expected dividend rate........................................... --
</TABLE>
. Under EITF 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in an Purchase Business
Combination," this arrangement is, in substance, compensation for post-
combination services rather than additional purchase price. The
President and Vice President of Business Development of SpecialtyMD are
exchanging 1,358,000 shares of outstanding common stock for 142,318
shares of Chemdex common stock that will be subject to a repurchase
option in favor of Chemdex in the event of termination of employment.
The repurchase option will be released over a fifteen-month period.
Components of the purchase price allocation listed above and reflected
in the Chemdex Pro Forma Statements include the following:
Tangible assets of SpecialtyMD to be acquired principally include
cash, current and other assets and property and equipment. Liabilities
of SpecialtyMD assumed in the SpecialtyMD merger principally include
accounts payable.
The value of the developed technology was derived by attributing
historical costs incurred, for all existing technology, taking into
account risks related to the characteristics and applications of the
technology, future markets, and assessments of the life cycle stage of
technology based upon SpecialtyMD management's estimation of
proportionate resources that had been devoted to the development of the
technology. The analysis yielded a valuation of approximately
$2,100,000 for technology which has reached technological feasibility
and therefore was capitalizable. The asset is being amortized on a
straight line basis over a three year period.
The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting and
hiring costs and training costs for each category of employee. The
analysis yielded a valuation of approximately $1,000,000 for the
assembled workforce. The asset is being amortized on a straight line
basis over a two year period.
108
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The value of the non-compete agreement was derived from a discounted
cash flow valuation with and without non-compete agreements. The
analysis yielded a valuation of approximately $15,000,000 which is
being amortized over a three year period.
The preliminary goodwill allocation is approximately $84,581,295.
Amortization of goodwill will occur over three years. Chemdex believes
that a three-year life is responsive to the rapid rate of change in the
Internet industry and is consistent with other recent mergers of a
comparable nature.
14. The pro forma adjustment to "Other accrued liabilities" reflects the
accrual of acquisition costs arising from the merger, estimated to be
approximately $600,000.
15. The pro forma adjustment to "Redeemable convertible preferred stock"
reflects the conversion of SpecialtyMD's redeemable convertible preferred
stock ($4,200,946) to common stock.
16. The pro forma adjustment to "Common stock" reflects the conversion
of redeemable convertible preferred stock to SpecialtyMD common stock
($4,200,946), the issuance of Chemdex common stock ($103,520,425) and the
elimination of SpecialtyMD common stock ($8,290,251), includes the
redeemable preferred stock converted into common stock.
17. The pro forma adjustment is for the amortization of goodwill,
developed technology, non-compete agreements and assembled workforce.
18. The pro forma adjustment is to eliminate deferred compensation
related to SpecialtyMD stock options.
19. The pro forma adjustment to "Accumulated deficit" reflects the
elimination of SpecialtyMD's accumulated deficit.
20. The pro forma adjustment is to record the compensation expense
related to the vesting of the restricted stock over the 15 month period the
repurchase option lapses beginning January 1, 1998.
109
<PAGE>
INFORMATION ABOUT PROMEDIX
Promedix's Business
Overview
Promedix is an Internet-based specialty medical product marketplace that
links buyers and suppliers in this highly-fragmented vertical market by
providing a Java-based product research and purchasing system, called the
Specialty Medical Product Exchange. This vertical marketplace, which is in
development, will provide customers the ability to purchase from multiple
specialty medical product suppliers with a single purchase order and offers
integration capability with major legacy systems currently in use by healthcare
institutions.
History
Promedix was previously known as MCA HealthPages, Inc. (MCA). MCA conducted
its principal business--providing Web design and hosting services for specialty
medical manufacturing clients--beginning in 1997. Its principals sold the Web
design segment of the business in 1998 to concentrate on electronic commerce.
In late 1997, MCA developed what it called "Medical Village," the first E-
commerce site on the Web for the procurement of specialty medical products. It
was a precursor to the Specialty Medical Product Exchange, offering full search
capability of specialty medical manufacturers and the ability to directly
communicate with them to facilitate purchases.
In mid-1998, MCA began to aggressively seek venture capital funding for
Medical Village. MCA received first-round funding from CMG@Ventures, the
investment arm of CMGI, in December, 1998.
In May, 1999 MCA acquired Pro Med Co., Inc., a company which distributes
medical equipment and supplies through direct sales and catalogs and which did
business as "Promedix." In May, 1999 MCA changed its name to Promedix.com, Inc.
Promedix is a Delaware corporation, with headquarters in Salt Lake City, Utah.
The Pro Med Co., Inc. business is scheduled to be sold prior to consummation of
the merger.
On September 21, 1999, Promedix agreed to sell $5,000,000 of its Series C
preferred stock to Tenet Healthcare Corporation, with a closing scheduled to
occur prior to Chemdex/Promedix Merger.
In December 1999, Promedix and Tenet Healthcare Corporation agreed to enter
into an arrangement whereby Promedix will be the exclusive provider to Tenet of
business-to-business e-commerce solutions for the purchase of specialty medical
products.
Market Analysis
The global market for medical products exceeded $140 billion in 1998, with a
projected 6% to 7% annual growth rate. The U.S. accounts for approximately 40%
of the total, or roughly $55 billion, with per capita spending of $209 per
person, according to the Medical & Healthcare Marketplace Guide published by
IDD Enterprises, 1998-1999. Cost containment measures are restraining growth,
but it is expected that technological advances should help offset these
restraints to the growth rate.
The healthcare industry as a whole is characterized by the consolidation of
providers into integrated delivery networks (IDN) that are increasingly seeking
to lower procurement costs and to provide a broader base of services than
previously existed. Major acute care facilities are becoming consolidators,
whereby they seek to align with or acquire outpatient, long-term care, and
specialized diagnostic facilities to form IDNs. These facilities are
consequently looking for business solutions to meet the expanded product
acquisition needs of the IDNs, and are focused on methods to reduce operations
costs in the member institutions.
The healthcare industry as a whole has not been subject to the severe
economic cycles that affect many other businesses. Demand for medical products
has remained at a fairly constant level, and the aging of the
110
<PAGE>
population should result in sustained demand for the foreseeable future. The
international market is also expanding, and some markets are growing at rates
two to four times that of the U.S. market, according to the Medical &
Healthcare Marketplace Guide published by IDD Enterprises, 1998--1999.
Market Niche
The larger market niche in healthcare, called commodity products, consists
of products purchased in high volume from one of five major distributors,
usually in an electronic fashion (EDI, for the most part). These commodity
products account for approximately two-thirds of all healthcare purchases.
Given the efficient EDI purchasing mechanism, entrenched contract pricing
structure, well-established logistics infrastructure, and relatively low
margins for products, Promedix has not entered this market, which is currently
well served by existing large distributors and general purchasing organizations
(GPOs).
Instead, Promedix focuses on the market for specialty medical products,
which represents approximately one-third of all healthcare purchases and is not
as well served by existing GPOs and distributors. These products are currently
sold by a fragmented group of several thousand manufacturers and distributors,
usually via telephone and fax (less than 1% of purchase transactions are
conducted electronically). Logistics are handled inefficiently, and margins for
these products vary significantly. Examples of specialty products include:
. Surgical instruments
. Laparoscopic instruments
. Blood and IV filters
. Vascular access devices
. Cardiac stents and catheters
. Infusion devices
Business Model
Promedix is using a marketplace business model similar to the existing
Chemdex model. Promedix accepts orders from buyers, and transmits drop-ship
orders to its manufacturer partners. Because Promedix's buyers have expressed a
strong desire for aggregated shipments, the company is exploring relationships
with major logistics providers.
Another aspect of the model includes selling advanced web-based marketing
services to manufacturers wishing to expand their product presentations.
In addition to deriving revenue from intermediation service fees described
above, Promedix intends to offer a data mining service. Such a service would
generate periodic reports of product sales for each supplier. Suppliers would
purchase these reports from Promedix in order to develop more efficient
marketing strategies. To expedite an otherwise lengthy negotiation process,
Promedix will offer all of it services on a non-exclusive basis; suppliers who
sell through the Specialty Medical Product Exchange will not be prohibited from
selling through alternative mechanisms.
Sales Strategy
To attract suppliers, Promedix has a sales team, consisting of 10 Vendor
Account Managers. To supplement sales, Promedix attends targeted trade shows to
meet with specific vendors. The shows give Promedix the opportunity to sign up
new vendors and improve relations with existing vendor partners. To attract
buyers, the Promedix sales effort is focused on two market segments: acute care
and sub-acute care.
Promedix's primary targets in acute care are large IDNs. By meeting with
senior management of each IDN, Promedix intends to establish a formal corporate
relationship with the IDNs and then tailor the best
111
<PAGE>
program for integrating the IDN facilities. Once the guidelines and timeframes
are established, the Promedix sales team and territory managers will conduct
the introduction and implementation phase.
In the sub-acute care market (e.g. surgery centers, medical clinics and
veterinary clinics), Promedix is contacting purchasing agents using the
Promedix sales team, and territory managers, and through attendance at trade
shows. Promedix's primary target in this non-hospital market is surgery
centers.
While each market has distinct traits, the Promedix sales approach shares
the same structure. Realizing that Promedix is implementing a new technology
paradigm into a traditionally very conservative industry, the company has
created a three-tiered sales program: Executive Selling and Education, Inside
Sales, and Territory Management. Executive Selling and Education begins when
the Promedix sales team approaches large clients such as IDNs in an effort to
generate awareness and interest about the services Promedix offers. Inside
Sales occur once the initial relationship is established. The Promedix sales
team will deal directly with individual account managers at potential
customers, such as hospitals, to explain the opportunities available from
Promedix. Territory Management involves on-site problem solving at clients to
fully integrate systems and familiarize customers with the services Promedix
offers.
Competition
The specialty medical product marketplace is controlled by specialty
manufacturers and distributors through a largely non-automated network.
Promedix's principal competitors are the larger regional distributors, like
Tri-anim and Primesource Surgical, which represent products in several sub-
specialties. Many manufacturers who sell directly also have rudimentary e-
commerce sites for their own products.
Indirect competitors of Promedix are large commodity distributors and group
purchasing organizations (GPOs). The largest medical distributor--Allegiance
Healthcare--has released an e-commerce site called ASAP E-Comm, designed to
sell the commodity products that Allegiance represents. Premier, Inc., the
largest group purchasing organization, has released Premier Select, a site
targeted to the physician and long-term care market, that contains only those
products that Premier has contracted with manufacturers to sell.
Principal Internet competitors are NeoForma and Medibuy, and to a lesser
extent Cimtek Medical and mrn.com, all of which are following much broader
models which attempt to Internet-enable the entire market structure of
healthcare. There are also several E-commerce sites that indirectly compete
with Promedix, including VerticalNet, ProcureNet, and Industry.Net. Specialty
medical products are also sold in limited quantities by smaller Internet
companies, like Surgical911.com, and by consumer-oriented sites, like Medsite.
Customer and Supplier Relationships
Promedix currently has relationships with approximately 500 specialty
medical product suppliers, representing over 325,000 individual products.
Promedix has been testing the site in a controlled release since August, 1999,
with five acute care buyers.
Proprietary Rights
Promedix relies on a combination of the protections provided under
applicable copyright, trademark and trade secret laws, as well as confidential
procedures and licensing agreements to establish and protect its rights in its
software. The only federally registered intellectual property Promedix owns is
the trademark "Promedix." Promedix intends to license its software to customers
under standard license agreements, although each license will be individually
negotiated and may contain variations.
Government Regulations
Promedix currently relies on its suppliers to meet the various regulatory
requirements applicable to the sale of its products, including specialty
medical products regulated by the U.S. Food & Drug Administration
112
<PAGE>
(FDA). We have not verified that our suppliers have met all regulatory
requirements, or that their compliance is adequate or sufficient to meet all
governmental requirements. We could be subject to significant penalties or
fines, or significant civil or criminal liability, as well as potential
negative publicity, if these requirements have not been fully met by our
suppliers or by us directly. We could also be subjected to these fines and
liabilities, as well as product and revenue loss and recall costs, if the
products are improperly manufactured, used, or otherwise do not perform as
expected. The events described above could have a material adverse impact on
our business, revenues, results of operations, and financial condition.
The supply and distribution of medical devices for clinical use are subject
to direct regulation by governmental agencies, which includes the U.S. Food &
Drug Administration (FDA) laws and regulations generally applicable to medical
supplies and healthcare businesses, as well as U.S. export controls and import
controls of other countries, including controls on the use and distribution of
some specialty medical products. FDA requirements include reporting deaths,
serious illnesses and serious injuries that are attributed to the medical
devices we distribute, as well as reporting device malfunctions and filing an
annual certification to FDA. We continue to rely on our suppliers to file these
reports, but may have to do so ourselves. Any failure to comply with applicable
sections of the FDA Act could subject the company to civil and/or criminal
liability. Regarding compliance with the various statutory and regulatory
requirements that relate to our involvement in the sale of specialty medical
products, there are, to our knowledge, currently no investigations, inquiries,
citations, fines, or allegations of violations or noncompliance pending by
government agencies or by third parties against us. It is possible that there
may be investigations or allegations in the future. We are currently reviewing
applicable FDA requirements with regard to present and continuing compliance,
particularly concerning various licensing and sales issues. The risk that any
noncompliance may occur in the future is currently unknown. As we expand our
product offering, we may be subject to additional government regulation.
Although any potential impact on us for noncompliance cannot be established, it
could have a material adverse impact on our business, financial condition and
results of operations, result in adverse publicity, and could result in civil
or criminal penalties and liabilities.
Sale of Pro Med Co., Inc.
Promedix agreed to sell all of the outstanding shares of capital stock of
its wholly-owned subsidiary, Pro Med Co., a Utah corporation, to an unrelated
third party. One or more of Promedix's stockholders, including William C.
Klintworth, Promedix's Chief Executive Officer may own a minority interest in
such third party. Pro Med Co. is in the business of marketing and distributing
medical equipment and supplies and is referred to herein as the "fulfillment
business." As a result of such sale, Promedix will no longer own or operate the
fulfillment business.
Employees
After giving affect to the planned sale of Promedix's subsidiary, Pro Med
Co., Inc., Promedix expects to have approximately 85 full-time employees,
including approximately 27 in sales, 26 in technology, and 13 in customer
service.
Facilities
Promedix's principal offices are located in Murray, Utah where Promedix
subleases approximately 14,000 square feet under a lease that expires in
November, 2000.
Legal Proceedings
Promedix is not a party to any legal proceedings which, if adversely
decided, would reasonable be expected to have a materially adverse effect on
the financial condition of Promedix.
113
<PAGE>
PROMEDIX.COM, INC. SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, (unaudited)
-------------- ---------------
1997 1998 1998 1999
------ ------ ------ -------
(In thousands, except per
share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues................................... $ 197 $ 14 $ 14 $ 7,876
Operating loss................................. (135) (60) (54) (6,636)
Income (loss) before extraordinary item........ 141 (60) (54) (6,806)
Extraordinary item............................. -- 86 86 --
Net income (loss).............................. 141 26 32 (6,806)
Basic net income (loss) per share:
Loss before extraordinary item............... $(0.10) $(0.02) $(0.02) $ (1.94)
Extraordinary item........................... $ -- $0.03 $ 0.03 $ --
Net income (loss)............................ $(0.10) $0.01 $ 0.01 $ (1.94)
Weighted average common shares............... 1,380 2,696 2,448 3,502
Diluted net income (loss) per share
Loss before extraordinary items.............. $(0.10) $(0.01) $(0.02) $ (1.94)
Extraordinary item........................... $ -- $ 0.01 $ 0.03 $ --
Net income (loss)............................ $(0.10) $ -- $ 0.01 $ (1.94)
Weighted average common shares............... 1,380 6,693 2,448 3,502
</TABLE>
<TABLE>
<CAPTION>
December
31, September 30,
------------ 1999
1997 1998 (unaudited)
---- ------ -------------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and Cash equivalents............................ $127 $3,002 $ 987
Working capital...................................... (24) 3,001 (670)
Total assets......................................... 20 3,035 9,158
Preferred Stock--Series A............................ -- 3,002 3,738
Total liabilities and preferred stock................ 41 3,033 9,786
Total stockholders' equity (deficit)................. (21) 2 (628)
</TABLE>
114
<PAGE>
PROMEDIX.COM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following "Management's Discussion and Analysis of Results of Operations
and Financial Condition" contains forward-looking statements. In some cases,
readers can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue." These statements involve
known and unknown risks, uncertainties and other factors that may cause
Promedix's actual results, performance, or achievements to be materially
different from those stated herein. Although management of Promedix believes
the expectations reflected in the forward-looking statements are reasonable,
Promedix cannot guarantee future results, performance, or achievements.
Overview
Promedix is an Internet-based specialty medical product marketplace that
links buyers and suppliers in a highly fragmented vertical market by providing
a Java-based product research and purchasing system, called the Specialty
Medical Product Exchange. This vertical marketplace, which is in development,
will provide customers the ability to purchase from multiple specialty medical
products suppliers with a single purchase order and offers integration
capability with major legacy systems currently in use by healthcare
institutions.
Promedix was previously known as MCA HealthPages, Inc. (MCA) which was
incorporated on December 20, 1996. MCA conducted its principal business--
providing Web design and hosting services for specialty medical manufacturing
clients--beginning in January 1997. Promedix terminated the Web design segment
of the business in early 1998 to concentrate on electronic commerce.
In late 1997, MCA developed what it called "Medical Village," the first e-
commerce site on the Web for the procurement of specialty medical products. It
was a precursor to the Specialty Medical Product Exchange, offering full search
capability of specialty medical manufacturers and the ability to directly
communicate with them to facilitate purchases.
In mid-1998, MCA began to aggressively seek venture capital funding for
Medical Village. MCA received first-round funding from CMG @Ventures, the
investment arm of CMGI, in December 1998.
In May 1999, MCA acquired Pro Med Co., Inc., a company that distributes
medical equipment and products through direct sales and catalogs. In May 1999,
MCA changed its name to Promedix.com, Inc. Promedix is a Delaware corporation,
with headquarters in Salt Lake City, Utah.
On September 21, 1999, Promedix entered into an agreement in which it would
merge into a wholly-owned subsidiary of Chemdex in exchange for shares of
Chemdex's common stock. Pro Med Co. is scheduled to be sold prior to
consummation of the merger.
On September 21, 1999, Promedix agreed to sell 176,429 shares of its Series
C preferred stock to Tenet Healthcare Corporation with a closing scheduled to
occur on December 22, 1999.
In December 1999, Promedix and Tenet Healthcare Corporation agreed to enter
into an arrangement whereby Promedix will be the exclusive provider to Tenet of
business-to-business e-commerce solutions for the purchase of specialty medical
products.
Specialty Medical Product Exchange
Promedix does not have any sales from its Specialty Medical Product
Exchange. Promedix's operating activities are related primarily to the design
and development of the Specialty Medical Product Exchange,
115
<PAGE>
building the corporate infrastructure, establishing relationships with
suppliers and customers and raising capital. Promedix has developed its
organization by hiring personnel in key areas, particularly sales, research and
development and marketing.
Promedix has incurred significant losses since inception and, as of
September 30, 1999, had an accumulated deficit of approximately $6.9 million.
Promedix expects its losses to increase in the future and there can be no
assurance that it will ever achieve or sustain profitability. Promedix believes
its success depends on establishing key strategic supplier and customer
relationships, enhancing the features and functionality of the Specialty
Medical Product Exchange, and accelerating market awareness and demand for the
Specialty Medical Product Exchange. Beginning in 1999, Promedix has increased
its level of spending to build its infrastructure and to develop its Specialty
Medical Product Exchange. Promedix intends to continue to invest heavily in
sales, marketing, research and development and administrative activities.
Promedix has limited operating history upon which to base an evaluation of its
business and there can be no assurance that its revenues will increase in
future periods.
A key element of Promedix's strategy is to market its solution directly to
healthcare organizations, and to succeed it must satisfy the purchasing
departments and the clinical groups who are the users of Promedix's Internet-
based purchasing solution. The time it takes to sell and implement Promedix's
solution is long and Promedix will devote significant sales, marketing and
management resources to the sales process without any assurance that the
customer will use the Specialty Medical Product Exchange. Promedix will
generally be required to provide a significant level of education regarding the
use and benefits or its Internet-based purchasing solution, due in part to the
significant departure from traditional means of commerce and communications
entailed by its adoption and use. The sale and implementation of Promedix's
solution are expected to be subject to delays due to Promedix's customers'
internal budgets and procedures for deploying new technologies within their
networks. These delays may impair Promedix's ability to generate revenue and
could negatively affect Promedix's results of operations. Once an enterprise
customer adopts Promedix's Internet-based purchasing solution, it will take
time for users within the enterprise to become aware of, learn to use and begin
using Promedix's Specialty Medical Product Exchange. The long sales cycle and
the time it takes to begin using Promedix's Internet-based purchasing solution
could negatively affect Promedix's revenue growth, and make it difficult to
predict Promedix's results of operations.
Fulfillment Operations
Through the acquisition of Pro Med Co. in May 1999, Promedix generates
revenue from the sale of emergency medical products and equipment under sales
and distribution agreements with various manufacturers. Customers are located
throughout the United States and primarily include ambulance services, fire
departments and governmental facilities.
On November 9, 1999, Promedix agreed to sell all of the outstanding shares
of capital stock of Pro Med Co., a Utah corporation and wholly-owned subsidiary
of Promedix, to an unrelated third party. The sale will be completed prior to
the closing of the merger. As a result of such sale, Promedix will no longer
own or operate the fulfillment business.
Results of Operations
Results of Operations for the Nine Months Ended September 30, 1999 Compared
with September 30, 1998
General. In May 1999, Promedix acquired Pro Med Co. and, as a result,
substantially all revenue and expense categories have increased significantly
from 1998 to 1999.
Revenues. Revenues increased from $14,034 for the nine month period in 1998
to $7,875,993 for the same period in 1999 as a result of the acquisition of Pro
Med Co. Revenues in 1998 consisted of Web site design and hosting services for
specialty medical manufacturers. These services were terminated in early 1998.
116
<PAGE>
Cost of Revenues. The increase in cost of revenues from $1,100 for the nine
month period in 1998 to $5,776,465 for the comparable period in 1999 is due to
the acquisition of Pro Med Co. Cost of revenues consists primarily of product
costs, net of rebates, and freight charges. As a percent of revenues, cost of
revenues was 73% in 1999.
Sales and Marketing Expense. Sales and marketing expense increased from zero
for the nine months ended September 30, 1998, to $1,574,886 for the same period
in 1999. Of the increase, $1,182,859 relates to the acquisition of Pro Med Co.
while $392,027 relates to development of the Specialty Medical Product
Exchange. Specialty Medical Product Exchange sales and marketing expenses
consist primarily of advertising and promotion in support of the development of
Promedix's marketing strategy, payroll and related expenses for personnel
engaged in supplier relations and enterprise sales activities. Sales and
marketing expenses have increased as Promedix has continued to expand its sales
and marketing efforts. Promedix intends to aggressively expand its supplier and
customer relationships and to expand its brand awareness. Promedix expects
sales and marketing expenses to increase in future periods.
General and Administrative Expense. General and administrative expenses
increased from $66,498 for the nine months ended September 30, 1998, to
$3,063,818 for the same period in 1999. Of this increase, $643,181 relates to
the acquisition of Pro Med Co., while $2,354,139 relates to the increase in
general infrastructure expenses for developing the Specialty Medical Product
Exchange. General and administrative expenses for the Specialty Medical Product
Exchange consist primarily of salaries, fees for professional services and
office expenses. General and administrative expenses have increased primarily
as a result of the addition of executive and administrative personnel, costs of
leasing additional office space to support Promedix's growth, and expenses
related to increased professional service fees. Promedix expects general and
administrative expenses to increase in future periods to support its expanded
operations.
Research and Development Expense. For the nine month period ended September
30, 1999, research and development costs increased to $118,568 from zero in the
same period in the prior year. Research and development expenses consist of
personnel and other expenses associated with developing software in support of
the Specialty Medical Products Exchange. Promedix's research and development
expenses have increased due to increased staffing and associated costs related
to the design and development of the Specialty Medical Products Exchange.
Promedix believes that its success is dependent on development of the Specialty
Medical Products Exchange. Accordingly, Promedix expects research and
development expenses to increase in future periods.
Amortization of Deferred Compensation. The amortization of deferred
compensation reflects the compensation expense for the period from the deferred
stock option compensation.
Amortization of Intangible Assets. The amortization of intangible assets
results from the acquisition of Pro Med Co.
Interest Income. For the nine month period ended September 30, 1999,
interest income increased to $82,047 from zero in the same period in the prior
year. Interest income has been derived primarily from earnings on cash
investments.
Interest Expense. Interest expense in 1999 increased to $236,603 from zero
in the same period in the prior year due to the issuance of the promissory
notes to acquire Pro Med Co. in May 1999, and due to Pro Med Co.'s outstanding
indebtedness.
Income Taxes. Promedix incurred operating losses and accordingly did not
record a provision for income taxes for any of the periods presented except for
a state income tax provision for the nine months ended September 30, 1999. At
December 31, 1998, Promedix had net operating loss carryforwards for federal
and state income tax purposes of $112,000. These net operating losses will
expire through 2012 if not utilized. Certain future changes in Promedix's share
ownership, as defined in the Tax Reform Act of 1986 and similar state
provisions, may restrict the utilization of carryforwards. A valuation
allowance has been recorded for the entire deferred tax asset as a result of
uncertainties regarding the realization of the assets due to Promedix's lack of
earnings history.
117
<PAGE>
Results of Operations for the Year Ended December 31, 1998 compared with
December 31, 1997
Revenues. Revenues decreased from $197,249 in 1997 to $14,034 in 1998 due to
the termination in early 1998 of the Web site design and hosting services
provided for specialty medical manufacturers. Revenues for both periods
included fees generated for initial design, hosting and renewal services.
Cost of Revenues. Cost of revenues decreased from $55,542 in 1997 to $1,100
in 1998 also due to the termination of Web site design and hosting services
noted above. Cost of revenues included outside hosting service fees and product
costs.
General and Administrative Expenses. General and administrative expenses
decreased from $246,306 in 1997 to $73,236 in 1998, due to the termination of
operations. General and administrative expenses included primarily expenses for
personnel, consultants, office rent and travel. Certain general and
administrative expenses continued through 1998 for activities relating to
developing and financing the concept of the Medical Village.
Extraordinary Item. The extraordinary item in 1998 is related to the
forgiveness of indebtedness from a related party which had made advances to
Promedix to assist Promedix in funding its operations.
Liquidity and Capital Resources
Promedix has funded its e-commerce operations primarily through the sale of
its preferred and common securities, through which it has raised net proceeds
of approximately $3.1 million through September 30, 1999. Promedix has also
obtained equipment operating leases. Through Pro Med Co., the fulfillment
operations have utilized a $2.5 million line of credit with a bank for working
capital purposes. Promedix has also agreed to sell $5,000,000 of its Series C
preferred stock to Tenet Healthcare prior to the merger.
As of September 30, 1999, Promedix's principal sources of liquidity included
(i) $987,367 in cash and cash equivalents, (ii) a $10 million line of credit
with Chemdex and (iii) the Pro Med Co. $2.5 million working capital facility,
of which $1,531,692 was funded as of September 30, 1999. The $10 million
Chemdex credit arrangement provides for ratable monthly advances for working
capital purchases through March 1, 2000, bears interest at 9%, is secured by
substantially all of Promedix's assets and is due by December 31, 2000, or
earlier under certain conditions. The full amount of the credit line was
available as of September 30, 1999. As of December 31, 1999, $6,333,333
remained available under that facility. The Pro Med Co. bank credit facility
allows for borrowings up to $2.5 million depending upon borrowing base
availability, bears interest at the bank's prime rate plus 0.25%, is secured by
substantially all of Pro Med Co.'s assets and is due in July 2000.
Net cash used in operating activities totaled $1,439,656 in the first nine
months of 1999. The net cash used in the operating activities in the first nine
months of 1999 was primarily due to net losses, which were partially offset by
non-cash charges of depreciation and amortization of deferred compensation,
amortization of intangible assets, and increases in accounts payable and
accrued expenses. Net cash used in investing activities was $661,828 in the
first nine months of 1999, primarily for the purchase of property and
equipment, and the acquisition of Pro Med Co., partially offset by the sale of
assets. Net cash from financing activities resulted primarily from the
borrowings on the line of credit and the sale of preferred and common stock. In
addition, Promedix has received a funding commitment from an investor to fund
operational requirements to the extent necessary for the year 2000.
Promedix currently anticipates that the current cash and cash equivalents,
Chemdex credit line, and Pro Med Co. bank line will be sufficient to meet
Promedix's cash needs for working capital and capital expenditures through the
completion of the merger.
Management Information Systems
Year 2000 Compliance
Many currently installed computer systems and software products are unable
to distinguish year 2000 dates. This situation could result in system failures
or miscalculations causing disruptions in the operations of any business. As a
result, many companies' software and computer systems may need to be upgraded
or
118
<PAGE>
replaced to comply with the year 2000 requirements. Promedix's ability to
operate is dependent upon delivery of accurate electronic information via the
Internet. To the extent year 2000 issues result in the long-term inoperability
of the Internet or the Specialty Medical Products Exchange business, results of
operations and financial condition could be seriously harmed.
Promedix completed an assessment of its information technology system for
the year 2000 problem in June 1999. Promedix has not replaced any of its
systems based on the results of its assessment. However, Promedix has made
modifications to some systems based on its assessment of the year 2000
problems.
Quantitative and Qualitative Disclosures About Market Risk
Promedix's sales from inception to date have been made to U.S. customers
and, as a result, it has not had any exposure to factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, Promedix expects to sell in foreign markets. As
Promedix's sales are made in U.S. dollars, a strengthening of the U.S. dollar
could make Promedix's products less competitive in foreign markets. At
September 30, 1999, Promedix's cash and cash equivalents consisted primarily of
money market funds and commercial paper held by large institutions in the U.S.
Factors Affecting Future Results
The following discussion should be read in conjunction with the financial
statements and notes thereto included herein.
Promedix desires to take advantage of the "safe harbor" provision of the
Private Securities Litigation Reform Act of 1995. Specifically, Promedix wishes
to alert readers that, except for the historical information contained in this
Management's Discussion and Analysis of Results of Operations and Financial
Condition, the matters discussed herein are forward-looking statements that are
subject to certain risks and uncertainties that could cause the actual results
to differ materially from those projected. Factors that could cause actual
results to differ materially include, but are not limited to, the factors set
forth under "Risk Factors" and "Forward-Looking Information," above. Promedix
assumes no obligation to update any forward-looking statement contained herein.
The factors set forth under "Risk Factors" and "Forward-Looking Information,"
above as well as other factors, have in the past affected, and could in the
future affect, Promedix's actual results and could cause Promedix's results for
future periods to differ materially form those expressed in any forward-looking
statements.
119
<PAGE>
PROMEDIX MANAGEMENT
Mr. William C. Klintworth is the only executive officer or director of
Promedix who will serve as an executive officer or director of Chemdex after
the Chemdex/Promedix merger. Information concerning Mr. Klintworth is provided
below:
Biographical Information
Mr. Klintworth is the Chief Executive Officer and President of Promedix and
chairman of its board of directors. Mr. Klintworth has been Chairman and
director of Promedix since its inception in 1996 and its Chief Executive
Officer since January 1999. Prior to that, he was the founder and director of
HTD Corporation, a national medical specialty distribution company. From 1974
to 1995, Mr. Klintworth served as the Chief Executive Officer for numerous
medical manufacturers, including Alpha ProTech, a manufacturer of non-woven
surgical products, and Carapace, Inc., a manufacturing firm making orthopedic
cast materials and supports. Mr. Klintworth holds a Bachelor of Science degree
in Business Administration from Southern Methodist University. Mr. Klintworth
is also a director of Pro Med Co., Inc., a subsidiary of Promedix that will be
sold prior to the merger. See "Information about Promedix--Sale of the Pro Med
Co., Inc." page 113.
Compensation
A summary compensation table, setting forth Mr. Klintworth's compensation
from Promedix for the last completed fiscal year, is stated below:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Name and Position Year Salary Bonus Other(1)
- ----------------- ---- -------- ----- --------
<S> <C> <C> <C> <C>
William C. Klintworth,............................. 1999 $100,400 0 $1,088
President and Chief Executive Officer
</TABLE>
- --------
(1) Employer 401(k) contributions through December 31, 1999.
PROMEDIX RELATED PARTY TRANSACTIONS
Mr. Klintworth is employed by Promedix as Chief Executive Officer at a
current annual salary of $150,000. Mr. Klintworth's employment is at will and
is not subject to any formal employment agreement.
Promedix has agreed to sell all of the outstanding shares of capital stock
of its wholly-owned subsidiary, Pro Med Co., a Utah Corporation, to an
unrelated third party for $3,500,000. One or more of Promedix's stockholders,
including Mr. Klintworth, may own a minority interest in such third party.
CMGI and/or its affiliates beneficially own 2,740,857 shares of Chemdex
common stock, representing approximately 8.3% of the outstanding Chemdex common
stock, and 3,996,800 shares of Promedix preferred stock, representing
approximately 52.8% of the outstanding Promedix capital stock. Following
consummation of the merger, CMGI and its affiliates will beneficially own
approximately 15% of the outstanding Chemdex common stock. Jonathan D.
Callaghan is a general partner of CMG@Ventures, a CMGI affiliate, and is a
member of both the Chemdex board of directors and Promedix board of directors.
Peter Mills is a managing partner of the CMGI affiliate, CMG@Ventures, and is a
member of the Promedix board of directors.
All options held by the 43 employees of Promedix's subsidiary, Pro Med Co.,
Inc., which is being sold prior to the closing of the merger, will be reduced
by one half and such remaining options will immediately
120
<PAGE>
become 100% vested upon the sale of such subsidiary. Options held by Brad
Brewer and Barrie Brewer, a Director of Promedix, will be reduced by two thirds
and the remaining portion will become 100% vested upon the sale of such
subsidiary.
In connection with the sale of Pro Med Co., Inc., Promedix is repaying the
$5,000,000 subordinated convertible notes originally issued to Brad Brewer,
Barrie Brewer and Jean Brewer when Promedix purchased Pro Med Co., Inc., from
the Brewers. $3,500,000 of the $5,000,000 will be repaid out of the proceeds
received from the sale of Pro Med Co. In addition, $1,000,000 of the
subordinated convertible notes is being converted to 346,020 shares of Promedix
preferred stock and $499,835 of the subordinated convertible notes is being
used to pay for the exercise of the Brewers' warrants to purchase
333,334 shares of Promedix preferred stock.
Promedix has an aggregate of $200,000 in principal amount of notes
receivable from Brad Brewer and Barrie Brewer. The notes bear interest at 9.5%,
are unsecured and are due in full on January 15, 2000. The total amount due
from officers at September 30, 1999, was $217,397.
121
<PAGE>
PRINCIPAL STOCKHOLDERS OF PROMEDIX
The following table provides information regarding the beneficial ownership
of Promedix's capital stock as of November 30, 1999 by:
. each person who is known by Promedix to own beneficially 5% or more of
any class of Promedix's capital stock;
. each of Promedix's directors; and
. Promedix's chief executive officer and each of the other four most highly
compensated executive officers.
The following tables set forth as of November 30, 1999, certain information
with respect to the beneficial ownership of the capital stock of Promedix.
<TABLE>
<CAPTION>
Number of Percentage
Shares Ownership
Name of Beneficially of
Beneficial Owner Owned Promedix
- ------------------------------------------------------ ------------ ----------
<S> <C> <C>
Entities affiliated with CMG@Ventures III LP (1)...... 3,996,800 52.8%
3000 Alpine Road
Menlo Park, CA 94025
William C. Klintworth (2)............................. 1,974,667 26.1%
Bradford Bond......................................... 600,100 7.9%
John B. Benear, II.................................... 456,100 6.0%
Ed Kuklenski (3)...................................... 87,500 1.2%
Barrie D. Brewer (4).................................. 348,913 4.4%
J. Barrie Keiser...................................... -- --
Thomas J. Sherry...................................... -- --
Peter Mills (5)....................................... 3,996,800 52.8%
Jon Callaghan (6)..................................... 3,996,800 52.8%
All executive officers and directors as a group (7
persons)............................................. 7,464,080 94.5%
</TABLE>
- --------
(1) Includes 3,121,500 shares of Series A Preferred Stock held by @Ventures
III, LP and 875,300 shares of Series A Preferred Stock held by CMG@Ventures
III LP which are convertible into the same number of shares of Common
Stock.
(2) Includes 1,907,347 shares of Common Stock held by Mr. Klintworth and 67,320
shares of Common Stock held by E.L. Klintworth Revocable Trust of which Mr.
Klintworth is a beneficiary.
(3) Includes 75,000 shares of Common Stock held by Mr. Kuklenski and options to
purchase 12,500 shares of Common Stock held by Mr. Kuklenski.
(4) Includes a warrant exercisable for 166,667 shares of Series B-1 Preferred
Stock, a note convertible into 140,579 shares of Series B-2 Preferred Stock
and options to purchase 41,667 shares of Common Stock, all held by Mr.
Brewer.
(5) Includes 3,121,500 shares of Series A Preferred Stock held by @Ventures
III, LP and 875,300 shares of Series A Preferred Stock held by CMG@Ventures
III LP which are convertible into the same number of shares of Common
Stock. Mr. Mills, a managing partner of CMG@Ventures, disclaims beneficial
ownership of the shares held by CMG@Ventures III LP and @Ventures III, LP,
except to the extent of his pecuniary interest therein arising from his
partnership interest in these funds.
(6) Includes 3,121,500 shares of Series A Preferred Stock held by @Ventures
III, LP and 875,300 shares of Series A Preferred Stock held by CMG@Ventures
III LP which are convertible into the same number of shares of Common
Stock. Mr. Callaghan, a general partner of CMG@Ventures, disclaims
beneficial ownership of the shares held by CMG@Ventures III LP and
@Ventures III, LP, except to the extent of his pecuniary interest therein
arising from his partnership interest in these funds.
122
<PAGE>
INFORMATION ABOUT SPECIALTYMD
SpecialtyMD's Business
Overview
SpecialtyMD provides a portfolio of medical specialty websites for
specialist physicians such as cardiologists and ophthalmologists that contain
comprehensive clinical content in each specialty. Each specialty site consists
of a professional area free from vendor influence along with a vendor area paid
for by suppliers. The professional content, consisting of multimedia
presentations from medical conferences, live surgical cases, clinical outcomes
and normalized product specifications is highly targeted by specialty and
indexed using proprietary technology for ease of access and search. The vendor
area consists of symposia, both live and recorded, virtual tradeshow booths,
product user groups and product support areas. While the primary content focus
is on specialty medical products, a significant portion of the website medical
conference content addresses specialty pharmaceuticals.
History
SpecialtyMD was previously known as Healthcare Transaction Systems, Inc.,
which was incorporated in May 1998. HTSI conducted its principal business of
providing tools and content for supply chain re-engineering of physician
preference products beginning in September 1998. SpecialtyMD terminated the re-
engineering segment of the business in early 1999 to concentrate on aggregating
comprehensive content by medical specialty.
HTSI received its initial funding from Silicon Valley angel investors in
September 1998 and again, along with a small venture firm, in 1999 subsequent
to which HTSI changed its name to SpecialtyMD.com Corporation, a Delaware
corporation, with offices in Palo Alto, California.
On December 10, 1999, SpecialtyMD entered into an agreement in which it
would merge into a wholly-owned subsidiary of Chemdex in exchange for shares of
Chemdex's common stock.
Market Analysis
The global market for medical products exceeded $140 billion in 1998, with a
projected 6% to 7% annual growth rate. The United States accounts for
approximately 40% of the total, or roughly $55 billion, with per capita
spending of $209 per person, according to the Medical & Healthcare Marketplace
Guide published by IDD Enterprises, 1998-1999. The healthcare industry as a
whole has not been subject to the severe economic cycles that affect many other
businesses. Demand for medical products has remained at a fairly constant
level, and the aging of the population should result in sustained demand for
the foreseeable future. The international market is also expanding, and some
markets are growing at rates two to four times that of the U.S. market,
according to the Medical & Healthcare Marketplace Guide published by IDD
Enterprises, 1998-1999.
Market Niche
A large market niche in healthcare, called commodity products, consists of
products purchased in high volume from one of five major distributors, usually
in an electronic fashion. These commodity products account for approximately
two-thirds of all healthcare purchases. Given the efficient purchasing
mechanism, entrenched contract pricing structure, well-established logistics
infrastructure, and relatively low margins for products, SpecialtyMD has not
entered this market, which is currently well served by existing large
distributors and general purchasing organizations.
The market for specialty medical products represents approximately one-third
of all healthcare product purchases. Physicians exercise discretion in the
selection of specialty products, regardless of whether they are responsible for
purchasing the products or not. This parallels the physician role in
pharmaceuticals, where the patient or hospital makes the purchase, but the
physician authorizes the medication. Both specialty medical product vendors and
pharmaceutical vendors dedicate extensive sales and marketing resources to
individual physicians and achieve higher, more variable margins.
123
<PAGE>
Product niches within this specialty medical product market typically are
dominated by a few large vendors, with many small and innovative vendors
attempting to gain market share. Major vendors maintain high margins by
providing support to physicians, with frequent updates to product information
and sharing of the opinions of leading physicians regarding their experiences
and techniques. Most of this occurs through expensive individual physician
detailing and participation at medical conferences. Physician choice and
innovation dominate this part of the industry.
SpecialtyMD focuses on the market for specialty medical products and the
related market for pharmaceuticals ordered by specialty physicians. Examples of
specialty products and specialty pharmaceuticals include:
. surgical instruments,
. laparoscopic instruments,
. blood and IV filters,
. vascular access devices,
. cardiac stents and catheters,
. infusion devices,
. surgical implants,
. thrombolytic agents, and
. ophthalmic solutions.
Business Model
SpecialtyMD shortens time for product introduction for both medical product
manufacturers and pharmaceutical companies and helps vendors efficiently inform
physicians during the adoption process by providing information about products,
opinion leading techniques and product support. SpecialtyMD markets its website
to physicians, medical societies and physician groups by hosting and providing
current clinical information that is vendor neutral, comparable, easy to use
and always available. SpecialtyMD also markets to medical product suppliers and
pharmaceutical companies that need to communicate product information,
including the opinions of leading physicians regarding their experiences and
techniques, to physicians, purchasers, and their own employees and
representatives.
The revenue derived from the website is dependent on the level of physician
interest and the uniqueness of the technology provided by SpecialtyMD as
perceived by suppliers. Revenue is obtained from suppliers and pharmaceutical
companies in three ways: sponsorship of website clinical content, hosting of
additional product information, and access to filtered market and competitive
intelligence. SpecialtyMD also intends to offer continuing medical education
materials and programs. Such a service would leverage existing website clinical
content, increase physician website traffic, and provide an additional source
of revenue.
Sales Strategy
SpecialtyMD has a business development and sales team which develops content
partnerships with medical societies, conferences and leading physicians and
leverages those partnerships with specialty product vendors and pharmaceutical
companies. Much of this effort is channeled through medical conference product
exhibitions.
SpecialtyMD's primary clinical focus is on surgical specialties which are
active consumers of specialty medical products. As is generally true in the
specialty products industry, each leading physician in a particular specialty
medical practice area is an important potential SpecialtyMD partner.
SpecialtyMD's databases, which
124
<PAGE>
focus on these specialty products, are complemented by its extensive and
growing archive of medical conference presentations and surgical cases.
Pharmaceutical information is currently limited to the contents of the
conference archives. Approaches to individual vendors can include sponsoring
new and archived conference proceedings, customized symposia and public or
private product information "booths."
Competition
Specialty medical product and pharmaceutical information is directly
provided by vendors through their sales force and indirectly provided by
vendors through sponsorship of medical conferences. Internet healthcare
companies operate in three arenas: content, e-commerce, and connectivity.
SpecialtyMD competes with content providers, examples of which include
TheHeart.org, Medscape, Physicians on Line, Healtheon/WebMD and ECRI.
Customer and Supplier Relationships
SpecialtyMD has videotaped and archived nine medical conferences since
September 1999. It released its first specialty site, Cardiology, in September
1999 and has subsequently added three additional specialty sites. SpecialtyMD
currently has paying customer relationships with 10 specialty medical product
and pharmaceutical vendors.
Proprietary Rights
SpecialtyMD relies on a combination of the protections provided under
applicable copyright, trademark and trade secret laws, as well as confidential
procedures and licensing agreements to establish and protect its rights in its
software. The only federally registered intellectual property SpecialtyMD owns
is the trademark "SpecialtyMD."
Government Regulations
SpecialtyMD does not sell medical products or pharmaceuticals and thus does
not need to meet the various regulatory requirements applicable to the sale of
medical products and pharmaceuticals. SpecialtyMD relies on its content
providers and vendor customers to meet the various regulatory requirements
applicable to the marketing and sale of medical products and pharmaceuticals,
including specialty medical products regulated by the U.S. Food & Drug
Administration. We have not verified that they have met all regulatory
requirements or that their compliance is adequate or sufficient to meet all
governmental requirements.
Employees
As of December 16, 1999, SpecialtyMD had 24 full-time employees, including 7
in marketing and sales, 8 in technology, 7 in content management and 2 in
general and administrative functions.
Facilities
SpecialtyMD's principal offices are located in Palo Alto, California where
SpecialtyMD subleases approximately 10,000 square feet under a lease that
expires in March 2003.
Legal Proceedings
SpecialtyMD is not a party to any legal proceedings which, if adversely
decided, would reasonably be expected to have a materially adverse effect on
the financial condition of SpecialtyMD.
125
<PAGE>
SPECIALTYMD
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following "Management's Discussion and Analysis of Results of Operations
and Financial Condition" contains forward-looking statements. In some cases,
readers can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue." These statements involve
known and unknown risks, uncertainties and other factors that may cause
SpecialtyMD's actual results, performance or achievements to be materially
different from those stated herein. Although management of SpecialtyMD believes
the expectations reflected in the forward-looking statements are reasonable,
SpecialtyMD cannot guarantee future results, performance or achievements.
Overview
SpecialtyMD provides a portfolio of medical specialty websites for
specialist physicians such as cardiologists and ophthalmologists that contain
comprehensive clinical content in each specialty. Each specialty site consists
of a professional area free from vendor influence along with a vendor area paid
for by suppliers. The professional content, consisting of multimedia
presentations from medical conferences, live surgical cases, clinical outcomes,
and normalized product specifications is highly targeted by specialty and
indexed using proprietary technology for ease of access and search. The vendor
area consists of symposia, both live and recorded, virtual tradeshow booths,
product user groups and product support areas. While the primary content focus
is on specialty medical products, a significant portion of the website medical
conference content addresses specialty pharmaceuticals.
SpecialtyMD was previously known as Healthcare Transaction Systems, Inc.
which was incorporated in May 1998. HTSI conducted its principal business--
providing tools and content for supply chain re-engineering of physician
preference products--beginning in September 1998. SpecialtyMD terminated the
re-engineering segment of the business in early 1999 to concentrate on
aggregating comprehensive content by medical specialty.
HTSI received its initial funding from Silicon Valley angel investors in
September 1998 and again, along with a small venture firm, in 1999 subsequent
to which HTSI changed its name to SpecialtyMD.com Corporation, a Delaware
corporation, with offices in Palo Alto, California.
On December 10, 1999, SpecialtyMD entered into an agreement in which a
wholly-owned subsidiary of Chemdex will merge into SpecialtyMD in exchange for
shares of Chemdex's common stock.
SpecialtyMD web site
SpecialtyMD has minimal sales from its web site. SpecialtyMD's operating
activities are related primarily to the design and development of the various
specialty sites, building the corporate infrastructure, establishing
relationships with suppliers and customers and raising capital.
SpecialtyMD has developed its organization by hiring personnel in key areas,
particularly research and development, specialty domain expertise, content
research and sales and marketing.
SpecialtyMD has incurred significant losses since inception and, as of
September 30, 1999, has an accumulated deficit of approximately $2,756,122.
SpecialtyMD expects its losses to increase in the future and there can be no
assurance that it will ever achieve or sustain profitability. SpecialtyMD
believes its success depends on establishing key strategic supplier and
customer relationships, enhancing the features and functionality of the
SpecialtyMD website, and accelerating physician awareness and demand for the
specialty sites. Beginning in mid 1999, SpecialtyMD increased its level of
spending to build its infrastructure and to develop its SpecialtyMD site.
SpecialtyMD intends to continue to invest heavily in sales, marketing, research
126
<PAGE>
and development and administrative activities. SpecialtyMD has limited
operating history upon which to base an evaluation of its business and there
can be no assurance that its revenues will increase in future periods.
A key element of SpecialtyMD's strategy is to market its website to
physicians, medical societies and physician groups. To succeed, it must satisfy
the need of the physicians to obtain the latest clinical information that is
easy to use and readily available. The time it takes to develop comprehensive
content in a given specialty varies with the ease with which leading physician
advisors can be recruited, the willingness of conferences to provide video
content, the availability of product information and the technological
sophistication of the physician specialists vis-a-vis internet usage.
Additionally, the revenue derived from the site is proportional to the amount
of physician interest and the uniqueness of the technology provided by
SpecialtyMD as perceived by suppliers. Hence, the time it takes to generate
traffic, and subsequent revenue, is uncertain and may be long, depending on
specialty. Since suppliers are relatively new to the usage of the Internet as
an adjunct to their physical detailing force, the time it takes to educate and
sell to the vendors may be long and require significant sales, marketing and
management resources without any assurance that any sale will occur. Further,
it is conceivable that some suppliers may perceive SpecialtyMD as a threat and
hence adversely affect the revenue growth.
Results of Operations
Results of Operations for the Nine Months Ended September 30, 1999
Revenues. SpecialtyMD did not have any revenues during this period.
Sales and Marketing Expense. Sales and marketing expense increased from
$54,324 from inception through September 30, 1998, to $617,707 for the nine
month period ended September 30, 1999. SpecialtyMD's sales and marketing
expenses consist primarily of advertising and promotion in support of the
development of SpecialtyMD's marketing strategy, payroll and related expenses
for personnel engaged in supplier relations. Sales and marketing expenses have
increased as SpecialtyMD has continued to expand its sales and marketing
efforts. SpecialtyMD intends to aggressively expand its supplier and physician
relationships and to expand its brand awareness. SpecialtyMD expects sales and
marketing expenses to increase in future periods.
General and Administrative Expense. General and administrative expenses
increased from $32,768 from inception through September 30, 1998, to $421,962
for the nine month period ended September 30, 1999 to support the general
infrastructure expenses of building SpecialtyMD. General and administrative
expenses for SpecialtyMD consist primarily of salaries, fees for professional
services and office expenses. General and administrative expenses have
increased primarily as a result of the addition of executive and administrative
personnel, costs of leasing additional office space to support SpecialtyMD's
growth, and expenses related to increased professional service fees.
SpecialtyMD expects general and administrative expenses to increase in future
periods to support its expanded operations.
Research and Development Expense. Research and development costs increased
from $46,157 from inception through September 30, 1998 to $846,537 from the
nine month period ended September 30, 1999. Research and development expenses
consist of personnel and other expenses associated with developing software and
content in support of the SpecialtyMD website. SpecialtyMD's research and
development expenses have increased due to increased staffing and associated
costs related to the design and development of the SpecialtyMD website.
SpecialtyMD believes that its success is dependent on development of the
website and its associated specialty sites. Accordingly, SpecialtyMD expects
research and development expenses to increase in future periods.
Amortization of Deferred Compensation. The amortization of deferred
compensation reflects the compensation expense for the period from the deferred
stock option compensation.
Interest Income. For the nine month period ended September 30, 1999,
interest income increased by $8,627 from inception through September 30, 1998.
Interest income has been derived primarily from earnings on cash investments.
127
<PAGE>
Income Taxes. SpecialtyMD incurred operating losses and accordingly did not
record a provision for income taxes for any of the periods presented except for
a state income tax provision for the nine months ended September 30, 1999. At
December 31, 1998, SpecialtyMD had net operating loss carryforwards for federal
and state income tax purposes of $581,459. These net operating losses will
expire through 2012 if not utilized. Certain future changes in SpecialtyMD's
share ownership, as defined in the Tax Reform act of 1986 and similar state
provisions, may restrict the utilization of carryforwards. A valuation
allowance has been recorded for the entire deferred tax asset as a result of
uncertainties regarding the realization of the assets due to SpecialtyMD's lack
of earnings history.
Liquidity and Capital Resources
SpecialtyMD has funded its operations primarily through the sale of its
preferred securities, through which it has raised net proceeds of approximately
$4,300,000 through September 30, 1999.
As of September 30, 1999, SpecialtyMD's principal source of liquidity was
$1,390,820 in cash and cash equivalents.
Net cash used in operating activities totaled $1,928,784 for the nine months
ended September 1999. The net cash used in the operating activities during this
period was primarily due to net losses, which were partially offset by non-cash
charges of depreciation and amortization of deferred compensation and increases
in accounts payable and accrued expenses. Net cash from financing activities
resulted primarily from the borrowings on the line of credit and the sale of
preferred stock.
Subsequent Events
On December 10, 1999 SpecialtyMD entered into a merger agreement with
Chemdex Corporation. Chemdex has provided a $4 million line of credit which
provides for three advances for working capital and capital expenditures
through February 15, 2000, bears interest at 9%, is secured by substantially
all of SpecialtyMD's assets and is due by December 31, 2000 or earlier under
certain conditions.
SpecialtyMD currently anticipates that the current cash and cash
equivalents, and Chemdex credit line will be sufficient to meet SpecialtyMD's
cash needs for working capital and capital expenditures through the completion
of the merger.
Management Information Systems
Year 2000 Compliance
Many currently installed computer systems and software products are unable
to distinguish year 2000 dates. This situation could result in system failures
or miscalculations causing disruptions in the operations of any business. As a
result, many companies' software and computer systems may need to be upgraded
or replaced to comply with the year 2000 requirements. SpecialtyMD's ability to
operate is dependent upon delivery of accurate electronic information via the
Internet. To the extent year 2000 issues result in the long-term inoperability
of the Internet, SpecialtyMD's business, results of operations and financial
condition could be seriously harmed.
SpecialtyMD completed an assessment of its information technology system for
the year 2000 problem in June 1999. SpecialtyMD has not replaced any of its
systems based on the results of its assessment. However, SpecialtyMD has made
modifications to some systems based on its assessment of the year 2000
problems.
Factors Affecting Future Results
The following discussion should be read in conjunction with the financial
statements and notes thereto included herein.
128
<PAGE>
SpecialtyMD desires to take advantage of the "safe harbor" provision of the
Private Securities Litigation Reform Act of 1995. Specifically, SpecialtyMD
wishes to alert readers that, except for the historical information contained
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations, the matters discussed herein are forward-looking statements that
are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include, but are not limited to, outcomes
in litigation proceedings, market demand for SpecialtyMD's products, the timely
development and market acceptance of new products and surgical procedures, the
impact of performance of SpecialtyMD's distributors and direct sales force,
SpecialtyMD's ability to further expand into international markets, public
policy relating to healthcare reform in the United States and other countries,
approval of its products by government agencies such as the United States Food
and Drug Administration, and other risks detailed below. SpecialtyMD assumes no
obligation to update any forward-looking statement contained herein. The
factors in the future listed under "Risk Factors," as well as other factors,
have in the past affected, and could in the future affect, SpecialtyMD's actual
results and could cause SpecialtyMD's results for future periods to differ
materially form those expressed in any forward-looking statements.
129
<PAGE>
SPECIALTYMD MANAGEMENT
Ash Munshi is the only executive officer or director of SpecialtyMD who will
serve as an executive officer or director of Chemdex after the merger.
Information concerning Mr. Munshi is provided below:
Biographical Information
Ashfaq Munshi. Mr. Munshi has been a director and Chief Executive Officer of
SpecialtyMD since its inception in May 1998, and a full time employee since
September 1998. From November 1997 to September 1998, he was the Corporate Vice
President of Factory Automation at Applied Materials. From July 1992 to October
1997, Mr. Munshi held various software development and general management
positions at Silicon Graphics, Inc., including Vice President and General
Manager of the Enterprise Business Unit. Mr. Munshi holds a Bachelor of Science
degree in Physics and Applied Mathematics from Harvard University. He did
graduate work at Brown University and University of California at Santa Cruz in
computer science and is a graduate of the Stanford Executive Program at
Stanford School of Business.
Compensation
A summary compensation table, setting forth Mr. Munshi's compensation from
SpecialtyMD for the fiscal year 1999, is stated below:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Position Year Salary Bonus
- ----------------- ---- -------- -----
<S> <C> <C> <C>
Ashfaq Munshi,.............................................. 1999 $300,000 0
President and Chief Executive Officer
</TABLE>
130
<PAGE>
PRINCIPAL STOCKHOLDERS OF SPECIALTYMD
The following table provides information regarding the beneficial ownership
of SpecialtyMD's capital stock as of November 30, 1999 by:
. each person who is known by SpecialtyMD to own beneficially 5% or more
of the outstanding shares of SpecialtyMD Common Stock or more than 5% of
the outstanding shares of SpecialtyMD Preferred Stock;
. each of SpecialtyMD's directors; and
. SpecialtyMD's chief executive officer and its other executive officer.
The following tables set forth as of November 30, 1999, certain information
with respect to the beneficial ownership of the capital stock of SpecialtyMD.
<TABLE>
<CAPTION>
Amount and
Nature
Type of of Beneficial Percent of
Name and Address of Beneficial Owner Stock Ownership each Class
- ------------------------------------ --------- ------------- ----------
<S> <C> <C> <C>
Zilkha Venture Partners L.P./1.........../.. Preferred 823,695 14.6%
767 Fifth Avenue, 46th Floor
New York, NY 10153
Staenberg Private Capital L.P./2........./.. Preferred 523,777 9.3%
2000 1st Avenue, Suite 1001
Seattle, WA 98121
Thorner Ventures............................ Preferred 357,798 6.4%
PO Box 830
Larkspur, CA 94977
Dennis A. Hunter............................ Preferred 300,000 5.4%
20606 Lomita Ave.
Saratoga, CA 95070
Ashfaq Munshi/3........................../.. Preferred 795,000 14.3%
26450 Ascension Dr. Common 2,080,000 41.3%
Los Altos Hills, CA 95014
Joseph L. Meresman/4...................../.. Common 1,230,555 24.5%
2736 Prince Street
Berkeley, CA 94705
Stanley J. Meresman/5..................../.. Preferred 100,000 1.8%
2071 Huntington Lane Common 700,000 13.9%
Los Altos, CA 94024
Audrey MacLean/6........................./.. Preferred 305,582 5.5%
21100 Saratoga Hills Road Common 200,000 4.0%
Saratoga, CA 95070
Zafaruzzaman I. Shaikh/7................./.. Preferred 37,752 *
1350 Bright Oaks Court Common 300,000 6.0%
Los Altos, CA 94024
Mir Imran................................... Common 60,000 1.2%
All executive officers and directors as Preferred 1,200,582 21.5%
a group (5 persons)......................... Common 4,270,555 84.9%
</TABLE>
- --------
*Represents less than 1%.
/1 /Zilkha Venture Partners L.P. Preferred Stock includes (1) 50,000 shares
Series A, (2) 713,952 shares of Series B, and (3) 59,743 shares of Series B
Warrants.
131
<PAGE>
2 Staenberg Private, L.P. Preferred Stock includes (1) 447,080 shares Series B
and (2) 76,697 shares Series B Warrants.
3 Ash Munshi Preferred Stock consists of 795,000 shares held in the name of
Ruma Munshi, Mr. Munshi's wife. Ms. Munshi has signed a power of attorney in
connection with the merger that assigns voting authority with regard to the
preferred shares to Mr. Munshi.
4 Joseph Meresman Common Stock includes 1,230,555 shares in the name of Joseph
L. Meresman and Cathy Bolding 1996 Trust, dated August 6, 1996.
5 Stanley J. Meresman Preferred and Common Stock include (1) 100,000 shares of
Series A Preferred Stock in the name of Stanley J. Meresman and Sharon A.
Meresman as Trustees of the Meresman Family Trust F/D/A September 19, 1989,
as amended, (2) 400,000 shares of Common Stock in the name of Stanley J.
Meresman and Sharon A. Meresman as Trustees of the Meresman Family Trust
F/D/A September 19, 1989, as amended, (3) 100,000 shares of Common Stock in
the name of Stanley J. Meresman (or his successor), trustee of the Meresman-
Bolding Children Trust FBO Naomi Horowitz, dated July 23, 1999, (4) 100,000
shares of Common Stock in the name of Stanley J. Meresman (or his
successor), trustee of the Meresman-Bolding Children Trust FBO Rachel Avra
Meresman, dated July 23, 1999, and (5) 100,000 shares of Common Stock in the
name of Stanley J. Meresman (or his successor), trustee of the Meresman-
Bolding Children Trust FBO Rachel Avra Meresman, dated July 23, 1999, and
(5) 100,000 shares of Common Stock in the name of Stanley J. Meresman (or
his successor), trustee of the Meresman-Bonding Children Trust FBO David
Isaac Meresman, dated July 23, 1999.
6 Audrey MacLean Preferred and Common Stock include (1) 200,000 shares Series
A in the name of Audrey MacLean and Michael M. Clair, as trustees, or their
successors, of the Audrey MacLean and Michael Clair Trust Agreement UAD
12/1/90, (2) 92,655 shares of Series B in the name of Audrey MacLean and
Michael M. Clair, as trustees, or their successors, of the Audrey MacLean
and Michael Clair Trust Agreement UAD 12/1/90, (3) 12,917 shares Series B
Warrants in the name of Audrey MacLean and Michael M. Clair, as trustees, or
their successors, of the Audrey MacLean and Michael Clair Trust Agreement
UAD 12/1/90, and (4) 200,000 shares of Common Stock.
7 Zafaruzzaman I. Shaikh Preferred and Common Stock includes (1) 5,000 shares
Series A Preferred in the name of Zafar Shaikh, (2) 27,908 shares Series B
Preferred in the name of Zafaruzzaman I. Shaikh and Zaheda Z. Shaikh
Intervivos Trust Dates August 26, 1993, (3) 4,844 shares of Series B
Preferred Warrants in the name of Zafaruzzaman I. Shaikh and Zaheda Z.
Shaikh Intervivos Trust Dates August 26, 1993, (4) 150,000 shares Common in
the name of Zafaruzzaman I. Shaikh, Trustee of the Ruma Ashfaq Munshi 1999
Annuity Trust, and (5) 150,000 shares Common in the name of Zafaruzzaman I.
Shaikh, Trustee of the Ashfaq Abdulrehman Munshi 1999 Annuity Trust.
132
<PAGE>
INFORMATION ABOUT CHEMDEX
Chemdex's Business
Overview
Chemdex is a leading provider of e-commerce solutions to the highly
fragmented life sciences industry. We enable life sciences enterprises,
researchers and suppliers to efficiently buy and sell research products through
the Chemdex Marketplace, a secure, Internet-based purchasing solution. The
Chemdex Marketplace utilizes an advanced search engine and software to allow
users to easily identify, locate and purchase life sciences research products.
We believe the Chemdex Marketplace and purchasing solution provide significant
benefits to enterprises, researchers and suppliers.
Industry Background
Growth of Business-to-Business Commerce on the Internet
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses and individuals communicate
and share information. International Data Corporation estimates that the number
of Internet users will grow from 97 million at the end of 1998 to 320 million
by 2002, though Chemdex may not benefit from this growth. The Internet has
created new opportunities for conducting commerce, such as business-to-consumer
and person-to-person e-commerce. Recently, the widespread adoption of intranets
and the acceptance of the Internet as a business communications platform has
created a foundation for business-to-business e-commerce that offers the
potential for organizations to streamline complex processes, lower costs and
improve productivity. Internet-based business-to-business e-commerce is poised
for rapid growth and is expected to represent a significantly larger
opportunity than business-to-consumer or person-to-person e-commerce. According
to Forrester Research, business-to-business e-commerce is expected to grow from
$43 billion in 1998 to $1.3 trillion in 2003, accounting for more than 90% of
the dollar value of e-commerce in the United States by 2003, though Chemdex may
not benefit from this growth.
The dynamics of business-to-business e-commerce relationships differ
significantly from those of other e-commerce relationships. Business-to-
business e-commerce solutions frequently automate or otherwise impact workflows
or processes that are fundamental to a business's operations by replacing
various paper-based transactions with electronic communications. In addition,
business-to-business e-commerce solutions must often be integrated with an
enterprise's existing information systems, a process that can be complex, time-
consuming and expensive. Finally, personnel throughout the enterprise must be
trained to use the solution. Consequently, selection and implementation of a
business-to-business e-commerce solution represents a significant commitment by
the enterprise, and the costs of switching solutions are high. In addition,
because business transactions are typically recurring and non-discretionary,
the average order size and lifetime value of a business-to-business e-commerce
customer is generally greater than that of a business-to-consumer e-commerce
customer.
Business-to-business e-commerce solutions that offer improved efficiency
through the automation of business processes and workflows are being targeted
toward a variety of industries. These solutions are likely to be most readily
accepted by industries characterized by a large number of buyers and sellers, a
high degree of fragmentation among buyers, sellers or both, significant
dependence on information exchange, large transaction volume and user
acceptance of the Internet.
The Life Sciences Research Products Market
The life sciences research products market is large and growing, with a
myriad customers and suppliers. According to the Laboratory Products
Association, the North American life sciences research products market
133
<PAGE>
was estimated to be approximately $9.4 billion in 1998. Outside of North
America, the life sciences research products market is concentrated in Europe
and Japan. The growth in the life sciences research products market is driven
by increasing research and development expenditures by pharmaceutical and
biotechnology companies, as well as an increase in the level of research
funding available for grant by the National Institutes of Health, similar
international government agencies and private foundations. Research and
development budgets have been increasing as new discovery tools, such as
genomics, combinatorial chemistry and high-throughput screening, are developed
and utilized. These new technologies allow researchers to experiment with
thousands of chemical compounds simultaneously, which requires extensive use of
reagents and other life sciences research products.
The life sciences research products market is highly fragmented. There are
over 5,000 suppliers offering more than one million products, many of which are
highly specialized. Life sciences research products include reagents, chemical
compounds, specialty chemicals, consumables, research instruments and other
equipment. The primary purchasers and users of life sciences research products
are research scientists working in pharmaceutical and biotechnology companies,
and academic and research institutions.
Limitations of Traditional Purchasing Methods for Life Sciences Research
Products
Traditional purchasing methods in the life sciences industry are
inefficient, costly and time-consuming for both the researcher and the
enterprise. Product orders are traditionally handled through an internal,
paper-based purchasing process that requires manual preparation of a purchase
order, written approval by the researcher's purchasing manager and manual order
tracking, billing and reporting across multiple departments within the
enterprise. Researchers, or their purchasing agents, place orders by telephone,
fax or e-mail and typically must place orders with multiple suppliers to obtain
all products related to a single research experiment. Additionally, the paper-
based orders are costly for purchasers and suppliers to track and bill, and the
decentralized order process does not facilitate data collection, which is
required to take full advantage of volume discounts or other economies of
scale. In addition, given the specialized and complex nature of life sciences
research products, the researchers have specific and unique knowledge regarding
product selection. Therefore, it is difficult to integrate these purchases with
the enterprise's purchasing policies and business rules.
The fragmentation of the life sciences supplier base also creates
inefficiencies for researchers. Since the researcher is often searching for a
specific product to meet the parameters of a research experiment, the current
paper-based purchasing process is complex, cumbersome and time-consuming. For
example, a life sciences researcher studying intracellular communications
related to cancer cells may need to purchase select antibodies for use in a
research experiment. There are numerous suppliers of antibodies, and product
specificity, reactivity, purity and other characteristics vary among suppliers.
Researchers may spend several hours examining multiple paper product catalogs
and other information from different suppliers to identify the most appropriate
product.
Traditional purchasing methods also present a number of challenges to
suppliers trying to reach life sciences researchers with product information.
Due to the high cost of printing and distributing paper catalogs, suppliers
cannot cost-effectively manage frequent updates and distribution of time-
sensitive information. In addition, individual researchers frequently move from
enterprise to enterprise, making it difficult for suppliers to maintain contact
with them. While some suppliers have developed Internet websites to communicate
with individual researchers, few have invested the significant time and money
required to establish an effective e-commerce channel with their customer base.
Most suppliers, often very small in size, have limited resources available to
support the growing challenge of marketing and selling to the fragmented,
worldwide life sciences research products market.
Opportunity for Business-to-Business E-commerce Solution
Recognizing the limitations of traditional purchasing methods, several large
pharmaceutical and biotechnology companies have developed automated purchasing
systems. These systems attempt to streamline
134
<PAGE>
the purchasing process and leverage purchasing volumes, but often have
limitations. These solutions may only offer access to the products of a limited
number of suppliers and may not be scalable. In addition, enterprises incur
significant costs developing internal solutions, integrating them with other
enterprise systems and maintaining their compliance with the enterprise's
business rules and purchasing policies.
Despite efforts by these enterprises, the fragmentation and complexities of
the life sciences industry and the current paper-based purchasing process
create the need for a business-to-business e-commerce solution that seamlessly
links suppliers and purchasers of research products. To effectively address the
needs of the life sciences enterprise, a solution must be cost-effective,
easily implemented and maintained, enable the enterprise to enforce its
particular purchasing policies and business rules, enable the collection of
data to maximize volume purchase discounts and interface to multiple suppliers.
To effectively address the needs of the researcher, a solution must be easy to
use and provide comprehensive product selection, in-depth product information,
specialized search capabilities and an efficient order and order-tracking
mechanism. To effectively address the needs of customers and suppliers, it is
important that the solution offer a neutral and fair marketplace with full
catalog descriptions of products and retail product pricing information. Such
information must also be fairly and accurately presented to researchers. In
addition, the solution should offer suppliers an opportunity for incremental
sales, the ability to offer customer-specific pricing and an opportunity to
leverage any existing electronic catalogs that may have been implemented by the
supplier.
The Chemdex Solution
Chemdex is a leading provider of e-commerce solutions to the life sciences
research products market. The Chemdex Marketplace is a secure, Internet-based
purchasing solution that enables life sciences enterprises, researchers and
suppliers to efficiently buy and sell life sciences research products. The
Chemdex Marketplace utilizes a database of approximately 840,000 life sciences
research products, advanced search engines and transaction software that enable
users to easily identify, locate and purchase the products they need. We also
provide applications that enable our customers and suppliers to interface with
the Chemdex Marketplace to automate their transactions. In addition to the
Chemdex Marketplace, we provide professional and implementation services to
enable our customers to take full advantage of the capabilities of the Chemdex
Marketplace.
Benefits to the Enterprise
Chemdex's purchasing solution enables enterprises to integrate their
business rules and processes, and negotiated supplier pricing with the Chemdex
Marketplace. We also provide enterprises the option of tailoring our solution
to meet their needs. Our purchasing solution requires minimal investment of
time and capital by our enterprise customers to install, maintain and use. Our
solution automates, consolidates and monitors the approval and invoicing
process as well as the order placement and delivery information for the
enterprise. In addition to reducing the cost of purchasing, our solution allows
our enterprise customers to enforce their particular business rules and
aggregate purchases to obtain volume discounts and other economies of scale.
The Chemdex Marketplace resides entirely on our servers, is accessible by
standard browsers and requires minimal software installation or integration at
the customer site.
Benefits to the Researcher
Researchers, research assistants and other users within enterprises benefit
from the Chemdex Marketplace because it offers them convenient and easy one-
stop shopping. A researcher can use our advanced search engine to identify and
locate products from a broad product database and can use our automated
ordering and approval process to purchase products. For example, our solution
allows a researcher to personalize a list of product favorites to facilitate
product selection and recurring orders. The Chemdex Marketplace offers other
advantages over the traditional paper catalog alternative, including the online
ability to compare various products from a single or multiple suppliers and
track the progress of an order. These features result in significant time
savings for the researcher.
135
<PAGE>
Benefits to the Supplier
We offer suppliers a cost-effective opportunity to reach more customers and
sell more products by establishing or enhancing their Internet presence and
providing links to existing online or electronic catalogs. The Chemdex
Marketplace also offers suppliers the capability to implement customer-specific
pricing, update product information and introduce new products without being
limited by specific catalog publication cycles. In many cases, the Chemdex
Marketplace will appeal to suppliers as being less costly than traditional
distribution or representation arrangements because, among other factors, our
purchasing discounts may be less than those of traditional distributors. We
plan to provide tools to our suppliers that enable the online update and
modification of their product databases hosted on our servers, or to integrate
the Chemdex Marketplace directly with their systems. The Chemdex Marketplace is
neutral in that its search capability identifies products that meet the
researchers' search criteria, and provides an unbiased comparison of product
characteristics and pricing to allow the researcher to make a reasoned choice
based upon the information provided by suppliers.
The Chemdex Strategy
Our objective is to expand upon our position as a leading e-commerce
solution for the life sciences industry. Our strategy to achieve this objective
includes the following key elements:
Capitalize on Market Position and Build Customer Brand Recognition. We
intend to capitalize on the fact that we are one of the first companies to
offer an e-commerce solution to the life sciences research products market by
offering the most comprehensive e-commerce solution to the life sciences
research products market. We also intend to pursue strategic relationships with
industry leaders, such as those we have established with VWR Scientific
Products Corporation (VWR) and the Biotechnology Industry Organization (BIO),
to accelerate market awareness and demand for our e-commerce solution. We
intend to leverage our strategic relationship with VWR to gain entry into and
establish relationships with their enterprise customers and life sciences
research product suppliers. We also intend to pursue an aggressive brand
development strategy through targeted advertising and promotions, press
coverage and participation in trade associations and industry events.
Expand Product Offering and Increase Adoption of the Chemdex Marketplace. We
believe our breadth of products and purchasing solution provide us with an
essential foundation for a comprehensive e-commerce solution for the life
sciences industry. We currently offer approximately 840,000 products from
approximately 211 suppliers. We have agreements with an additional 159
suppliers that provide us access to approximately 200,000 additional products
that we plan to add to the Chemdex Marketplace. We intend to advance our market
leadership by continuing to expand the selection of life sciences research
products offered through the Chemdex Marketplace. A growing number of suppliers
and products in the Chemdex Marketplace will potentially draw more enterprise
customers and accelerate adoption by researchers. As the Chemdex Marketplace
attracts a critical mass of enterprise customers and researchers, we believe
the buying power of these customers will attract additional suppliers to our
marketplace. We also believe this growth cycle will help create a network
effect, where the value to each in the network increases with the addition of
each new participant, increasing the overall value of the Chemdex Marketplace.
Increase Usage of Chemdex Marketplace and Increase Our Productivity. We
intend to aggressively increase the base of enterprise customers using the
Chemdex Marketplace, and drive rapid adoption within current and future
enterprise customers. Our hosted, Internet-based purchasing solution can be
quickly and easily installed at the enterprise, reducing the initial commitment
of time and capital for new enterprises adopting our solution. To encourage
implementation throughout the enterprise, we charge minimal initial fees, and
in some cases waive initial fees if customers achieve minimum purchase volumes.
Additionally, we will continue to educate users within our existing and future
enterprise customers about the benefits of our solution and provide training on
its use, thereby accelerating adoption. The cost of processing individual
transactions will drop as the volume of transactions processed by the Chemdex
Marketplace continues to grow, and through increased volumes and further
automation of our solution, we will strive to increase productivity across our
business.
136
<PAGE>
Maintain Technological Leadership. We intend to continue to improve our
technology to meet the evolving needs of our customers. We will continue to
expend substantial efforts to develop, purchase or license technological
advancements to our purchasing solution to enhance its reliability,
functionality and ease of integration with existing or newly developed
enterprise resource planning applications and other purchasing systems. We
intend to further automate the collection of product information from key
suppliers, which will enable timely updates of product information, as well as
inventory availability. We also intend to improve our customer- and supplier-
specific pricing flexibility and to enable purchasing in multiple foreign
currencies.
Expand Internationally. We believe the international scope of the Internet,
the global reach of many of our customers and the worldwide demand for life
sciences research products present opportunities to expand our Chemdex
Marketplace internationally. The non-U.S. life sciences research products
market is highly concentrated in Europe and Japan, and U.S. suppliers have a
substantial presence in these markets. We plan to leverage our technology,
expertise and existing supplier relationships to expand our Chemdex Marketplace
to Europe and Asia.
The Chemdex Marketplace
Our Chemdex Marketplace consists of a broad database of approximately
840,000 life sciences research products and advanced search engine and
transaction software that enable users to easily identify, locate and purchase
the products they need. We also provide applications that enable our customers
and suppliers to interface and automate the information exchange with the
Chemdex Marketplace. In addition to our Chemdex Marketplace and Internet-based
applications, we provide professional and implementation services to enable our
customers to take full advantage of the capabilities of the Chemdex
Marketplace. We believe that our business model, which is based on negotiated
price discounts from our suppliers rather than transaction fees payable by the
customer, will further drive usage of the Chemdex Marketplace. In addition, our
customer support and sales group helps customers understand both the business
and technical benefits of the Chemdex Marketplace and provides one-on-one
education and training to increase user adoption.
The following chart summarizes the key services supported by the Chemdex
Marketplace and the features of these services.
<TABLE>
<CAPTION>
Services Supported Chemdex Features
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Enterprise . Purchasing system management . Interface to existing enterprise network and
. Approval and purchase of life sciences ERP software
research products . Automated order approval process
. Summary invoicing and reporting
. Enforcement of business rules
. Customized supplier pricing
. Comparative price/product shopping
- -----------------------------------------------------------------------------------------------------
Researcher . Identification, comparison and purchase . One-stop shopping
of life sciences research products . Search engine to identify, locate and compare
products
. Current, detailed product information
. Automated order submission and status
. Recurring order form
- -----------------------------------------------------------------------------------------------------
Supplier . Sale of life sciences research products . Support integration with supplier sales
order flow
. Automated order submission and tracking
. Automated process for updating and adding
product/price information
. Customer support services
</TABLE>
137
<PAGE>
How it works for the enterprise. The enterprise customer interface with the
Chemdex Marketplace varies based upon the customer's existing purchasing
system. Our applications and services can be implemented as a stand-alone
solution, or can be integrated with existing systems or other commercially
available purchasing solutions. Our applications are designed to be easily
customized to match the workflow requirements and business rules of the
enterprise. We also provide access to the Chemdex Marketplace through our web
site. In most cases, the most important impact of our solution is paperless
automation of the purchasing approval process. Purchasing limits are most often
applied on an individual researcher or project basis, and the Chemdex
Marketplace interfaces with the enterprise's system to ensure compliance with
defined limits. Our solution can be integrated with enterprise financial
accounting systems to further automate specific product purchase information.
The enterprise's information technology group has few support requirements
beyond the initial installation, since the Chemdex Marketplace is entirely
hosted on our client servers with all recurring product upgrades managed and
installed by us.
How it works for the researcher. The researcher most often interfaces with
the Chemdex Marketplace to order specific products for research experiments. In
many cases, the researcher needs the same items on a regular basis and our
solution allows a researcher to personalize a list of "favorites" to facilitate
product selection and recurring orders. The Chemdex Marketplace also provides
robust product search capabilities that help researchers identify new products
needed to meet the specific characteristics required for an experiment.
Researchers have password access to the system, and can easily process their
recurring orders, as well as orders for new products. The system allows the
researcher to identify the incremental shipping costs for expedited processing,
and provides for automated paperless processing of an order once the product
selection is complete. The researcher is also able to track the status of
individual orders within the system, reducing the time required to communicate
with purchasing personnel or suppliers.
How it works for the supplier. Electronic versions of product catalogs are
provided to us in a variety of file formats. These files are converted to
searchable data which is loaded into the Chemdex Marketplace using a number of
sophisticated product loading algorithms. Our content engineering staff then
reviews the data as loaded in the Chemdex Marketplace to ensure proper
classification for purposes of product searches. The ability to process large
volumes of complex catalog information is an important core competency which
allows us to afford maximum flexibility to our suppliers in loading data and
updating information. We also provide suppliers the ability to readily update
their product information to include revised pricing, new product introductions
or additional product details of interest to the customers. We send product
order information to suppliers in a number of electronic media forms, including
electronic data interchange, e-mail, HTML or flat file, to maximize automation
and integration with existing supplier software systems.
Future Services. Chemdex anticipates that aggregated product purchasing and
sales information will ultimately be valuable to both suppliers and customers.
After accumulating significant historical data regarding buying patterns, we
intend to make non-confidential, aggregated information available to both
suppliers and customers as an additional service.
138
<PAGE>
Our Customers
Our target customers are pharmaceutical and biotechnology companies and
academic and research institutions. As of of November 30, 1999, we have entered
into agreements to provide our purchasing solution to 83 enterprise customers
and have over 20,600 registered users. Sales to researchers at our top four
enterprise customers accounted for approximately 32%, 16%, 15% and 11%,
respectively, of our total revenue for the quarter ended September 30, 1999.
The following is a list of our enterprise customers that had used the
Chemdex Marketplace to purchase life sciences research products as of November
30, 1999:
<TABLE>
<S> <C>
Acorda Therapeutics Kimeragen, Inc.
AlphaOne Pharmaceuticals Maxygen
Animal Medical Center MDS Panlabs
Arbor Vita Medlmmune, Inc.
Arcaris Mergen Ltd.
Ares Advanced Technology Metra Biosystems
Array BioPharma Mitokor
AstraZeneca Nanogen
Avant Immunotherapies, Inc. NeoRx
Biogen Neuralstem Biopharmaceuticals
Bion, Inc. Northeastern University
Bristol-Myers Squibb Company Ontogeny, Inc.
Calydon Onyx
Ceptyr Orchid Biocomputer
ChemoCentryx Osiris Therapeutics, Inc.
Consensus Paradigm Genetics
Corixa Corporation Phenogenex
CV Therapeutics Phyton, Inc.
Cytoclonal Pharmaceutics PPL Therapeutics
Cytologix Protein Delivery
Dendreon Protein Sciences
Depo Med Raven Biotechnologies
Elan Pharmaceuticals Research Genetics
EntreMed, Inc. Rhone Poulenc Rorer
Eos Roche Bioscience
Epicyte Pharmaceutical Roche Molecular Systems
EPIX Medical Scios
Exelixis Pharmaceuticals SCRIPTGEN Pharmaceuticals
Gemini Bio-Products Scytek Laboratories
Genentech SelectiveGenetics
Genesoft Signal Pharmaceuticals
Genome Therapeutics Corporation SmithKline Beecham
Genpharm Synpac
Harvard University Targesome, Inc.
Hemasure, Inc. Telik
Hope Heart Institute Texas Biotechnology Corp.
Immune Complex Corp. University of California San Francisco
Immuno Gen, Inc. University of Illinois
Impax Pharmaceuticals, Inc. Variagenics
Inspire Pharmaceuticals Vaxgen
Intronn, Inc. Zymogenetics
</TABLE>
139
<PAGE>
We also sell life sciences research products to registered users who are not
affiliated with our enterprise customers through our web site at
www.chemdex.com. Because of the nature of some of the products we sell, we are
taking steps to register unaffiliated users to our web site to ensure that they
are associated with pharmaceutical or biotechnology companies, or academic or
research institutions.
Although we intend to increase our sales and marketing efforts, we expect
that we will continue to generate a significant portion of our revenue from a
limited number of customers for the foreseeable future. If we do not increase
the number of our customers, or if we lose any of our current customers or do
not generate as much revenue from them as we expect, our business would be
significantly harmed.
Our Suppliers
We believe the value and benefit to our customers of our purchasing solution
is directly related to the breadth and depth of life sciences research products
offered through our Chemdex Marketplace. We currently offer approximately
840,000 products from approximately 211 suppliers. We have agreements with an
additional 159 suppliers for approximately 200,000 additional products which we
plan to add to our Chemdex Marketplace. The following is a list of our most
significant product suppliers who have entered into agreements as of
November 30, 1999:
<TABLE>
<S> <C>
Amersham Pharmicia Biotech Bachem
Beckman Coulter BioWhittaker/FMC
Calbiochem CHEMICON International
Clontech Laboratories Cole-Parmer
Eppendorf Scientific, Inc. Genome Systems/Incyte Pharmaceuticals
Forma Scientific Greiner America, Inc.
Hitachi Genetic Systems HyClone
ICN Biomedicals Molecular Probes
Incyte Pharmaceuticals Pierce Chemicals
PharMingen Savant E-C, Inc.
Quidel Corporation Thomas Scientific
United States Biologicals
</TABLE>
We currently have twelve employees who are responsible for maintaining
existing relationships and establishing new relationships with suppliers.
Strategic Relationship with VWR
In April 1999, we entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products using
the Chemdex Marketplace. VWR is one of the laboratory supply industry's largest
distributors. The agreement gives us the right to offer approximately 350,000
VWR-distributed products to our customers through Labpoint and the Chemdex
Marketplace. VWR and Chemdex have jointly developed Labpoint, a hosted, co-
branded Internet purchasing solution for VWR's existing and future customers
that provides access to three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third- party products).
With respect to sales of VWR core products, we act as an intermediary and
forward orders received through the Chemdex Marketplace to VWR for fulfillment
and customer service. We receive no fee for orders for VWR core products from
VWR's 40 largest customers and we receive a minimal fee for all other orders
for VWR core products forwarded to VWR. We are responsible for fulfillment and
customer service for all Chemdex core products and orders for third-party
products received from VWR customers through Labpoint. Under the terms of the
agreement, VWR provides support for the purchase of third- party products in
return for a fee which approximates VWR's costs incurred.
140
<PAGE>
VWR and Chemdex jointly market VWR core products and Chemdex core products
to VWR's existing and new customers and jointly solicit several key existing
VWR suppliers to distribute, market and sell their products through Labpoint.
We believe the VWR strategic relationship will continue to enhance and broaden
the Chemdex Marketplace, and the availability of third-party products will
enable us to offer complete fulfillment capability to current and future VWR
customers through Labpoint. We believe the VWR strategic relationship will
accelerate adoption of the Chemdex Marketplace and Labpoint by VWR customers,
which include major U.S. pharmaceutical and biotechnology companies, and will
enable us to establish relationships with additional key suppliers and
customers.
As part of the strategic relationship, Jerrold Harris, the President and
Chief Executive Officer of VWR, joined our board. Jerrold Harris was
subsequently replaced by Paul Nowak. In addition, VWR received 2,538,405 shares
of our common stock. VWR is subject to contractual limits on their percentage
ownership of our stock, except in connection with the acquisition of our stock
by specified companies.
Relationship with BIO
The Biotechnology Industry Organization (BIO) selected us as its preferred
supplier of electronic commerce solutions. As a result, we entered into a five-
year, exclusive joint marketing agreement with BIO. We believe this agreement
will significantly facilitate the selection and adoption of the Chemdex
solution by BIO's members and provide us with a significant competitive
advantage. Under the agreement, BIO agreed to endorse us as the preferred
provider of electronic commerce purchasing solutions to the biotechnology
industry and engage with us in joint marketing activities, including
endorsement of Chemdex through BIO-sponsored speaking engagements, in BIO
publications and direct marketing materials, at BIO shows and conferences, and
on the BIO web site. As part of the joint marketing agreement, we agreed to
discount the fees we charge to BIO members and contribute cash payments to a
joint marketing fund, to be used in connection with both parties' obligations
under the joint marketing agreement. In addition, we sold 187,500 shares of our
common stock to BIO for a nominal amount in consideration for BIO's
participation in these joint marketing activities. BIO is an industry
organization that serves and represents the biotechnology industry, including
more than 850 biotechnology companies, academic institutions, and state
biotechnology centers, with 25 state affiliates and related organizations in 47
states and more than 26 countries. In addition to other industry supporting
activities, BIO provides strategic purchasing services for its members through
BIO Purchasing, BIO's national group purchasing division.
New Company
On December 13, 1999, Chemdex and Tenet Healthcare Corporation announced the
formation of a new company to provide business-to-business e-commerce solutions
to the healthcare industry. The new company will be an independent entity, with
its own management team and board of directors. Tenet, through its
subsidiaries, owns and operates acute care hospitals and numerous related
health care services. Tenet will provide the new company access to the benefits
of its existing buyer and supplier contracts of its BuyPower organization,
which serves as a group purchasing organization for Tenet's hospitals and other
members. Chemdex will license its technology to the new company for use within
the healthcare industry and provide service and support functions at cost. In
addition, IBM has entered into a strategic alliance with the new company in
which IBM Global Services will provide implementation, integration and e-
commerce services to the new company's customers and suppliers. The new company
will offer its e-commerce technology to other group purchasing organizations
and their members to support their own proprietary contracts. While the new
company will initially focus on the hospital market, the company eventually
plans to expand its e-commerce solution to the long-term care and outpatient
markets as well.
141
<PAGE>
Our Technology
The Chemdex Marketplace is a purchasing solution that resides entirely on
our servers and is accessible by standard browsers, requiring minimal software
installation at the customer site, and enabling rapid deployment of
applications, enhancements and updates. Our production data center is hosted at
Exodus Communication in Sunnyvale, California. This data center provides us
with conditioned space and high bandwidth Internet connectivity.
System Architecture. The Chemdex Marketplace includes three layers of
technology:
. Process and Communication Layer. This layer integrates our system with
our customers' client applications using Internet technology protocols
that can pass through an enterprise's network security wall, such as
http, ftp and EDI, to provide a seamless operation of the Chemdex
Marketplace and purchasing solution. This layer is implemented using
standard web servers, and supports standard Internet protocols such as
http, ftp and XML.
. Electronic Services Layer. This layer delivers all of our system's
functionality. The Chemdex Marketplace and purchasing solution uses
existing and proprietary software to deliver proprietary services
including Internet catalog development and maintenance tools, search
functionality, workflow integration, product pricing and estimated
shipping, handling and freight charges.
. Enterprise Services Layer. This layer delivers some of the services
required to run Chemdex's system, including financial services,
development and maintenance of the product master database, customer
service systems and the data warehouse. To meet our unique scale
requirements for product information management, we developed a
proprietary data warehouse system.
Customer Integration. The Chemdex Marketplace can be configured and
integrated to meet an enterprise customer's needs, including:
. Customer View. The purchasing solution graphical user interface may be
tailored for each enterprise customer, allowing an enterprise customer to
select specific suppliers from our supplier list, and to customize the
user's view in accordance with business rules and policies implemented by
the purchasing department.
. Login and Authentication. For enterprises that do not have a single
authoritative directory services system enabling single login
functionality across the enterprise, the Chemdex purchasing solution
provides an authoritative enterprise authentication and authorization
list along with the user roles, credit limits, and approval workflow. For
enterprises that have a single authoritative directory services system,
the Chemdex purchasing solution directly integrates with the enterprise's
authoritative data source to maintain the current permitted user list,
and provides seamless access by the user and simple management for the
enterprise.
. Purchasing Application Integration. The Chemdex purchasing solution
integrates with commercial purchasing applications, such as Ariba or
Commerce One, as well as internally developed purchasing applications,
through Open Buying on the Internet, commonly known as OBI, an industry
standard protocol for Internet purchasing, or by integrating directly
with a proprietary format such as Ariba"s cXML protocol.
. Custom Pricing. We have developed algorithms to support existing contract
pricing agreements between customers and suppliers. This custom pricing
can be implemented either by (a) pricing contract tables that list
discount rates for a specific product, buyer or supplier relationship; or
(b) direct integration with the supplier systems to extract real time
pricing and availability information.
Search Services. Our search software leverages a combination of full text
search and relational technology to deliver a unique search tool customized to
the life sciences industry. Our search engine is customized to 11 levels of
specific search categories associated with life sciences research products such
as
142
<PAGE>
antibodies, enzymes, or other compounds. Each of the product specific search
levels also includes parametric searching capabilities to search for products
with specific attributes, or ranges of attributes.
Product Pricing Estimation. We have developed algorithms to estimate
shipping, handling and freight charges associated with any customer order.
These algorithms integrate customer requirements for shipping delivery time,
product weight, and product type (including requirements for hazardous
materials and product packaging such as blue ice). These algorithms provide our
users with estimated shipping, handling and freight cost, and make appropriate
decisions given their delivery timing requirements.
Workflow. We have developed simple workflow technology to implement each
enterprise customer's business rules and processes. These workflow rules
include credit limit checks, multilevel approval and e-mail based notification
of any order changes. This system streamlines the purchasing process by
automating approval routing, and enables real time customer service through
direct customer notification.
Technical Support. We offer technical support to respond to any customer
service disruption. In addition to off-the-shelf site instrumentation and
monitoring software, we have developed custom monitoring agents that measure
key Chemdex application parameters. This proprietary software enables us to
provide high quality technical support.
Sales, Marketing and Support
We market and sell the Chemdex Marketplace and purchasing solution through a
combination of our direct sales force, internal telemarketing sales and
strategic relationships with partners such as VWR and BIO. Since our potential
customers and users fall within a defined market segment, we are able to
identify and target the purchasing decision makers and potential users who will
influence the decision to adopt a purchasing solution.
Our sales and marketing approach is designed to help customers and suppliers
understand both the business and technical benefits of the Chemdex Marketplace
and purchasing solution, and to promote user adoption through one-on-one
education and training. Our field sales force focuses on large pharmaceutical
and biotechnology companies and large academic and research institutions. Our
telephone sales group focuses on small biotechnology companies and smaller
research institutions. We are building an experienced professional services
organization to facilitate the successful deployment of our purchasing
solution, including integration with any enterprise resource planning software
and customization with the enterprise's business rules. We intend to expand our
direct sales force and professional services organization and to establish
additional sales offices domestically and internationally. Competition for
sales personnel is intense, and we may not be able to attract, assimilate or
retain additional qualified personnel in the future.
We conduct a variety of marketing programs to educate our target market,
create awareness and attract customers to our Chemdex Marketplace. To achieve
these goals, we leverage our existing customer base and engage in marketing
activities such as seminars, direct mailings, trade shows, speaking engagements
and web site marketing. We also conduct comprehensive public relations programs
that include establishing and maintaining relationships with key trade press,
business press and industry analysts. In addition, we engage in marketing
programs within our enterprise customers to educate, convert and train
researchers and purchasing agents to use the Chemdex Marketplace for their life
sciences research product orders.
We believe that we can establish and maintain long-term relationships with
our customers and suppliers, and encourage repeat visits and purchases by our
customers if, among other things, we have good account management, customer
support and service. Our customer support and service personnel handle general
customer inquiries and basic technical questions, answer customer questions
about the ordering process and investigate the status of orders, shipments and
payments. We have automated some of the tools used by our customer support and
service staff, such as tracking screens that let our support staff track a
transaction by any of a variety of information sources. At any time in the
purchasing process, a customer can access our support
143
<PAGE>
staff by fax or e-mail by following prompts located throughout our web site or
by calling our call center through our toll-free telephone line. Our support
staff is knowledgeable in life sciences research products and the life sciences
industry.
As of November 30, 1999, our worldwide sales and marketing group consisted
of 72 individuals, 59 of whom were located at our Palo Alto, California
headquarters and 13 of whom were located in regional offices in five states,
Massachusetts, New Jersey, Maryland, Pennsylvania, Illinois and an office in
the United Kingdom.
Research and Development
Our development organization is focused on developing and enhancing our
enterprise purchasing solution, developing applications for and supporting the
Chemdex Marketplace, and maintaining and improving our technology,
infrastructure and database. The development group is supported by our quality
assurance group, which implements a process designed to identify defects
through the entire development cycle. We are currently in the process of
developing and integrating new technology into our Internet-based purchasing
solution as part of our planned release of several enhanced versions of the
Chemdex Marketplace over the next few months. These new releases are planned to
include significant enhancements to the user interfaces, database management
and search technology, and security controls, and will allow us to offer VWR's
products to our customers. As of November 30, 1999, our research and
development group was comprised of 74 employees responsible for development and
quality assurance.
Research and development expenses were $196,000 in 1997, $3.4 million in
1998 and $11.4 million during the first three quarters of 1999. To date,
substantially all software development costs related to the Chemdex Marketplace
have been expensed as incurred by our employees. We believe that significant
investments in research and development are required to remain competitive, and
will be made in the areas listed above.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect the proprietary aspects of our
technology. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. Finally, we
seek to avoid disclosure of our intellectual property by requiring employees
and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source
code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability
to license the infringed technology, our business and operating results would
be significantly harmed.
144
<PAGE>
Competition in our Industry
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. We believe that the critical success factors for
companies seeking to create Internet business-to-business e-commerce solutions
include the following:
. quality and reliability of the Internet purchasing solution;
. breadth and depth of product offerings;
. brand recognition;
. installed base of customers; and
. ease of use and convenience.
We face competition from four main areas: other companies with e-commerce
offerings, traditional suppliers and distributors of life sciences research
products, life sciences companies that have developed their own purchasing
solutions and enterprise software companies that offer, or may develop,
alternative purchasing solutions. Companies primarily focused on creating
Internet purchasing solutions for the life sciences industry include
SciQuest.com and Anderson Unicom Group, Inc. Traditional suppliers and
distributors including Sigma Aldrich Corp., Fisher Scientific International,
Inc., Merck KGaA Darmstaadt and VWR currently sell life sciences research
products through paper catalogs and web sites. We could face further
competition in the future from traditional suppliers and distributors that
enter into business-to-business e-commerce over the Internet either on their
own or by partnering with other companies. In addition, life sciences companies
may already have, or may develop, their own purchasing solutions. Traditional
enterprise software companies, such as SAP, IBM and Oracle, could in the future
develop and offer a competitive purchasing solution that our customers could
customize to link to their suppliers. Additionally, emerging enterprise
software companies, such as Ariba, Inc. and Commerce One, Inc. offer purchasing
solutions that could be customized to link to suppliers of life sciences
research products.
Our current and potential competitors may develop superior Internet
purchasing solutions that achieve greater market acceptance than our solution.
Many of our existing and potential competitors, including large traditional
distributors, have longer operating histories in the life sciences research
products market, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
Such competitors can undertake more extensive marketing campaigns for their
brands, products and services, adopt more aggressive pricing policies and make
more attractive offers to customers, potential employees, distribution
partners, commerce companies and third-party suppliers.
In addition, substantially all of our prospective customers have established
long-standing relationships with some of our competitors or potential
competitors. Accordingly, we cannot be certain that we will be able to expand
our customer list and user base, or retain our current customers. We may not be
able to compete successfully against our current or future competitors and
competition could have a material adverse effect on our business, results of
operations and financial condition.
Government Regulations
In addition to regulations applicable to businesses generally, we are
subject to direct regulation by governmental agencies listed in the bullet
points below, which includes numerous laws and regulations generally applicable
to the chemical, pharmaceutical, controlled substances, human and biological
reagents, medical and in vitro devices, and nuclear chemical businesses, and
environmental spills, as well as U.S. import and export controls, and import
controls of other countries. We receive orders from purchasers for our products
that we then electronically transmit to the appropriate suppliers. The
suppliers then package, label and ship products directly to these purchasers.
We take legal title to the products, but do not take physical possession of a
shipment during any part of the transaction. Legal title generally passes to
the purchaser at the time of
145
<PAGE>
product shipment; however, if the chemicals or other products are returned, we
also have legal title during the shipment of the returned products.
We have been and intend to continue relying upon our suppliers to
appropriately package and label and maintain records on the products according
to local, state and federal laws. We have been and also intend to continue
relying upon suppliers to hold all appropriate licenses and approvals. We rely
on the suppliers' regulatory staff to confirm that the purchasers also have the
appropriate governmental licenses and permits and expertise needed to order,
receive and use any regulated products. We are unable to verify the accuracy of
our suppliers' regulatory staff determinations and their decisions whether or
not to ship a product to a purchaser.
Our reliance on suppliers' regulatory due diligence assessment of purchasers
and the compliance by suppliers and purchasers with applicable governmental
regulations may not be sufficient if we are held to need our own licenses. For
example, if we are held by governmental agencies to be a seller or a
distributor of regulated products because we did take legal title, we may have
inadvertently violated some governmental regulations by not having the
appropriate license or permit and may be subject to potentially severe civil or
criminal penalties and fines for each offense. A review of these sales found
that they were generally made to academic or commercial purchasers and not to
individuals. As described below, our suppliers have indicated to us that they
regularly check the requisite licenses of purchasers. These facts could
minimize the potential severity of any civil or criminal penalties and fines
that could be imposed on us for each of these sales.
We intend to continue to investigate our sales of regulated products and may
in the future voluntarily discuss with various governmental regulatory agencies
whether these sales required us, in addition to our suppliers, to obtain a
license or permit. We may also seek clarification of whether our prior sales of
these products will subject us to any governmental, civil or criminal
penalties, including monetary fines and injunctions or other enforcement
action. No assurance can be given by us that any penalties or fines will not
result in a material adverse effect on our business, results of operations or
financial condition. In addition, we may discover that we had inadvertently
sold other regulated products without a requisite license or permit or failed
to fully comply with other local, state, or federal laws governing these sales.
In addition to reviewing our past sales, during the period from May through
July,1999, we conducted interviews with those suppliers that accounted for
approximately 75% of prior sales. These suppliers were chosen as they are a
representative cross-section of our suppliers that we believe may sell
regulated products. We asked if they verify that the purchasers have the
necessary federal licenses before making shipments and if they comply with
applicable labeling and packaging requirements. We also asked the suppliers
whether they were aware of any diversions or chemical spills, or of any past,
pending, or threatened fines, violations, penalties, litigation, complaints or
investigations regarding their shipment of products to our customers. In the
course of these discussions, the suppliers informed us that they have
appropriate licenses and permits, and they routinely, as a matter of practice,
verify whether the purchasers have the relevant licenses or permits, comply
with labeling and packaging requirements, and are not aware of any diversions,
or past, pending or threatened fines, violations, penalties, litigation,
complaints, proceedings or investigations regarding their shipment of products
to our customers. However, some suppliers have had small spills and been
subject to fines for these spills and for failure to provide information on
hazards or health risks presented by products, but they could not identify
whether orders to Chemdex customers were involved. Furthermore, we are unable
to verify the accuracy of suppliers' statements that they have in the past
complied, or will in the future comply, with laws applicable to these sales. In
addition, we did not conduct investigations of all suppliers in the Chemdex
database, and we do not have any current plans to do so. We could be
significantly fined or exposed to significant civil or criminal liability, or
suffer negative publicity, if these licensing, packaging, labeling,
informational and other regulatory requirements have not been fully met by our
suppliers or by us directly.
During the period from May through July, 1999, we also reviewed the list of
products in our current database to identify any products for which we may need
a license or permit to sell. We identified approximately 14,000 of those
products that may be regulated, and we have evaluated their status. They have
either been removed from our database, or been flagged so that we will not in
the future sell them, but instead
146
<PAGE>
will refer the purchasers of these flagged products directly to suppliers. In
some instances, we may also seek appropriate licenses or registrations enabling
us to return certain products to the inventory. We cannot be sure that all
regulated products requiring us to have a license to sell have been removed
from, or flagged in the database. In addition, new products that require us to
obtain governmental licenses or permits may be inadvertently added to our
database. We intend to begin instituting new quality control procedures to
routinely screen our growing database, as well as increase the scrutiny of new
products proposed to be added to the database to eliminate those products for
which we are required to have licenses or permits to sell or distribute.
Alternatively, we may apply for appropriate licenses or registrations, in some
instances, so certain products may be returned to the inventory. A regulatory
compliance officer has recently been hired to oversee these matters, as well as
the overall compliance of Chemdex.
Under the terms of our agreement with VWR, VWR provides support for the
purchase of third-party products, where purchasers may order products not
listed in our database. The type and nature of these products cannot be
anticipated. To help avoid inadvertent future sales of products for which we
would be required to hold governmental licenses or permits, we intend to
institute a new screening procedure to identify any requests for purchases of
those products and refer the purchaser directly to the suppliers, so that we
are not involved in sales of these third-party products. We cannot be sure that
we may not inadvertently sell or cause to be sold and shipped products for
which governmental licenses or permits are required.
We have also relied on our suppliers to comply with applicable local, state
and federal laws regarding the labeling and the dissemination of information on
any products sold that may be hazardous or present a health threat to the user.
If these suppliers have failed, or fail in the future, to adequately comply
with labeling and information dispensing requirements of local, state or
federal laws, then we may be held legally responsible, since we briefly held
title to these products, and could be subject to governmental penalties or
fines, as well as private lawsuits to enforce these laws.
Finally, we have relied upon our suppliers to obtain appropriate approvals
for products regulated by the U.S. Food & Drug Administration (FDA) and to
comply with the requirements relating to those approvals and products. The
failure to obtain or comply with those approvals, or other failures by the
products themselves or the failure to keep regulatory records required by the
FDA, such as complaint files, distribution and other requirements, or make
adverse event reports to the FDA, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities, and negative
publicity.
We intend to offer for sale products only to qualified purchasers. Unless we
have the necessary licenses, permits and authorizations, or an exemption or
exclusion applies, we do not intend to offer for sale or cause to be sold
products that are, for example:
. prescription or over-the-counter human or animal drugs that are regulated
by the U.S. Food and Drug Administration (FDA);
. radioactive materials that are regulated by the Nuclear Regulatory
Commission or state and local governmental authorities unless we have
appropriate licenses or permits;
. biological products intended for the treatment of humans or animals, and
that are regulated respectively by the FDA and U.S. Department of
Agriculture (USDA);
. pathogenic bacteria or viruses that may introduce any contagious or
infectious disease of man or animal and which are regulated by the
Centers for Disease Control and Prevention and USDA;
. controlled substances that are regulated by the Drug Enforcement Agency
and whose distribution requires a registration;
. products to be imported or exported (no products are currently exported)
that are regulated by the U.S. Department of Commerce or other regulatory
agencies;
147
<PAGE>
. explosive materials for which a license, permit, or authorization is
required under Bureau of Alcohol, Tobacco and Firearms regulations; and
. ozone-depleting substances that are subject to production and importation
bans under the Federal Clean Air Act and the Montreal protocol.
We intend to continue to sell products for which we do not need a license,
permit, or authorization, or for which an exemption or exclusion applies, and
will seek to comply, either directly or through our supplier, with applicable
local, state and federal laws and regulations governing the sale, packaging and
labeling of these products, dispensing of information on health risks and
hazards about a chemical, and recordkeeping concerning these products. However,
our suppliers and we may inadvertently fail to comply with applicable laws in
the future. Noncompliance could have a materially adverse impact on our
business, results of operations and financial condition because of civil or
criminal penalties and fines and negative publicity.
For sales of VWR core products under our agreement with VWR and under
agreements with a limited number of other suppliers, we act as a sales agent.
In these situations, we do not take title to, or have possession of these
suppliers' products. We rely on VWR and these other suppliers to comply with
all applicable local, state and federal laws. Although we are acting as a sales
agent for these suppliers and do not take legal title to, or possession of,
these products, we may still be held liable if we cause to be sold regulated
products to purchasers who lack required licenses to use, store and receive
these products and if the suppliers of these products have failed to adequately
comply with local, state or federal laws.
Researchers and others who are not affiliated with an enterprise customer
may register to purchase through our website, www.chemdex.com. Although we
require unaffiliated users to provide information about themselves, we do not
independently verify the accuracy of this information. Because we do not
generally meet unaffiliated users in person or visit their work sites, we are
even less able to gauge whether they have appropriate storage facilities,
permits or licenses, compared to enterprise customers with whom we generally
have some direct contact or knowledge of their reputations. Therefore, we
cannot be sure that we will not inadvertently sell, cause to be sold or
delivered, products for which the purchasers lack appropriate local, state or
federal licenses or permits or expertise or experience to handle or use these
products. We may also be subject to significant civil or criminal penalties,
fines or monetary judgments as well as negative publicity, if purchasers misuse
or spill, or injure themselves or third parties with, the products purchased
from us.
We are unaware of any current investigations, inquiries, citations, fines,
or allegations of violations or noncompliance pending by government agencies or
by third parties against us. It is possible that there may be investigations or
allegations we are not aware of or future investigations or allegations. We are
currently reviewing applicable requirements with regard to past, present and
continuing compliance, particularly concerning various licensing and sales
issues. The risk that any noncompliance may be discovered in the future is
currently unknown. Although any potential impact on us for noncompliance cannot
currently be established, it could result in significant civil or criminal
penalties, including monetary fines and injunctions, for noncompliance and
negative publicity, and have a material adverse impact on our business,
revenues, results of operations and financial condition.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible, in addition to the above-listed examples of existing laws and
regulations, as well as new tax laws and regulations, that new laws and
regulations may be adopted or interpreted by the United States and foreign
governments, to address the sale and distribution of products utilizing the
Internet. In addition, it is possible that governments will enact legislation
that may be applicable to us in areas such as content, product distribution,
network security, encryption and the use of key escrow, data and privacy
protection, electronic authentication or "digital" signatures, illegal and
harmful content, access charges and re-transmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation, personal privacy, product
liability and environmental protection, as
148
<PAGE>
well as the necessity for governmental permits, labeling, certifications and
the need to supply information to relevant parties, is uncertain. Most of these
laws were adopted before the widespread use and commercialization of the
Internet and, as a result, do not contemplate or address the unique issues of
the Internet and related technologies. Any export or import restrictions, new
legislation or regulation or governmental enforcement of existing regulations
may limit the growth of the Internet, increase our cost of doing business, or
increase our legal exposure. Any of these factors could have a negative effect
on our business, revenues, results of operations and financial condition.
Employees
As of November 30, 1999, we had 189 full-time employees, including 74 in
engineering, 85 in supplier relations and sales and marketing, and 30 in
general and administrative functions. We also employ independent contractors to
support our engineering, marketing, sales and support, and administrative
organizations.
Facilities
Our executive, administrative and operating offices are located in
approximately 66,000 square feet of leased office space located in Mountain
View, California under a lease expiring in February, 2005. We also maintain
sales offices in Ann Arbor, Michigan and Princeton, New Jersey.
Legal Proceedings
Chemdex is not a party to any legal proceedings which, if adversely decided,
would reasonably be expected to have a materially adverse effect on the
financial condition of the corporation.
149
<PAGE>
CHEMDEX CORPORATION
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
----------------- --------------------
1999 1998 1998 1997
-------- ------- ------- -----------
(inception)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues.......................... $ 11,561 $ 4 $ 29 $ --
Operating loss........................ (34,790) (4,298) (8,796) (403)
Net loss.............................. (33,313) (4,090) (8,488) (403)
Basic and diluted net loss per share.. $ (3.33) $ (2.37) $ (4.79) $(0.24)
Weighted average common shares--basic
and diluted.......................... 10,007 1,724 1,772 1,704
Balance Sheet Data:
Cash and cash equivalents............. $125,563 $ 2,649 $ 5,990 $1,346
Working capital....................... 117,913 9,161 4,490 1,116
Total assets.......................... 154,795 10,889 8,168 1,728
Long-term debt and capital lease
obligations, net of current portion.. 590 1 -- 6
Total liabilities..................... 15,582 376 1,820 280
Total stockholders' equity............ 139,213 10,513 6,348 1,448
</TABLE>
150
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following "Management's Discussion and Analysis of Results of Operations
and Financial Condition" contains forward-looking statements. In some cases,
readers can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue." These statements involve
known and unknown risks, uncertainties and other factors that may cause
Chemdex's actual results, performance, or achievements to be materially
different from those stated herein. Although management of Chemdex believes
that the expectations reflected in the forward-looking statements are
reasonable; the Company cannot guarantee future results, performance, or
achievements. For further information, refer to Management's Discussion and
Analysis and the Risk Factors section of Chemdex's Registration Statement on
Form S-1 (File Number 333-78505), as amended, and Chemdex's 10-Qs.
Overview
Chemdex is a leading provider of e-commerce solutions to the life sciences
research products market. The Chemdex Marketplace is a secure, Internet-based
purchasing solution that enables enterprises, researchers and suppliers to
efficiently buy and sell life sciences research products.
We were formed in September 1997 and began offering products for sale on the
Chemdex Marketplace in November 1998. During the period from September 1998
through November 1998, we were a development stage enterprise and did not have
significant sales. Our operating activities during this period were related
primarily to the design and development of the Chemdex Marketplace, building
our corporate infrastructure, establishing relationships with suppliers and
customers and raising capital. To date, revenues have been derived from sales
of life sciences research products through the Chemdex Marketplace and through
our strategic relationship with VWR. We have grown our organization by hiring
personnel in key areas, particularly sales, research and development and
marketing.
Nine-month Period Ended September 30, 1999
We have incurred significant losses since inception, including $14.0 million
in the third quarter of 1999, and, as of September 30, 1999, we had an
accumulated deficit of approximately $42.2 million. We believe our success
depends on establishing additional key strategic supplier and customer
relationships, enhancing the features and functionality of the Chemdex
Marketplace and enterprise purchasing solution, and accelerating market
awareness and demand for the Chemdex Marketplace. From inception, we have
increased our level of spending to build our infrastructure and to develop our
Chemdex Marketplace. We intend to continue to invest heavily in sales,
marketing and research and development and administrative activities and to
increase other operating expenses as required to integrate the operations and
technologies of any future acquisitions. We anticipate that these expenses
could significantly precede any revenues generated by this increased spending.
We have limited operating history upon which to base an evaluation of our
business and we cannot assure you that our revenues will increase in future
periods. Our business and prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in early states
of development, particularly companies in new and rapidly evolving markets such
as Internet-based business-to-business commerce.
Our gross margin for the three months ended September 30, 1999 was
approximately 4.8%. Distributors in general operate on very low margins. This
is especially true in the life sciences research products market. Our gross
margins on sales of life sciences research products are small relative to the
margins earned by traditional distributors of life sciences research products.
If we are unable to increase our revenues at a greater rate than our related
costs, our margins may be reduced further, or possibly eliminated, which would
have a significant negative impact on our financial results. We are dependent
on the discounts we receive from our suppliers, and thus we are vulnerable to
any potential decrease in these discount rates. Any such decrease would have a
significant negative impact on our financial results. If we do not increase
these discounts, and substantially
151
<PAGE>
increase our revenues and scale our business in a manner that generates
significant operating efficiencies, including further automation of our
purchasing solution, we may not be able to achieve profitability.
Our gross profit margins on sales of VWR-distributed products are lower than
our margins on the other supplier products that we offer. We generate no gross
margin on sales of VWR-distributed products purchased through our Chemdex
Marketplace by VWR's current top forty customers. In addition, we receive
minimal margins on the sale of third party products. To the extent sales of
VWR-distributed products or third party products increase relative to, or
displace, our sales of other supplier products, our average gross margins will
likely decline, which would make it more difficult to achieve profitability.
Sales to four significant customers accounted for approximately 32%, 16%,
15%, and 11% respectively, of our revenues in the quarter ended September 30,
1999, and we currently expect to continue to derive a significant portion of
our revenues from these customers for the foreseeable future. Our agreement
with one customer, in connection with its role as our initial test location for
our purchasing solution, provides that Chemdex will not receive price discounts
on products of some suppliers purchased by that customer if that customer
purchases specified minimum quantities of product through the Chemdex
Marketplace. As a result, we receive little or no gross margins on sales of
these supplier products to that customer. The loss of revenues from any of our
significant customers would have a significant negative effect on our business,
revenues, results of operations and financial condition.
A key element of our strategy is to market our solution directly to life
sciences organizations, and to succeed we must satisfy the purchasing
departments, information technology groups and the individual researchers who
are the users of our Internet-based purchasing solution. The time it takes to
sell and implement our solution is long and we devote significant sales,
marketing and management resources to the sales process without any assurance
that the customer will use the Chemdex Marketplace. We are generally required
to provide a significant level of education regarding the use and benefits of
our Internet-based purchasing solution, due in part to the significant
departure from traditional means of commerce and communications entailed by its
adoption and use. Further, potential enterprise customers and a number of their
departments typically engage in extensive internal reviews and analyses before
making purchase decisions. The sale and implementation of our solution are
subject to delays due to our customers' internal budgets and procedures for
approving capital expenditures and deploying new technologies within their
networks. These delays also impair our ability to generate revenue and could
negatively affect our results of operations. Once an enterprise customer adopts
our Internet-based purchasing solution, it takes time for researchers and other
users within the enterprise to become aware of, learn to use and begin using
our Chemdex Marketplace. The long sales cycle and the time it takes for
researchers to begin using our Internet-based purchasing solution, could
negatively affect our revenue growth, and makes it difficult to predict our
results of operations.
During the first quarter of 1999, we entered into an agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products using
the Chemdex e-commerce platform. The agreement gives us the right to offer
approximately 350,000 VWR-distributed products to our customers through the
Chemdex Marketplace. VWR and Chemdex have developed Labpoint, an Internet
purchasing solution for VWR's existing and future customers that will provide
access to three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third-party products).
We act as an intermediary under this agreement and forward orders for VWR
core products received through the Chemdex Marketplace to VWR for fulfillment
and customer service. We receive no fee for orders from VWR's 40 largest
customers and we receive a minimal fee for all other orders forwarded to VWR.
We are responsible for fulfillment and customer service for all Chemdex core
product orders and orders for third
152
<PAGE>
party products from VWR customers received through the Chemdex Marketplace and
Labpoint on similar terms and conditions as our other enterprise customers. VWR
provides services in connection with purchasing third-party products for a
processing fee paid by Chemdex. VWR and Chemdex jointly market the co-branded
Labpoint VWR's existing and new customers, and jointly solicit several key
existing VWR suppliers to distribute, market and sell their products through
the co-branded purchasing solution.
In connection with the strategic relationship with VWR, Chemdex issued
2,538,405 shares of common stock valued at $13.9 million. The fair value of the
stock is being amortized, on a straight-line basis, into sales and marketing
expense over four years, the estimated useful life of this intangible asset.
We also entered into a five-year, exclusive joint marketing agreement with
the Biotechnology Industry Organization (BIO), and sold 187,500 shares of our
common stock to BIO for a nominal amount of consideration. We recorded the
difference between the nominal amount per share price paid by BIO and the fair
value as of the date of issuance, which is approximately $1.8 million as an
intangible asset which is being amortized over the five-year term of the joint
marketing agreement as a sales and marketing expense. Amortization related to
the VWR and BIO agreements for the three and nine months ended September 30,
1999 was $1.0 million and $1.6 million respectively.
Results of Operations for the Three and Nine Months Ended September 30, 1999
Net revenues
Net revenues increased from zero in the third quarter of 1998 to $8.5
million in the third quarter of 1999. For the nine months ended September 30,
1999, net revenues increased by $11.6 million from the same period in the prior
year. The significant growth in product sales was due to the launch of the
Chemdex Marketplace in the fourth quarter of 1998, and sales generated as a
result of the VWR agreement. Further, revenues have increased significantly due
to the increase in customer base and increased market acceptance. Net revenues
consist primarily of product sales to customers and charges to customers for
outbound freight. Under most of our supplier agreements we are acting as a
principal in purchasing products from our suppliers and reselling them to our
customers so that we recognize revenues equal to the amount paid by our
customers and cost of revenues equal to the amount we pay to our suppliers for
these products. Under our principal-based agreements, we are responsible for
selling the products, collecting payment from customers, ensuring that the
shipment reaches customers and processing returns. In addition, we take title
to products upon shipment and bear the risk of loss for collection, delivery
and merchandise returns from customers. Some of our agreements with our
suppliers treat us as an agent of the supplier, in which case we receive a
percentage fee on product sales. We recognize revenue from product sales, net
of any discounts, and from fees under our agency-based supplier agreements,
when the products are shipped to customers. Products are shipped directly to
customers by suppliers based on customer delivery date specifications.
Cost of Revenues and Gross Profit
Cost of revenues increased from zero in the third quarter of 1998 to $8.1
million in the third quarter of 1999. For the nine months ended September 30,
1999, cost of revenues increased by $11.0 million from the same period in the
prior year. Cost of revenues consists primarily of the costs of acquiring
products from our suppliers for sale to our customers. During the three and
nine months ended September 30, 1999, cost of revenues, in absolute dollars,
increased consistent with the significant increases in revenues. Our gross
margin for the quarter ended September 30, 1999 was approximately 4.8%. The low
gross margin on product sales, primarily all of which were recognized under
principal-based agreements, was due to our accepting low margins in order to
increase early sales volume, customer adoption, and awareness of the Chemdex
brand. Further, gross margins will fluctuate period to period based on the
product mix sold during the period. While margins on recently signed supplier
agreements continue to improve, we expect margins to remain low until we are
able to renegotiate higher discounts on earlier supplier agreements, and
increase volumes of revenues through more recently signed suppliers with higher
gross margins.
153
<PAGE>
Operating Expenses
Research and Development. Research and development expenses increased from
$1.0 million in the third quarter of 1998 to $5.6 million in the third quarter
of 1999. For the nine month period ended September 30, 1999, research and
development costs increased by $9.6 million from the same period in the prior
year. Research and development expenses consist of personnel and other expenses
associated with developing, updating, and enhancing software in support of the
Chemdex Marketplace. Our research and development expenses have increased each
quarter since inception primarily due to increased staffing and associated
costs related to the design and development and maintenance of the Chemdex
Marketplace, and content and design expenses. We believe that our success is
dependent in large part on continued enhancement and development of the Chemdex
Marketplace. Accordingly, we expect research and development expenses to
continue to increase in future periods.
Sales and Marketing. Sales and marketing costs increased from $.7 million in
the third quarter of 1998 to $6.9 million in the third quarter of 1999. For the
nine month period ended September 30, 1999, sales and marketing expenses
increased $14.1 million over the same period in the prior year. Sales and
marketing expenses consist primarily of advertising and promotion in support of
the development of our marketing strategy, payroll and related expenses for
personnel engaged in supplier relations, enterprise sales activities,
enterprise account management, and amortization expenses related to our VWR and
BIO agreements. Sales and marketing expenses have increased since inception as
we have continued to expand our sales and marketing efforts primarily with
relation to our corporate marketing and branding strategy. We intend to
continue to aggressively expand our supplier and customer relationships and to
expand our brand awareness. We expect sales and marketing expenses to increase
in future periods.
General and Administrative. General and administrative costs increased from
$.5 million in the third quarter of 1998 to $2.6 million in the third quarter
of 1999. For the nine months ended September 30, 1999, general and
administrative costs increased by $6.1 million from the same period in the
prior year. General and administrative expenses consist primarily of salaries,
fees for professional services and lease expenses. General and administrative
expenses have increased primarily as a result of the addition of finance and
administrative personnel, costs of leasing additional office space to support
our growth, and expenses related to increased professional service fees. We
expect general and administrative expenses to increase in future periods to
support our expanded operations.
Amortization of Deferred Compensation. We have recorded aggregate deferred
compensation charges of $8.7 million in connection with some of the stock
options we granted through September 30, 1999. For the quarter ended September
30, 1998 and 1999, we expensed $.1 million and $.5 million, respectively,
related to the amortization of deferred compensation. Further, for the nine
months ended September 30, 1998 and 1999, we expensed $.2 million, and $1.4
million respectively, related to the amortization of deferred compensation. The
deferred compensation amounts are being amortized over the vesting period of
the stock options which is generally four years. The total changes to be
recognized in future periods from amortization of deferred stock compensation
are anticipated to be approximately $0.5 million, $2.2 million, $2.2 million,
$1.8 million, and $0.1 million for the remaining three months of 1999, and for
the fiscal years 2000, 2001, 2002 and 2003, respectively.
Interest Expense. Interest expense increased from zero in the third quarter
of 1998 to $60,000 in the third quarter of 1999. For the nine month period
ended September 30, 1999, interest expense increased $107,000 from the same
period in the prior year. Interest expense consists primarily of interest
related to financed equipment and other financing arrangements.
Interest and other Income, Net
Interest and other income, net increased from $.1 million in the third
quarter of 1998 to $1.3 million in the third quarter of 1999. Further, for the
nine month period ended September 30, 1999, interest and other income, net
increased $1.4 million from the same period in the prior year. Interest and
other income, net has been
154
<PAGE>
derived primarily from earnings on investments in cash equivalent securities.
Interest during the third quarter of 1999 increased significantly due to
increased cash and cash equivalents resulting from our initial public offering
on July 27, 1999.
Income Taxes
We incurred operating losses and accordingly did not record a provision for
income taxes for any of the periods presented. At December 31, 1998, we had net
operating loss carryforwards and federal tax credits for federal income tax
purposes of $7.5 million and $100,000, respectively. In addition, we had state
net operating loss and research and development credit carryforwards of
approximately $7.4 million and $100,000, respectively. These net operating
losses and credits will expire in the years 2002 through 2018 if not utilized.
Certain future changes in our share ownership, as defined in the Tax Reform Act
of 1986 and similar state provisions, may restrict the utilization of
carryforwards. A valuation allowance has been recorded for the entire deferred
tax asset as a result of uncertainties regarding the realization of the assets
due to our lack of earnings history.
Liquidity and Capital Resources for the Nine Months Ended September 30, 1999
In July 1999, we completed the initial public offering of our common stock
and realized net proceeds from the offering of approximately $117.6 million. As
of September 30, 1999, our principal sources of liquidity included
approximately $125.6 million of cash and cash equivalents, $4.1 million in
equipment financing arrangements, and $1.0 in other financing arrangements. The
equipment arrangements include an agreement for $1.1 million that provides for
12 equal quarterly payments of the financed amount commencing May 1, 1999, with
interest of approximately 13% per year, and a $3.0 million equipment lease line
agreement with a financial institution for a term of 48 months, with interest
of approximately 13% per year. The other lease arrangements include an
agreement for $1.0 million that provides for 29 equal monthly payments
commencing August 27, 1999, with interest of approximately 7% per year. At
September 30, 1999 there was $1.0 million in borrowings outstanding under the
equipment financing arrangements, and $.9 million under other financing
arrangements.
Net cash used in operating activities totaled $22.4 million and $4.1 million
in the first nine months of 1999 and 1998, respectively. The net cash used in
operating activities in the first nine months of 1999 was primarily due to our
net losses, which were partially offset by non-cash charges of depreciation and
amortization of deferred compensation, amortization of intangible assets, and
increases in accounts payable, accrued liabilities, and accrued compensation.
Net cash used in investing activities totaled $5.7 million in the first nine
months of 1999. We have made substantial investments in computer equipment,
computer software, office furniture and leasehold improvements during the
current year. Net cash used in investing activities in the first nine months of
1998 was $7.6 million and primarily related to purchases of short term
investments, computer equipment, and office furniture.
Net cash provided by financing activities was $147.7 million in the first
nine months of 1999 and $13.0 million for the first nine months of 1998. Net
cash from financing activities during 1998 resulted primarily from the sale of
preferred stock. Net cash provided by financing activities was $147.7 million
in the first nine months of 1999, resulting primarily from the sale of
preferred and common stock partially offset by payments made on notes payable.
We currently anticipate that cash and cash equivalents at September 30,
1999, together with our equipment lease line, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. However, we may need to raise additional funds in
future periods through public or private financing, or other arrangements to
fund our operations and potential acquisitions, if any, over a long-term basis
until we achieve profitability, if ever. Any additional financing, if needed,
might not be available on reasonable terms or at all. Failure to raise capital
when needed could seriously harm our business and results of operations. If
additional funds are raised through the issuance of equity securities, the
percentage of ownership of our stockholders would be reduced. Furthermore,
these equity securities might have rights, preferences or privileges senior to
our common stock.
155
<PAGE>
Three Month Period Ended March 31, 1999
Our gross margin for the three months ended March 31, 1999 was approximately
5.8% and was trending downward.
Genentech, Inc. accounted for approximately 82% of our revenues in the
period ended March 31, 1999, and we currently expect to continue to derive a
significant portion of our revenues from Genentech for the forseeable future.
Our agreement with Genentech, in connection with its role as our initial test
location for our purchasing solution provides that Chemdex will not receive
price discounts on products of some suppliers purchased by Genentech if
Genentech purchases specified minimum quantities of product through the Chemdex
Marketplace. As a result, we receive little or no gross margins on sales of
these supplier products to Genentech. The loss of revenues from Genentech, or
the negotiation by other large enterprise customers for similar programs, would
have a significant negative effect on our business, revenues, results of
operations and financial condition.
We recorded deferred compensation for options granted in 1998 and the three
months ended March 31, 1999. As of March 31, 1999 we had recorded aggregate
deferred stock compensation of $6.2 million. The deferred stock compensation is
being amortized over the vesting periods of the stock options. We recognized a
total of $372,285 and $352,291 in stock compensation expense during 1998 and
the three months ended March 31, 1999, respectively.
Quarterly Results of Operations
Because we were a development stage company during 1997 and 1998 and have a
short operating history, we believe that period-to-period comparisons prior to
1999 are less meaningful than an analysis of recent quarterly operating
results. Accordingly, we are providing a discussion and analysis of our results
of operations that is focused on the six quarters in the period ended March 31,
1999.
The following table presents our unaudited quarterly operating results for
the six quarters in the period ended March 31, 1999. You should read the
following table together with our financial statements and related notes in
this prospectus. We have prepared this unaudited information on the same basis
as the audited financial statements. This table includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. You should not draw any conclusions about our future
results from the operating results of any quarter.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
June Sept. Dec. Mar.
Dec. 31, Mar. 31, 30, 30, 31, 31,
1997 1998 1998 1998 1998 1999
-------- -------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net revenues............. $ -- $ -- $ 3 $ -- $ 26 $ 165
Cost of revenues......... -- -- -- -- 22 156
----- ----- ------- ------- ------- -------
Gross profit............. -- -- 3 -- 4 9
Operating expenses:
Research and
development........... 196 364 414 1,026 1,635 2,293
Sales and marketing.... 86 219 297 710 2,021 3,188
General and
administrative........ 121 190 422 489 644 1,015
Amortization of
deferred
compensation.......... -- 22 44 104 202 352
----- ----- ------- ------- ------- -------
Total operating
expenses.............. 403 795 1,177 2,329 4,502 6,848
----- ----- ------- ------- ------- -------
Operating loss........... (403) (795) (1,174) (2,329) (4,498) (6,839)
Interest and other
income, net............. -- 2 70 136 100 30
----- ----- ------- ------- ------- -------
Net loss................. $(403) $(793) $(1,104) $(2,193) $(4,398) $(6,809)
===== ===== ======= ======= ======= =======
</TABLE>
156
<PAGE>
Results of Operations
Net Revenues
From inception through November 1998, Chemdex was in the development stage
and had only nominal net revenues. Net revenues increased to $165,000 in the
quarter ended March 31, 1999 as it was the first full quarter in which the
Chemdex Marketplace was operational. Net revenues consist primarily of product
sales to customers and charges to customers for outbound freight.
Cost of Revenues
Cost of revenues consists primarily of the costs of acquiring products from
our suppliers for sale to our customers. During the quarter ended March 31,
1999, cost of revenues increased primarily due to the increase in revenues.
Cost of revenues is expected to increase in future periods reflecting increases
in sales volume. Our gross margin for the quarter ended March 31, 1999 was
approximately 5.8%. The low gross margin on product sales, primarily all of
which were recognized under principal-based agreements, was due to our
accepting low margins in order to increase early sales volume, customer
adoption, and awareness of the Chemdex brand. We expect margins to remain low
until we are able to negotiate larger discounts from our suppliers.
Operating Expenses
Research and Development. Research and development expenses consist of
personnel and other expenses associated with developing and enhancing software
in support of the Chemdex Marketplace. Our research and development expenses
have increased each quarter since inception primarily due to increased staffing
and associated costs related to the design and development and maintenance of
the Chemdex Marketplace, and content and design expenses. We believe that our
success is dependent in large part on continued enhancement of the Chemdex
Marketplace. Accordingly, we expect research and development expenses to
increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising and promotion in support of the development of our marketing
strategy and payroll and related expenses for personnel engaged in supplier
relations and sales activities. Sales and marketing expenses have increased
since inception as we have expanded our sales and marketing efforts. We intend
to aggressively expand our supplier and customer relationships and to increase
revenues and expand our brand awareness. Consequently, we expect to increase
the sales and marketing expenses in future periods. In addition, sales and
marketing expenses will increase significantly due to our recently established
relationships with BIO and VWR.
General and Administrative. General and administrative expenses consist
primarily of salaries, fees for professional services and lease expenses.
General and administrative expenses have increased primarily as a result of the
addition of finance and administrative personnel and the costs of leasing
additional office space to support our growth, as well as expenses related to
increased professional service fees. We expect general and administrative
expenses to increase in future periods to support our expanded operations and
the expenses of being a public company.
Amortization of Deferred Compensation. We recorded aggregate deferred
compensation of $6.2 million in connection with some of the stock options we
granted through March 31, 1999. For the year ended December 31, 1998 and the
three months ended March 31, 1999, we amortized $372,000 and $352,000,
respectively, related to stock options. In April 1999, we recorded additional
deferred compensation of $2.5 million related to stock option grants. The
deferred compensation amounts are being amortized over the vesting period of
the stock options, generally four years. See Note 6 of Notes to Financial
Statements.
Interest and Other Income, Net
Interest and other income, net has been derived primarily from earnings on
cash investments, offset by interest expense associated with our capitalized
lease obligations for equipment purchases.
157
<PAGE>
Income Taxes
We incurred operating losses and accordingly did not record a provision for
income taxes for any of the periods presented. At December 31, 1998, we had net
operating loss carryforwards and federal tax credits for federal income tax
purposes of $7.5 million and $100,000, respectively. In addition, we had state
net operating loss and research and development credit carryforwards of
approximately $7.4 million and $100,000, respectively. These net operating
losses and credits will expire in the years 2002 through 2018 if not utilized.
Certain future changes in our share ownership, as defined in the Tax Reform Act
of 1986 and similar state provisions, may restrict the utilization of
carryforwards. A valuation allowance has been recorded for the entire deferred
tax asset as a result of uncertainties regarding the realization of the assets
due to our lack of earnings history. See Note 8 of Notes to Financial
Statements.
VWR Transaction
In connection with our agreement with VWR, VWR transferred to us information
concerning VWR customers who purchased products from third party suppliers
outside of VWR's primary product offering, and in exchange we issued shares of
common stock to VWR. We intend to use this information to expand sales of our
purchasing solution to these customers and adoption of the Chemdex Marketplace
by these customers and suppliers. The deemed fair value of the common stock is
being amortized as sales and marketing expense over four years, the estimated
useful life of this intangible asset. The annual amortization will be
approximately $3.5 million.
New Company
On December 13, 1999, Chemdex and Tenet Healthcare Corporation announced the
formation of a new company to provide business-to-business e-commerce solutions
to the healthcare industry. The new company will be an independent entity, with
its own management team and board of directors. Tenet, through its
subsidiaries, owns and operates acute care hospitals and numerous related
health care services. Tenet will provide the new company access to the benefits
of its existing buyer and supplier contracts of its BuyPower organization,
which serves as a group purchasing organization for Tenet's hospitals and other
members. Chemdex will license its technology to the new company for use within
the healthcare industry and provide service and support functions at cost. In
addition, IBM has entered into a strategic alliance with the new company in
which IBM Global Services will provide implementation, integration and e-
commerce services to the new company's customers and suppliers.
The new company will offer its e-commerce technology to other group
purchasing organizations and their members to support their own proprietary
contracts. While the new company will initially focus on the hospital market,
the company eventually plans to expand its e-commerce solution to the long-term
care and outpatient markets as well.
Liquidity and Capital Resources for the Three Months Ended March 31, 1999
We funded our operations primarily through the private sale of our equity
securities, through which we raised net proceeds of approximately $42.8 million
through the quarter ended March 31, 1999. We also financed our operations
through equipment lease financing. As of March 31, 1999, our principal sources
of liquidity included approximately $27.8 million of cash and cash equivalents
and $4.1 million in equipment financing arrangements. The arrangements include
an agreement with Oracle Credit Corporation for $1.1 million that provides for
12 equal quarterly payments of the financed amount commencing May 1, 1999, with
interest imputed at 13.24% per year, and a $3.0 million equipment lease line
agreement with a financial institution for a term of 48 months, with interest
imputed at 13.02% per year. At March 31, 1999 there was $1.1 million in
borrowings outstanding under the equipment financing arrangements. Subsequent
to March 31, 1999, in April 1999, we raised an additional approximately $2.3
million in net proceeds from the private sale of our Series C Preferred Stock.
158
<PAGE>
Cash used in operating activities totaled $6.8 million in 1998 and $4.6
million for the quarter ended March 31, 1999, primarily due to our net losses,
which were partially offset by non-cash charges of depreciation and
amortization of deferred compensation and sales and marketing and interest
expense related to warrants and increases in accounts payable and accrued
expenses.
Cash used in investing activities totaled $1.6 million in 1998 and $1.5
million for the quarter ended March 31, 1999. We have made substantial
investments in computer equipment, computer software, office furniture and
leasehold improvements.
Net cash provided by financing activities was $13.0 million in 1998 and
$27.9 million for the quarter ended March 31, 1999. Net cash from financing
activities during 1998 and for the quarter ended March 31, 1999 resulted
primarily from the sale of preferred stock. We expect to fund future operating
expenses from revenues received from the sale of our products, public or
private financing and the proceeds of this offering.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents, and equipment lease line, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we may need to raise
additional funds in future periods through public or private financings, or
other arrangements to fund our operations and potential acquisitions, if any,
over a long-term basis until we achieve profitability, if ever. Any additional
financings, if needed, might not be available on reasonable terms or at all.
Failure to raise capital when needed could seriously harm our business and
results of operations. If additional funds are raised through the issuance of
equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences or
privileges senior to our common stock.
Year 2000 Compliance
Many currently installed computer systems and software products are unable
to distinguish year 2000 dates. This situation could result in system failures
or miscalculations causing disruptions in the operations of any business. As a
result, many companies' software and computer systems may need to be upgraded
or replaced to comply with year 2000 requirements. Our ability to operate is
dependent upon delivery of accurate, electronic information via the Internet.
To the extent year 2000 issues result in the long-term inoperability of the
Internet or the Chemdex Marketplace, our business, results of operations and
financial condition could be seriously harmed.
We completed an assessment of our information technology systems for year
2000 problems in April 1999. We have not replaced any of our systems based on
the results of our assessment. However, we have made modifications to some
systems based on our assessment of year 2000 problems.
Representations and Warranties to Our Customers
We generally represent and warrant to our customers that the occurrence of
the date January 1, 2000 and any related leap-year issues will not cause the
Chemdex Marketplace application software to fail to operate properly. Our
warranty generally applies only to our software and excludes failures resulting
from the combination of our software and other software or hardware,
unauthorized changes to the software or network connectivity problems,
including, without limitation, problems connecting to the Internet or problems
relating to Internet service providers. If we breach this warranty, the
recourse that our customers may seek is limited to the prompt correction by us
at our own expense of any failure of our software to the reasonable
satisfaction of the customer.
Our Testing of Our Online Marketplace Application Software
We have internally reviewed the Chemdex Marketplace application software. We
have performed industry-standard procedures to test our internally developed
applications for year 2000 compliance. Based on our testing, we believe that
our internally developed applications and systems are designed to be year 2000
compliant. In addition, we hired a consultant to perform additional testing,
including a year 2000 readiness audit of our internally developed online
application software. The consultant's audit report concluded that our online
application software is year 2000 compliant.
159
<PAGE>
Assessment of Third-Party Equipment and Software. We utilize third-party
equipment and software that may not be year 2000 compliant. Failure of third-
party equipment or software, or the interface of our applications with this
equipment or software, could result in a material adverse effect on our
business, results of operations and financial condition. We have finished
assessing the year 2000 risks of our third-party desktop systems that are
unrelated to the Chemdex Marketplace. We have contacted the vendors of most of
our third-party software and equipment to assess the year 2000 risks of our
third-party systems that are unrelated to the Chemdex Marketplace. We have
received year 2000 compliance letters from some of these vendors. We are also
in the process of contacting the few remaining vendors with whom we have not
yet spoken in order to assess their year 2000 compliance. Based on these
vendors' representations, we have put a plan in place to upgrade our third-
party systems in order to be year 2000 compliant. The failure of these vendors
to address year 2000 issues may require us to seek alternative vendors or, if
possible, to develop our own solutions. The time and resources required to find
alternative vendors and to transition our systems could increase our costs of
doing business, require us to allocate our own resources away from our core
business, and delay development of our own technology and operations.
Interaction of Our Marketplace with Supplier and Customer
Systems. Furthermore, the success of our efforts may depend on the success of
our suppliers, customers and strategic partners in dealing with their year 2000
issues. Many of these organizations' systems may not yet be year 2000 compliant
and the impact of failure of these systems on the Chemdex Marketplace is
difficult to determine. The availability of products from our suppliers and the
purchasing patterns of our customers or potential customers may be affected by
year 2000 issues.
In addition, until some of the billing and cash collection functions for the
sale of third-party products are transitioned to us, we are dependent upon
VWR's systems, which may not be year 2000 compliant, for receiving payment for
third-party products. If the systems of any of our suppliers or customers, and
particularly, if VWR's billing and cash collection systems, are not year 2000
compliant, our business, revenues, results of operations and financial
condition could be severely harmed.
According to its public filings, VWR is in the process of implementing
enhancements to its computer systems to satisfy its future requirements. During
1998, VWR purchased an enterprise-wide computer system package that is
replacing many of VWR's systems, including order entry, purchasing, and
financial systems. VWR completed the initial rollout of the new systems during
the fourth quarter of 1998. VWR had an external review conducted by an
independent information technology consulting firm to identify legacy computer
systems that could be affected by the year 2000 issue, when they would be
affected, and how the year 2000 issues may be remedied. The extent of year 2000
remediation performed by VWR was coordinated with the new systems
implementation timetable. VWR is still transitioning to its new system as of
September 30, 1999. VWR's new system, together with other planned system
changes, was intended to address its year 2000 issues.
Our Contingency Planning Effort
We are engaged in an ongoing year 2000 assessment and are gathering
information for the development of contingency plans. We are in the process of
contacting our strategic partners and major customers to gauge their year 2000
compliance and request year 2000 compliance information and letters. The nature
and extent of our contingency plans will depend on the responses received from
our critical suppliers, strategic partners and major customers. We have
identified our worst-case scenario resulting from a year 2000 failure. We have
a contingency plan in place that will be continually updated and implemented as
we get closer to year end.
Costs of Addressing Year 2000 Compliance
To date, our costs to address year 2000 compliance have been approximately
$700,000 and are included in operating expenses funded from working capital. We
anticipate the additional costs to address year 2000 compliance will be
approximately $300,000. We currently have not deferred other information
technology projects due to our year 2000 efforts. Any year 2000 compliance
problem experienced by us, our customers, suppliers or strategic partners could
decrease the demand for or availability of products.
160
<PAGE>
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments
and Hedging Activities, which we will be required to adopt for the year ending
December 31, 2000. This statement establishes a new model for accounting for
derivatives and hedging activities. FAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we currently hold no
derivative financial instruments and do not currently engage in hedging
activities, adoption of FAS 133 is expected to have no material impact on our
financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires entities to capitalize some of the costs related to internal-use
software once the applicable criteria have been met. We expect that the
adoption of SOP No. 98-1 will not have a material impact on our financial
position or results of operations. We will be required to implement SOP No. 98-
1 for the year ending December 31, 1999.
In April 1998, the AICPA issued SOP 98-5, Reporting for the Costs of Start-
Up Activities. SOP No. 98-5 requires that all start-up costs related to new
operations to be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
We expect that the adoption of SOP No. 98-5 will not have a material impact on
our financial position or results of operations. We will be required to
implement SOP No. 98-5 for the year ending December 31, 1999.
Quantitative and Qualitative Disclosures About Market Risk
Our sales from inception to date have been made to U.S. customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets. As our sales
are made in U.S. dollars, a strengthening of the U.S. dollar could make our
products less competitive in foreign markets. At September 30, 1999, our cash
and cash equivalents consisted primarily of money market funds and commercial
paper held by large institutions in the U.S.
Factors Affecting Future Results
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included herein.
Chemdex desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, Chemdex wishes
to alert readers that, except for the historical information contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the matters discussed herein are forward-looking statements that
are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include, but are not limited to, outcomes
in litigation proceedings, market demand for Chemdex's products, the timing of
orders and shipments, the timely development and market acceptance of new
products and surgical procedures, the impact of performance of Chemdex's
distributors and direct sales force, Chemdex's ability to further expand into
international markets, public policy relating to health care reform in the
United States and other countries, approval of its products by government
agencies such as the United States Food and Drug Administration, and other
risks detailed below and included from time to time in Chemdex's other SEC
reports and press releases, copies of which are available from Chemdex upon
request. Chemdex assumes no obligation to update any forward-looking statements
contained herein. The factors listed under "Factors Affecting Future Results,"
as well as other factors, have in the past affected, and could in the future
affect, Chemdex's actual results and could cause Chemdex's results for future
periods to differ materially from those expressed in any forward-looking
statements contained in the following discussion.
161
<PAGE>
CHEMDEX MANAGEMENT
Directors and Executive Officers
Set forth below is information regarding the directors and executive
officers of Chemdex as of December 15, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David P. Perry............. 31 President, Chief Executive Officer and Director
Pierre V. Samec............ 36 Chief Information Officer
Robin A. Abrams............ 48 Chief Operating Officer
James G. Stewart........... 46 Chief Financial Officer and Assistant Secretary
Michael Assad.............. Vice President, Human Resources and
40 Administration
George Dean................ Vice President, Engineering, New Vertical
47 Integration
Martha D. Greer............ 46 Vice President, Marketing
Derek McCall............... 41 Vice President, Special Projects
Patricia Murdock........... 36 Vice President, Customer Service and Support
Walter Nelson.............. 49 Vice President, Engineering
Robert W. Perreault........ 42 Vice President, Professional Services
James S. Wambach........... 46 Vice President, Worldwide Sales
David A. Weber............. 46 Vice President, Supplier Relations
Charles R. Burke(1)........ 57 Director
Brook H. Byers(1).......... 54 Chairman of the Board
Jonathan D. Callaghan(1)... 30 Director
Paul J. Nowak.............. 45 Director
John A. Pritzker........... 45 Director
Naomi O. Seligman.......... 66 Director
L. John Wilkerson(2)....... 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
David P. Perry co-founded Chemdex in September 1997 and has served as its
President, Chief Executive Officer and a director since September 1997. From
December 1995 to April 1997, he co-founded and served in various positions,
including Chief Executive Officer, of Virogen, Inc., a biotechnology company.
Mr. Perry has also held various positions at Exxon Corporation, including as a
Refinery Operations Supervisor from January 1994 to May 1995, a financial
analyst from March 1993 to January 1994, a project manager from September 1992
to March 1993 and an engineer from September 1990 to March 1992. Mr. Perry
holds an M.B.A. from Harvard University and a B.S. in chemical engineering from
the University of Tulsa.
Pierre V. Samec joined Chemdex as its Chief Information Officer in July
1998. He previously held various positions at Charles Schwab and Co., Inc., a
financial services company, including as its Senior Vice President, Retail
Technology from January 1998 to July 1998, its Vice President, Software
Engineering from July 1996 to
162
<PAGE>
February 1998 and its Vice President and Architect from January 1996 to June
1996. Mr. Samec also served as the Vice President, Software Engineering of
Quintus Corporation, a software company, from August 1993 to December 1995. Mr.
Samec holds an engineering degree from Ecole des Mines de Paris and a Ph.D.
from Stanford University.
Robin A. Abrams has served as the Chief Operating Officer of Chemdex since
June 1999. Prior to joining Chemdex, Ms. Abrams served as the President of Palm
Computing Inc. and the Senior Vice President of 3Com Corporation from February
1999 to June 1999. Ms. Abrams served as the President of VeriFone Inc., a
secured payment systems company and a subsidiary of Hewlett-Packard, from March
1998 to February 1999, and as the Vice President of the Americas of VeriFone
from February 1997 to March 1998. From June 1996 to February 1997, Ms. Abrams
was the Senior Vice President of Apple Computer, Inc. and the President of
Apple Americas, and from December 1994 to June 1996, Ms. Abrams served as the
Vice President and General Manager of Apple Asia. Ms. Abrams holds a B.S. and a
J.D. degree from the University of Nebraska.
James G. Stewart joined Chemdex as its Chief Financial Officer in February
1999. Previously, Mr. Stewart served as the Chief Financial Officer of CN
Biosciences, Inc., a chemical manufacturing and distribution company, from June
1995 to March 1999, and the President of CN Corporation, the principal
operating division of CN Biosciences, Inc., from March 1998 to March 1999. From
April 1994 to April 1995, Mr. Stewart served as the Chief Financial Officer of
Fightertown Entertainment, Inc., a virtual reality entertainment company. From
November 1988 to April 1994, Mr. Stewart held various positions at Verteq,
Inc., a semiconductor equipment company, including most recently as its Chief
Financial Officer. Mr. Stewart was formerly an Audit Partner of Arthur Young &
Co. and holds a B.S. from the University of Southern California.
Michael Assad has served as Vice President of Human Resources and
Administration of Chemdex since November 1999. Prior to joining Chemdex,
Michael Assad served as Director of Human Resources for NEC Computer Systems
Division, a division of NEC Corporation that sells computer products in the
corporate and niche consumer products, from January 1999 to November 1999. Mr.
Assad served as Director of Human Resources for the Worldwide Sales
organization at Apple Computers, a computer manufacturer, from 1993 through
1999. Prior to joining Apple, Mr. Assad was a partner at Bronson, Bronson and
McKinnon, a law firm, from 1985 to 1993 where he consulted with many industries
on business, employment law, compensation and benefits and human resource
issues. Mr. Assad holds a B.A. from Ohio State University and a J.D. degree
from New York University.
George Dean has served as Vice President of Engineering, New Vertical
Integration, since November 1999. Prior to joining Chemdex, George Dean served
as Vice President of Engineering at Intrinsa Corporation, a testing tool
vendor, from 1998 to November 1999. Prior to joining Intrinsa, Mr. Dean spent
13 years at Apple Computers, a computer manufacturer, in a variety of
positions, most recently as Senior Director of Internet Client Services
Development.
Martha D. Greer joined Chemdex as its Vice President, Marketing in January
1999. Previously, she served as the Vice President, Merchandise Management of
Onsale, Inc., an electronic commerce company, from December 1996 to November
1998. Ms. Greer was employed as an independent consultant from January to
December 1996. From 1992 to 1996, Ms. Greer served in various positions at PC
Connection, a computer direct marketing company, including as its Vice
President, Product Management from September 1994 to February 1996, as its Vice
President, Marketing from September 1993 to September 1994, as its Director,
Marketing from May 1993 to September 1993 and as its Director, Business
Development from November 1992 to May 1993. Ms. Greer holds a B.A. in
linguistics from Macalester College and a Ph.D. in experimental psychology from
Harvard University.
Derek McCall joined Chemdex as its Vice President, Special Projects in June
1999. Previously, he served as the President of Alfa Aesar, a research
chemicals company and wholly-owned subsidiary of Johnson Matthey PLC, from
January 1992 to May 1999. Previously, from April 1990 to December 1991, he
served as the Sales and Marketing Director of the Catalysts and Chemicals
Division of Johnson Matthey Inc., an advanced materials company. Mr. McCall
holds a B.Sc. Joint Honours degree in Zoology and Oceanography from the
University of Swansea, South Wales, and is a member of the Institute of
Marketing.
163
<PAGE>
Patricia Murdock has served as Vice President of Customer Service and
Support for Chemdex since October 1999. Prior to joining Chemdex, Patricia
Murdock served as Enterprise Support Account Manager for Netscape
Communications, a corporation, from 1996 through 1999. Prior to joining
Netscape, Ms Murdock held a variety of technical support management positions
at Silicon Graphics and Cisco Systems.
Walter Nelson has served as Vice President of Engineering of Chemdex since
November 1999. Prior to joining Chemdex, Walter Nelson was Senior Vice
President of Software Product Development at Fair, Isaac Corporation, a
developer of data management systems, from 1997 to 1999. His background also
includes software development management positions with General Magic, Resumix
and Sterling Software, where he designed and developed new products for
internet application development and desktop data integration. Mr. Nelson holds
a B.A. in Political Science from New York State University and a Ph.D. in
International Relations from Johns Hopkins University.
Robert W. Perreault joined Chemdex as its Vice President, Professional
Services in April 1999. From February 1998 to April 1999, he served as Vice
President of Worldwide Professional Services at Inprise Corporation, an
enterprise software and services company. From August 1995 to February 1998,
Mr. Perreault was Vice President of Professional Services and Vice President of
Engineering at Visigenic Software, Inc., which was acquired by Inprise in March
1998. Prior to 1990, Mr. Perreault held various senior management positions at
Compuware Corporation, Uniface Corporation and Hewlett-Packard Company, most
recently serving as Vice President of Client Server Technology. Mr. Perreault
holds a B.A. from Stanford and an M.B.A. from the University of Michigan.
James S. Wambach has served as the Vice President, Worldwide Sales of
Chemdex since September 1998. From January 1997 to June 1998, Mr. Wambach
served as the Senior Vice President of North American Sales Operations of Forte
Software, Inc., a software company. From January 1990 to December 1996, Mr.
Wambach served in various positions at Sybase, Inc., a software products and
services company, including most recently as its Vice President and General
Manager from October 1995 to December 1996. Mr. Wambach has also served in
various positions at Oracle Corporation, a database management and business
applications company. Mr. Wambach holds a B.S. degree in business
administration from Ohio State University.
David A. Weber joined Chemdex in February 1999 as its Vice President,
Supplier Relations. Previously, Mr. Weber served as the Vice President,
Marketing at Amersham Pharmacia Biotech, a scientific services and tools
company, from October 1997 to February 1999. He also served as the Vice
President, Direct Marketing from 1995 to 1997 and as Area Director from 1990 to
1995, of Pharmacia Biotech, a division of Pharmacia & Upjohn, Inc. He holds a
B.S. in biochemistry from Rutgers University.
Charles R. Burke has served as a director of Chemdex since January 1998. Mr.
Burke has served as the President of Monument Partners, Inc., a consulting
firm, since January 1998. From January 1994 to December 1997, he served as the
Chief Executive Officer of Research Biochemicals Incorporated, a research
reagent supply company. Mr. Burke is also a director of Endogen, Inc. Mr. Burke
holds an A.B. in Chemistry from Cornell University, a M.A. with honors in
Biology from Colgate University and a Ph.D. in Biochemistry from the University
of Illinois.
Brook H. Byers has served as a director of Chemdex since May 1998 and as
Chairman of the Board since March 1999. Mr. Byers is a general partner of
Kleiner Perkins Caufield & Byers, a venture capital firm which he joined in
1977. He was the founding president and chairman of four lifesciences
companies: Hybritech Inc., IDEC Pharmaceuticals Corporation, InSite Vision Inc.
and Ligand Pharmaceuticals Inc. Mr. Byers currently serves as a director of
drugstore.com and a number of privately-held technology companies. Mr. Byers
serves on the Board of Directors of the University of California, San Francisco
Foundation and the California Healthcare Institute. Mr. Byers holds a B.S. in
electrical engineering from Georgia Institute of Technology and an M.B.A. from
the Stanford Graduate School of Business.
Jonathan D. Callaghan has served as a director of Chemdex since September
1997. Mr. Callaghan has been a general partner of CMG@Ventures, a venture
capital firm, since September 1997. Previously, from June
164
<PAGE>
1991 to June 1995, Mr. Callaghan was an associate of Summit Partners, a venture
capital firm. He holds a B.A. from Dartmouth College and an M.B.A. with
Distinction from Harvard University.
Paul J. Nowak has served as a director of Chemdex since November 1999. Mr.
Nowak is the President and Chief Executive Officer of VWR Scientific Products.
He also serves as a Director of VWR. Paul Nowak is a 22 year veteran who
started as a sales representative for the company in Buffalo, New York and has
been a sales manager, marketing manager, General Manager for VWR's Science
Education and Canadian businesses as well as having run Customer Fulfillment
(customer service and warehouse functions). Most recently he was in charge of
sales and marketing for the company.
John A. Pritzker has served as a director of Chemdex since March 1998. Mr.
Pritzker served as a Divisional Vice President of Hyatt Hotels and Resorts from
1984 to 1988. In 1988, he founded Red Sail Merchandising/The Corporate Choice,
a sports, retail and entertainment company, and Mandara Spa LLC, a spa company.
Mr. Pritzker currently serves as President of Red Sail Sports, Mandara Spa LLC
and Hyatt Ventures, Inc., a venture capital firm. Mr. Pritzker served as
director of Ticketmaster Group, Inc. for five years. He holds an A.A. from
Menlo College.
Naomi O. Seligman has served as a director of Chemdex since June 1999. Ms.
Seligman is a co-founder and has served as a senior partner of the Research
Board, Inc., an information technology research group, since 1975. Ms. Seligman
currently serves as a director of The Dun and Bradstreet Corporation, a
financial services company. Ms. Seligman holds a B.A. in economics with high
honors from Vassar College and a MBA from the London School of Economics.
L. John Wilkerson has served as a director of Chemdex since March 1999. Dr.
Wilkerson is a co-founder and has been a general partner of Galen Associates, a
venture capital firm, since May 1990, and has been a consultant to The
Wilkerson Group, a health care products consulting firm, since May 1996.
Previously, Dr. Wilkerson served as a Vice President of Smith Barney. He is
currently a director of British Biotech Plc, Stericycle, Inc. and TheraTX,
Incorporated. Dr. Wilkerson holds a Ph.D. in economics from Cornell University
and a B.S. in plant science from Utah State University.
Board of Directors
Directors are elected annually at the annual meeting of Chemdex
stockholders, and serve for the term for which they are elected and until their
successors are duly elected and qualified. Chemdex's Bylaws currently provide
for a Board of Directors comprised of ten directors.
Board Committees
Chemdex's Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee of the Board of Directors consists of Mr.
Wilkerson and a vacancy. The Audit Committee reviews Chemdex's financial
statements and accounting practices and makes recommendations to the Board of
Directors regarding the selection of independent auditors. The Compensation
Committee of the Board of Directors consists of Messrs. Burke, Byers and
Callaghan. The Compensation Committee makes recommendations to the Board of
Directors concerning salaries and incentive compensation for Chemdex's officers
and employees and administers Chemdex's employee benefit plans. Mr. Byers is
Chairman of the Compensation Committee.
Director Compensation
None of the directors is paid any fee or other compensation for acting as a
director, although directors are reimbursed for reasonable expenses incurred in
attending Board or committee meetings. Officers of Chemdex are appointed by the
Board of Directors and serve at its discretion. Directors who are employees of
Chemdex are eligible to participate in Chemdex's 1998 Stock Plan and, as of the
offering, they will also be eligible to participate in Chemdex's 1999 Employee
Stock Purchase Plan. Mr. Burke was granted an option to purchase 7,500 shares
of common stock
165
<PAGE>
under the 1998 Stock Plan at an exercise price of $.10 per share in February
1998 and an additional option to purchase 17,500 shares of common stock under
the 1998 Stock Plan at an exercise price of $.15 per share in July 1998. These
options vest over a four-year period. Beginning in 1999, directors who are not
employees of Chemdex will be eligible to participate in Chemdex's 1999
Directors' Stock Plan. See "Stock Plans."
Chemdex has entered into indemnification agreements with each member of the
Board of Directors and certain of its officers providing for the
indemnification of these persons to the fullest extent authorized, permitted or
allowed by law.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee of the Board of Directors
is an officer or employee of Chemdex. No executive officer of Chemdex serves as
a member of the Board of Directors or compensation committee of any entity that
has one or more executive officers serving on Chemdex's Compensation Committee.
Executive Compensation
The following table sets forth information concerning compensation earned in
the fiscal year ended December 31, 1998 paid to Chemdex's Chief Executive
Officer and Chemdex's next most highly compensated executive officers who
earned more than $100,000 during the fiscal year ended December 31, 1998
("Named Officers"). All options granted by the Board of Directors prior to
February 16, 1999 allowed for early exercise. The number of securities
underlying options in the "Long-Term Compensation" column includes securities
issued upon the exercise of options subject to repurchase at cost by Chemdex.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ ------------
Other Number of
Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position(1) Year ($) ($) ($) Options (#) ($)
- ------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry(2)........ 1998 $ 98,375 $ 20,000 $-- -- $--
President, Chief
Executive Officer and
Director
Pierre V. Samec(3)....... 1998 83,333 150,000 -- 225,000 --
Chief Information
Officer
Scott Waterhouse(4)...... 1998 150,070 27,237 -- 132,890 --
Vice President, Supplier
Relations
</TABLE>
- --------
(1) Ms. Abrams, Chemdex's Chief Operating Officer, commenced employment with
Chemdex in June 1999. Ms. Abrams' salary on an annualized basis for 1999 is
$300,000, which does not include a signing bonus of $50,000 paid upon
commencement of employment with Chemdex or any quarterly cash bonuses of
$20,000 payable upon the achievement of performance goals. Mr. Stewart,
Chemdex's Chief Financial Officer, commenced employment with Chemdex in
February 1999. Mr. Stewart's salary on an annualized basis for 1999 is
$200,000, which does not include a bonus of $50,000 payable upon the
achievement of performance goals, housing expenses or an annual life
insurance premium of approximately $9,000 per year paid for by Chemdex on
behalf of Mr. Stewart. Ms. Greer, Chemdex's Vice President, Marketing,
commenced employment with Chemdex in January 1999. Ms. Greer's salary on an
annualized basis for 1999 is $200,000, which does not include a signing
bonus of $75,000 paid upon commencement of employment with Chemdex or a
bonus of $50,000 payable upon the achievement of performance goals.
(2) Mr. Perry founded Chemdex in September 1997. His salary on an annualized
basis is currently $180,000. His salary was increased from $55,000 to
$125,000 on May 11, 1998 to $180,000 on March 1, 1999. As of December 31,
1998, Mr. Perry held 1,725,854 shares of common stock valued at $2,588,781
based on a per share price of $1.50.
166
<PAGE>
(3) Mr. Samec commenced his employment with Chemdex in July 1998. His salary on
an annualized basis is $200,000. Mr. Samec earned a total bonus of $150,000
in 1998, $25,000 of which was paid in 1999.
(4) Mr. Waterhouse terminated his employment with Chemdex in January 1999.
Stock Options
The following table sets forth information concerning the grant of stock
options to the Named Officers during the fiscal year ended December 31, 1998.
The individual grants consist of options granted pursuant to Chemdex's 1998
Stock Plan. For the purposes of calculating the percent of total options
granted to employees during the last fiscal year, Chemdex granted options to
purchase 1,978,835 shares of common stock to employees and consultants. The
exercise price per share of each option was equal to the fair market value of
common stock on the date of grant as determined by the Board of Directors. In
determining the fair market value of the common stock on each grant date, the
Board of Directors considered, among other things, Chemdex's absolute and
relative levels of revenues and operating results, the state of Chemdex's
technology development, increases in operating expenses, the absence of a
public trading market for Chemdex's securities, the intensely competitive
nature of Chemdex's market and the appreciation of stock values of generally
comparable companies. The potential realizable value is based on the assumption
that the common stock of Chemdex appreciates at the annual rate shown,
compounded annually, from the date of grant until the expiration of the ten-
year term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect Chemdex"s projections or estimates
of future stock price growth. Potential realizable values are computed by:
. Multiplying the number of shares of common stock subject to a given
option by the exercise price;
. Assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. Subtracting from that result the total option exercise price.
Option Grants in Fiscal Year ended December 31, 1998
<TABLE>
<CAPTION>
Individual Grants(1) Potential Realizable
Number of --------------------------------- Value At Assumed
Securities % of Annual Rates of Stock
Underlying Total Options Price Appreciation
Options Granted to Exercise for Option Term
Granted Employees in Price Expiration ----------------------
Name (#) Fiscal Year ($/Sh) Date 5% 10%
- ---- ---------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- -- % $-- -- $ -- $ --
Pierre V. Samec(2)...... 225,000 11.37 .15 9/1/08 21,225 53,789
Scott Waterhouse........ 132,890 6.72 .10 1/21/08 8,357 21,179
</TABLE>
- --------
(1) Ms. Abrams was granted an option to purchase 250,000 shares of common stock
on June 25, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price
per share is $10.00; the expiration date of the option is June 24, 2009 and
the potential realizable values at assumed rates of stock appreciation for
the option term are $1,572,237 at 5% and $3,984,356 at 10%, Mr. Stewart was
granted an option to purchase 225,000 shares of common stock on February
16, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price per
share of the option is $1.50; the expiration date of the option is February
15, 2009 and the potential realizable values at assumed rates of stock
appreciation for the option term are $212,252 at 5% and $537,888 at 10%.
Ms. Greer was granted an option to purchase 225,000 shares of common stock
on January 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise
price per share of the option is $1.50; the expiration date of the option
is January 26, 2009 and the potential realizable values at assumed rates of
stock appreciation for the option term are $212,252 at 5% and $537,888 at
10%. Ms. Greer was granted an
167
<PAGE>
additional option to purchase 10,000 shares of common stock on April 27,
1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price per share of
the option is $5.00; the expiration date of the option is April 26, 2009
and the potential realizable values at assumed rates of stock appreciation
for the option term are $31,445 at 5% and $79,687 at 10%.
(2) Mr. Samec was granted an additional option to purchase 75,000 shares of
common stock on April 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The
exercise price per share of the option is $5.00; the expiration date of the
option is April 26, 2009 and the potential realizable values at assumed
rates of stock appreciation for the option term are $235,835 at 5% and
$597,653 at 10%.
Exercise of Options and Year-End Values
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended December 31, 1998 by the Named Officers
and the fiscal year-end value of unexercised options. Since there was no public
trading market for Chemdex's common stock as of December 31, 1998, the values
of unexercised options at December 31, 1998 are based on a fair market value of
common stock of $1.50 per share as determined by the Board of Directors on
January 27, 1999. Therefore, these values are calculated based on the $1.50 per
share value for value at fiscal year-end or the fair market value as determined
by the Board of Directors on the date of exercise for value realized, less the
applicable exercise price per share, multiplied by the number of shares
underlying these options. All options granted by the Board of Directors prior
to February 16, 1999 allowed for early exercise. The number of securities
underlying unexercised options in the "Unexercisable" column and the related
value of these securities at year end reflects this information as it relates
to options that although are exercisable, would if exercised result in the
ownership of common stock subject to repurchase at cost by Chemdex.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares December 31, 1998 (#) at December 31, 1998 ($)
Acquired on Value ------------------------- -------------------------
Name(1) Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- $-- -- -- $-- $--
Pierre V. Samec(2)...... 225,000 -- -- -- -- --
Scott Waterhouse(3)..... 132,890 -- -- -- -- --
</TABLE>
- --------
(1) Ms. Abrams has not exercised any of her options. Mr. Stewart has not
exercised any of his options. Ms. Greer exercised an option to purchase
225,000 shares of common stock in February 1999 at an exercise price per
share of $1.50.
(2) Does not include an option to purchase 75,000 shares of common stock
granted to Mr. Samec in April 1999 at an exercise price per share of $5.00.
(3) Mr. Waterhouse exercised an option to purchase 132,890 shares of common
stock in May 1998 at an exercise price per share of $.10.
Management of Chemdex Upon Consummation of the Mergers
When the Chemdex/Promedix and Chemdex/SpecialtyMD mergers are complete,
Chemdex will continue to be managed by its current directors and officers.
After the completion of the Chemdex/Promedix merger, William C. Klintsworth,
who is the Chief Executive Officer and a director of Promedix, will become the
Chief Executive Officer of Promedix, a subsidiary of Chemdex and a director of
Chemdex.
In addition, one outside director to be mutually agreed upon shall become a
member of Chemdex's Board of Directors.
After the completion of the Chemdex/SpecialtyMD merger, Ashfaq Munshi, who
is Chief Executive Officer of SpecialtyMD, will become the general manager of
the SpecialtyMD subsidiary and an officer of Chemdex. Specifically, Mr. Munshi
will become Vice President of Content Engineering for Chemdex.
168
<PAGE>
CHEMDEX RELATED PARTY TRANSACTIONS
Equity Transactions
In September 1997, Chemdex issued and sold 2,570,000 shares of common stock
to the founders of Chemdex, including 1,905,854 shares of common stock to Mr.
Perry, 25,700 shares of common stock to Mr. Callaghan, a director of Chemdex,
3,161 shares of common stock to Marc Kaschke and 635,285 shares of common stock
to Jeffrey Leane. In consideration for the receipt of assets contributed to
Chemdex, Mr. Callaghan paid $514.00 to Chemdex, Mr. Kaschke paid $63.22 to
Chemdex and Mr. Leane contributed $12,705.70 in the form of assets contributed
to Chemdex.
In September 1997, Chemdex issued and sold 800,800 shares of its Series A
preferred stock at a price of $.6994 per share, including:
. 357,000 shares to CMG@Ventures II, LLC (formerly CMG@Ventures, L.P.), an
entity with which Mr. Callaghan, a director of Chemdex, is affiliated;
. 357,500 shares to a partnership affiliated with Robert Swanson, a former
director of Chemdex; and
. two other private investors.
In December 1997 and March 1998, Chemdex issued and sold 1,994,850 shares of
its Series A preferred stock at a price of $.6994 per share, including:
. 1,115,400 shares to The Bay City Capital Fund I, L.P., an entity with
which Mr. Pritzker, a director of Chemdex, is affiliated;
. 14,300 shares to Mr. Burke, a director of Chemdex;
. 715,000 shares to CMG@Ventures; and
. other private investors.
All of the Series A preferred stock converted into 2,795,650 shares of
common stock upon consummation of Chemdex's initial public offering in July
1999.
In October 1997, Chemdex loaned $10,000 to Mr. Perry pursuant to a
promissory note bearing interest at a rate of 8% per annum which matured on
October 15, 1999. This note has been forgiven by the Board of Directors of
Chemdex.
In May 1998, Chemdex issued and sold 8,649,992 shares of its Series B
preferred stock at a price of $1.50 per share, including:
. 2,666,666 shares to entities affiliated with Kleiner Perkins Caufield &
Byers, an entity with which Mr. Byers, a director of Chemdex, is
affiliated;
. 2,666,666 shares to Warburg, Pincus Ventures L.P., an entity with which
Mr. Lewis, a director of Chemdex, is affiliated;
. 1,236,526 shares to CMG@Ventures II, LLC, an entity with which Mr.
Callaghan, a director of Chemdex, is affiliated;
.1,285,987 shares to The Bay City Capital Fund I, L.P., an entity with
which Mr. Pritzker is affiliated;
. 16,487 shares to Mr. Burke;
. 266,666 shares to a partnership affiliated with Mr. Swanson, a former
director of Chemdex; and
.other private investors.
169
<PAGE>
All of the Series B preferred stock converted into 8,649,992 shares of
common stock upon consummation of Chemdex"s initial public offering in July
1999.
In March 1999 and April 1999, Chemdex issued and sold 5,299,951 shares of
its Series C preferred stock at a price of $5.716 per share, including:
. 1,749,474 shares to entities affiliated with Galen Associates, an entity
with which Dr. Wilkerson, a director of Chemdex, is affiliated;
. 393,631 shares to entities affiliated with Kleiner Perkins Caufield &
Byers, an entity with which Mr. Byers, a director of Chemdex, is
affiliated;
. 393,631 shares to Warburg, Pincus Ventures L.P., an entity with which Mr.
Lewis, a former director of Chemdex, is affiliated;
. 393,631 shares to CMG@Ventures II, LLC, an entity with which Mr.
Callaghan, a director of Chemdex, is affiliated;
. 393,631 shares to The Bay City Capital Fund I, L.P., an entity with which
Mr. Pritzker, a director of Chemdex, is affiliated;
. 6,997 shares to Mr. Burke; and
. other private investors.
In addition, in March 1999, Chemdex issued warrants to purchase a total of
49,999 shares of common stock at an exercise price of $5.20 per share to
entities affiliated with Galen Associates, an entity with which Dr. Wilkerson,
a director of Chemdex, is affiliated.
All of the Series C preferred stock converted into 5,299,951 shares of
common stock upon consummation of Chemdex's initial public offering in July
1999.
In March 1999, Chemdex entered into a strategic relationship agreement with
VWR Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. The agreement gives us the right to offer
approximately 350,000 VWR core products to our customers through the Chemdex
Marketplace. VWR and Chemdex are jointly developing a hosted, co-branded
Internet purchasing solution for VWR's existing and future customers that will
provide access to VWR core products, Chemdex core products and products that
are not distributed by either VWR or Chemdex, but are purchased from third
parties. In connection with the strategic relationship agreement, VWR
transferred to Chemdex information concerning VWR customers who purchased
products from third party suppliers outside VWR's primary product offering and
in exchange Chemdex issued 2,538,405 shares of common stock valued at $13.9
million to VWR. VWR also entered into a standstill agreement limiting its
ownership in Chemdex to 10% of Chemdex's outstanding securities, including
outstanding options and warrants. This percentage can be exceeded if any one
company from a specified list of companies acquires more than 10% of Chemdex's
outstanding securities, including outstanding options and warrants. Mr. Nowak,
a director of Chemdex, is President and Chief Executive Officer of VWR.
CMG@Ventures and its affiliates beneficially own 2,728,357 shares of Chemdex
common stock, representing approximately 8.3% of the outstanding Chemdex common
stock, and 3,996,800 shares of Promedix preferred stock, representing
approximately 42.3% of the outstanding Promedix capital stock. Following
consummation of the merger, CMG@Ventures and its affiliates will beneficially
own approximately 18.9% of the outstanding Chemdex common stock. Jonathan D.
Callaghan is a general partner of CMG@Ventures and is a member of both the
Chemdex board of directors and Promedix board of directors.
Other Transactions
In January 1998, Chemdex entered into an Electronic Commerce Agreement with
Genentech, Inc., a company of which Mr. Swanson, a former director of Chemdex,
was a founder and the former Chief Executive Officer and Chairman.
170
<PAGE>
In May 1998, Chemdex entered into a Stock Restriction Agreement with Mr.
Perry, pursuant to which shares held by Mr. Perry are subject to a repurchase
option in favor of Chemdex in accordance with the terms therein.
In January 1999, Chemdex entered into a Separation Agreement with Scott
Waterhouse, pursuant to which Mr. Waterhouse received severance benefits upon
the termination of his employment with Chemdex.
Some of the officers of Chemdex, including Ms. Abrams, Ms. Greer, Mr. Samec,
Mr. Wambach and Mr. Weber, will receive six months of accelerated vesting of
stock then held in the event of their termination without cause. In addition,
in the event of a termination with or without cause, Ms. Greer will receive the
greater of six months of then-current salary or $100,000, Ms. Abrams and Mr.
Samec will receive six months of then-current salary, Mr. Stewart and Mr. Weber
will receive the greater of six months of then-current salary or an amount
equal to salary for 15 months less the time they have been employed by Chemdex
and Mr. Wambach will receive the greater of six months of then-current salary
or $87,500. If Mr. Stewart is terminated without cause or resigns due to
pressing family concerns during the first six months of his employment, he will
receive an additional six months of vesting for his stock, and if after the
first six months, but during the first twelve months of employment, his stock
will vest in an amount equal to what he would have vested had he been employed
for the full twelve months. If Mr. Stewart is terminated without cause or
resigns due to pressing family concerns after the first twelve months but
during the first 24 months of his employment, his stock will vest in an amount
equal to what he would have vested had he been employed for the full 24 months.
In addition, Chemdex has entered into Change of Control Agreements with Ms.
Abrams, Ms. Greer, Mr. Perreault, Mr. Perry, Mr. Samec, Mr. Stewart, Mr.
Wambach, Mr. Weber and other employees of Chemdex, where the shares held by
these employees shall become fully vested if (a) Chemdex is merged into another
entity or sold and (b) this employee is terminated by the surviving entity
without cause or within twelve months of the closing of the transaction.
Chemdex has also entered into a Change of Control Agreement with Mr. Burke,
under which any options subject to vesting or shares subject to a right of
repurchase of Chemdex then held by Mr. Burke will become fully vested upon the
closing of a merger in which more than 50% of the total voting power of Chemdex
is transferred or a sale of all or substantially all of Chemdex's assets in a
complete liquidation or dissolution of Chemdex.
Since inception, Chemdex from time to time has issued and sold shares of its
common stock and granted options to purchase common stock to its employees,
directors and consultants.
The following executive officers have executed full-recourse promissory
notes in the amounts set forth after their names in connection with their
purchases of shares of Chemdex's common stock:
<TABLE>
<CAPTION>
Principal
Name Amount Rate Date
---- --------- ---- --------
<S> <C> <C> <C>
Martha D. Greer.................................... $337,455 4.71% 02/26/99
Pierre V. Samec.................................... 33,705 5.12 10/21/98
James S. Wambach................................... 33,705 4.64 01/22/99
David A. Weber..................................... 299,970 4.71 02/26/99
</TABLE>
These notes become due the earlier of five years after the date of issuance
or nine months after the date of this offering. They bear interest at the
lowest rate allowed under federal tax law to avoid the imputation of interest,
compounded annually.
Except for the forgiveness of $10,000 promissory note held by Mr. Perry, the
related transactions were on terms that are no more favorable than those that
would have been agreed upon by third parties on an arm's length basis.
171
<PAGE>
PRINCIPAL STOCKHOLDERS OF CHEMDEX
The following table provides information regarding the beneficial ownership
of Chemdex's common stock as of November 30, 1999 by:
. each person who is known by Chemdex to own beneficially 5% or more of
Chemdex's common stock;
. each of Chemdex's directors; and
. Chemdex's chief executive officer and each of the other four most highly
compensated executive officers.
The following tables set forth as of November 30, 1999, certain information
with respect to the beneficial ownership of the common stock of Chemdex. The
number and percentage of Chemdex shares beneficially owned prior to the merger
are based on shares of common stock outstanding as of November 30, 1999. The
number and percentage of Chemdex shares beneficially owned after the merger are
based on shares of common stock outstanding.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Number of Owned
Shares ---------------
Beneficially Before After
Name of Beneficial Owner Owned Mergers Mergers
- ------------------------ ------------ ------- -------
<S> <C> <C> <C>
Entities affiliated with Kleiner Perkins Caufield
& Byers(/1/).................................... 3,060,297 9.3% 6.9%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Warburg, Pincus
Ventures(/2/)................................... 3,060,297 9.3 6.9
466 Lexington Avenue
New York, New York 10017-3147
The Bay City Capital Fund I, L.P.(/3/)........... 2,795,018 8.5 6.3
750 Battery Street
San Francisco, CA 94104
Entities affiliated with CMG@Ventures(/4/)....... 2,728,357 8.3 6.1
3000 Alpine Road
Menlo Park, CA 94028
VWR Scientific Products Corporation.............. 2,550,906 7.7 5.8
1310 Goshen Parkway
West Chester, PA 19380
Entities affiliated with Galen Associates(/5/)... 1,799,473 5.5 4.0
610 Fifth Avenue, 5th Floor
Rockefeller Center
New York, NY 10020
David P. Perry................................... 1,725,854 5.3 3.8
Pierre V. Samec(/6/)............................. 225,000 * *
Scott P. Waterhouse.............................. 68,119 * *
Charles R. Burke(/7/)............................ 75,284 * *
Brook H. Byers(/8/).............................. 3,072,797 9.3 6.5
John A. Pritzker(/9/)............................ 2,764,386 8.4 5.9
Jonathan D. Callaghan(/10/)...................... 2,740,857 8.3 5.8
Paul Nowak(/11/)................................. 2,550,905 7.8 5.5
L. John Wilkerson(/12/).......................... 1,811,973 5.5 3.9
Naomi Seligman(/13/)............................. 17,500 * *
Robert Swanson(/14/)............................. 711,666 2.2 1.6
All executive officers and directors as a group
(21 persons).................................... 16,453,347 49.8% 27.2%
</TABLE>
- --------
* Less than 1%
(1)Includes:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.
172
<PAGE>
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P. and
. 159,135 shares held by KPCB VIII Founders Fund, L.P.
The general partner of Kleiner Perkins Caufield & Byers VIII, L.P. and
KPCB VIII Founders Fund is KPCB VIII Associates. The general partner of
KPCB Life Sciences Zaibatsu Fund II, L.P. is KPCB VII Associates. Brook H.
Byers, a director of Chemdex, is a general partner of the Kleiner Perkins
Caufield & Byers funds. Mr. Byers disclaims beneficial ownership of the
shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB Life
Sciences Zaibatsu Fund II, L.P. and KPCB VIII Founders Fund, L.P., except
to the extent of his pecuniary interest therein arising from his general
partnership interest in these funds.
(2) Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus
Ventures, L.P., which is managed by E.M. Warburg, Pincus & Co., LLC.
Lionel I. Pincus is the managing partner of Warburg, Pincus & Co. and the
managing member of E. M. Warburg, Pincus & Co., LLC, and may be deemed to
control both entities.
(3) Certain trusts for the benefit of the lineal descendants of Nicholas J.
Pritzker, deceased (including Mr. Pritzker) are indirect investors in The
Bay City Capital Fund I, L.P. Mr. Pritzker disclaims any beneficial
ownership in the shares held by The Bay City Capital Fund I, L.P., except
for 6,867 shares. Of the shares reported, certain individuals (including
Mr. Pritzker) have beneficial ownership of 60,397 shares.
(4) Includes:
. 2,702,657 shares held by CMG@Ventures II, LLC and
. 25,700 shares held by Johnathan D. Callaghan, a general partner of
CMG@Ventures and a director of Chemdex.
Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(5) Includes:
. 1,598,260 shares and a warrant to purchase 45,678 shares of common stock
exercisable within 60 days of November 30, 1999 held by Galen Partners
III, L.P.
. 144,670 shares and a warrant to purchase 4,134 shares of common stock
exercisable within 60 days of November 30, 1999 held by Galen Partners
International III, L.P. and
. 6,544 shares and a warrant to purchase 187 shares of common stock
exercisable within 60 days of November 30, 1999 held by Galen Employee
Fund III, L.P.
Dr. Wilkerson, a co-founder of Galen Associates and a director of Chemdex,
disclaims beneficial ownership of the shares held by Galen Partners III,
L.P., Galen Partners International III, L.P., and Galen Employee Fund III,
L.P., except to the extent of his pecuniary interest therein arising from
his general partnership interest in these funds.
(6) All shares held by Mr. Samec are subject to repurchase by Chemdex within
60 days of November 30, 1999 in the event of a termination of his
employment with Chemdex.
(7) Includes:
. 17,656 shares held by Mr. Burke subject to repurchase by Chemdex within
60 days of November 30, 1999 and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of November 30, 1999.
(8) Includes:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P.
. 159,135 shares held by KPCB VIII Founders Fund, L.P. and
. 12,500 shares held directly by Mr. Byers.
Mr. Byers, a Senior Partner of Kleiner Perkins Caufield & Byers, disclaims
beneficial ownership of the shares held by Kleiner Perkins Caufield &
Byers VIII, L.P., KPCB Life Sciences Zaibatsu Fund II, L.P. and KPCB VIII
Founders Fund, L.P., except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
173
<PAGE>
(9) Includes 2,795,018 shares held by The Bay City Capital Fund I, L.P.
Certain trusts for the benefit of the lineal descendants of Nicholas J.
Pritzker, deceased (including Mr. Pritzker) are indirect investors in The
Bay City Capital Fund I, L.P. Mr. Pritzker disclaims any beneficial
ownership in the shares held by The Bay City Capital Fund I, L.P., except
for 6,867 shares held directly by Mr. Pritzker. Also includes 12,500
shares issuable under stock options that are currently exercisable or
exercisable within 60 days of November 30, 1999.
(10) Includes:
. 2,702,657 shares held by CMG@Ventures II, LLC and
. 38,200 shares held by Mr. Callaghan, a General Partner of CMG@Ventures
and a director of Chemdex.
Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC, except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(11) Includes:
. 2,538,405 shares held by VWR Scientific Products Corporation, a company
of which Mr. Nowak is the President and Chief Executive Officer and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of November 30, 1999.
Mr. Nowak disclaims beneficial ownership of the shares held by VWR
Scientific Products Corporation, except to the extent of his pecuniary
interest therein.
(12) Includes:
. 1,799,473 shares held by entities affiliated with Galen Associates, an
entity with which Dr. Wilkerson is affiliated and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of November 30, 1999.
Dr. Wilkerson disclaims beneficial ownership of the shares held by
entities affiliated with Galen Associates, except to the extent of his
pecuniary interest therein arising from his general partnership interest
in these funds.
(13) Includes 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of November 30, 1999.
(14) Includes 27,344 shares held by Mr. Swanson as trustee of an irrevocable
trust and subject to repurchase by Chemdex within 60 days of November 30,
1999 in the event of termination of his relationship with Chemdex. Also
includes 624,166 shares held by a partnership affiliated with Mr. Swanson
and 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of November 30, 1999.
174
<PAGE>
DESCRIPTION OF CHEMDEX CAPITAL STOCK
As of the date of this document, the authorized capital stock of Chemdex
consists of 175,000,000 shares of common stock, $.0002 par value, and 2,500,000
shares of undesignated preferred stock, $.0002 par value. The following
description of Chemdex's capital stock is only a summary and may be more
completely understood by reading Chemdex's Certificate of Incorporation and
Bylaws and the provisions of applicable Delaware law.
Common Stock
As of November 30, 1999, there were 32,783,152 shares of Chemdex common
stock outstanding that were held of record by approximately 8,000 stockholders.
Based on the number of fully diluted shares of Promedix and SpecialtyMD capital
stock outstanding as of November 30, 1999, there will be approximately
44,054,993 shares of common stock outstanding after giving effect to the
exchange of Promedix capital stock and Specialty MD capital stock for Chemdex
common stock.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefore at
times and in amounts as the Board of Directors may determine. Each stockholder
is entitled to one vote for each share of common stock held on all matters
submitted to a vote of the stockholders. Cumulative voting is not provided for
in Chemdex's amended and restated certificate of incorporation, which means
that the majority of the shares voted can elect all of the directors then
standing for election. The common stock is not entitled to preemptive rights
and is not subject to conversion or redemption. Upon the occurrence of a
liquidation, dissolution or winding-up, the holders of shares of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights of any outstanding
preferred stock. There are no sinking fund provisions applicable to the common
stock. The outstanding shares of common stock are, and the shares of common
stock to be issued upon completion of this offering will be, fully paid and
non-assessable.
Preferred Stock
The Board of Directors has the authority, within the limitations and
restrictions in the amended and restated certificate of incorporation, to issue
2,500,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of any series, without further vote
or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of Chemdex
without further action by the stockholders. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including voting rights, of the holders of common
stock. In some circumstances, this issuance could have the effect of decreasing
the market price of the common stock. Chemdex currently has no plans to issue
any shares of preferred stock.
Options
As of November 30, 1999, options to purchase a total of 2,506,002 shares of
Chemdex common stock were outstanding, and up to 1,408,228 additional shares of
common stock may be subject to options granted in the future under the 1998
Stock Plan.
Warrants
As of November 30, 1999, Chemdex had the following outstanding warrants:
warrants to purchase a total of 49,999 shares of common stock at an exercise
price of $5.20 that are held by entities affiliated with Galen Associates; and
a warrant to purchase 105,000 shares of common stock at an exercise price of
$1.50 that is held by Comdisco, Inc. and a warrant to purchase 25,000 shares of
common stock by ALZA Corporation at an exercise price of $15.00. All of the
warrants contain standard anti-dilution provisions.
175
<PAGE>
COMPARISON OF RIGHTS OF CHEMDEX STOCKHOLDERS AND PROMEDIX STOCKHOLDERS
The following is a summary comparison of the material differences between
the rights of a Promedix stockholder and a Chemdex stockholder arising from the
differences between the governing instruments of the two companies. The summary
is not a complete description of those laws or governing instruments. Copies of
Chemdex's Promedix's Amended and Restated Certificate of Incorporation and
Bylaws have been filed with the SEC and will be sent to holders of Promedix
common stock upon request. See "Where You Can Find More Information" on page
190.
General
Both Chemdex and Promedix are incorporated in the state of Delaware. If the
merger is consummated, holders of Promedix common stock and preferred stock
will become holders of Chemdex common stock and the rights of the former
Promedix stockholders will be governed by Chemdex's certificate of
incorporation and bylaws. The rights of Chemdex stockholders under Chemdex's
certificate of incorporation and bylaws differ in limited respects from the
rights of the Promedix stockholders under Promedix's certificate of
incorporation and bylaws. These differences are summarized below.
The Rights of Promedix Preferred Stockholders
If the merger is consummated, holders of Promedix preferred stock will
become holders of Chemdex common stock. Under Promedix's certificate of
incorporation, the holders of Promedix preferred stock have the right to
receive a liquidation preference, the right to participate with the common
stock in receiving liquidating distributions and the right to convert to common
stock. The holders of Promedix Series A preferred stock are entitled to receive
a liquidation preference of $0.751 per share prior to distributions to any
other stockholder. The holders of Promedix series B-1 and Series B-2 preferred
stock are entitled to receive a liquidation preference of $1.50 per share.
Holders of the Promedix preferred stock will not receive their liquidation
preference in the merger and will instead participate with the common stock in
receiving distributions on an as converted basis. Holders of Chemdex common
stock have no preference rights and are treated equally in terms of liquidation
rights.
Blank Check Preferred
The Chemdex certificate of incorporation permits the Chemdex board of
directors to determine the rights, preferences, privileges and restrictions of
authorized but unissued preferred stock, commonly referred to as "blank check"
preferred stock. The issuance of preferred stock with extraordinary rights may
be used to deter hostile takeover attempts. The Chemdex board could issue the
Chemdex preferred stock at any time in the future without stockholder approval.
The Promedix certificate of incorporation does not permit the Promedix board of
directors to issue "blank check" preferred stock and requires the approval of
the holders of Promedix preferred stock in order to issue any stock with
preferences or priorities superior to or on parity with the currently
outstanding Promedix preferred stock.
Capitalization
Chemdex. Chemdex is authorized to issue 175,000,000 shares of common stock
and 2,500,000 shares of preferred stock. On November 30, 1999, approximately
32,783,152 shares of Chemdex common stock were outstanding and no shares of
Chemdex preferred stock were outstanding. Chemdex's board has the authority,
without stockholder approval, to issue shares of authorized preferred stock
from time to time in one or more series and to fix the rights and preferences,
including voting rights, of each series of preferred stock, which rights and
preferences may be superior to that of Chemdex's common stock.
176
<PAGE>
Promedix. Promedix is authorized to issue 15,500,000 shares of common stock,
4,500,000 shares of Series A preferred stock, 333,334 shares of Series B-1
preferred stock, and 346,020 shares of Series B-2 preferred stock. On the
record date, 3,546,520 shares of common stock, 4,030,089 of the authorized
shares of Series A preferred stock and none of the shares of Series B-1
preferred stock, or Series B-2 preferred stock, were outstanding. In the event
of a merger or acquisition of Promedix, the holders of Series A preferred
stock, Series B-1 preferred stock and Series B-2 preferred stock have the right
to have their shares of Promedix preferred stock redeemed by Promedix.
Voting Rights
Each holder of Chemdex common stock is entitled to one vote for each share
and may not cumulate votes for the election of directors. Holders of Promedix
common stock are entitled to one vote for each share. Moreover, holders of
Promedix Series A preferred stock, Series B-1 preferred stock and Series B-2
preferred stock are entitled to vote together as a single class with respect to
some of the matters specifically set forth in Promedix's charter, including
mergers.
Promedix is a Delaware corporation, and the rights of Promedix's
stockholders are governed by Promedix's Amended and Restated Certificate of
Incorporation and Bylaws and by Delaware law. Upon the consummation of the
merger, stockholders of Promedix will become stockholders of Chemdex and their
rights will be governed by Chemdex's Amended and Restated Certificate of
Incorporation and Bylaws and by Delaware law.
Future Stockholder Proposals
Promedix does not currently expect to hold a 2000 Annual Meeting of
Stockholders because upon consummation of the merger Promedix will become a
wholly-owned subsidiary of Chemdex.
177
<PAGE>
COMPARISON OF RIGHTS OF CHEMDEX STOCKHOLDERS AND SPECIALTYMD STOCKHOLDERS
The following is a summary comparison of the material differences between
the rights of a SpecialtyMD stockholder and a Chemdex stockholder arising from
the differences between the governing instruments of the two companies. The
summary is not a complete description of those laws or governing instruments.
Copies of Chemdex's amended and restated certificate of incorporation and
bylaws have been filed with the SEC and will be sent to holders of SpecialtyMD
common stock upon request. See "Where You Can Find More Information" on page
189.
General
Both Chemdex and SpecialtyMD are incorporated in the state of Delaware. If
the merger is consummated, holders of SpecialtyMD common stock and preferred
stock will become holders of Chemdex common stock and the rights of the former
SpecialtyMD stockholders will be governed by Chemdex's certificate of
incorporation and bylaws. The rights of Chemdex stockholders under Chemdex's
certificate of incorporation and bylaws differ in limited respects from the
rights of the SpecialtyMD stockholders under SpecialtyMD's certificate of
incorporation and bylaws. These differences are summarized below.
The Rights of SpecialtyMD Preferred Stockholders
If the merger is consummated, holders of SpecialtyMD preferred stock will
become holders of Chemdex common stock. Under SpecialtyMD's certificate of
incorporation, the holders of SpecialtyMD preferred stock have the right to
receive a liquidation preference, the right to participate with the common
stock in receiving liquidating distributions and the right to convert to common
stock. The holders of SpecialtyMD Series A preferred stock are entitled to
receive a liquidation preference of $0.50 per share and the holders of Series B
preferred stock are entitled to receive a liquidation preference of $1.09 per
share prior to distributions to any other stockholder. Holders of the
SpecialtyMD preferred stock will not receive their liquidation preference in
the merger and will instead participate with the common stock in receiving
distributions on an as converted basis. Holders of Chemdex common stock have no
preference rights and are treated equally in terms of liquidation rights.
Blank Check Preferred
The Chemdex certificate of incorporation permits the Chemdex board of
directors to determine the rights, preferences, privileges and restrictions of
authorized but unissued preferred stock, commonly referred to as "blank check"
preferred stock. The issuance of preferred stock with extraordinary rights may
be used to deter hostile takeover attempts. The Chemdex board could issue the
Chemdex preferred stock at any time in the future without stockholder approval.
The SpecialtyMD certificate of incorporation does not permit the SpecialtyMD
board of directors to issue "blank check" preferred stock and requires the
approval of the holders of SpecialtyMD preferred stock in order to issue any
stock with preferences or priorities superior to or on parity with the
currently outstanding SpecialtyMD preferred stock.
Capitalization
Chemdex. Chemdex is authorized to issue 175,000,000 shares of common stock
and 2,500,000 shares of preferred stock. On November 30, 1999, approximately
44,054,583 shares of Chemdex common stock were outstanding and no shares of
Chemdex preferred stock were outstanding. Chemdex's board has the authority,
without stockholder approval, to issue shares of authorized preferred stock
from time to time in one or more series and to fix the rights and preferences,
including voting rights, of each series of preferred stock, which rights and
preferences may be superior to that of Chemdex's common stock.
178
<PAGE>
SpecialtyMD. SpecialtyMD is authorized to issue 22,500,000 shares of common
stock, 3,050,000 shares of Series A preferred stock and 5,000,000 shares of
Series B preferred stock. On the record date, 5,032,420 shares of common stock,
all of the authorized shares of Series A preferred stock and 2,522,333 shares
of Series B preferred stock, were outstanding.
Voting Rights
Each holder of Chemdex common stock is entitled to one vote for each share
and may not cumulate votes for the election of directors. However, holders of
SpecialtyMD common stock are entitled to one vote for each share and may
cumulate votes for the election of directors. Moreover, holders of SpecialtyMD
Series A preferred stock and Series B preferred stock are entitled to vote
together as a single class with respect to some of the matters specifically set
forth in SpecialtyMD's charter, including mergers.
SpecialtyMD is a Delaware corporation, and the rights of SpecialtyMD's
stockholders are governed by SpecialtyMD's Amended and Restated Certificate of
Incorporation and Bylaws and by Delaware law. Upon the consummation of the
merger, stockholders of SpecialtyMD will become stockholders of Chemdex and
their rights will be governed by Chemdex's Amended and Restated Certificate of
Incorporation and Bylaws and by Delaware law.
Future Stockholder Proposals
SpecialtyMD does not currently expect to hold a 2000 Annual Meeting of
Stockholders because upon consummation of the merger SpecialtyMD will become an
indirect wholly-owned subsidiary of Chemdex.
179
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited Chemdex's financial
statements as of December 31, 1997 and 1998, and for the period from September
4, 1997 (inception) through December 31, 1997 and for the year ended
December 31, 1998, as set forth in their report. Chemdex's financial statements
are included in this joint proxy statement/prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Promedix's financial
statements as of December 31, 1998 and for the period then ended, as set forth
in their report. Promedix's financial statements are included in this joint
proxy statement/prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Jones, Jensen & Company, independent auditors, have audited Pro Med Co.'s
financial statements as of December 31, 1997 and 1998 and for the years then
ended, as set forth in their report. Pro Med Co.'s financial statements are
included in this joint proxy statement/prospectus and elsewhere in the
registration statement in reliance on Jones, Jensen & Company's report, given
on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited SpecialtyMD's
financial statements as of December 31, 1998 and the period then ended, as set
forth in their report. SpecialtyMD's financial statements are included in this
joint proxy statement/prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 2, 1998, Ernst & Young LLP was engaged as Chemdex's
independent auditors and replaced other auditors who were dismissed as its
independent accountants on the same date. The decision to change auditors was
approved by Chemdex's Board of Directors on September 2, 1998. Prior to
September 2, 1998, Chemdex's former auditors issued a report on the period from
September 4, 1997 (inception) to December 31, 1997. The report of Chemdex's
former auditors did not contain an adverse opinion or disclaimer of opinion
qualified or modified as to any uncertainty, audit scope or accounting
principle. In connection with the audit for the period from September 4, 1997
(inception) through December 31, 1997 and through September 2, 1998, there were
no disagreements with Chemdex's former auditors on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of our
former auditors, would have caused them to make reference thereto in their
report on the financial statements for such period. Chemdex's former auditors
have not audited or reported on any of the financial statements or information
included in this prospectus. Prior to September 2, 1998, Chemdex had not
consulted with Ernst & Young LLP on items that involved Chemdex's accounting
principles or the form of audit opinion to be issued on our financial
statements.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Chemdex
common stock offered hereby and certain tax matters with respect to the merger
will be passed upon for Chemdex by Venture Law Group, A Professional
Corporation, Menlo Park, California. Jeffrey Y. Suto, a director of Venture Law
Group, is the Secretary of Chemdex. Certain other legal matters in connection
with the Chemdex/Promedix merger will be passed upon for Chemdex by Morrison &
Foerster, Washington, D.C. Certain matters with respect to the Chemdex/Promedix
merger will be passed upon for Promedix by Orrick, Herrington & Sutcliffe LLP,
Menlo Park, California. Certain matters with respect to the Chemdex/SpecialtyMD
merger will be passed upon for SpecialtyMD by Wilson Sonsini Goodrich & Rosati,
Palo Alto, California. Employees of Venture Law Group and an investment
partnership affiliated with Venture Law Group own a total of 76,285 shares of
Chemdex common stock, including 16,792 shares held by Mr. Suto.
180
<PAGE>
OTHER MATTERS
The Chemdex board, the Promedix board and the SpecialtyMD board do not
intend to bring any matters before the meetings other than those specifically
set forth in the notices of meetings and none knows of any matters to be
brought before the respective meetings by others. If any other matters properly
come before the meetings, it is the intention of the persons named in the
accompanying proxies to vote such proxies in accordance with the judgment of
the Chemdex board, the Promedix board or the SpecialtyMD board, as applicable.
181
<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF
ONLY CHEMDEX STOCKHOLDERS
Chemdex Proposal No. 3
Approval of Amendment to the 1999 Employee Stock Purchase Plan
Holders of Chemdex common stock are also being asked to approve an amendment
to the 1999 Employee Stock Purchase Plan to provide for an increase in the
number of shares reserved for issuance thereunder by 300,000 shares of Common
Stock to an aggregate of 1,050,000, plus a previously approved automatic annual
increase on the first day of each of Chemdex's fiscal years in 2000, 2001,
2002, 2003 and 2004 equal to the lesser of 200,000 shares, .5% of the
outstanding Common Stock on the last day of the immediately preceding fiscal
year, or a lesser number determined by the board of directors. The new shares
being added to the plan will only be available for offering periods that
commence after the date of shareholder approval of the amendment. As of
November 30, 1999, 750,000 shares were available for future issuance under the
plan. The proposed amendment to the plan was approved by the board of directors
in November 1999, subject to stockholder approval at the special meeting.
Chemdex implemented the plan in 1999 as an incentive to its employees and
executives as a means to promote increased stockholder value. The purpose of
the plan is to provide employees of Chemdex with an opportunity to purchase
common stock of Chemdex through accumulated payroll deductions. Management
believes that stock ownership is one of the prime methods of attracting and
retaining key personnel responsible for the continued development and growth of
Chemdex's business.
The following is a summary of the principal provisions of the amended plan,
but it is not intended to be a complete description of all of the terms and
provisions of the plan. A copy of the plan will be furnished to any shareholder
upon written request to Chemdex's Chief Financial Officer at Chemdex's
principal executive offices in Mountain View, California.
Description of the 1999 Employee Stock Purchase Plan
The plan was adopted by the board of directors in May 1999 and approved by
the stockholders in July 1999. A total of 750,000 shares of common stock was
initially reserved for issuance under the plan, plus an automatic annual
increase on the first day of each of Chemdex's fiscal years in 2000, 2001,
2002, 2003 and 2004 equal to the lesser of 200,000 shares or .5% of Chemdex's
outstanding common stock on the last day of the immediately preceding fiscal
year. No shares have been issued under the 1999 Employee Stock Purchase Plan as
of the date of this meeting.
The plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, is implemented by a series of offering periods of twenty-four
months duration. Each offering period commences on or about February 16 and
August 16 of each year. Each offering period generally consists of four
consecutive purchase periods of six months duration, with the last day of each
period being designated a purchase date. The first purchase date under the plan
will occur on February 15, 2000, with subsequent purchase dates to occur every
six months thereafter. The plan is administered by the board of directors.
Chemdex employees, including officers and employee directors, are eligible to
participate in the plan if they are employed by Chemdex (or a designated
subsidiary) for at least 20 hours per week and more than five months per year.
The plan permits eligible employees to purchase common stock through payroll
deductions, which may not exceed 20% nor equal less than 1% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
Chemdex's common stock at the beginning of the offering period or the purchase
date. If the fair market value of the common stock on a purchase date is less
than the fair market value at the beginning of the offering period, a new
twenty-four month offering period will automatically begin on the first
business day following the purchase date with a new fair market value.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with Chemdex. If not terminated earlier, the plan will have a term
of 20 years.
182
<PAGE>
The plan provides that in the event of the proposed dissolution or
liquidation of Chemdex, each offering period will terminate immediately prior
to the consummation of such proposed action, unless otherwise provided by the
board of directors. In the event of a merger of Chemdex with or into another
corporation or a sale of all or substantially all of Chemdex's assets, each
right to purchase stock under the plan will be assumed or an equivalent right
substituted by the successor corporation unless the board of directors shortens
each offering period and plan period then in progress so that employees' rights
to purchase stock under the plan are exercised prior to the merger or sale of
assets. The board of directors has the power to amend or terminate the plan as
long as such action does not adversely affect any outstanding rights to
purchase stock thereunder, provided that the board of directors can terminate
the plan or any offering period under the plan in the event that prevailing
accounting rules change in such a way that would have an adverse effect on
Chemdex if it did not terminate the plan or offering period. Stockholder
approval will be obtained for any plan amendment as required by applicable law.
Certain United States Federal Income Tax Information
The following is a general summary as of the date of this proxy statement of
the United States federal income tax consequences associated with participation
in the plan. The federal tax laws may change and the federal, state and local
tax consequences for any participant will depend upon his or her individual
circumstances. All participants are advised to seek the advice of a tax advisor
regarding the tax consequences of participation in the plan.
The plan is intended to qualify as an "employee stock purchase plan" within
the meaning of section 423 of the Internal Revenue Code. Under these
provisions, no income will be taxable to a participant at the time of grant of
the option or purchase of shares. A participant may become liable for tax upon
disposition of the shares acquired, as summarized below.
If the shares are sold or disposed of (including by way of gift) more than
two years after the first day of the offering period during which shares were
purchased and more than one year after a purchase date. In this event, the
lesser of (a) the excess of the fair market value of the shares at the time of
such disposition over the purchase price of the shares subject to the option or
(b) 15% of the fair market value of the shares on the first day of the offering
period, will be treated as ordinary income to the participant. Any further gain
upon such disposition will be treated as long-term capital gain, taxable at a
maximum tax rate of 20%. If the shares are sold and the sale price is less than
the purchase price, no ordinary income is recognized and the participant has a
capital loss for the difference.
If the shares are sold or disposed of (including by way of gift) before the
expiration of either of the holding periods described above. In this event,
referred to as a disqualifying disposition, the excess of the fair market value
of the shares on the purchase date over the option price will be treated as
ordinary income to the participant. This excess will constitute ordinary income
in the year of sale or other disposition even if no gain is realized on the
sale or a gift of the shares is made. The balance of any gain will be treated
as capital gain and will be treated as long-term capital gain if the shares
have been held more than one year. Even if the amount realized upon disposition
of the shares is less than their fair market value on the purchase date, the
same amount of ordinary income is attributed to a participant and a capital
loss is recognized equal to the difference between the sales price and the
value of the shares on such purchase date.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining capital gain or loss on a sale or exchange of the
shares.
Tax Treatment of Chemdex. The Company will be entitled to a deduction for
federal income tax purposes to the extent that a participant recognizes
ordinary income on a disqualifying disposition of the shares, but not if a
participant meets the holding period requirements.
Recommendation of the Chemdex Board of Directors:
THE CHEMDEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1999 EMPLOYEE STOCK PURCHASE PLAN.
183
<PAGE>
Chemdex Proposal No. 4
Approval of Amendment to the 1998 Stock Plan
Holders of Chemdex common stock are also being asked to approve an amendment
to the Chemdex 1998 Stock Plan to increase the number of shares of common stock
reserved for issuance under the plan by 4,250,000 shares to an aggregate of
10,375,000, plus a previously approved automatic annual increase on the first
day of each of Chemdex's fiscal years in 2000, 2001, 2002, 2003 and 2004 equal
to the lesser of 1,250,000 shares or 3% of the shares outstanding on the last
day of the immediately preceding fiscal year. The board of directors adopted
the amendment in October 1999, subject to stockholder approval at the
meeting.
Chemdex believes that long-term equity compensation in the form of stock
options and stock purchase rights is critical in order to attract qualified
employees to Chemdex and to retain and provide incentives to current employees,
particularly in light of the increasingly competitive environment for talented
personnel. As of November 30, 1999, options to purchase 2,506,002 shares were
outstanding under the plan, 2,210,770 shares had been issued pursuant to the
exercise of options or stock purchase rights granted under the plan and
1,408,228 shares remained available for future grants. The board of directors
believes that the number of shares currently available under the plan is likely
to be insufficient in light of potential continued growth in Chemdex's
operations, including potential increases in the number of employees if and to
the extent Chemdex completes acquisitions of other companies or businesses. For
this reason, the board of directors has determined that it is in the best
interests of Chemdex to increase the number of shares available for issuance
under the plan by shares.
The following is a summary of the principal features of the plan, but it is
not intended to be a detailed description of all of the terms and provisions of
the plan. A copy of the plan will be furnished to any shareholder upon written
request to Chemdex's Chief Financial Officer at Chemdex's principal executive
offices in Mountain View, California.
Description of the 1998 Stock Option Plan
The plan was originally adopted by the board of directors in January 1998
and approved by the stockholders in March 1998. A total of 1,000,000 shares of
common stock was initially reserved for issuance under the plan. In April and
May 1999, the board of directors and the stockholders approved amendments to
the plan, that among other things, increased the number of shares reserved for
issuance under the plan by 2,750,000 shares, plus an automatic annual increase
on the first day of each of Chemdex's fiscal years in 2000, 2001, 2002, 2003
and 2004 equal to the lesser of 1,250,000 shares, 3% of the shares outstanding
on the last day of the immediately preceding fiscal year or a lesser number
determined by the board of directors.
The plan is not a tax-qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
As of November 30, 1999, Chemdex's current executive officers received
grants under the plan of options or stock purchase rights to purchase 1,972,500
shares of common stock of Chemdex (12 persons); 25,000 option or stock purchase
right grants were made to Chemdex's current directors who are not executive
officers (1 person); and all other current and former Chemdex employees,
including current officers who are not executive officers, received grants of
options or stock purchase rights to purchase 3,216,667 shares of common stock
(272 persons).
The plan is administered by the board of directors or by a committee of the
board of directors. The plan is currently being administered by the
compensation committee of the board of directors. The compensation committee
has the exclusive authority to grant stock options and otherwise administer the
plan with respect to the officers and directors.
184
<PAGE>
The plan provides that either incentive stock options or nonstatutory stock
options may be granted to employees (including officers and directors) of
Chemdex or any of its subsidiaries. In addition, the plan provides that
nonstatutory stock options may be granted to consultants (including directors
who are not employees of Chemdex) or any of its subsidiaries. The board of
directors may also issue stock purchase rights under the plan to employees,
directors and consultants.
The board of directors or the compensation committee selects the optionees
and determines the number of shares to be subject to each option or stock
purchase right. In making such determination, a number of factors are taken
into account, including the duties and responsibilities of the optionee, the
value of the optionee's services to Chemdex, the optionee's present and
potential contribution to the success of the Company, and other relevant
factors. As of November 30, 1999, there were approximately 195 employees,
officers, consultants and directors eligible to receive grants under the plan.
The plan provides that the maximum number of shares of common stock which
may be granted under options and stock purchase rights to any one employee
during any fiscal year is 10,000,000, subject to adjustment as provided in the
plan. There is also a limit on the aggregate market value of shares subject to
all incentive stock options that may be granted to an optionee during any
calendar year.
Each stock award is evidenced by an agreement between Chemdex and the
optionee which contains terms and conditions not inconsistent with the plan as
determined by the board of directors or its committee.
In the event any change, such as a stock split or dividend, is made in
Chemdex's capitalization that results in an increase or decrease in the number
of outstanding shares of common stock without receipt of consideration by
Chemdex, appropriate adjustment shall be made in the exercise price of each
outstanding option and stock purchase right, the number of shares subject to
each option, the annual limitation on grants to employees, as well as the
number of shares available for issuance under the plan. In the event of the
proposed dissolution or liquidation of Chemdex, each option or stock purchase
right will terminate unless otherwise provided by the board of directors or its
committee. In the event of a merger of Chemdex with or into another corporation
or a sale of all or substantially all of Chemdex's assets, each option or stock
purchase right will be assumed or an equivalent right substituted by the
successor corporation unless the successor corporation refuses to do an
assumption or substitution, in which case each option and stock purchase right
shall terminate upon completion of the transaction. The board of directors has
the power to amend or terminate the plan as long as such action does not
adversely affect any outstanding options or stock purchase rights. Stockholder
approval of plan amendments will be obtained as required by applicable law.
Certain United States Federal Income Tax Information
Options granted under the plan may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code, or nonstatutory stock
options.
The recipient of an incentive stock option does not incur ordinary taxable
income at the time of grant or exercise of the option. However, the optionee
may incur alternative minimum tax upon exercise of the option. Chemdex is not
entitled to a tax deduction at the time of exercise of an incentive stock
option regardless of the applicability of the alternative minimum tax. Upon the
sale or exchange of the shares at least one year after exercise of the option
by the optionee and two years after grant of the incentive stock option, any
gain is treated as long-term capital gain. If these holding periods are not
satisfied, the optionee recognizes ordinary taxable income equal to the
difference between the exercise price, and the lower of the fair market value
of the stock at the date of the option exercise or the sale price of the stock.
Any gain to the optionee in excess of the ordinary income from a disposition
which does not meet the statutory holding period requirements, is long-term
capital gain if the sale occurs more than one year after exercise or short-term
capital gain if the sale occurs less than one year after the exercise. The
current federal tax rate on long-term capital gain is capped at 20%.
Options which do not qualify as incentive stock options are nonstatutory
stock options. An optionee does not recognize taxable income at the time of
grant of a nonstatutory stock option. However, upon exercise, the
185
<PAGE>
optionee does recognize ordinary taxable income equal to the excess of the fair
market value of the shares at time of exercise over the exercise price. The
income recognized by an optionee who is also an employee of Chemdex is subject
to income tax withholding. Chemdex is entitled to a tax deduction for the
amount of the ordinary income recognized by the optionee. Upon resale of such
shares by the optionee, any difference between the sale price and the
optionee's tax basis (exercise price plus the income recognized upon exercise)
is treated as capital gain or loss.
Stock purchase rights are generally taxed in the same manner as nonstatutory
stock options. A purchaser will generally recognize ordinary taxable income
equal to the excess of the fair market value of the shares at time of purchase
over the purchase price. In the event that the shares are subject to repurchase
by Chemdex at the purchaser's original purchase price (vesting), the timing of
recognition of the taxable income is deferred until the date of vesting, unless
the purchaser elects to accelerate the income recognition to the purchase date.
The income recognized by an optionee who is also an employee of Chemdex is
subject to income tax withholding. Chemdex is entitled to a tax deduction for
the amount of the ordinary income recognized by the purchaser. Upon resale of
such shares by the optionee, any difference between the sale price and the
purchaser's tax basis (exercise price plus the income recognized upon purchase
or vesting, as applicable) is treated as capital gain or loss.
Recommendation of the Chemdex Board of Directors:
THE CHEMDEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1998 STOCK OPTION PLAN AS DESCRIBED ABOVE.
186
<PAGE>
ADDITIONAL MATTER BEING
SUBMITTED TO A VOTE OF ONLY
SPECIALTYMD STOCKHOLDERS
SpecialtyMD Stockholder Proposal No. 2
Approval of Parachute Payments
To avoid a risk of adverse tax consequences, as discussed below, the outside
members of the SpecialtyMD board of directors have agreed that their rights to
receive and retain the benefits of the full acceleration of their restricted
stock and Ashfaq Munshi and Joseph Meresman have agreed that their rights to
receive and retain certain actual and potential benefits of their employment
agreements, be determined by a vote of the disinterested holders of outstanding
SpecialtyMD stock.
Parachute Payments.
Under the "Golden Parachute" rules of Section 280G of the Internal Revenue
Code of 1986, a corporation cannot deduct, and Section 4999 of the Code imposes
a 20% non-deductible excise tax on, certain compensatory payments made by a
corporation that are contingent upon a change in the control of the
corporation. For this purpose, the value of the acceleration of the vesting of
otherwise unvested stock or unvested options is treated as a payment of such
compensation. In addition, if the IRS were to successfully assert that the
right to receive contingent payments constitutes a right to compensation, such
payments could be considered to be payments contingent upon a change in control
of SpecialtyMD. The Golden Parachute rules are applicable if two conditions,
among others, are satisfied. First, the compensatory payments must be made to a
person, known as a disqualified individual, to whom these rules apply.
Disqualified individuals include an employee or independent contractor who is
an officer of the company, who is a stockholder that owns stock or that holds
options exercisable for stock having a value equal to the lesser of $1,000,000
or one percent of the value of the stock of the company or who is highly
compensated. Second, the amount of the payment must generally exceed three
times the person's average annual compensation for the period consisting of the
most recent five taxable years ending prior to the date of the change in
control. The merger will result in a change in control of SpecialtyMD under the
Golden Parachute rules.
A non-publicly traded company such as SpecialtyMD can avoid the Golden
Parachute rules if appropriate approval for payments are made by a vote of
stockholders who own, immediately before the change in control, more than 75%
of voting power of the capital stock and who receive full and truthful
disclosure of the material facts and such additional information as is
necessary to make the disclosure not materially misleading at the time the
disclosure was made. In order to avoid the effect of the Golden Parachute rules
under this stockholder approval rule, a stockholder vote must determine the
right of the particular person to retain the payment. Accordingly, at the
special meeting, SpecialtyMD stockholders will be asked to approve this
proposal. Approval of this proposal will require the affirmative vote of the
holders of more than 75% of the shares of capital stock outstanding immediately
prior to the Chemdex/SpecialtyMD merger, disregarding shares owned, actually or
constructively, by the disqualified individuals who may be deemed to receive
payments subject to the Golden Parachute rules.
In connection with the Chemdex/SpecialtyMD merger, all directors who hold
SpecialtyMD restricted common stock are being requested to waive their right to
receive acceleration of vesting of restricted common stock unless the required
vote is obtained. Chemdex is delivering employment offer letters to two
SpecialtyMD officers which are presumed to be contingent upon the change in
control and potentially subject to the Golden Parachute rules. SpecialtyMD does
not believe that there will be other payments or deemed payments subject to the
Golden Parachute rules.
187
<PAGE>
Payments to Outside Directors.
Each of SpecialtyMD's outside directors hold shares of common stock that are
subject to vesting restrictions that will be removed if the SpecialtyMD/Chemdex
merger occurs. As a result, they would be entitled to receive the aggregate
merger consideration relating to all such shares. The IRS could take the
position that the acceleration of vesting of the above restricted stock
agreements constitute Golden Parachute payments. The following table sets forth
the number of currently restricted shares that would be subject to
acceleration:
<TABLE>
<CAPTION>
Number of
Original Restricted Shares Total Value of
Disqualified Shares Being Accelerated
Individual Grant Date Granted(1) Accelerated(1)(2) Shares(3)
------------ -------------- ---------- ----------------- --------------
<S> <C> <C> <C> <C>
Mir Imran July 1999 6,108 3,733 $414,363
Stan Meresman May 1998 61,080 23,753 $2,636,583
Audrey MacLean September 1998 10,180 6,575 $729,825
May 1999 10,180 6,575 $729,825
</TABLE>
- --------
/1/Number of shares is expressed in terms of Chemdex common stock as of
December 31, 1999 at an assumed exchange ratio of 0.1018 shares of Chemdex
common stock for every share of SpecialtyMD stock.
/2/Calculated assuming that the closing date of the merger will be February 28,
2000. The effective date of the acceleration will be the closing date of the
merger.
/3/Based on an estimated price of $111.00 per share of Chemdex common stock.
The actual total value of the accelerated shares will be equal to the amount
in the "Number of Restricted Shares Being Accelerated" column multiplied by
the closing price of the Chemdex common stock on the closing date of the
merger.
Payments to Ashfaq Munshi and Joseph Meresman.
In connection with the Chemdex/SpecialtyMD merger, both Ashfaq Munshi,
SpecialtyMD's CEO and President, and Joseph Meresman, SpecialtyMD's Vice
President of Business Development, are entering into employment agreements that
provide for certain benefits and potential benefits. In the event of a
termination of employment by Chemdex without cause or as a result of a
constructive termination during the first year following the closing of the
merger, their Chemdex stock will immediately vest in full. In addition, in the
event of such termination, they will be paid $180,000, an amount equal to their
annual salary. In addition, in connection with the merger, Mr. Munshi will
obtain acceleration of a portion of his currently restricted shares. Each of
these benefits and potential benefits could constitute Golden Parachute
payments and must be approved by the SpecialtyMD stockholders to avoid
potential adverse tax consequences. The following table sets forth the full
potential benefit of accelerated stock vesting to each in this merger:
<TABLE>
<CAPTION>
Number of
Original Restricted Shares Total Value of
Disqualified Shares Being Accelerated
Individual Grant Date Granted Accelerated(1)(2) Shares(3)
------------ ------------------ -------- ----------------- --------------
<S> <C> <C> <C> <C>
Joseph
Meresman May 1998 155,809 53,445(4) $ 5,932,395
Ashfaq
Munshi May 1998/Sept 1999 242,284(5) 102,832(6) $11,414,352
</TABLE>
/1/Number of shares is expressed in terms of Chemdex common stock as of
December 31, 1999 at an assumed exchange ratio of 0.1018 shares of Chemdex
common stock for every share of SpecialtyMD stock.
/2/Calculated assuming that the closing date of the merger will be February 28,
2000. The effective date of the acceleration will be the closing date of the
merger.
/3/Based on an estimated price of $111.00 per share of Chemdex common stock.
The actual total value of the accelerated shares will be equal to the amount
in the "Number of Restricted Shares Being Accelerated" column multiplied by
the closing price of the Chemdex common stock on the closing date of the
merger.
/4/Number of shares subject to a restriction prior to the merger is 32,576
shares (320,000 shares prior to the exchange). However, pursuant to the
employment agreement being entered into between Mr. Meresman and Chemdex, Mr.
Meresman is subjecting 53,445 shares (525,000 shares prior to the exchange)
to such restrictions.
188
<PAGE>
/5/Includes Mr. Munshi's initial issuance in May 1998 of 223,960 shares
(2,200,000 shares prior to the exchange) and his grant in September 1999 of
18,324 shares (180,000 shares prior to the exchange).
/6/Includes 84,833 shares (833,333 shares prior to the exchange) subject to
restriction pursuant to the employment agreement being entered into between
Mr. Munshi and Chemdex, and 17,999 (176,806 shares prior to the exchange)
that will accelerate at the time of the closing of the merger.
Conclusion.
A vote for the proposed resolution means that a stockholder is voting to
approve the payments described above and the exemption of those payments from
the potential application of the adverse tax consequences described above under
Sections 280G and 4999 of the Code. If the requisite greater than 75% vote is
not obtained, the payments described herein will not be made.
If the required vote is not obtained, but the merger is consummated the
disqualified individuals will not receive the right to acceleration and
contingent payments to the extent the receipt of such payments would constitute
paymer subject to the Golden Parachute rules.
If the required vote is obtained and the merger is consummated, each of the
SpecialtyMD board members will receive the aggregate merger consideration
relating to shares of company common stock free of vesting restrictions and the
terms of Ashfaq Munshi and Joseph Meresman's employment agreements with Chemdex
will be effective.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"FOR" APPROVAL OF THE ACCELERATION OF VESTING AND APPROVAL OF CERTAIN ACTUAL
AND POTENTIAL BENEFITS FROM THE EMPLOYMENT AGREEMENTS BETWEEN CHEMDEX AND,
RESPECTIVELY, ASHFAQ MUNSHI AND JOSEPH MERESMAN.
189
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Chemdex files reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of these reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
450 Fifth Street, N.W. 500 West Madison Street 13th Floor
Room 1024 Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the Securities and Exchange
Commission website is http://www.sec.gov.
Chemdex has filed a registration statement under the Securities Act with the
Securities and Exchange Commission with respect to Chemdex's common stock to be
issued to Promedix stockholders and SpecialtyMD stockholders in the mergers.
This proxy statement and prospectus constitutes the prospectus of Chemdex filed
as part of the registration statement. This proxy statement and prospectus does
not contain all of the information set forth in the registration statement
because certain parts of the registration statement are omitted as provided by
the rules and regulations of the Securities and Exchange Commission. You may
inspect and copy the registration statement at any of the addresses listed
above.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT
AND PROSPECTUS TO VOTE ON THE APPROVAL OF THE MERGER AGREEMENTS. CHEMDEX,
PROMEDIX AND SPECIALTYMD HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT
AND PROSPECTUS. NEITHER THE DELIVERY OF THIS PROXY STATEMENT AND PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED IN THIS DOCUMENT BY
REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT AND
PROSPECTUS. THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO CHEMDEX
AND ITS SUBSIDIARY WAS PROVIDED BY CHEMDEX. THE INFORMATION CONTAINED IN THIS
DOCUMENT WITH RESPECT TO PROMEDIX WAS PROVIDED BY PROMEDIX. THE INFORMATION
CONTAINED IN THIS DOCUMENT WITH RESPECT TO SPECIALTYMD WAS PROVIDED BY
SPECIALTYMD.
190
<PAGE>
CHEMDEX CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Introductory Note to Financial Statements.................................. F-2
Chemdex Condensed Unaudited Interim Financial Statements
Condensed Unaudited Balance Sheets....................................... F-3
Condensed Unaudited Interim Statements of Operations..................... F-4
Condensed Unaudited Interim Statements of Cash Flows..................... F-5
Notes to Condensed Unaudited Interim Financial Statements................ F-6
Chemdex Financial Statements
Report of Ernst & Young LLP, Independent Auditors........................ F-13
Balance Sheets........................................................... F-14
Statements of Operations................................................. F-15
Statements of Stockholders' Equity....................................... F-16
Statements of Cash Flows................................................. F-17
Notes to Financial Statements............................................ F-18
Promedix Financial Statements
Report of Ernst & Young LLP, Independent Auditors........................ F-31
Balance Sheets........................................................... F-32
Statements of Operations................................................. F-33
Statements of Stockholders' Equity (Deficit)............................. F-34
Statements of Cash Flows................................................. F-35
Notes to Financial Statements............................................ F-36
Pro Med Co. Financial Statements
Report of Jones, Jensen & Company, Independent Auditors.................. F-46
Balance Sheets........................................................... F-47
Statements of Operations................................................. F-48
Statements of Stockholders' Equity....................................... F-49
Statements of Cash Flows................................................. F-50
Notes to the Financial Statements........................................ F-51
SpecialtyMD Financial Statements
Report of Ernst & Young LLP, Independent Auditors........................ F-58
Balance Sheets........................................................... F-59
Statements of Operations................................................. F-60
Statements of Cash Flows................................................. F-61
Statements of Stockholders' Equity....................................... F-62
Notes to Financial Statements............................................ F-63
</TABLE>
F-1
<PAGE>
INTRODUCTORY NOTE TO FINANCIAL STATEMENTS
Pages F-3 through F-28 include the Chemdex Corporation's condensed unaudited
interim ended financial statements from Chemdex's Quarterly Report on Form 10-Q
as of and for the quarterly period September 30, 1999 and Chemdex's financial
statements from Form S-1 that became effective on July 26, 1999.
F-2
<PAGE>
CHEMDEX CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998(1)
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $125,562,779 $ 5,990,188
Accounts receivable, net of allowances of $664,000
at September 30, 1999, and $2,000 at December 31,
1998 ............................................ 3,629,144 32,259
Other current assets.............................. 3,713,512 286,991
------------ -----------
Total current assets............................ 132,905,435 6,309,438
Property and equipment, net......................... 7,212,190 1,558,245
Intangible and other assets......................... 14,677,676 300,472
------------ -----------
Total assets.................................... $154,795,301 $ 8,168,155
============ ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable.................................. $ 4,426,404 $ 543,141
Accrued compensation.............................. 2,475,442 511,578
Other accrued liabilities......................... 7,711,635 759,654
Current obligations under capital lease............. -- 5,425
Current portion of notes payable.................... 379,059 --
------------ -----------
Total current liabilities....................... 14,992,540 1,819,798
Notes payable, less current portion................. 590,234 --
Stockholders' equity:
Convertible preferred stock....................... -- 2,289
Common stock...................................... 6,565 784
Additional paid-in capital........................ 189,384,576 18,378,907
Deferred compensation............................. (6,926,489) (2,992,099)
Notes receivable from stockholders................ (1,047,047) (149,717)
Accumulated deficit............................... (42,205,078) (8,891,807)
------------ -----------
Total stockholders' equity...................... 139,212,527 6,348,357
------------ -----------
Total liabilities and stockholders' equity........ $154,795,301 $ 8,168,155
============ ===========
</TABLE>
- --------
(1) Derived from audited financial statements
See accompanying notes to the Condensed Financial Statements
F-3
<PAGE>
CHEMDEX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues............. $ 8,490,175 $ -- $ 11,561,238 $ 3,500
Cost of revenues......... 8,085,761 -- 10,994,266 --
------------ ----------- ------------ -----------
Gross profit......... 404,414 -- 566,972 3,500
Operating expenses:
Research and
development........... 5,642,968 1,025,426 11,397,939 1,804,793
Sales and marketing.... 6,903,236 710,127 15,315,708 1,226,075
General and
administrative........ 2,571,806 489,107 7,198,047 1,101,093
Amortization of
deferred
compensation.......... 546,507 103,841 1,445,305 169,859
------------ ----------- ------------ -----------
Total operating
expenses............ 15,664,517 2,328,501 35,356,999 4,301,820
------------ ----------- ------------ -----------
Operating loss........... (15,260,103) (2,328,501) (34,790,027) (4,298,320)
Interest expense......... (60,361) -- (107,995) (1,247)
Interest income and
other, net.............. 1,320,902 135,834 1,584,751 209,110
------------ ----------- ------------ -----------
Net loss................. $(13,999,562) $(2,192,667) $(33,313,271) $(4,090,457)
============ =========== ============ ===========
Basic and diluted net
loss per share.......... $ (.59) $ (1.21) $ (3.33) $ (2.37)
============ =========== ============ ===========
Weighted average shares
of common stock used in
computing basic and
diluted net loss per
share................... 23,639,711 1,816,701 10,007,174 1,723,549
</TABLE>
See accompanying notes to the Condensed Financial Statements
F-4
<PAGE>
CHEMDEX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Operating Activities
Net loss........................................... $(33,313,271) $(4,090,457)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 1,149,337 150,861
Amortization of deferred compensation............ 1,445,305 169,859
Amortization of intangible asset................. 1,812,965 --
Interest expense related to warrants............. 79,785 --
Issuance of common stock for services............ 262,641 --
Loss on sale of equipment........................ -- 10,559
Issuance of warrants for rent expense............ 375,000 --
Changes in operating assets and liabilities:
Accounts receivable.............................. (3,596,885) (27,150)
Other current assets............................. (3,528,315) (222,812)
Other assets..................................... 84,349 (158,108)
Accounts payable................................. 3,883,263 (112,594)
Accrued compensation............................. 1,963,864 177,385
Other accrued liabilities........................ 6,949,989 36,727
------------ -----------
Net cash used in operating activities.............. (22,431,973) (4,065,730)
------------ -----------
Investing Activities
Purchases of property and equipment................ (5,671,421) (1,055,442)
Purchases of short-term investments................ -- (6,593,495)
Proceeds from sale of equipment.................... -- 36,991
------------ -----------
Net cash used in investing activities.............. (5,671,421) (7,611,946)
------------ -----------
Financing Activities
Principal payments on capital lease obligations.... (5,425) (5,704)
Principal payments on notes payable................ (162,568) --
Net proceeds from issuance of preferred stock...... 30,197,844 12,975,424
Net proceeds from issuance of common stock......... 117,639,451 10,258
Repurchase of common stock......................... (3,170) --
Repurchase of fractional shares.................... (870) --
Payments of stockholders' notes receivable......... 10,723 (12)
------------ -----------
Net cash provided by financing activities.......... 147,675,985 12,979,966
------------ -----------
Net increase in cash and cash equivalents.......... 119,572,591 1,302,290
Cash and cash equivalents at beginning of period... 5,990,188 1,346,478
------------ -----------
Cash and cash equivalents at end of period......... $125,562,779 $ 2,648,768
============ ===========
Supplemental disclosure of noncash activities:
Issuance of shares in exchange for stockholders'
notes receivable.................................. $ 956,964 $ 91,568
Repurchase of common stock issued in exchange for
stockholders' notes receivable.................... $ (30,765) $ --
Equipment purchased under notes payable............ $ 1,131,861 $ --
Issuance of common stock for intangible asset...... $ 13,910,459 $ --
Issuance of shares for services provided........... $ 1,781,250 $ --
Issuance of warrants for services.................. $ 526,427 $ --
Conversion of preferred to common shares........... $ 3,349 $ --
Payments on notes receivable....................... $ 18,146 $ --
</TABLE>
See accompanying notes to the Condensed Financial Statements
F-5
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1. Description of Business
Chemdex Corporation is a provider of e-commerce solutions to the life
sciences research products market. Chemdex enables life sciences enterprises,
researchers, and suppliers to efficiently buy and sell research products
through the Chemdex Marketplace, a secure, Internet-based purchasing solution.
Chemdex was incorporated in Delaware on September 4, 1997. During the period
from inception through November 1998, Chemdex was a development stage company
and did not have significant sales. During this period, operating activities
related primarily to the design and development of the Chemdex online
Marketplace, building corporate infrastructure and the establishment of
relationships with suppliers and customers. In November 1998, the Company
released its on-line marketplace to certain customers and recently, the Company
has entered into an agreement with VWR under which Chemdex recognizes revenue
related to certain sales from their joint web site. These sales, combined with
increased sales from the Chemdex online marketplace have led to a significant
increase in sales for the three and nine months ended September 30, 1999.
Chemdex has incurred operating losses to date and had an accumulated deficit of
approximately $42.2 million at September 30, 1999. Prior to the Company's
initial public offering in July 1999, Chemdex's activities had been primarily
financed through sales of equity securities.
On July 27, 1999, the Company completed an initial public offering in which
it sold 7,500,000 shares of Common Stock at $15.00 per share. On August 17,
1999, the underwriters' exercised their over-allotment option for and
additional 1,125,000 shares. The Company received $117.6 million in net
proceeds, net of underwriting discounts, commissions and other offering costs.
Upon the closing of the offering, all of the Company's preferred stock, par
value $.0002 per share, automatically converted into an aggregate of 16,745,593
shares of Common Stock.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with general
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most supplier agreements, Chemdex acts as
a principal when purchasing products from suppliers and reselling them to
customers. Products are shipped directly to customers by suppliers based on
customer delivery date specifications. Under principal-based agreements,
Chemdex is responsible for selling products, collecting payment from customers,
ensuring that the shipment reaches the customers and processing returns. In
addition, Chemdex takes title to products upon shipment and bears the risk of
loss for collection, delivery, and product returns from customers. Chemdex
provides an allowance for sales returns, which has been insignificant to date,
at the time of sale. Chemdex recognizes revenues from product sales when
products are shipped to customers.
To date, an insignificant amount of revenue is from agreements with
suppliers for which Chemdex is acting as an agent. Under agency-based supplier
agreements, Chemdex recognizes a percentage share of revenues generated by
suppliers when products are shipped to customers.
F-6
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Sales to four significant customers accounted for approximately 16%, 32%,
15%, and 11% respectively, of our revenues in the quarter ended September 30,
1999, and we currently expect to continue to derive a significant portion of
our revenues from these customers for the foreseeable future.
Note 3. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (all of which are normal and recurring in nature), considered
necessary for a fair presentation, have been included in the accompanying
unaudited financial statements. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1999. For further information,
refer to the financial statements and notes thereto, included in the Company's
Registration Statement on Form S-1 (File Number 333-78505), as amended, and the
Company's final prospectus filed July 28, 1999.
Note 4. Net Loss Per Share
Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128) which requires dual presentation of basic earnings per share ("EPS") and
diluted EPS.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares and potentially
dilutive shares outstanding during the period. If Chemdex had reported net
income, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as an additional 1.5 million
common equivalent shares related to the outstanding options and warrants
(determined using the treasury stock method) for the three months ended
September 30, 1999. These options and warrants could potentially dilute basic
earnings per share in the future but have not been included in the computation
of diluted net loss per share as the impact would have been antidilutive for
the periods presented.
Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding, including common equivalent shares from
the convertible preferred stock (using the if-converted method), which
automatically converted into common stock upon the completion of the initial
public offering as if converted at the original date of issuance, for both
basic and diluted net loss per share, even though inclusion is antidilutive.
The following table presents the reconciliation between basic and diluted
weighted average shares outstanding and those used for the pro forma net loss
per share calculation:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted-average shares outstanding,
basic and diluted.................. 23,639,711 1,816,701 10,007,174 1,723,549
Weighted-average conversion of
convertible preferred stock on an
if-converted basis................. 4,732,466 11,445,649 11,057,677 6,989,202
---------- ---------- ---------- ---------
Weighted-average shares used in pro
forma calculation.................. 28,372,177 13,262,350 21,064,851 8,712,751
========== ========== ========== =========
</TABLE>
F-7
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
The following table sets forth the computation of loss per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Basic and Diluted net
loss per share
Numerator: Net loss..... $(13,999,562) $(2,192,667) $(33,313,271) $(4,090,457)
Denominator: Weighted-
average shares
outstanding basic and
diluted................ 23,639,711 1,816,701 10,007,174 1,723,549
------------ ----------- ------------ -----------
Basic and diluted net
loss per share......... $ (.59) $ (1.21) $ (3.33) $ (2.37)
============ =========== ============ ===========
Pro forma net loss per
share
Numerator: Net loss..... $(13,999,562) $(2,192,667) $(33,313,271) $(4,090,457)
Denominator: Weighted-
average shares
outstanding basic and
diluted................ 28,372,177 13,262,350 21,064,851 8,712,751
------------ ----------- ------------ -----------
Basic and diluted pro
forma net loss per
share.................. $ (.49) $ (.17) $ (1.58) $ (.47)
============ =========== ============ ===========
</TABLE>
Note 5. Agreement with VWR
In March 1999, Chemdex entered into a strategic relationship agreement with
VWR, which was consummated in April 1999, pursuant to which Chemdex and VWR
agreed to market jointly VWR laboratory products using the Chemdex Marketplace.
The term of the agreement is four years.
The agreement gives Chemdex the right to offer approximately 350,000 VWR-
distributed products to Chemdex customers and both parties agreed to jointly
develop an online purchasing solution for VWR's existing customers. In
connection with the strategic relationship agreement, VWR transferred to
Chemdex information concerning VWR customers who purchased products from third
party suppliers outside VWR's primary product offering and Chemdex issued
2,538,405 shares of common stock valued at $13.9 million to VWR. The Company
intends to use this information to expand sales of its purchasing solution to
these customers and facilitate adoption of the Chemdex Marketplace by these
customers and suppliers. The fair value of the common stock of $13.9 million
was allocated to the customer list and is being amortized into sales and
marketing expense over four years, the estimated useful life of the intangible
asset.
Note 6. Agreement with Biotechnology Industry Organization
In May 1999, the Biotechnology Industry Organization (BIO) selected Chemdex
as its preferred supplier of e-commerce purchasing solutions. As a result, the
Company entered into a five-year, exclusive joint marketing agreement with BIO.
As part of the joint marketing agreement, Chemdex will discount the fees it
charges to BIO members for its solution and will contribute cash payments to a
joint marketing fund, to be used in conjunction with both parties' obligations
under the joint marketing agreement. In addition, the Company sold 187,500
shares of its common stock to BIO for a nominal amount in consideration for
BIO's participation in these joint marketing activities. BIO has the right to
use a portion of the cash payments and any proceeds it receives from the sale
of the common stock for the benefit of its members and the biotechnology
industry. The charge for BIO marketing activities will be expensed to sales and
marketing as they are incurred. The Company recorded the difference between the
nominal amount per share price paid by BIO for the purchase of our common stock
and the fair value as of May 11, 1999, which is approximately $1.8 million as
an intangible asset, which is being amortized ratably over the five-year term
of the joint agreement.
F-8
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Note 7. Intangible and Other Assets
Intangible and other assets are comprised of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Deposits and other.................... $ 613,099 $300,472
VWR related intangible, net of
amortization......................... 12,461,453 --
BIO related intangible, net, of
amortization......................... 1,603,124 --
----------- --------
Total intangible and other assets..... $14,677,676 $300,472
=========== ========
</TABLE>
Note 8. Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. To date, all marketable securities have been classified as available-for-
sale and are carried at fair value with material unrealized gains and losses,
if any, included in stockholders' equity. Realized gains and losses on
available-for-sale securities are included in interest income.
Note 9. Deferred Stock-Based Compensation
We have recorded deferred compensation for options granted in fiscal year
1998 and the nine months ended September 30, 1999 for the difference at the
option grant date between the exercise price and the fair value of the common
stock underlying the options in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 28. As of September 30, 1999 we had recorded
aggregate deferred stock compensation of $8.7 million. The deferred stock
compensation is being amortized over the vesting periods of the stock options.
We recognized a total of $.4 million and $1.4 million in stock compensation
expense during 1998 and the nine months ended September 30, 1999, respectively.
The total charges to be recognized in future periods from amortization of
deferred stock compensation as of September 30, 1999 are anticipated to be
approximately $.6 million, $2.2 million, $2.2 million, $1.8 million and $.1
million for the remaining three months of 1999 and for 2000, 2001, 2002 and
2003, respectively.
Note 10. Segment Reporting
During the year ended December 31, 1998 we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" which establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim financial
statements. For all periods presented, we have viewed our operations as
principally one segment. All of the financial information presented represents
information for our principal operating segment.
Note 11. Commitments and Contingencies
On August 14, 1999, we entered into two leases for our future headquarters
in Mountain View, California. The first lease, commencing in October 1999, is
for 5.4 years, with aggregate payments under the lease totaling $15.5 million.
The second lease commences on February 1, 2000 and is for a term of 5.1 years.
The aggregate payments under the second lease total $4.9 million. We plan to
move to our new headquarters during the fourth quarter. We have signed a sub-
lease for our existing offices for the remainder of our original lease term.
During the third quarter, we entered into a 2.4 year financing arrangement for
our insurance expenses, payments under
F-9
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
this arrangement total $1.0 million to be paid in 29 equal monthly
installments. Future minimum lease payments under non-cancelable operating
leases entered during the quarter ended September 30, 1999 are $.5 million in
1999, $3.9 million in 2000, $4.2 million in 2001, $3.9 million in 2002, $4.0
million in 2003, $4.1 million in 2004, and $.7 million thereafter.
Note 12. Related Party Transactions
VWR's former president and Chief Executive Officer is a director of the
Company. In addition, VWR owns 2,538,405 shares of our common stock. VWR and
Chemdex jointly market VWR core products and Chemdex core products to VWR's
existing and new customers and jointly solicit several key existing VWR
suppliers to distribute, market and sell their products through the Chemdex
Marketplace. VWR currently performs some of the billing and cash collection
functions for the sale of jointly marketed products until these functions can
be transitioned to Chemdex. With respect to sales of VWR core products, we act
as an intermediary and forward orders received through the Chemdex Marketplace
to VWR for fulfillment and customer service. We receive no fee for orders for
VWR core products from VWR's 40 largest customers and we receive a minimal fee
for all other orders for VWR core products forwarded to VWR. We are responsible
for fulfillment and customer service for all Chemdex core product and orders
for third party products received from VWR customers through the Chemdex
Marketplace. Under the terms of the agreement, VWR provides support for the
purchase of third party products in return for a fee which approximates VWR's
costs incurred.
CMGI and/or its affiliates beneficially own 2,728,357 shares of Chemdex
common stock, representing approximately 8.3% of the outstanding Chemdex common
stock, and 3,996,800 shares of Promedix preferred stock, representing
approximately 42.3% of the outstanding Promedix capital stock. Following
consummation of the merger, CMGI and its affiliates will beneficially own
approximately 18.9% of the outstanding Chemdex common stock. Jonathan D.
Callaghan is a general partner of CMGX@ventures, a CMGI affiliate, and is a
member of both the Chemdex board of directors and the Promedix board of
directors.
Note 13. Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments
and Hedging Activities, which we will be required to adopt for the year ending
December 31, 2001. FAS 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because we currently hold no derivative
financial instruments and do not currently engage in hedging activities,
adoption of FAS 133 is not expected to have a material impact on our financial
condition or results of operations.
In March 1998, the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
entities to capitalize some of the costs related to internal-use software once
the applicable criteria have been met. We expect that the adoption of SOP No.
98-1 will not have a material impact on our financial position or results of
operations. The Company will adopt this standard in fiscal 2000.
Note 14. Proposed acquisition of Promedix
On September 22, 1999 the Company entered into a definitive agreement to
acquire Promedix, a provider of e-commerce solutions for healthcare purchasing
professionals. Promedix is a privately held Company based in Salt Lake City,
Utah. Promedix links buyers and suppliers of specialty medical products,
providing healthcare professionals with a one-stop shop for product research,
purchase and order fulfillment through relationships with distributors and
manufacturers. Under the terms of the acquisition agreement, the Company will
issue approximately 12.1 million shares of its common stock for all of the
outstanding preferred and
F-10
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
common stock of Promedix based on an exchange ratio of the Company's common
stock for each share of Promedix preferred and common stock determined on the
closing date of the transaction. The transaction will be accounted for as a
purchase. The Company's preliminary unaudited estimate of the total purchase
consideration is approximately $315.8 million, based on the fair value at the
time of the announcement of the acquisition, of common stock to be issued.
Under a provision in the agreement, Chemdex or Promedix could be required to
pay other party a $10 million cancellation fee if the purchase is cancelled. As
part of the agreement, Chemdex has executed a $10 million promissory note to
Promedix, with an interest rate of 9%. At September 30, 1999, no borrowings
were outstanding related to the note. The acquisition has been approved by the
boards of directors of Chemdex and Promedix, but is subject to several
conditions, including approval by both companies' stockholders.
Note 15. Proposed acquisition of SpecialtyMD.com, Inc.
On December 10, 1999 the Company entered into a definitive agreement to
acquire SpecialtyMD.com, a provider of a range of comprehensive search and
content functions which will add an interactive component to Chemdex's e-
commerce procurement solutions. SpecialtyMD is a privately held Company is
based in Palo Alto, California. Under the terms of the acquisition agreement,
each outstanding share of SpecialtyMD common stock, assuming the conversion of
all outstanding SpecialtyMD preferred stock into common stock, will be
converted into a fraction of a share of Chemdex common stock based on an
exchange ratio, and each outstanding option to purchase SpecialtyMD capital
stock will be converted into an option and warrant, respectively, to purchase
shares of Chemdex common stock in accordance with the same exchange ratio. The
exchange ratio is calculated by dividing 1,250,000 the number of shares of
Chemdex common stock to be issued as a result of this merger, by the sum of the
number of shares of SpecialtyMD capital stock outstanding and the number of
shares of capital stock issuable upon exercise of outstanding options and
warrants to purchase SpecialtyMD capital stock as of the closing date. The
transaction will be accounted for as purchase. The Company's preliminary
unaudited estimate of the total purchase consideration is approximately
$107.0 million, based on the fair value the three business days before and
after the announcement of the merger. Under a provision of the agreement,
Chemdex or SpecialtyMD could be required to pay the other party a $1.5 million
cancellation fee if the purchase is cancelled. As a part of the agreement,
Chemdex has executed a $4 million line of credit to SpecialtyMD pursuant to a
promissory note, with an interest rate of 9%. At December 21, 1999, no
borrowings were outstanding related to the note. The acquisition has been
approved by the boards of directors of Chemdex and SpecialtyMD, but is subject
to several conditions, including approval by both companies' stockholders.
Note 16. Investment in a New Company with Tenet Healthcare Corporation
On December 13, 1999, Chemdex and Tenet Healthcare Corporation announced the
formation of a new company, to provide business-to-business e-commerce
solutions to the healthcare industry. The new company will be an independent
entity, with its own management team and board of directors. Tenet, through its
subsidiaries, owns and operates acute care hospitals and numerous related
health care services. In exchange for 76% ownership of the new company's
capital stock Tenet will provide the new company access to the benefits of its
existing buyer and supplier contracts of its BuyPower organization, which
serves as a group purchasing organization for Tenet's hospitals and other
members. In exchange for 24% ownership of the new company's capital stock,
Chemdex will license its technology to the new company for use within the
healthcare industry and provide service and support functions at cost. As the
licensed technology has no recorded value on Chemdex's financial statements, it
initially will have no recorded value on the new company's financial
statements. In addition, IBM has entered into a strategic alliance with the new
company in which IBM Global Services will provide implementation, integration
and e-commerce services to the new company's customers and suppliers.
F-11
<PAGE>
The new company will offer its e-commerce technology to other group
purchasing organizations and their members to support their own proprietary
contracts. While the new company will initially focus on the hospital market,
the company eventually plans to expand its e-commerce solution to the long-term
care and outpatient markets as well.
In December 1999 Promedix.com and Tenet Healthcare Corporation agreed to
enter into an agreement whereby Promedix.com will be the exclusive provider to
Tenet of e-commerce solutions for the purchase of specialty medical products.
F-12
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chemdex Corporation
We have audited the accompanying balance sheets of Chemdex Corporation as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the period from September 4, 1997
(inception) through December 31, 1997 and for the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chemdex Corporation at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from September 4, 1997 (inception) through December 31,
1997 and for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
San Jose, California
May 7, 1999,
except for Note 9,
as to which the date is
July 23, 1999
F-13
<PAGE>
CHEMDEX CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity as of
----------------------- March 31, March 31,
1997 1998 1999 1999
---------- ----------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............. $1,346,478 $ 5,990,188 $ 27,783,684
Accounts receivable, net
of allowances for bad
debt of $0, $2,000 and
$4,000 at December 31,
1997 and 1998 and March
31, 1999................ -- 32,259 126,354
Other current assets..... 43,137 286,991 416,973
---------- ----------- ------------
Total current assets... 1,389,615 6,309,438 28,327,011
Property and equipment:
Furniture and fixtures... 9,719 298,591 551,843
Computer hardware and
software................ 245,826 1,498,220 3,805,930
Leasehold improvements... 12,911 46,470 139,105
---------- ----------- ------------
268,456 1,843,281 4,496,878
Less accumulated
depreciation and
amortization............ 7,337 285,036 495,090
---------- ----------- ------------
261,119 1,558,245 4,001,788
Other assets.............. 77,278 300,472 307,087
---------- ----------- ------------
Total assets.............. $1,728,012 $ 8,168,155 $ 32,635,886
========== =========== ============
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable......... $ 181,671 $ 543,141 $ 1,042,656
Accrued compensation..... 31,621 511,578 692,545
Accrued expenses......... 54,120 759,654 1,902,725
Current obligations under
capital leases.......... 6,483 5,425 --
Current portion of note
payable................. -- -- 328,833
---------- ----------- ------------
Total current
liabilities........... 273,895 1,819,798 3,966,759
Obligations under capital
leases.................. 5,982 -- --
Note payable, less
current portion......... -- -- 803,028
---------- ----------- ------------
Total liabilities...... 279,877 1,819,798 4,769,787
Commitments and
contingencies
Stockholders' equity:
Convertible preferred
stock, $.0002 par value:
Authorized shares --
34,074,632 in 1999 and
none pro forma
Issued and outstanding
shares -- 2,695,550 in
1997, 11,445,642 in
1998, 16,345,701 in
1999 and none pro
forma (liquidation
preference of
$42,939,012 at March
31,1999).............. 539 2,289 3,269 $ --
Common stock, $.0002 par
value:
Authorized shares --
9,500,000 in 1997,
17,500,000 in 1998 and
50,000,000 in 1999....
Issued and outstanding
shares--2,570,000 in
1997, 3,921,835 in
1998, 4,830,420 in
1999, and 21,176,121
pro forma............. 514 784 966 4,235
Additional paid-in
capital................. 1,850,475 18,378,907 50,139,579 50,139,579
Deferred compensation.... -- (2,992,099) (5,491,688) (5,491,688)
Notes receivable from
stockholders............ -- (149,717) (1,085,374) (1,085,374)
Accumulated deficit...... (403,393) (8,891,807) (15,700,653) (15,700,653)
---------- ----------- ------------ ------------
Total stockholders'
equity............... 1,448,135 6,348,357 27,866,099 $ 27,866,099
---------- ----------- ------------ ============
Total liabilities and
stockholders' equity..... $1,728,012 $ 8,168,155 $ 32,635,886
========== =========== ============
</TABLE>
See accompanying notes.
F-14
<PAGE>
CHEMDEX CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
(September 4, 1997) Year Ended Three Months Ended
through December March 31,
December 31, 31, ----------------------
1997 1998 1998 1999
------------------- ----------- --------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues............ $ -- $ 29,355 $ -- $ 165,552
Cost of revenues........ -- 22,105 -- 155,960
--------- ----------- --------- -----------
Gross profit............ -- 7,250 -- 9,592
Operating expenses:
Research and
development.......... 196,388 3,439,135 363,745 2,293,311
Sales and marketing... 86,346 3,247,136 219,086 3,188,058
General and
administrative....... 120,659 1,744,898 189,896 1,014,748
Amortization of
deferred
compensation......... -- 372,285 22,434 352,291
--------- ----------- --------- -----------
Total operating
expenses............. 403,393 8,803,454 795,161 6,848,408
--------- ----------- --------- -----------
Operating loss.......... (403,393) (8,796,204) (795,161) (6,838,816)
Interest expense........ -- (2,620) (754) (24,928)
Interest income and
other, net............. -- 310,410 3,319 54,898
--------- ----------- --------- -----------
Net loss................ $(403,393) $(8,488,414) $(792,596) $(6,808,846)
========= =========== ========= ===========
Basic and diluted net
loss per share......... $ (.24) $ (4.79) $ (.47) $ (3.38)
========= =========== ========= ===========
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net loss per
share.................. 1,704,412 1,771,508 1,704,412 2,016,176
========= =========== ========= ===========
Pro forma basic and
diluted net loss per
share.................. $ (.85) $ (.48)
=========== ===========
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share..... 9,952,554 14,278,540
=========== ===========
</TABLE>
See accompanying notes.
F-15
<PAGE>
CHEMDEX CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Total
----------------- ----------------- Paid-in Deferred Notes Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Receivable Deficit Equity
---------- ------ --------- ------ ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series
A preferred stock
at $0.6994 per
share, net of
issuance costs... 2,695,550 $ 539 -- $-- $ 1,850,475 $ -- $ -- $ -- $ 1,851,014
Issuance of common
stock to founders
on
incorporation.... -- -- 2,570,000 514 -- -- -- -- 514
Net loss.......... (403,393) (403,393)
---------- ------ --------- ---- ----------- ----------- ----------- ------------ -----------
Balance at
December 31,
1997............. 2,695,550 539 2,570,000 514 1,850,475 -- -- (403,393) 1,448,135
Issuance of Series
A preferred stock
at $0.6994 per
share, net of
issuance costs... 100,100 20 -- -- 44,847 -- -- -- 44,867
Issuance of Series
B preferred stock
at $1.50 per
share, net of
issuance costs... 8,649,992 1,730 -- -- 12,928,827 -- -- -- 12,930,557
Exercise of stock
options.......... -- -- 1,419,335 284 197,486 -- (156,843) -- 40,927
Repurchase of
unvested shares.. -- -- (67,500) (14) (7,112) -- 7,126 -- --
Deferred
compensation
relating to stock
options.......... -- -- -- -- 3,364,384 (3,364,384) -- -- --
Amortization of
deferred
compensation
relating to stock
options.......... -- -- -- -- -- 372,285 -- -- 372,285
Net loss.......... -- -- -- -- -- -- -- (8,488,414) (8,488,414)
---------- ------ --------- ---- ----------- ----------- ----------- ------------ -----------
Balance at
December 31,
1998............. 11,445,642 2,289 3,921,835 784 18,378,907 (2,992,099) (149,717) (8,891,807) 6,348,357
Issuance of Series
C preferred stock
at $5.716 per
share, net of
issuance costs
(unaudited)...... 4,900,059 980 -- -- 27,934,075 -- -- -- 27,935,055
Exercise of stock
options
(unaudited)...... -- -- 1,071,000 214 958,303 -- (956,964) -- 1,553
Repurchase of
unvested shares
(unaudited)...... -- -- (162,415) (32) (17,959) -- 17,991 -- --
Payments of
stockholders'
notes receivable
(unaudited)...... -- -- -- -- -- -- 3,316 -- 3,316
Issuance of
warrants
(unaudited)...... -- -- -- -- 34,373 -- -- -- 34,373
Deferred
compensation
relating to stock
options
(unaudited)...... -- -- -- -- 2,851,880 (2,851,880) -- -- --
Amortization of
deferred
compensation
relating to stock
options
(unaudited)...... -- -- -- -- -- 352,291 -- -- 352,291
Net loss
(unaudited)...... -- -- -- -- -- -- -- (6,808,846) (6,808,846)
---------- ------ --------- ---- ----------- ----------- ----------- ------------ -----------
Balance at March
31, 1999
(unaudited)...... 16,345,701 $3,269 4,830,420 $966 $50,139,579 $(5,491,688) $(1,085,374) $(15,700,653) $27,866,099
========== ====== ========= ==== =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-16
<PAGE>
CHEMDEX CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
(September 4, Three Months Ended
1997) through Year Ended March 31,
December 31, December 31, -----------------------
1997 1998 1998 1999
------------- ------------ ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss................... $ (403,393) $(8,488,414) $ (792,596) $(6,808,846)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 7,337 301,201 31,093 210,054
Amortization of deferred
compensation and sales
and marketing and
interest expense related
to warrants.............. -- 372,285 22,434 386,664
Loss on disposal of
property and equipment... -- 7,925 -- --
Changes in operating
assets and liabilities:
Accounts receivable..... -- (32,259) (15,454) (94,095)
Other current assets.... (43,137) (243,854) (5,101) (129,982)
Other assets............ (67,064) (239,812) (14,521) (6,615)
Accounts payable........ 181,671 361,470 (11,534) 499,515
Accrued compensation.... 31,621 479,957 28,891 180,967
Accrued expenses........ 54,120 705,534 94,757 1,143,071
---------- ----------- ---------- -----------
Net cash used in operating
activities................ (238,845) (6,775,967) (662,031) (4,619,267)
---------- ----------- ---------- -----------
Investing activities
Sales of short-term
investments............... -- 6,593,495 -- --
Purchases of short-term
investments............... -- (6,593,495) -- --
Purchases of property and
equipment................. (255,545) (1,614,129) (181,130) (1,521,736)
Proceeds from sales of
property and equipment.... -- 24,495 -- --
Purchase of other assets... (10,214) -- -- --
---------- ----------- ---------- -----------
Net cash used in investing
activities................ (265,759) (1,589,634) (181,130) (1,521,736)
---------- ----------- ---------- -----------
Financing activities
Principal payments on
capital lease
obligations............... (446) (7,040) (1,854) (5,425)
Net proceeds from issuance
of preferred stock........ 1,851,014 12,975,424 -- 27,935,055
Issuance of common stock... 514 40,927 9,867 1,553
Payments of stockholders'
notes receivable.......... -- -- -- 3,316
---------- ----------- ---------- -----------
Net cash provided by
financing activities...... 1,851,082 13,009,311 8,013 27,934,499
---------- ----------- ---------- -----------
Net increase (decrease) in
cash and cash
equivalents............... 1,346,478 4,643,710 (835,148) 21,793,496
Cash and cash equivalents
at beginning of period.... -- 1,346,478 1,346,478 5,990,188
---------- ----------- ---------- -----------
Cash and cash equivalents
at end of period.......... $1,346,478 $ 5,990,188 $ 511,330 $27,783,684
========== =========== ========== ===========
Supplemental disclosures of
noncash activities:
Issuance of shares in
exchange for stockholders'
notes receivable.......... $ -- $ 156,843 $ -- $ 956,964
========== =========== ========== ===========
Repurchase of common stock
issued in exchange for
stockholders' notes
receivable................ $ -- $ 7,126 $ -- $ 17,991
========== =========== ========== ===========
Equipment purchased under
capital lease and note
payable................... $ 12,911 $ -- $ -- $ 1,131,861
========== =========== ========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest..... $ 207 $ 2,620 $ 754 $ 165
========== =========== ========== ===========
Cash paid for taxes........ $ -- $ 1,991 $ 1,973 $ 1,700
========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 is unaudited)
1. Description of Business
Chemdex is a provider of e-commerce solutions to the life sciences research
products market. Chemdex enables life sciences enterprises, researchers and
suppliers to efficiently buy and sell research products through the Chemdex
Marketplace, a secure, Internet-based purchasing solution.
Chemdex was incorporated in Delaware on September 4, 1997. During the period
from inception through November 1998, Chemdex was a development stage company
and did not have significant sales. During this period, operating activities
related primarily to the design and development of Chemdex's online marketplace
and corporate infrastructure and the establishment of relationships with
suppliers and customers. Chemdex has incurred operating losses to date and had
an accumulated deficit of approximately $15.7 million at March 31, 1999.
Chemdex's activities have been primarily financed through private placements of
equity securities. Chemdex is no longer in the development stage.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited and includes all adjustments,
consisting only of normal recurring adjustments, that Chemdex's management
considers necessary for a fair presentation of Chemdex's operating results and
cash flows for the period. Results for the three month period ended March 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.
Revenue Recognition
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most supplier agreements, Chemdex acts as
a principal when purchasing products from suppliers and reselling them to
customers. Products are shipped directly to customers by suppliers based on
customer delivery date specifications. Under principal-based agreements,
Chemdex is responsible for selling products, collecting payment from customers,
ensuring that the shipment reaches customers and processing returns. In
addition, Chemdex takes title to products upon shipment and bears the risk of
loss for collection, delivery and product returns from customers. Chemdex
provides an allowance for sales returns, which has been insignificant to date,
at the time of sale. Chemdex recognizes revenues from product sales when
products are shipped to customers.
To date, an insignificant amount of revenue is from agreements with
suppliers for which Chemdex is acting as an agent. Under agency-based supplier
agreements, Chemdex recognizes a percentage share of revenues generated by
suppliers when products are shipped to customers.
For the year ended December 31, 1998 and the three months ended March 31,
1999, one customer accounted for 79% and 82% of net revenues, respectively. For
the year ended December 31, 1998, another
F-18
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
customer accounted for 14% of net revenues. There were no sales to customers
outside the United States since inception through March 31, 1999.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at the
time of acquisition. Chemdex's cash and cash equivalents as of December 31,
1997 and 1998 and March 31, 1999 consisted primarily of commercial paper and
money market funds held by large financial institutions in the United States,
and their carrying value approximated fair value.
Property and Leasehold Improvements
Chemdex records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of three to five
years. Property under capital leases is depreciated over the lesser of the
useful lives of the assets or lease term.
Stock-Based Compensation
Chemdex has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB Opinion No. 25"), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 6, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, ("FAS 123"), requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB Opinion
No. 25, when the exercise price of Chemdex's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included
in Note 6.
Advertising Costs
Advertising costs are charged to expense when incurred. No advertising
expense was incurred for the period from September 4, 1997 (inception) through
December 31, 1997. Advertising expense was $786,520 and $1.2 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued FAS 130,
Reporting Comprehensive Income. FAS 130 establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements and is effective for fiscal years beginning after
December 15, 1997. Chemdex adopted FAS 130 in the year ended December 31, 1998.
Chemdex had no comprehensive income items to report for the year ended December
31, 1998 and the three months ended March 31, 1999.
Segment Information
In June 1997, the Financial Accounting Standards Board issued FAS 131,
Disclosures about Segments of an Enterprise and Related Information ("FAS
131"). FAS 131 changes the way companies report selected segment information in
annual financial statements and requires companies to report selected segment
information in interim financial reports to stockholders. Chemdex adopted FAS
131 in the year ended December 31, 1998.
F-19
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Chemdex operates solely in one operating segment, the development and
marketing of an online marketplace for the purchasing and distribution of
products and, therefore there is no impact to Chemdex's financial statements of
adopting FAS 131.
Net Loss Per Share
Basic and diluted net loss per common share is presented in conformity with
FAS No. 128, Earnings Per Share ("FAS 128"), for all periods presented.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 98, common stock and convertible preferred stock issued or granted for
nominal consideration prior to the anticipated effective date of Chemdex's
initial public offering must be included in the calculation of basic and
diluted net loss per common share as if they had been outstanding for all
periods presented. To date, Chemdex has not had any issuances or grants for
nominal consideration.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per share, as presented in the statements of
operations, has been computed as described above and also gives effect, under
Securities and Exchange Commission guidance, to the conversion of the
convertible preferred stock (using the if-converted method) from the original
date of issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
Period from
Inception
(September 4, Three Months Ended
1997) through Year Ended March 31,
December 31, December 31, -----------------------
1997 1998 1998 1999
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net loss.................. $(403,393) $(8,488,414) $ (792,596) $(6,808,846)
========= =========== ========== ===========
Basic and diluted:
Weighted-average shares
of common stock
outstanding............. 2,570,000 3,242,795 2,570,000 4,523,065
Less weighted-average
shares subject to
repurchase.............. (865,588) (1,471,286) (865,588) (2,506,889)
--------- ----------- ---------- -----------
Weighted-average shares
used in computing basic
and diluted net loss per
common share............ 1,704,412 1,771,508 1,704,412 2,016,176
========= =========== ========== ===========
Basic and diluted net
loss per common share... $ (.24) $ (4.79) $ (.47) $ (3.38)
========= =========== ========== ===========
Pro forma:
Shares used above........ 1,771,508 2,016,176
Pro forma adjustment to
reflect weighted-
average effect of the
assumed conversion of
convertible preferred
stock.................. 8,181,046 12,262,364
----------- -----------
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 9,952,554 14,278,540
=========== ===========
Pro forma basic and
diluted net loss per
share.................. $ (.85) $ (.48)
=========== ===========
</TABLE>
F-20
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Chemdex has excluded all outstanding stock options and shares subject to
repurchase by Chemdex from the calculation of diluted loss per share because
these securities are antidilutive for all periods presented. Weighted-average
options outstanding to purchase -0-, 508,750 and 439,852 shares of common stock
for the period from inception through December 31, 1997, the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively, were
not included in the computation of diluted net loss per share because the
effect would be antidilutive. Such securities, had they been dilutive, would
have been included in the computation of diluted net loss per share using the
treasury stock method.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, each share
of convertible preferred stock outstanding will automatically be converted into
one share of common stock. Unaudited pro forma stockholders' equity at March
31, 1999, as adjusted for the assumed conversion of convertible preferred stock
based on the shares of convertible preferred stock outstanding at March 31,
1999, is disclosed on the balance sheet.
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"), which Chemdex will be required to adopt for
the year ending December 31, 2000. This statement establishes a new model for
accounting for derivatives and hedging activities. FAS 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because
Chemdex currently holds no derivative financial instruments and does not
currently engage in hedging activities, adoption of FAS 133 is expected to have
no material impact on Chemdex's financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, ("SOP 98-1"). SOP 98-1 requires that
entities capitalize certain costs related to internal use software once certain
criteria have been met. Chemdex is required to implement SOP 98-1 for the year
ending December 31, 1999. Adoption of SOP 98-1 is not expected to have a
material impact on Chemdex's financial condition or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities, ("SOP 98-5"). SOP No. 98-5 requires that all start-up
costs related to new operations must be expensed as incurred. In addition, all
start-up cost that were capitalized in the past must be written off when SOP
No. 98-5 is adopted. Chemdex implemented SOP No. 98-5 on January 1, 1999. The
adoption of SOP No. 98-5 did not have a material impact on its financial
position or results of operations.
3. Concentrations of Credit Risk and Other Risks
Financial instruments that potentially subject Chemdex to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the
United States.
Chemdex sells primarily to pharmaceutical and biotechnology companies and
academic and research institutions. Chemdex performs ongoing credit evaluations
of its customers but does not require collateral. Chemdex analyzes the need for
reserves for potential credit losses and records reserves when necessary. These
losses have been within management's expectations. To date, Chemdex has not had
significant write-offs of bad debt.
F-21
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
4. Commitments
Chemdex leases its office facilities under noncancelable operating leases
expiring through 2003. Minimum annual operating lease commitments at December
31, 1998 were as follows:
<TABLE>
<S> <C>
1999.......................................................... $1,080,184
2000.......................................................... 1,094,662
2001.......................................................... 1,127,501
2002.......................................................... 1,161,331
2003.......................................................... 1,196,165
----------
Total minimum payments........................................ $5,659,843
==========
</TABLE>
Rental expense for the period from Inception through December 31, 1997 and
the year ended December 31, 1998 was $13,939 and $342,977, respectively.
5. Financing Arrangements
In February 1998, Chemdex entered into a line of credit with a bank, which
provides for borrowings of up to $400,000 with interest at the bank's prime
rate plus 1.0%. The aggregate credit line has a compensating balance
requirement of $210,000. Borrowings under the line are secured by substantially
all of the Chemdex's assets. At December 31, 1998, Chemdex had no outstanding
borrowings under this line of credit. The line of credit expired on February
17, 1999.
In 1997, Chemdex entered into a noncancelable capital lease agreement for
equipment. Aggregate future minimum capital lease payments under this lease
were $5,425 at December 31, 1998. The lease expires in October 1999.
In January 1999, Chemdex entered into a $3.0 million equipment lease line
agreement with a financial institution for a term of 48 months, with interest
imputed at 13.02% per year. At December 31, 1998 and March 31, 1999, Chemdex
had no outstanding borrowings under the equipment lease line.
In February 1999, Chemdex entered into a financing arrangement in the amount
of $1,131,861 for the purchase of certain computer software and related
support. This arrangement provides for 12 equal quarterly payments of the
financed amount commencing May 1, 1999, with interest imputed at 13.24% per
year.
As of March 31, 1999, aggregate future minimum payments under this financing
agreement were as follows:
<TABLE>
<S> <C>
1999.......................................................... $ 270,977
2000.......................................................... 366,973
2001.......................................................... 418,623
2002.......................................................... 75,288
----------
Total payments................................................ 1,131,861
Less current portion.......................................... (328,833)
----------
Long-term portion............................................. $ 803,028
==========
</TABLE>
F-22
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
6. Stockholders' Equity
Convertible Preferred Stock
Convertible preferred stock at December 31, 1997 and 1998 and March 31, 1999
is as follows:
<TABLE>
<CAPTION>
Shares Issued and Outstanding
-------------------------------
Shares
Authorized December 31, March 31,
Liquidation March 31, -------------------- ----------
Preference 1999 1997 1998 1999
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Series A................ $.6994 2,795,650 2,695,550 2,795,650 2,795,650
Series A-1.............. $.6994 2,795,650 -- -- --
Series B................ $ 1.50 8,791,666 -- 8,649,992 8,649,992
Series B-1.............. $ 1.50 8,791,666 -- -- --
Series C................ $5.716 5,300,000 -- -- 4,900,059
Series C-1.............. $5.716 5,300,000 -- -- --
Undesignated............ 300,000 -- -- --
---------- --------- ---------- ----------
Total convertible
preferred stock........ 34,074,632 2,695,550 11,445,642 16,345,701
========== ========= ========== ==========
</TABLE>
To date, shares have been designated as Series A and A-1, Series B and B-1
and Series C and C-1 (collectively, "the Series A, B and C preferred stock").
Chemdex is authorized to issue additional preferred stock with such
designations, rights, and preferences as may be determined from time to time by
the Board of Directors provided, however, that any such preferred stock must be
subordinate to, or in parity with, the Series A, B and C preferred stock.
Series A, B and C preferred stockholders have voting rights equal to the
common shares issuable upon conversion of the Series A, B and C preferred
stock.
Each share of Series A, B and C preferred stock is convertible, at the
option of the holder, into one share of common stock, subject to certain
adjustments for dilutive issuances. Outstanding shares of Series A, B and C
preferred stock automatically convert into common stock upon the closing of an
underwritten public offering of Chemdex's common stock with gross proceeds to
Chemdex of at least $20,000,000 and a per share price of at least $7.50, or at
the election of the holders of more than 50%, at least 66 2/3% and at least 60%
of outstanding Series A, B and C preferred stock, respectively.
Holders of Series A, B and C preferred stock are entitled to noncumulative
dividends of $.063 and $.135 and $.5144 per annum per outstanding share.
Dividends will be paid only when declared by the Board of Directors out of
legally available funds. No dividends have been declared or accrued as of March
31, 1999.
Series A, B and C preferred stockholders are entitled to receive, upon a
liquidating event, an amount per share equal to the issuance price, plus all
declared but unpaid dividends. The remaining assets and funds, if any, shall be
distributed among the holders of Series A, B and C preferred stock and common
stock pro rata based on the number of shares of common stock held by each
(assuming conversion of all such Series A, B and C preferred stock). If any
assets remain after the holders of Series A, B and C preferred stock have
received an aggregate of $1.748, $3.75 and $14.29 per share, the remaining
assets will be distributed to the holders of the common stock pro rata based on
the number of shares of common stock held by each.
F-23
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Warrants
In January 1999, in connection with an equipment lease line, Chemdex issued
a fully vested warrant that entitles the holder to purchase 105,000 shares of
the Chemdex's Series B preferred stock at an exercise price of $1.50 per share.
This warrant is exercisable, through the later of the initial public offering
of Chemdex's common stock or January 2006. The fair value of this warrant,
approximately $195,300, will be expensed as a cost of financing over the four
year period of the lease line. The fair value of this warrant was calculated
using the Black-Scholes option pricing model.
In March 1999, Chemdex issued a fully vested, non-forfeitable warrant in
exchange for consulting services. The warrant entitles the holder to purchase
49,999 shares of Chemdex's common stock at an exercise price of $5.20 per
share. This warrant is exercisable through the earlier of two years from the
date of the initial public offering of Chemdex's common stock or March 2006.
The fair value of this warrant, approximately $133,000, will be expensed over
the six month period of the consulting agreement. The fair value of this
warrant was calculated using the Black-Scholes option pricing model.
Common Stock
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends from legally available funds when
and if declared by the Board of Directors, subject to the prior rights of
holders of Series A, B and C preferred stock.
Certain shares of common stock issued to founders of Chemdex, totaling
865,588 shares, are subject to repurchase by Chemdex. The stock vests over a
period of four years. As of December 31, 1998 and March 31, 1999, 730,136 and
677,521 shares, respectively, were subject to repurchase.
At March 31, 1999, common stock was reserved for future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock......................... 2,795,650
Conversion of Series B preferred stock......................... 8,649,992
Conversion of Series C preferred stock......................... 4,900,059
Warrants....................................................... 154,999
Stock Option Plan.............................................. 1,114,580
----------
17,615,280
==========
</TABLE>
Stock Option Plans
In January 1998, the Board of Directors terminated the 1997 Option Plan,
under which no options had been granted, and adopted the 1998 Stock Plan (the
"1998 Plan") for issuance of common stock to eligible participants. The Plan
provides for the granting of incentive stock options and non-qualified stock
options. Incentive stock options and non-qualified stock options may be granted
under the 1998 Plan at prices not less than 100% and 85% of the fair value at
the date of grant, or at prices not less than 110% for individuals owning more
than 10% of the combined voting power of all classes of stock at the date of
grant. Options generally expire after ten years. Certain options under the plan
are immediately exercisable; however, these shares issued are subject to
Chemdex's right to repurchase at the original issuance price, which right
lapses in a series of installments measured from the vesting commencement date
of the option. As of December 31, 1998 and March 31, 1999, 1,104,713 and
1,891,493 shares, respectively, were subject to repurchase. Options generally
vest, and the repurchase rights lapse ratably, over a period of four years from
the date of grant.
F-24
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Pro forma information regarding net loss and net loss per share is required
by FAS 123, and has been determined as if Chemdex had accounted for its
employee stock options under the fair value method provided for in FAS 123. The
fair value of options was estimated at the date of grant using a minimum value
option pricing model with the following weighted-average assumptions for
options granted during the year ended December 31, 1998: risk-free interest
rate of 5.42%, an expected life of four years and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using a
graded vesting method. The effects of applying FAS 123 for pro forma
disclosures are not likely to be representative of the effects on reported net
loss for future years.
The option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
Chemdex's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
<TABLE>
<CAPTION>
Period from
Inception Three Months
(September 4, Ended
1997) through Year Ended March 31,
December 31, December 31, --------------
1997 1998 1998 1999
------------- ------------ ----- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net loss:
As reported...................... $(403) $(8,488) $(793) $(6,809)
Pro forma........................ $(403) $(8,495) $(793) $(6,818)
Pro forma basic and diluted net
loss per share:
As reported...................... $ (.85) $ (.48)
Pro forma........................ $ (.85) $ (.48)
</TABLE>
Activity under the 1998 Stock Plan was as follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------------------------
Available Number of Price per Weighted-Average
for Grant Shares Share Exercise Price
---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Authorized.............. 3,375,000 -- -- --
Granted................. (1,978,835) 1,978,835 $.10-$1.00 $ .16
Exercised............... -- (1,419,335) $.10-$ .15 $ .12
Canceled................ 50,750 (50,750) $.10-$1.00 $ .12
Repurchased............. 67,500 -- $.10-$ .15 $ .11
---------- ----------
Balance at December 31,
1998..................... 1,514,415 508,750 $.10-$1.00 $ .14
Granted................. (1,010,102) 1,010,102 $1.50 $1.50
Exercised............... -- (1,071,000) $.15-$1.50 $ .90
Canceled................ 8,000 (8,000) $1.50 $1.50
Repurchased............. 162,415 -- $.10-$ .15 $ .10
---------- ----------
Balance at March 31,
1999..................... 674,728 439,852 $.10-$1.50 $1.02
========== ==========
</TABLE>
F-25
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-----------------------------------------------------------------
Weighted-
Weighted- Average
Range of Number Average Remaining
Exercise of Exercise Contractual
Prices Shares Price Life
-------- ------- --------- -----------
(In Years)
<S> <C> <C> <C>
$.10--$1.00 508,750 $.14 9.14
</TABLE>
Certain grants of options to employees to purchase common stock under
Chemdex's 1998 Stock Option Plan were exercised in exchange for full recourse
notes receivable. These notes receivable generally bear interest at a rate
equal to the minimum rate necessary to avoid the imputation of interest income
to the Company and compensation income to the maker under the Internal Revenue
Code and are collateralized by the underlying common stock. At December 31,
1998 and March 31, 1999, notes receivable in exchange for exercises of options
totaled $149,717 and $1,085,374, respectively. These shares are subject to
right of repurchase that generally lapse over four years.
The weighted-average fair value of options granted during 1998 with an
exercise price equal to the fair value of common stock on the date of grant was
$.16. The weighted-average fair value of options granted during 1998 with an
exercise price below the deemed fair value of Chemdex's common stock on the
date of grant was $.16.
In connection with the grant of share options to employees through March 31,
1999, Chemdex recorded deferred compensation of $6,216,264 for the aggregate
differences between the exercise prices of options at their dates of grant and
the deemed fair value for accounting purposes of the common shares subject to
these options. Such amount is included as a reduction of stockholders' equity
and is being amortized on a straight-line vesting method over the option
vesting periods, which are generally four years. The compensation expense of
$724,576 through March 31, 1999 relates to options awarded to employees in all
operating expense categories. This amount has not been separately allocated to
these categories.
7. Employee Savings and Retirement Plan
Chemdex has a 401(k) plan that allows eligible employees to contribute up to
15% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limits. Chemdex may make discretionary contributions to the plan
based on profitability as determined by the Board of Directors. Chemdex did not
make any contributions to the plan during the year ended December 31, 1998, and
the three months ended March 31, 1999.
8. Income Taxes
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the federal statutory rate of 34%
is due to net operating losses having a valuation allowance, due to past
operating results and uncertainties regarding Chemdex's future results of
operations. Accordingly, there is no provision for income taxes for the period
from September 4, 1997 (inception) through December 31, 1997 and for the year
ended December 31, 1998.
F-26
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
As of December 31, 1998, Chemdex had federal and state net operating loss
carryforwards of approximately $7,500,000 and $7,400,000, respectively. Chemdex
also had federal and state research credit carryforwards of approximately
$100,000 and $100,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning in 2002 through 2018, if
not utilized. The net operating loss carryforwards differ from the accumulated
deficit primarily as a result of certain reserves and accruals not currently
deductible for tax purposes.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Chemdex's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 157,000 $ 3,000,000
Research credit carryforwards................... 13,000 200,000
Reserves and accruals........................... 3,000 300,000
--------- -----------
Total deferred tax assets..................... 173,000 3,500,000
Valuation Allowance............................... (173,000) (3,500,000)
--------- -----------
Net deferred tax assets........................... $ -- $ --
========= ===========
</TABLE>
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes Chemdex's
historical operating performance, the reported net losses for the period from
inception through December 31, 1997 and for the year ended December 31, 1998,
and the uncertainties regarding Chemdex's future results of operations, a full
valuation allowance has been provided against its net deferred tax assets. It
is more likely than not that the deferred tax assets will not be realized. The
valuation allowance increased by $173,000 for the period from inception through
December 31, 1997 and $3,327,000 during 1998.
9. Events Subsequent To Date Of Auditor's Report
1999 Employee Stock Purchase Plan
On May 11, 1999, Chemdex's Board of Directors approved, subject to
stockholder approval, the adoption of the 1999 Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 750,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan, as well as an automatic
annual increase on the first day of each of Chemdex's fiscal years beginning in
2000, 2001, 2002, 2003 and 2004 equal to the lesser of 200,000 shares, 1/2% of
Chemdex's outstanding common stock on the last day of the immediately preceding
fiscal year or a lesser number of shares determined by the Board of Directors.
Each offering period will consist of four consecutive purchase periods of six
months' duration. The initial offering period is expected to begin on the date
of this offering and end on July 31, 2001; the initial purchase period is
expected to end on January 31, 2000.
F-27
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 20% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
Chemdex's common stock at the beginning of each offering period or at the end
of each purchase period. If not terminated earlier, the Purchase Plan has a
term of 20 years.
Series C Preferred Stock
In April 1999, Chemdex issued an additional 399,892 shares of Series C
preferred stock to investors, resulting in net proceeds of $2,286,063.
Deferred Compensation
In April 1999, Chemdex granted to employees options to purchase 594,780
shares of common stock at an exercise price of $5.00 per share. On May 17,
1999, June 2, 1999 and June 25, 1999 Chemdex granted a total of 978,396 shares
of common stock at an exercise price of $10.00 per share. We estimate that we
will record additional deferred compensation of approximately $2.5 million with
regard to the April 1999 grants.
1998 Stock Plan
On April 27, 1999, Chemdex's Board of Directors approved an increase in the
number of shares reserved for issuance under the 1998 Plan of 1,500,000 shares
and, on May 11, 1999 an additional increase of 1,250,000 shares. The 1998 Plan
was also amended to provide for automatic annual increases on the first day of
each fiscal year beginning in 2000, 2001, 2002, 2003 and 2004 equal to the
lesser of 1,250,000 shares, 3% of Chemdex's outstanding common stock on the
last day of the immediately preceding fiscal year or a lesser number of shares
as determined by the Board of Directors.
Authorization of Shares
On May 11, 1999, Chemdex's Board of Directors authorized 175,000,000 shares
of common stock and 2,500,000 shares of preferred stock, each with a par value
of $.0002 per share, effective in connection with this offering. The preferred
stock may be issued from time to time in one or more series. The Board of
Directors has the authority, within the limitations and restrictions in the
certificate of incorporation, to provide by resolution for the issuance of
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
1999 Directors' Plan
On May 11, 1999, Chemdex's Board of Directors approved, subject to
stockholder approval, the 1999 Directors' Stock Plan (the "Directors' Plan"). A
total of 250,000 shares of common stock has been reserved under the Directors'
Plan.
BIO Agreement
In May 1999, the Biotechnology Industry Organization (BIO) selected Chemdex
as its preferred supplier of e-commerce purchasing solutions. As a result, we
entered into a five-year, exclusive joint marketing
F-28
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
agreement with BIO. As part of the joint marketing agreement, Chemdex will
discount the fees we charge to BIO members for our solution and will contribute
cash payments to a joint marketing fund, to be used in connection with both
parties' obligations under the joint marketing agreement. In addition, we sold
187,500 shares of our common stock to BIO for a nominal amount in consideration
for BIO's participation in these joint marketing activities. BIO has the right
to use a portion of the cash payments and any proceeds it receives from the
sale of the common stock for the benefit of its members and the biotechnology
industry. The charge for BIO marketing activities will be expensed to sales and
marketing as they are incurred. We will also record the difference between the
nominal amount per share price paid by BIO for the purchase of our common stock
and the fair value as of the date of issuance, which is approximately $1.8
million, ratably over the five-year term of the joint marketing agreement.
VWR Agreement
In March 1999, Chemdex entered into a strategic relationship agreement with
VWR, which was consummated in April 1999, pursuant to which Chemdex and VWR
agreed to market jointly VWR laboratory products using the Chemdex Marketplace.
The term of the agreement is four years.
The agreement gives Chemdex the right to offer approximately 350,000 VWR-
distributed products to Chemdex customers and both parties agreed to jointly
develop an online purchasing solution for VWR's existing customers. In
connection with the strategic relationship agreement, VWR transferred to
Chemdex information concerning VWR customers who purchased products from third
party suppliers outside VWR's primary product offering and Chemdex issued
2,538,405 shares of common stock valued at $13.9 million to VWR.
We intend to use this information to expand sales of our purchasing solution
to these customers and adoption of the Chemdex Marketplace by these customers
and suppliers. The fair value of the common stock of $13.9 million will be
allocated to the customer list and will be amortized into sales and marketing
expense over four years, the estimated useful life of this intangible asset.
Reverse Stock Split
On June 28, 1999, the Company's Board of Directors approved a one-for-two
reverse stock split of the Company's common and preferred stock. On July 23,
1999 the reverse stock split became effective. In addition, the par value of
the common stock was changed to $.0002 per share. All share and per share
amounts in the accompanying financial statements have been adjusted
retroactively.
F-29
<PAGE>
PROMEDIX.COM, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-31
Balance Sheets............................................................. F-32
Statements of Operations................................................... F-33
Statements of Common Shareholders' Equity (Deficit)........................ F-34
Statements of Cash Flows................................................... F-35
Notes to Financial Statements.............................................. F-36
</TABLE>
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Promedix.com, Inc.
We have audited the accompanying balance sheets of Promedix.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations, common
shareholders' equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Promedix.com, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Salt Lake City, Utah
October 15, 1999
F-31
<PAGE>
PROMEDIX.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
--------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents............... $ 127 $3,002,148 $ 987,367
Accounts receivable, less allowance of
$2,710, $0 and $43,052, respectively... 16,668 -- 2,143,092
Inventories............................. -- -- 1,931,066
Notes receivable from related parties... -- -- 217,397
Other current assets.................... -- 30,000 99,535
--------- ---------- ------------
Total current assets...................... 16,795 3,032,148 5,378,457
Property and equipment, net............... 3,001 2,252 1,206,340
Intangible assets......................... -- -- 2,495,438
Other non-current assets.................. -- -- 77,992
--------- ---------- ------------
Total assets.............................. $ 19,796 $3,034,400 $ 9,158,227
========= ========== ============
Liabilities and shareholders' equity
(deficit)
Current liabilities:
Accounts payable........................ $ 13,200 $ 10,944 $ 1,727,957
Accrued liabilities..................... -- 17,526 138,584
Accrued compensation.................... -- 786 349,638
Deferred revenue........................ 7,236 -- --
Due to related parties.................. 20,160 2,000 --
Short-term debt......................... -- -- 1,531,692
Subordinated convertible notes, net of
$2,699,163 discount ................... -- -- 2,300,672
--------- ---------- ------------
Total current liabilities................. 40,596 31,256 6,048,543
Commitments
Preferred Stock--Series A................. -- 3,001,597 3,738,057
Shareholders' equity (deficit)
Common stock; $.0001 value; 10,000,000,
15,500,000 and 25,000,000 shares
authorized, respectively; 2,100,760,
3,446,250, 3,546,250 issued and
outstanding, respectively ............. 210 345 355
Additional paid in capital.............. 119,866 133,306 23,934,249
Deferred compensation................... -- -- (17,624,990)
Accumulated deficit..................... (140,876) (132,104) (6,937,987)
--------- ---------- ------------
Total shareholders' equity (deficit)...... (20,800) 1,547 (628,373)
--------- ---------- ------------
Total liabilities and shareholders' equity
(deficit)................................ $ 19,796 $3,034,400 $ 9,158,227
========= ========== ============
</TABLE>
See accompanying notes.
F-32
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
-------------------- ----------------------
1997 1998 1998 1999
--------- --------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues........................ $ 197,249 $ 14,034 $ 14,034 $ 7,875,993
Cost of revenues................ 55,542 1,100 1,100 5,776,465
--------- --------- --------- -----------
Gross profit.................... 141,707 12,934 12,934 2,099,528
Operating expenses:
Sales and marketing........... 30,596 -- -- 1,574,886
General and administrative.... 246,306 73,236 66,498 3,063,818
Research and development...... -- -- -- 118,568
Amortization of deferred
compensation................. -- -- -- 3,776,288
Amortization of intangible
assets....................... -- -- -- 202,332
--------- --------- --------- -----------
Total operating expenses........ 276,902 73,236 66,498 8,735,892
--------- --------- --------- -----------
Loss from operations............ (135,195) (60,302) (53,564) (6,636,364)
Other income (expense):
Other income (expense)........ (5,465) -- (5) (4,963)
Interest expense.............. (316) -- -- (236,603)
Interest income............... 100 398 -- 82,047
--------- --------- --------- -----------
Loss before provision for income
taxes.......................... (140,876) (59,904) (53,569) (6,795,883)
Provision for income taxes.... -- -- -- (10,000)
--------- --------- --------- -----------
Loss before extraordinary item.. (140,876) (59,904) (53,569) (6,805,883)
Extraordinary item............ -- 86,204 86,204 --
--------- --------- --------- -----------
Net income (loss)............... $(140,876) $ 26,300 $ 32,635 $(6,805,883)
========= ========= ========= ===========
Basic Net income (loss) per
share
Loss before extraordinary item
............................. $ (0.10) $ (0.02) $ (0.02) $ (1.94)
========= ========= ========= ===========
Extraordinary item............ $ -- $ 0.03 $ 0.03 $ --
========= ========= ========= ===========
Net income (loss)............. $ (0.10) $ 0.01 $ 0.01 $ (1.94)
========= ========= ========= ===========
Diluted Net income (loss) per
share
Loss before extraordinary item
............................. $ (0.10) $ (0.01) $ (0.02) $ (1.94)
========= ========= ========= ===========
Extraordinary item............ $ -- $ 0.01 $ 0.03 $ --
========= ========= ========= ===========
Net income (loss)............. $ (0.10) $ -- $ 0.01 $ (1.94)
========= ========= ========= ===========
Weighted average number of
shares outstanding:
Basic......................... 1,379,988 2,696,228 2,447,544 3,502,209
Diluted....................... 1,379,988 6,693,028 2,447,544 3,502,209
</TABLE>
See accompanying notes.
F-33
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 1,000,000 $100 $ 9,900 $ -- $ -- $ 10,000
Issuance of stock for
cash and other......... 1,100,760 110 109,966 -- -- 110,076
Net loss................ -- -- -- -- (140,876) (140,876)
--------- ---- ----------- ------------ ----------- -----------
Balance at December 31,
1997................... 2,100,760 210 119,866 -- (140,876) (20,800)
Issuance of stock for
cash and other ........ 1,357,570 136 13,439 -- -- 13,575
Accretion of preferred
stock.................. -- -- -- -- (17,528) (17,528)
Cancellation of common
stock.................. (12,080) (1) 1 -- -- --
Net income.............. -- -- -- -- 26,300 26,300
--------- ---- ----------- ------------ ----------- -----------
Balance at December 31,
1998................... 3,446,250 345 133,306 -- (132,104) 1,547
Issuance of stock for
cash (unaudited)....... 100,000 10 9,990 -- -- 10,000
Deferred compensation
relating to stock
options (unaudited).... -- -- 21,401,278 (21,401,278) -- --
Amortization of deferred
compensation relating
to stock options
(unaudited)............ -- -- -- 3,776,288 -- 3,776,288
Issuance of warrants for
Pro Med Co.
(unaudited)............ -- -- 2,389,675 -- -- 2,389,675
Net loss (unaudited).... -- -- -- -- (6,805,883) (6,805,883)
--------- ---- ----------- ------------ ----------- -----------
Balance at September 30,
1999 (unaudited)....... 3,546,250 $355 $23,934,249 $(17,624,990) $(6,937,987) $ (628,373)
========= ==== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-34
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------------- ---------------------
1997 1998 1998 1999
--------- ---------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net income (loss)............... $(140,876) $ 26,300 $ 32,635 $(6,805,883)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................. 749 749 562 98,546
Amortization of intangible
assets....................... -- -- -- 202,332
Amortization of deferred
compensation................. -- -- -- 3,776,288
Non-cash legal expense........ -- -- -- 711,460
Non-cash interest expense..... -- -- -- 179,817
Forgiveness of debt........... -- (86,204) (86,204) --
Changes in operating assets and
liabilities:
Accounts receivable........... (16,668) 16,668 14,591 (256,401)
Inventories................... -- -- -- 126,415
Other current assets.......... 10,000 (30,000) (30,000) (4,717)
Other assets.................. -- -- -- (60,892)
Accounts payable.............. 13,200 (2,256) (4,478) 421,252
Accrued liabilities........... 7,236 10,290 (7,236) (31,891)
Accrued compensation.......... -- 786 -- 204,018
--------- ---------- -------- -----------
Net cash used in operating
activities................. (126,359) (63,667) (80,130) (1,439,656)
--------- ---------- -------- -----------
Investing Activities:
Investment in subsidiary...... -- -- -- (536,920)
Sale of fixed assets.......... -- -- -- 983,626
Purchases of property and
equipment.................... (3,750) -- -- (1,108,534)
--------- ---------- -------- -----------
Net cash used in investing
activities................. (3,750) -- -- (661,828)
--------- ---------- -------- -----------
Financing Activities:
Borrowings on line of credit,
net.......................... -- -- -- 838,092
Borrowing on short-term
notes........................ 20,160 68,044 68,044 --
Payment on notes payable...... -- -- -- (786,389)
Net proceeds from issuance of
preferred stock.............. -- 2,984,069 -- 25,000
Proceeds from issuance of
common stock................. 110,076 13,575 13,000 10,000
--------- ---------- -------- -----------
Net cash provided by
financing activities....... 130,236 3,065,688 81,044 86,703
--------- ---------- -------- -----------
Net increase (decrease) in cash
and cash equivalents........... 127 3,002,021 914 (2,014,781)
Cash and cash equivalents at
beginning of period............ -- 127 127 3,002,148
--------- ---------- -------- -----------
Cash and cash equivalents at end
of period...................... $ 127 $3,002,148 $ 1,041 $ 987,367
========= ========== ======== ===========
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for
interest...................... $ 316 $ -- $ -- $ 46,786
Cash paid during the period for
income taxes.................. $ -- $ -- $ -- $ 107,000
Non cash investing and financing
activities:
Investment in subsidiary for
subordinated convertible note
payable....................... $ 4,510,530
Discount to subordinated
convertible note payable for
value ascribed to warrants.... $ 2,389,675
Deferred compensation
associated with issuance of
stock options................. $21,401,278
</TABLE>
See accompanying notes.
F-35
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Information as of September 30, 1999 and for the nine months ended September
30, 1998 and 1999 is unaudited
1.Description of Business
Promedix.com, Inc. ("Promedix") (originally named MCA HealthPages, Inc.) was
incorporated on December 20, 1996. During 1997, Promedix pursued a strategy of
providing web design and hosting services for specialty medical equipment
manufacturers. This strategy was terminated in early 1998, and Promedix then
began pursuing its present e-commerce activities.
Promedix is a provider of e-commerce solutions to the specialty medical
products market. Promedix enables health care enterprises and suppliers to
efficiently buy and sell specialty medical products through the Promedix
marketplace, a secure, Internet-based purchasing solution. Promedix acquired
Pro Med Co., Inc., ("Pro Med Co.") a specialty medical fulfillment business, in
May 1999.
Promedix's e-commerce business is currently in development. During this
period, operating activities relate primarily to the design and development of
Promedix's online marketplace and corporate infrastructure and the
establishment of relationships with suppliers and customers. Promedix has
incurred operating losses to date and had an accumulated deficit of
approximately $6.9 million at September 30, 1999. Promedix's activities have
been financed through private placements of equity securities. Promedix has
obtained a commitment from an investor to provide funding for its operational
requirements for the next calendar year.
On September 21, 1999, Promedix signed a definitive agreement in which all
of its outstanding shares will be acquired by Chemdex Corporation ("Chemdex").
Closing of the transaction is expected to occur by February 2000 (see Note 12).
2.Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The financial information as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 is unaudited and includes all adjustments,
consisting only of normal recurring adjustments, that Promedix's management
considers necessary for a fair presentation of Promedix's operating results and
cash flows for the period. Results for the nine month period ended September
30, 1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.
Revenue Recognition
During 1997 and 1998, revenues consisted primarily of service and renewal
fees charged to medical manufacturers which utilized the company's website
design and hosting services, which were recorded as revenues when the services
were provided.
Beginning in May 1999, Promedix's revenues include fulfillment revenues
generated from the distribution of medical products and equipment by Pro Med
Co., which are recorded as revenues when the products and equipment are
shipped.
F-36
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at the
time of acquisition. Promedix's cash and cash equivalents, as of December 31,
1997 and 1998 and September 30, 1999, consisted primarily of cash and money
market funds held by financial institutions in the United States, and had
carrying values which approximated fair value.
Property and Leasehold Improvements
Promedix records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of five to ten
years.
Inventories
Inventories consist primarily of medical products and equipment.
Inventories, net of allowances, are valued at the lower of cost or market value
with cost being determined using the average cost method.
Intangible Assets
The intangible assets recorded by the Company in connection with the
acquisition of Pro Med Co. (See Note 4) are being amortized on a straight-line
basis. As of September 30, 1999, accumulated amortization of intangible assets
amounted to $202,332. The intangible assets are being amortized over five
years.
Stock-Based Compensation
Promedix has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB Opinion No. 25"), and related
interpretations in accounting for its employee stock options and adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, when
the exercise price of Promedix's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of
shares outstanding. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for the incremental shares
attributed to outstanding stock options, warrants and convertible securities.
Because of the net loss, the computation of basic and diluted earnings per
share is the same for the year ended December 31, 1997 and for the nine months
ended September 30, 1999. The incremental shares used for the year ended
December 31, 1998 was 3,996,800 related to the assumed conversion of preferred
stock.
3. Concentrations of Credit Risk and Other Risks
Financial instruments that potentially subject Promedix to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the
United States.
Promedix presently sells primarily to emergency medical service providers.
Promedix performs ongoing credit evaluations of its customers but does not
require collateral. Promedix analyzes the need for reserves for potential
credit losses and records reserves when necessary. These losses have been
within management's expectations. To date, Promedix has not had significant
write-offs of bad debt.
For the year ended December 31, 1997 one customer accounted for 17% of net
revenues.
F-37
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
4. Acquisition
On May 18, 1999, Promedix acquired all the outstanding stock of Pro Med Co.
for $5,047,450 consisting of (i) $500,192 in cash (ii) $4,999,835 in face
amount of convertible subordinated promissory notes (discounted $2,878,980 to
reflect the value assigned to the warrants and the non-interest bearing period
of the notes) and (iii) warrants to purchase 333,334 shares of Promedix Series
B-1 preferred stock, valued at $2,389,675 for accounting purposes. Promedix
also incurred $36,728 in direct costs relating to the acquisition. The
acquisition was accounted for as a purchase, and Pro Med Co.'s results of
operations have been included in the accompanying unaudited September 30, 1999
consolidated financial statements since the acquisition date. Pro Med Co. is a
distributor of specialty medical products.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets................................................. $ 3,402,438
Property and equipment......................................... 1,177,726
Other assets................................................... 17,100
Goodwill....................................................... 2,725,067
Current liabilities............................................ (1,510,840)
Long-term liabilities.......................................... (764,041)
-----------
Purchase price................................................. $ 5,047,450
===========
</TABLE>
In connection with the pending merger of Promedix with Chemdex, Promedix has
entered into an agreement to sell Pro Med Co. to an unrelated third party (see
Note 12).
5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives --------------- September 30,
in Years 1997 1998 1999
------------ ------ ------- -------------
<S> <C> <C> <C> <C>
Furniture and fixtures......... 5 to 7 $ -- $ -- $ 206,502
Machinery and equipment........ 7 -- -- 987,445
Office equipment............... 5 3,750 3,750 3,750
Leasehold improvements......... 10 -- -- 108,677
------ ------- ----------
3,750 3,750 1,306,384
Less--accumulated depreciation
and amortization.............. (749) (1,498) (100,044)
------ ------- ----------
Property and equipment, net.... $3,001 $ 2,252 $1,206,340
====== ======= ==========
</TABLE>
6. Commitments
During 1999, Promedix has entered into 11 lease agreements to lease office
and warehouse space, as well as office equipment and furniture. These leases
have initial payment terms beginning at approximately $50,000 per month in the
aggregate, and expire at various dates through October 2004.
There were no lease commitments as of December 31, 1998.
F-38
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
Rental expense for the years ended December 31, 1997 and 1998 was $13,500
and $825, respectively. Rental expense for the nine months ended September 30,
1999 was $107,984.
Promedix has entered into agreements during 1999 with two companies to
provide public relations and advertising services for payments of approximately
$26,000 per month and the issuance of 1,500 stock options. These agreements are
cancelable by either party with 60 days notice.
7. Financing Arrangements
In connection with the proposed Chemdex merger, Chemdex agreed to provide
Promedix a $10 million line of credit (see Note 12).
In May 1999, in connection with the acquisition of Pro Med Co., Promedix
issued subordinated convertible promissory notes in the aggregate amount of
$4,999,835. These notes bear interest at 8% beginning September 2000 and are
secured by the common stock of Pro Med Co. The notes are partially convertible
into equity securities of Promedix upon the occurrence of a new equity
financing or within 12 months from the date of issuance. In November 1999, the
noteholders agreed to convert $1.0 million of the notes into 346,020 shares of
Promedix Series B-2 preferred stock. The notes original maturity date is
December 2005, which can be accelerated upon certain events, including a change
in control of Promedix. Accordingly, in connection with the proposed Chemdex
merger (see Note 12), the unpaid principal balance is expected to be paid upon
closing of the Chemdex transaction. The notes were issued with an original
discount of $2,878,980 to reflect the value assigned to the warrants issued in
connection with the Pro Med Co. acquisition and the non-interest bearing period
of the notes.
On July 14, 1999, Pro Med Co. entered into a line of credit with a bank
which provides for borrowings of up to $2,500,000 with interest at the bank's
prime rate plus 0.25%. Borrowings under the line are secured by substantially
all of Pro Med Co.'s assets. Amounts under the line are due July 2000.
8. Stockholders' Equity
Convertible Preferred Stock
Convertible preferred stock at December 31, 1998, and September 30, 1999, is
as follows:
<TABLE>
<CAPTION>
Shares Issued and Outstanding
Liquidation Shares Authorized ------------------------------------
Preference September 30, 1999 December 31, 1998 September 30, 1999
----------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Series A... $0.751 4,030,089 3,996,800 4,030,089
Series B-
1......... $1.500 333,334 -- --
Series B-
2......... $2.890 346,020 -- --
Series C... $28.34 1,000,000 -- --
</TABLE>
The Series A, Series B-1 and Series B-2 preferred stock is redeemable at the
option of the holders on or after December 29, 2004, in an amount equal to
$0.751 per share for the Series A, $1.50 per share for the Series B-1 and $2.89
per share for the Series B-2 preferred stock.
Series A, B-1, B-2 and C preferred stock is convertible, at the option of
the holder, into one share of common stock, subject to certain adjustments for
dilutive issuances. Any outstanding shares of Series A, B-1,
F-39
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
B-2 and C preferred stock automatically convert into common stock upon a firm
commitment underwritten public offering of Promedix's common stock with gross
proceeds to Promedix of at least $10,000,000 and a per share price of at least
$5.257.
Holders of Series A, B-1, B-2 and C preferred stock are entitled to receive
dividends only when declared by the Board of Directors out of legally available
funds. No dividends have been declared or accrued as of September 30, 1999.
Series A, B-1, B-2 and C preferred stockholders are entitled to receive,
upon a Liquidating Event, an amount per share equal to the issuance price, plus
all declared but unpaid dividends. The remaining assets and funds, if any,
shall be distributed among the holders of Series A, B-1, B-2 and C preferred
stock and common stock pro rata based on the number of shares of common stock
held by each (assuming conversion of all such Series A, B-1, B-2 and C
preferred stock). If any assets remain after the holders of Series A, B-1, B-2
and C preferred stock have received an aggregate of $0.751, $1.50, $2.89 and
$28.34 per share, the remaining assets will be distributed to the holders of
the common stock pro rata based on the number of shares common stock held by
each.
On September 21, 1999, Promedix entered into an agreement to issue 176,429
shares of its Series C preferred stock for $28.34 per share, with a closing
scheduled to occur at closing of the merger with Chemdex.
Warrants
In May 1999, in connection with the acquisition of Pro Med Co., Promedix
issued fully vested warrants that entitles the holder to purchase 333,334
shares of the Promedix's Series B-1 preferred stock at an exercise price of
$1.50 per share. These warrants are exercisable through the earlier of (a) the
closing of an equity financing resulting in proceeds of at least $2,000,000;
(b) the sale of the company or change in control, as defined, or (c) the
closing of an underwritten public offering.
Common Stock
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends from legally available funds when
and if declared by the Board of Directors, subject to the prior rights of
holders of Series A, B-1, B-2 and C preferred stock.
At September 30, 1999, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................. 4,030,089
Conversion of Series B-1 preferred stock........................... 333,334
Conversion of Series B-2 preferred stock........................... 346,020
Conversion of Series C preferred stock............................. 1,000,000
Stock Option Plan.................................................. 1,770,000
</TABLE>
During the first quarter of 1999, Promedix adjusted its capital structure to
effect a 10:1 stock split and to change its capital stock from no par value to
$.0001 per share par value. The impact of these adjustments has been applied
retroactively to all periods presented.
During 1998, a stockholder requested that Promedix cancel its 12,080 shares
of Promedix common stock. Accordingly, these shares have been removed from
Promedix's outstanding shares.
F-40
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
Stock Option Plan
In December 1998, the Board of Directors adopted the 1998 Stock Plan (the
"1998 Plan") for issuance of common stock to eligible participants. The Plan
provides for the granting of incentive stock options and non-qualified stock
options. Incentive stock options and non-qualified stock options may be granted
under the 1998 Plan at prices not less than 100% and 85% of the fair value at
the date of grant, or at prices not less than 110% for individuals owning more
than 10% of the combined voting power of all classes of stock at the date of
grant. Options generally expire after ten years.
Activity under the 1998 Stock Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------
Shares Available Number of Price per Weighted-Average
for Grant Shares Share Exercise Price
---------------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Authorized.............. 1,870,000
Granted................. (1,297,761) 1,297,761 $.10-$15.00 $.58
Exercised............... -- (100,000) $.10 $.10
Canceled................ 2,500 -- $.10-$1.00 $.64
---------- ---------
Balance at September 30,
1999................... 574,739 1,197,761 $.10-$15.00 $.62
========== =========
</TABLE>
In connection with the grant of share options to employees through September
30, 1999, Promedix recorded deferred compensation of $21,401,278 for the
aggregate differences between the exercise price of options at their dates of
grant and deemed fair value for accounting purposes of the common shares
subject to these options. Such amount is included as a reduction of
stockholders' equity and is being amortized on a straight-line vesting method
over the option vesting periods, which are generally four years. The
compensation expense of $3,776,288 through September 30, 1999 relates to the
options awarded to employees in all operating expense categories.
9. Employee Savings and Retirement Plan
Beginning May 1999, Promedix has a 401(K) plan that allows eligible
employees to contribute up to 15% of their salary, subject to annual limits.
Under the Plan, eligible employees may defer a portion of their pretax salaries
but not more than statutory limits. Promedix made $9,505 in contributions
during the nine months ended September 30, 1999.
10. Income Taxes
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the federal statutory rate of 34%
is due to net operating losses having a valuation allowance, due to past
operating results and uncertainties regarding Promedix's future results of
operations. Accordingly, there is no provision for income taxes for the years
ended December 31, 1997 and 1998. The tax provision for the nine months ended
September 30, 1999 is for state income taxes.
As of December 31, 1998 Promedix had federal and state net operating loss
carry-forwards of approximately $112,000 for each which will expire through
2012 if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended, and similar state provisions. The
annual limitation may result in the expiration of net operating losses before
utilization.
F-41
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Promedix deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 48,270 $ 41,880
Reserves and accruals.................................. 3,990 --
Other.................................................. (280) --
-------- --------
Total deferred tax assets............................ 51,980 41,880
Deferred tax liability:
Depreciation........................................... -- (180)
-------- --------
Net deferred tax asset................................... 51,980 41,700
Valuation Allowance...................................... (51,980) (41,700)
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes Promedix's
historical operating performance, the reported net losses for the years ended
December 31, 1997 and 1998, and the uncertainties regarding Promedix's future
results of operations, a full valuation allowance has been provided against its
net deferred tax assets. The valuation allowance increased by $51,980 during
1997 and decreased by $10,280 during 1998.
11. Related Party Transactions
Promedix has an aggregate of $200,000 in principal amount of notes
receivable from Brad Brewer and Barrie Brewer. The notes bear interest at 9.5%,
are unsecured and are due in full on January 15, 2000. The total amount due
from officers at September 30, 1999, was $217,397.
During 1997 and 1998, certain shareholders provided services and advanced
funds to Promedix to meet certain operating requirements. The value of these
advances and services totaled $65,684 in 1997 and $13,575 in 1998. These
advances were converted to common stock during each of the respective years.
During 1997 and 1998, Medical Companies Alliance, Inc. and/or its affiliates
("MCA") advanced funds to Promedix to pay certain operating and development
expenses. The total of these advances was $20,160 and $86,204 through December
31, 1997 and September 30, 1998, respectively. This debt was forgiven by MCA in
September 1998, and the gain is shown as an extraordinary item in the
accompanying statements of operations.
12. Chemdex Transaction
Merger Transaction
On September 21, 1999, Promedix entered into an agreement involving the
merger of a wholly-owned subsidiary of Chemdex, with and into Promedix, which
will become a wholly-owned subsidiary of Chemdex pursuant to an Agreement and
Plan of Merger by and among Chemdex, the acquisition subsidiary and
F-42
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
Promedix. In the merger, each outstanding share of Promedix common stock will
be converted into and represent the right to receive Chemdex common stock based
on an exchange ratio. Each outstanding option and warrant to purchase Promedix
common stock will be converted into an option or warrant, respectively, to
purchase shares of Chemdex common stock in accordance with the same exchange
ratio. The exchange ratio will be determined by dividing 12,057,366, the
maximum number of shares of Chemdex common stock to be issued as a result of
this merger by the number of shares of Promedix capital stock outstanding and
the number of shares of Promedix capital stock subject to options to purchase
Promedix capital stock outstanding as of the closing date.
Consummation of the merger is subject to various conditions, including
approval of the merger agreement by a majority of the shareholders of Chemdex
common stock entitled to vote at the Chemdex special meeting and approval of
the merger agreement by the requisite majorities of the shares of Promedix
capital stock entitled to vote at the Promedix special meeting. The parties
have agreed to a reciprocal break up fee of $10 million payable under certain
conditions with regard to the termination of the merger.
Line of Credit
In connection with the proposed Chemdex merger, Chemdex agreed to provide
Promedix a $10 million line of credit, drawable ratably on the first day of
each month through March 1, 2000. The loan bears interest at 9% and is secured
by substantially all of Promedix's assets. The outstanding balance is due upon
the earlier of (i) September 21, 2000, in the event that the merger agreement
is terminated (ii) the sale of all or substantially all of the assets of
Promedix to any party other than Chemdex or its affiliates or (iii) December
31, 2000. Also, in the event Promedix receives additional financing over
$500,000, Promedix is required to pay 25% of the proceeds to reduce any amount
outstanding under the loan.
Sale of Pro Med Co.
Promedix agreed to sell all of the outstanding shares of capital stock of
its wholly-owned subsidiary, Pro Med Co., a Utah Corporation, to an unrelated
third party One or more of Promedix's stockholders, including William C.
Klintworth, Promedix's Chief Executive Officer, may own a minority interest in
such third party. Pro Med Co. is in the business of marketing and distributing
medical equipment and supplies and is referred to herein as the "fulfillment
business."
All stock options held by employees (43 people) of Pro Med Co. will be
reduced by one half and such remaining options will immediately become 100%
vested upon the sale of Pro Med Co. Options held by two Pro Med Co. officers
will be reduced by two thirds and the remaining portion will become 100% vested
upon the sale of such subsidiary. Deferred compensation expense attributable to
these stock options will be adjusted upon completion of the sale.
13. Segment Reporting
During the year ended December 31, 1998 Promedix adopted Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial statements. For the years ended December 31, 1997 and 1998, Promedix
viewed operations as principally one segment which provided website design and
internet hosting services.
F-43
<PAGE>
PROMEDIX.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited
During 1999, Promedix began pursuing its present e-commerce activities and
acquired Pro Med Co., which is a distributor of medical products and equipment.
During 1997 and 1998, revenue consisted primarily of service and renewal
fees charged to medical manufacturers which utilized the company's website
design and hosting. Beginning in May 1999, Promedix revenues include those
generated from the distribution of medical products and equipment by the
distribution company. There is no profit or loss on intersegment sales or
transfers.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, 1999
------------------------------------
Promedix.com Pro Med Co Promedix
------------ ---------- -----------
<S> <C> <C> <C>
Total assets............................... $ 1,941,256 $7,216,971 $ 9,158,227
Net revenues............................... -- 7,875,993 7,875,993
Net income/(loss).......................... (7,011,051) 205,168 (6,805,883)
</TABLE>
F-44
<PAGE>
PRO MED CO., INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Jones, Jensen & Company, Independent Auditors.................... F-46
Balance Sheets............................................................. F-47
Statements of Operations................................................... F-48
Statements of Stockholders' Equity......................................... F-49
Statements of Cash Flows................................................... F-50
Notes to the Financial Statements.......................................... F-51
</TABLE>
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pro Med Co., Inc.,
West Jordan, Utah
We have audited the accompanying balance sheets of Pro Med Co., Inc., as of
December 31, 1998 and 1997 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pro Med Co., Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Jones, Jensen & Company
Salt Lake City, Utah
January 28, 1999
F-46
<PAGE>
PRO MED CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash................................................... $ -- $ --
Accounts receivable, net (Note 1)...................... 1,945,968 2,109,519
Inventory (Note 1)..................................... 2,076,423 1,741,634
Prepaids and other current assets...................... 52,910 26,370
Deferred tax benefit................................... 17,100 17,100
---------- ----------
Total Current Assets................................. 4,092,401 3,894,623
---------- ----------
Fixed Assets (Notes 1 and 2)............................. 1,074,015 1,133,653
---------- ----------
Total Assets......................................... $5,166,416 $5,028,276
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Cash overdraft......................................... $ 258,274 $ 92,255
Line of credit (Note 7)................................ 474,000 453,342
Accounts payable....................................... 1,454,200 1,336,708
Sales tax payable...................................... 54,426 37,497
Accrued expenses....................................... 176,611 143,300
Taxes payable (Note 6)................................. 76,281 --
Capital lease--current portion (Note 4)................ -- 8,412
Notes payable--current portion (Note 3)................ 20,348 552,415
---------- ----------
Total Current Liabilities............................ 2,514,140 2,623,929
---------- ----------
Long-term Debt
Notes payable--long-term (Note 3)...................... 770,821 788,728
---------- ----------
Total Long-Term Debt................................. 770,821 788,728
---------- ----------
Total Liabilities.................................... 3,284,961 3,412,657
---------- ----------
Stockholders' Equity
Common stock, no par value, 100,000 shares
authorized; 51,726 shares issued and outstanding...... 55,384 55,384
Notes receivable--related parties (Note 8)............. (203,167) --
Retained earnings...................................... 2,029,238 1,560,235
---------- ----------
Total Stockholders' Equity........................... 1,881,455 1,615,619
---------- ----------
Total Liabilities And Stockholders' Equity............. $5,166,416 $5,028,276
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-47
<PAGE>
PRO MED CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years
Ended
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Sales, net........................................ $19,355,059 $18,018,751
Cost of sales..................................... 14,319,863 13,510,528
----------- -----------
Gross Profit.................................... 5,035,196 4,508,223
Expenses
Selling expenses.................................. 2,926,183 2,533,426
General and administrative........................ 1,153,405 1,199,286
Depreciation and amortization..................... 98,584 90,026
----------- -----------
Total Expenses.................................. 4,178,172 3,822,738
----------- -----------
Income From Operations.............................. 857,024 685,485
----------- -----------
Other Income (expense)
Gain (loss) on sale of assets..................... -- 506
Interest expense.................................. (148,971) (149,546)
Interest income................................... 3,167 1,230
Other income...................................... 25,442 5,430
----------- -----------
Total Other Income (Expense).................... (120,362) (142,380)
----------- -----------
Income Before Provision For Income Taxes............ 736,662 543,105
Provision For Income Taxes.......................... (267,659) (208,500)
----------- -----------
Net Income.......................................... $ 469,003 $ 334,605
=========== ===========
Earnings Per Share--Basic and Diluted............... $ 9.07 $ 6.47
=========== ===========
Weighted Average Shares Outstanding--Basic and
Diluted............................................ 51,726 51,726
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-48
<PAGE>
PRO MED CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------- Retained
Shares Amount Earnings
------ ------- ----------
<S> <C> <C> <C>
Balance, December 31, 1996........................... 51,726 $55,384 $1,225,630
Net income for the year ended December 31, 1997...... -- -- 334,605
------ ------- ----------
Balance, December 31, 1997........................... 51,726 55,384 1,560,235
Net income for the year ended December 31, 1998...... -- -- 469,003
------ ------- ----------
Balance, December 31, 1998........................... 51,726 $55,384 $2,029,238
====== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-49
<PAGE>
PRO MED CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years
Ended
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net income.............................................. $ 469,003 $ 334,605
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization......................... 98,584 90,026
Gain (loss) on sale of fixed assets................... -- (506)
Amortization of discount on note payable.............. -- 10,930
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............ 160,384 (238,638)
(Increase) decrease in inventory...................... (334,789) (360,246)
(Increase) decrease in prepaids and other assets...... (26,540) 108,061
(Increase) decrease in income tax receivable.......... -- 60,691
Increase (decrease) in line of credit................. 186,677 (296,044)
Increase (decrease) in accounts payable............... 117,492 480,024
Increase (decrease) in sales tax payable.............. 16,929 (6,659)
Increase (decrease) in accrued expenses............... 33,859 18,127
Increase (decrease) in income taxes payable........... 75,733 --
--------- ---------
Net Cash Provided (Used) by Operating Activities........ 797,332 200,371
--------- ---------
Cash Flows From Investing Activities
Purchase of fixed assets................................ (38,946) (159,518)
--------- ---------
Net Cash Provided (Used) by Investing Activities........ $ (38,946) $(159,518)
--------- ---------
Cash Flows From Financing Activities
(Increase) in related party receivables................. $(200,000) $ --
Proceeds from notes payable............................. -- 150,000
Principal payments on capital lease..................... (8,412) (9,287)
Principal payments on notes payable..................... (549,974) (181,566)
--------- ---------
Net Cash Provided (Used) by Financing Activities........ (758,386) (40,853)
--------- ---------
Net Increase (decrease) In Cash......................... -- --
Cash At Beginning of Year............................... -- --
--------- ---------
Cash At End of Year..................................... $ -- $ --
========= =========
Cash Paid For:
Interest expense...................................... $ 148,860 $ 149,546
Income taxes.......................................... $ 174,454 $ 242,701
</TABLE>
The accompanying notes are an integral part of these financial statements
F-50
<PAGE>
PRO MED CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Pro Med Co., Inc., (the Company) is a distributor of emergency medical
equipment primarily to ambulance services, fire departments and governmental
entities. The Company also distributes medical training products. The Company's
products are distributed to customers throughout the United States.
Effective December 31, 1992, Laser Corporation (Laser) purchased 70 percent
of the Company's outstanding common stock for total consideration of
$2,000,000. Effective January 1, 1993, the purchase agreement was amended with
Laser Corporation acquiring an additional 10 percent of the Company's stock for
$100 resulting in Laser Corporation owning 80 percent of the Company.
On January 1, 1995 the Company repurchased 48,274 shares of common stock and
extinguished the payable due to Laser Corporation with a $700,000 down payment
and two notes payable totaling $935,128. The remaining Laser owned shares
(31,726 shares) of common stock were purchased by officers and directors of the
Company. Any and all financial interests that Laser had in the Company have
been terminated as a result of this transaction. As of December 31, 1998, all
amounts due to Laser Corporation have been paid.
b. Cash Equivalents
The Company considers all highly liquid investments and deposits with a
maturity of three months or less when purchased to be cash equivalents.
c. Marketable Securities
The Company classifies its marketable debt and equity securities as "held to
maturity" if it has the positive intent and ability to hold the securities to
maturity. All other marketable debt and equity securities are classified as
"available for sale." Securities classified as "available for sale" are carried
in the financial statements at fair value. Realized gains and losses,
determined using the specific identification method, are included in earnings;
unrealized holding gains and losses are reported as a separate component of
stockholders' equity. Securities classified as held to maturity are carried at
amortized cost.
For both categories of securities, declines in fair value below amortized
cost that are other than temporary are included in earnings.
At December 31, 1998 and 1997, the market value approximated the cost of
marketable securities. Marketable securities at December 31, 1998 and 1997 were
$16,093 and $16,093, respectively, and have been included in prepaids and other
current assets.
d. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has adopted a calendar year end.
Sales revenue is recognized when the product is shipped to the customer and
expenses are recognized as incurred.
F-51
<PAGE>
PRO MED CO., INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
e. Inventories
Inventories consisting of emergency medical equipment and supplies are
stated at the lower of cost or market value using the average cost method.
f. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful life or lease term of the
related asset. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Equipment........................................................ 5 years
Furniture and fixtures........................................... 5 years
Building......................................................... 31.5 years
</TABLE>
g. Income Taxes
Deferred income taxes are provided for temporary differences in reporting
income for financial statement and tax purposes arising primarily from
differences between financial reporting and income tax reporting in the methods
of accounting for depreciation of property and equipment, accrued liabilities
and allowance for uncollectible receivables.
h. Reclassification
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
i. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts.
The allowance was $43,052 and $43,052 at December 31, 1998 and 1997,
respectively.
j. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
F-52
<PAGE>
PRO MED CO., INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
NOTE 2--FIXED ASSETS
Fixed assets at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Equipment under capital leases....................... $ -- $ 71,217
Computer software.................................... 90,352 85,734
Equipment............................................ 194,907 217,883
Furniture and fixtures............................... 90,855 81,304
Building............................................. 845,471 845,471
Land................................................. 100,000 100,000
---------- ----------
1,321,585 1,401,609
Less accumulated depreciation and amortization....... (247,570) (267,956)
---------- ----------
Net Property and Equipment........................... $1,074,015 $1,133,653
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 was
$98,584 and $90,026, respectively.
NOTE 3--LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following;
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Note payable to a bank, secured by first deed of
trust on building, payable in monthly installments
of $5,679 including interest at 8.94% through
November 2006...................................... $658,715 $ 664,822
Note payable to a bank, secured by a trust deed on
the property, payable in monthly installments of
$1,934 including interest at 9.25% through December
2006............................................... 132,454 142,013
Note payable to Laser Corporation, secured by pledge
agreement and a personal guarantee by owners and
officers of the Company, monthly principal and
interest payments of $16,121, including interest of
7.5% for 36 months, with a balloon payment due and
payable on January 1, 1998......................... -- 372,034
Note payable to Laser Corporation, secured by pledge
agreement and a personal guarantee by owners and
officers of the Company, with an imputed interest
rate of 7.5% with total amount of principal and
accrued interest of $162,274 due and payable on
January 1, 1998.................................... -- 162,274
-------- ----------
791,169 1,341,143
Less current portion................................ (20,348) (552,415)
-------- ----------
$770,821 $ 788,728
======== ==========
</TABLE>
F-53
<PAGE>
PRO MED CO., INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 20,348
2000.............................................................. 22,120
2001.............................................................. 24,410
2002.............................................................. 26,745
2003.............................................................. 29,303
Thereafter........................................................ 668,243
--------
Total........................................................... $791,169
========
</TABLE>
NOTE 4--CAPITAL LEASE
The Company leases certain equipment under long-term lease agreements. The
leases are classified as capital leases.
The Company entered into a capital lease for office equipment as follows:
<TABLE>
<CAPTION>
1998 1997
----- -------
<S> <C> <C>
Capital lease payable in monthly principal and interest
payments of $983, for sixty-two months beginning August 16,
1993, interest rate of 12.25%, secured by office equipment.. $ -- $ 8,412
----- -------
8,412
Less current portion......................................... -- (8,412)
----- -------
$ -- $ --
===== =======
</TABLE>
NOTE 5--OPERATING LEASES
The Company leases office space under a five year cancellable operating
lease. During the years ended December 31, 1998 and 1997, the Company
recognized annual rent expense of $44,423 and $38,133, respectively. The
following is a schedule of future minimum rental payments under the operating
lease at December 31, 1998.
<TABLE>
<S> <C>
1999.............................................................. $ 35,616
2000.............................................................. 35,616
2001.............................................................. 35,616
2002.............................................................. 35,616
2003.............................................................. 35,616
--------
$178,080
========
</TABLE>
F-54
<PAGE>
PRO MED CO., INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
NOTE 6--INCOME TAXES
Income taxes for the years ended December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Taxes currently payable
Federal.............................................. $ 228,129 $ 176,802
State................................................ 39,530 31,698
--------- ---------
267,659 208,500
Less prepayments....................................... (191,378) (208,500)
--------- ---------
Total taxes currently (receivable) payable............. $ 76,281 $ --
========= =========
</TABLE>
Deferred income taxes have been calculated on the differences between the
tax basis of assets and the cost basis of those same assets represented in the
financial statements. The deferred tax assets relate to the Company's allowance
for bad debts.
Income tax at the statutory rate is reconciled to the Company's actual
provision as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Tax at federal statutory rate............................. $228,129 $176,802
State income tax, net of federal tax benefit.............. 39,530 31,698
Deferred taxes payable--current........................... -- --
Deferred tax benefit--current............................. -- --
-------- --------
Income Tax Expense...................................... $267,659 $208,500
======== ========
</TABLE>
The deferred tax benefit of $17,100 relates to the allowance for doubtful
accounts of $43,052 and $43,052 in 1998 and 1997, respectively.
NOTE 7--LINE OF CREDIT
The Company has obtained a line of credit from a bank which allows the
Company to draw up to $1,500,000 to cover operating expenses. The line of
credit is collateralized by the Company's accounts receivable and inventory,
and bears interest at 9.25%.
NOTE 8--NOTES RECEIVABLE--RELATED PARTIES
The Company has a $100,000 note receivable from its President and Vice-
President, respectively. The notes bear interest at 9.5%, are unsecured and are
due in full on January 15, 2000. The total amount due from officers at December
31, 1998 is $203,167.
NOTE 9--YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue, and is
developing an implementation plan to resolve the issue.
F-55
<PAGE>
PRO MED CO., INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
The issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is heavily dependent on computer processing in the conduct of
its business activities.
Estimated Cost of Remediation
Because the Company has not completed its review of the computer systems,
management is unable to estimate the cost of making the systems year 2000
compliant.
F-56
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Financial Statements
Periods from inception (May 27, 1998) through December 31, 1998 and through
September 30, 1998
and the nine-month period ended September 30, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................................. F-58
Audited Financial Statements
Balance Sheets............................................................. F-59
Statements of Operations................................................... F-60
Statements of Cash Flows................................................... F-61
Statement of Stockholders' Equity (Deficit)................................ F-62
Notes to Financial Statements.............................................. F-63
</TABLE>
F-57
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
SpecialtyMD.com Corporation
We have audited the accompanying balance sheets of SpecialtyMD.com Corporation
(a development stage company) (the "Company") as of December 31, 1998, and the
related statements of operations, stockholders' equity (deficit), and cash
flows of the Company for the period from inception (May 27, 1998) through
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SpecialtyMD.com Corporation (a
development stage company) as of December 31, 1998, and the results of its
operations and its cash flows for the period from inception (May 27, 1998)
through December 31, 1998 in conformity with generally accepted accounting
principles.
<TABLE>
<S> <C>
Palo Alto, CA, Ernst & Young LLP
</TABLE>
December 9, 1999
F-58
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 886,099 $ 1,390,821
Restricted cash................................... -- 137,929
Employee receivable............................... -- 2,000
Prepaid expense and other:
Prepaid expenses................................. -- 24,129
Deposits--current................................ 4,193 4,193
--------- -----------
Total current assets............................ 890,292 1,559,072
Property and equipment, net........................ 45,753 141,770
Long-term deposits................................. -- 36,000
--------- -----------
Total assets....................................... $ 936,045 $ 1,736,842
========= ===========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable.................................. $ 28,543 $ 159,542
Accrued liabilities............................... 9,217 115,190
Deferred rent..................................... -- 22,980
--------- -----------
Total current liabilities....................... 37,760 297,712
Series A redeemable convertible preferred stock,
$0.001 par value, 3,050,000 shares authorized;
3,000,000 and 3,050,000 shares issued and
outstanding at December 31, 1999 and September 30,
1999, respectively................................ 1,469,694 1,492,085
Series B redeemable convertible preferred stock,
$0.001 par value, 5,000,000 shares authorized;
2,523,333 shares issued and outstanding at
December 31, 1999 and September 30, 1999,
respectively...................................... -- 2,708,861
Stockholders' equity (deficit):
Common stock, $0.001 par value, 22,000,000 shares
authorized, 5,150,000 and 4,847,000 shares issued
and outstanding at December 31, 1998 and
September 30, 1999, respectively................. 5,150 4,847
Additional paid-in capital........................ 17,946 4,084,458
Deferred compensation............................. -- (3,870,047)
Deficit accumulated during development stage...... (594,505) (2,981,074)
--------- -----------
Total stockholders' equity (deficit)............ (571,409) (2,761,816)
--------- -----------
Total liabilities and stockholders' equity......... $ 936,045 $ 1,736,842
========= ===========
</TABLE>
F-59
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period from Period from Period from
inception inception inception
(May 27, 1998) (May 27, 1998) Nine-month (May 27, 1998)
through through period ended through
December 31, September 30, September 30, September 30,
1998 1998 1999 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ 100 $ 100
Operating expenses:
Research and
development.......... 374,006 111,961 1,380,798 1,754,804
Marketing and business
development.......... 7,936 956 167,816 175,752
General and
administrative....... 222,278 95,385 693,587 915,865
Amortization of
deferred
compensation......... -- -- 50,487 50,487
--------- --------- ----------- -----------
Total operating
expenses............... 604,220 208,302 2,292,688 2,896,908
--------- --------- ----------- -----------
Loss from operations.... (604,220) (208,302) (2,292,588) (2,896,808)
Interest income......... 10,576 4,020 12,648 23,224
Interest expense........ -- -- (79,743) (79,743)
--------- --------- ----------- -----------
Other income (expense).. 10,576 4,020 (67,095) (56,519)
--------- --------- ----------- -----------
Loss before provision
for income taxes....... (593,644) (204,282) (2,359,683) (2,953,327)
Provision for income
taxes.................. 861 -- 1,886 2,747
--------- --------- ----------- -----------
Net loss................ (594,505) (204,282) (2,361,569) (2,956,074)
Amortization of Series A
preferred stock
discount............... -- -- (25,000) (25,000)
--------- --------- ----------- -----------
Net loss available to
common stockholders.... $(594,505) $(204,282) $(2,386,569) $(2,981,074)
========= ========= =========== ===========
Net loss per share
attributable to common
stockholders:
Basic and diluted net
loss................. $ (0.21) $ (0.08) $ (0.72) $ (0.97)
Weighted-average number
of shares outstanding:
Basic and diluted..... 2,829,651 2,506,413 3,279,055 3,079,523
========= ========= =========== ===========
</TABLE>
F-60
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
Period from inception Period from
inception (May 27, inception
(May 27, 1998) 1998) Nine-month (May 27, 1998)
through through period ended through
December 31, September 30, September 30, September 30,
1998 1998 1999 1999
-------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss available to
common stockholders.... $ (594,505) $ (204,282) $(2,386,569) $(2,981,074)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Accretion of discount
on notes associated
with warrants......... -- -- 56,772 56,772
Depreciation........... 2,552 -- 23,137 25,689
Amortization of
deferred
compensation.......... -- -- 50,487 50,487
Amortization of Series
A preferred stock
discount.............. -- -- 25,000 25,000
(Increase) decrease in
operating assets and
liabilities:
Change in restricted
cash................. -- -- (137,929) (137,929)
Employee receivable... -- -- (2,000) (2,000)
Other current assets.. -- -- (24,129) (24,129)
Accounts payable...... 28,543 15,592 130,999 159,542
Accrued liabilities... 9,217 -- 111,190 120,407
Accrued interest
payable.............. -- -- 22,969 22,969
Deferred rent......... -- -- 22,980 22,980
Net cash used in
operating activities... (554,193) (188,690) (2,130,062) (2,661,286)
---------- ---------- ----------- -----------
Investing activities
Purchase of property and
equipment.............. (48,305) (23,768) (119,154) (167,459)
Deposits................ (4,193) (4,193) (36,000) (40,193)
---------- ---------- ----------- -----------
Net cash used in
investing activities... (52,498) (27,961) (155,154) (207,652)
Financing activities
Proceeds from issuance
of convertible debt.... -- -- 1,030,000 1,030,000
Proceeds from issuance
of redeemable
convertible preferred
stock, net of issuance
costs of $18,000
through September 1998,
$32,000 at December
1998, and $40,000 at
September 30, 1999..... 1,469,694 1,134,207 1,714,963 3,184,657
Proceeds from issuance
of common stock........ 23,096 7,091 22,006 45,102
---------- ---------- ----------- -----------
Net cash provided by
financing activities... 1,492,790 1,141,298 2,766,969 4,259,759
---------- ---------- ----------- -----------
Change in cash and cash
equivalent............. 886,099 924,647 504,772 1,390,821
Cash and cash
equivalents, at
beginning of period.... -- -- 886,099 --
---------- ---------- ----------- -----------
Cash and cash
equivalents, at end of
period................. $ 886,099 $ 924,647 $ 1,390,821 $ 1,390,821
Supplemental disclosures
Cash paid for interest.. $ -- $ -- $ 22,969 $ 22,969
========== ========== =========== ===========
Cash paid for taxes..... $ 861 $ -- $ 1,886 $ 2,747
========== ========== =========== ===========
Noncash transactions
Preferred stock issued
for principal and
accrued interest on
convertible notes...... $ -- $ -- $ 1,052,969 $ 1,052,969
========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-61
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional during
----------------- Paid-In Deferred Development
Shares Amount Capital Compensation Stage Total
--------- ------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 27, 1998
Issuance of common stock
for cash............... 5,050,000 $5,050 $ -- $ -- $ -- $ 5,050
Issuance of common stock
options for services... -- -- 13,046 -- -- 13,046
Issuance of common stock
upon exercise of stock
options................ 100,000 100 4,900 -- -- 5,000
Net loss................ -- -- -- -- (594,505) (594,505)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1998................... 5,150,000 5,150 17,946 -- (594,505) (571,409)
Issuance of common stock
options for services
(unaudited)............ -- -- 69,316 -- -- 69,316
Issuance of common stock
upon exercise of stock
options (unaudited).... 401,000 401 21,605 -- -- 22,006
Repurchase of common
stock (unaudited)...... (704,000) (704) (1,715) -- -- (2,419)
Deferred compensation
relating to options
(unaudited)............ -- -- 3,920,534 (3,920,534) -- --
Amortization of deferred
compensation relating
to stock options
(unaudited)............ -- -- -- 50,487 -- 50,487
Issuance of warrants for
promissory notes
(unaudited)............ -- -- 56,772 -- -- 56,772
Net loss (unaudited).... -- -- -- -- (2,361,569) (2,361,569)
Amortization of Series A
redeemable preferred
stock discount
(unaudited)............ -- -- -- -- (25,000) (25,000)
--------- ------ ---------- ----------- ----------- -----------
Balance at September 30,
1999 (unaudited)....... 4,847,000 $4,847 $4,084,458 $(3,870,047) $(2,981,074) $(2,761,816)
========= ====== ========== =========== =========== ===========
</TABLE>
F-62
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
1. Description of the Business and Basis of Presentation
The Company
SpecialtyMD.com Corporation ("Specialty" or the "Company") (originally named
Healthcare Transaction Systems, Inc.) was incorporated on May 27, 1998. During
1998, Specialty pursued a strategy of providing data and tools for supply chain
reengineering in clinical areas such as Cardiology and Orthopedics. This
strategy was terminated in early 1999, and Specialty then began pursuing its
present deep clinical product content activities.
Specialty is a provider of deep clinical and product content to clinicians
in physician preference product areas. Specialty enables clinicians, suppliers,
and providers to exchange timely clinical information regarding products,
procedures, and techniques through a portfolio of specialty-specific web sites
under the SpecialtyMD.com brand. Specialty-specific web sites carry content
from the latest clinical conferences, outcomes studies, and clinical trial
information along with vendor-sponsored, on-line symposia, user groups, and
training. Specialty also provides on-line training to vendor's sales and
marketing organizations and provides tools that enable healthcare providers to
efficiently standardize on product usage and best practices.
Specialty's business is currently in development. During this period,
operating activities relate primarily to the design and development of
Specialty's web site, corporate infrastructure, and the establishment of
relationships with suppliers, physicians, and other partners. Specialty's
activities have been financed through private placements of convertible debt
and redeemable convertible preferred securities.
On December 10, 1999, Specialty signed a definitive agreement pursuant to
which all of its outstanding preferred stock, common stock, and stock options
and warrants will be acquired by Chemdex Corporation ("Chemdex"). Closing of
the transaction is expected to occur by March 2000. In connection with the
proposed merger, Chemdex agreed to provide the Company a $4 million secured
promissory note (see Note 10).
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Statements
The unaudited financial statements of September 30, 1999 and for the periods
from inception (May 27, 1998) through September 30, 1998 and through September
30, 1999 and for the nine-month period ended September 30, 1999 have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and Article 10 of Regulation S-X. In the opinion
of management, all adjustments consisting of recurring adjustments, necessary
for a fair presentation have been included. Operating results of the unaudited
periods from inception (May 27, 1998) through September 30, 1998 and through
September 30, 1999 and for the nine-month period ended September 30, 1999, are
not necessarily indicative of the results that may be expected for future
periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-63
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
2. Summary of Significant Accounting Policies (continued)
Market and Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the
United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents. Cash equivalents consist
primarily of cash and money market funds held by financial institutions and had
carrying values which approximate fair value.
For purposes of the statement of cash flows, cash consists of amounts on
deposit with commercial banks in checking and interest bearing accounts
available on demand.
Fair Value of Financial Instruments
The carrying value of receivables, accounts payable and accrued expenses
approximates the fair value of these financial instruments at December 31, 1998
and September 30, 1999.
Property and Equipment
Property and equipment consists of furniture, computer and office equipment,
and software which are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, generally 3 years.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
Organization Costs
Organization costs amounting to $13,656 for the period from May 27, 1998
through December 31, 1998 were expensed as incurred. There were no such costs
for the unaudited nine-month period ended September 30, 1999.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options, as discussed in
Note 7. This election was made because the alternative fair value accounting
provided for under
F-64
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
2. Summary of Significant Accounting Policies (continued)
FAS No. 123, "Accounting for Stock-Based Compensation," requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Per Share Data
Basic and diluted net income (loss) per share have been calculated using the
weighted-average common shares outstanding during the periods in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), issued by the Financial Accounting Standards Board. The Company
has excluded all outstanding stock options and shares subject to repurchase by
the Company from the calculation of diluted loss per share because these
securities are antidilutive for all periods presented.
Recent Accounting Pronouncements
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). There are no material components of other
comprehensive income (loss) and, accordingly, the comprehensive income (loss)
is the same as net income (loss) for all periods presented.
Derivatives
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
1999. Management of the Company does not anticipate that the adoption of the
new Statement will have a significant effect on results of operations or the
financial position of the Company.
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful December 31, September 30,
Lives 1998 1999
--------- ------------ -------------
(In
years) (Unaudited)
<S> <C> <C> <C>
Furniture and office equipment.......... 3 $ -- $ 19,412
Computer equipment and software......... 3 48,305 148,047
------- --------
48,305 167,459
Less accumulated depreciation........... (2,552) (25,689)
------- --------
Property and equipment, net............. $45,753 $141,770
======= ========
</TABLE>
F-65
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
4. Operating Leases
The Company leases certain real property under noncancelable operating lease
agreements. The following is a schedule of minimum rental commitments under
operating lease agreements:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
1999.............................................. $61,056 $ --
2000.............................................. 461,700
2001.............................................. 553,800
2002.............................................. 559,800
2003.............................................. 281,400
------- ----------
$61,056 $1,856,700
======= ==========
</TABLE>
Total rental expense under operating leases was $11,009, $5,565, and
$143,817 for the period from inception (May 27, 1998) through December 31, 1998
and the unaudited periods from inception (May 27, 1998) through September 30,
1998 and the nine-month period ended September 30, 1999, respectively.
The Company also rents certain equipment under operating lease commitments
with terms of not more than a year.
5. Financing Arrangements (Unaudited)
On April 2, 1999, the Company entered into convertible promissory notes with
Zilkha Venture Partners ("ZVP"), Staenberg Private Capital, LLC ("SPC"), C&H
Investments ("C&H"), and Nathaniel de Rothschild (together the "Investors") for
an aggregate amount of $500,000 with interest compounding annually at 7.5% and
a maturity date of December 31, 1999. Under the terms of the notes, the
investors could convert the principal balance and accrued interest into Series
B preferred stock upon closing of that stock issuance. Warrants to purchase
80,734 shares of the Company's Series B preferred stock were issued in
conjunction with the issuance of these notes. Both the convertible promissory
notes and the underlying warrants are exercisable at $1.09 per share of Series
B redeemable convertible preferred stock.
On June 14, 1999, the Company entered into an irrevocable standby letter of
credit with Silicon Valley Bank for $112,000 with an expiration of July 1,
2000.
On June 23, 1999, the Company entered into convertible promissory notes with
ZVP and SPC for an aggregate of $400,000 with interest compounding annually at
7.5% and a maturity date of December 31, 1999. Under the terms of the notes,
the notes would automatically be converted into Series B preferred stock upon
closing of that stock issuance and the notes canceled. The number of shares
issuable upon conversion of the notes shall equal the aggregate amount of
principal and interest outstanding under the notes at the time of conversion.
Warrants to purchase 64,588 shares of the Company's Series B preferred stock
were issued in conjunction with the issuance of these notes. Both the
convertible promissory notes and the underlying warrants are exercisable at
$1.09 per share of Series B redeemable convertible preferred stock.
F-66
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
5. Financing Arrangements (Unaudited) (continued)
On July 1, 1999, the Company entered into convertible promissory notes with
ZVP, SPC, Zafaruzzaman Shaikh, and Audrey MacLean for an aggregate of $100,000
with interest compounding annually at 7.5% and a maturity date of December 31,
1999. Under the terms of the notes, the notes would automatically be converted
into Series B preferred stock upon closing of that stock issuance and the notes
cancelled. The number of shares issuable upon conversion of the notes shall
equal the aggregate amount of principal and interest outstanding under the
notes at the time of conversion. Warrants to purchase 16,147 shares of the
Company's Series B preferred stock were issued in conjunction with the issuance
of these notes. Both the convertible promissory notes and the underlying
warrants are exercisable at $1.09 per share of Series B redeemable convertible
preferred stock.
On August 27, 1999, the Company entered into convertible promissory notes
with ZVP and Audrey MacLean for an aggregate of $30,000 with interest
compounding annually at 7.5% and a maturity date of December 31, 1999. Under
the terms of the notes, the notes would automatically be converted into Series
B preferred stock upon closing of that stock issuance and the notes canceled.
The number of shares issuable upon conversion of the notes shall equal the
aggregate amount of principal and interest outstanding under the notes at the
time of conversion. Warrants to purchase 4,844 shares of the Company's Series B
preferred stock were issued in conjunction with the issuance of these notes.
Both the convertible promissory notes and the underlying warrants are
exercisable at $1.09 per share of Series B redeemable convertible preferred
stock.
6. Redeemable Convertible Preferred Stock
The Company is authorized to issue 3,050,000 and 5,000,000 shares of Series
A and B redeemable convertible preferred stock ("preferred stock"),
respectively.
Each holder of shares of preferred stock shall be entitled to the number of
votes equal to the number of shares of common stock into which their shares
could be converted.
Series A and B preferred stock is redeemable at the option of at least a
majority of the holders of the then outstanding preferred stock in three equal
annual installments beginning on August 1, 2003.
Series A and B preferred stock is convertible, at the option of the holder,
automatically by an affirmative election of the holders of at least a majority
of the outstanding preferred stock, or upon a firmly underwritten public
offering of the Company's common stock with gross proceeds of at least
$10,000,000 and a per share price of at least $3.27. Series A and B preferred
stock is convertible into the number of shares of common stock that is equal to
the original purchase price divided by the conversion price which is subject to
certain adjustments for stock splits, combinations, and other dilutive
issuances.
Holders of the Series A and B preferred stock are entitled to receive annual
dividends of $0.05 per share and $0.109 per share, respectively (adjusted for
stock splits, combinations, reorganizations, and the like) out of any assets at
the time legally available when, and if, declared by the board of directors. No
dividends have been declared by the board of directors at December 31, 1998 or
September 30, 1999.
Series A and B preferred stockholders are entitled to receive upon a
liquidating event an amount per share equal to the issuance price plus any and
all declared but unpaid dividends. The remaining assets and funds, if
F-67
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
6. Redeemable Convertible Preferred Stock (continued)
any, shall be distributed pro rata among the holders of the Series A preferred
stock and common stock based on the number of shares of common stock held by
each (assuming conversion of all Series A preferred stock). If any assets
remain after the holders of the Series A preferred stock have received $1.50
per share plus any declared but unpaid dividends, and after the Series B
preferred stockholders have received their preference, the remaining assets
will be distributed to the holders of the common stock.
During the period from July 31, 1998 through April 1, 1999, the Company
issued 3,050,000 shares of Series A redeemable convertible preferred stock with
a par value of $0.001 per share at a per share price of $0.50, less issuance
costs of approximately $32,000.
On September 10, and September 27, 1999, the Company entered into the Series
B Redeemable Convertible Preferred Stock Purchase Agreement. Under the terms of
the Agreement, the Company authorized 5,000,000 shares of the Company's Series
B preferred stock with a par value of $0.001 per share. During the September
10, 1999 and September 27, 1999 closings, an aggregate of 2,320,499 and 201,834
shares were issued, respectively. In conjunction with the issuance of the
Series B preferred stock, an aggregate of $1,030,000 of promissory notes and
accrued interest were converted to Series B preferred stock and the notes
canceled. The price per share of all Series B preferred stock was $1.09, less
issuance costs of approximately $40,000 and discount which has been charged to
interest expense as of the date of conversion ("Series B Preferred Stock
Warrants") of $56,772. On September 10, 1999, the Company had issued 50,000
shares of Series A redeemable convertible preferred stock for a promissory note
from Nathaniel de Rothshild of $25,000. The promissory note has been reflected
as a reduction to Series A redeemable convertible preferred stock in the
accompanying financial statements. The Series A preferred stock was issued at a
discount of $25,000 due to the fact that the fair market value of the stock at
the time of issuance was $1.09 per share versus the $.50 per share issuance
price. The discount has been fully amortized in the accompanying financial
statements as the stock was immediately convertible into shares of the
Company's common stock.
Redeemable convertible preferred stock issuances at September 30, 1999 are
as follows:
<TABLE>
<CAPTION>
Redeemable
Convertible
Preferred Stock
(Shares)
Liquidation -------------------
Preference Series A Series B
----------- --------- ---------
<S> <C> <C> <C>
Issuance of Series A at July 31, 1998.......... $0.05 1,700,000 --
Issuance of Series A at August 4, 1998......... $0.05 300,000 --
Issuance of Series A at September 15, 1998..... $0.05 200,000 --
Issuance of Series A at September 18, 1998..... $0.05 100,000 --
Issuance of Series A at November 3, 1998....... $0.05 550,000 --
Issuance of Series A at November 13, 1998...... $0.05 50,000 --
Issuance of Series A at December 17, 1998...... $0.05 100,000 --
--------- ---------
Balance at December 31, 1998................... 3,000,000 --
Issuance of Series A at September 10, 1999..... $0.05 50,000 --
Issuance of Series B at September 10, 1999..... $1.09 -- 2,320,499
Issuance of Series B at September 27, 1999..... $1.09 -- 201,834
--------- ---------
Balance at September 30, 1999.................. 3,050,000 2,522,333
========= =========
</TABLE>
F-68
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
7. Stockholders' Equity
Common Stock
The Company is authorized to issue 22,000,000 shares of common stock.
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company.
The Company issued 2,676,667 shares of common stock which is subject to
repurchase until vested; vesting with respect to 25% occurs on the first
anniversary of the issuance date, with the balance vesting ratably over a
period of three years as specified in the purchase agreements. At December 31,
1998 and September 30, 1999, approximately 1,854,000 and 1,744,000 shares,
respectively, were subject to repurchase at their original issuance price.
Stock-Based Compensation
Pro forma information regarding net income is required under FAS 123 and is
calculated as if the Company had accounted for its employee stock options
granted during the period from inception (May 27, 1998) through December 31,
1998 under the fair value method of FAS 123. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of the Black-
Scholes option pricing model, even though such model was developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. The Black-Scholes model also requires subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values.
<TABLE>
<S> <C>
Risk-free interest rate............................................ 6.0%
Expected option life............................................... 10 years
Expected volatility................................................ 1.0
Expected dividends................................................. none
</TABLE>
As discussed above, the option valuation models used under FAS 123 were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected life of the option. Because the Company's employee stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimates, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
On July 10, 1998, the board of directors adopted the 1998 Stock Option Plan
for issuance of common stock to eligible participants.
Under the 1998 Stock Option Plan, nonqualified options to purchase common
shares were granted to certain officers, employees, and independent consultants
of the Company. Incentive stock options were granted only to employees as
prescribed by the plan. Certain options issued to independent contractors and
employees are exercisable immediately upon the optionee entering into a
Restricted Stock Purchase Agreement. The options have a contractual life of 10
years unless the optionee owns stock representing more than 10% of the voting
power of all classes of stock of the Company, in such situation the options
will have a contractual life of five years.
F-69
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
7. Stockholders' Equity (continued)
The Company's stock option activity and related information for the period
from inception (May 27, 1998) through December 31, 1998 and the unaudited
period from January 1, 1999 through September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding inception (May 27, 1998)............... 1,337,666 $ --
Granted........................................... 850,000 0.05
Exercised......................................... (100,000) 0.05
Canceled.......................................... (59,375) 0.05
--------- -----
Outstanding December 31, 1998...................... 690,625 0.05
Granted........................................... 1,133,100 0.09
Exercised......................................... (400,225) 0.05
Canceled.......................................... (85,834) 0.05
--------- -----
Outstanding September 30, 1999..................... 1,337,666 $0.06
========= =====
</TABLE>
Weighted-average remaining contractual life of the outstanding options is
9.23 years
As of December 31, 1998 and September 30, 1999, there were 187,500 and
245,624 options, respectively, that were exercisable.
In connection with the grant of share options to employees through September
30, 1999, the Company recorded deferred compensation of $3,920,534 for the
aggregate differences between the exercise price of options at their dates of
grant and deemed fair value for accounting purposes of the common shares
subject to these options and common shares subject to repurchase. Such amount
is included as a reduction of stockholders' equity and is being amortized on a
straight-line vesting method over the option vesting periods, which range from
immediately to 24 months. The compensation expense of $50,487 through September
30, 1999 relates to the options awarded to employees in all operating expense
categories.
For pro forma purposes, the estimated fair value of the Company's stock-
based awards to employees is amortized, using the straight-line method over the
options' vesting periods. The Company's pro forma results are as follows:
<TABLE>
<CAPTION>
Period from
inception
(May 27, 1998)
September 30, through
December 31, ---------------------- September 30,
1998 1998 1999 1999
------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Net loss:
As reported............ $(594,505) $(204,282) $(2,316,585) $(2,950,578)
Pro forma.............. $(594,505) $(204,282) $(6,186,632) $(6,820,625)
Basic and diluted net
loss per share:
As reported............ $ (0.21) $ (0.08) $ (0.72) $ (0.97)
Pro forma.............. $ (0.21) $ (0.08) $ (18.87) $ (2.21)
</TABLE>
F-70
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
7. Stockholders' Equity (continued)
Series B Convertible Preferred Stock Warrants
In 1999, in conjunction with the issuance of convertible promissory notes to
ZVP, SPC, Nathaniel de Rothschild, C&H, Audrey MacLean, and Zafaruzzaman
Shaikh, the Company issued fully vested warrants that entitle the above holders
to purchase an aggregate of 166,310 shares of Series B preferred stock at an
exercise price of $1.09 per share. The notes were issued with an original
discount of $56,772 which reflects the estimated fair value of the warrants
calculated through the use of the Black-Scholes option pricing model. This
amount has been reflected as interest expense and as an increase in additional
paid-in capital in the September 30, 1999 financial statements.
8. Income Taxes
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $500,000. The net operating loss carryforwards
will expire in 2018.
Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of the net operating loss before utilization.
As of December 31, 1998, the Company had deferred tax assets of
approximately $200,000. Based upon the weight of available evidence, which
includes the Company's historical operating performance, the reported net loss
from inception (May 27, 1998) through September 30, 1999, and uncertainties
regarding the Company's future results of operation, a full valuation allowance
has been provided against its deferred tax assets.
9. Commitment and Contingencies
The Company has entered into an exclusive license agreement dated as of June
30, 1998 with RightWorks, Inc. which provides for payment by the Company of
certain license and maintenance fees for the use of RightWorks, Inc.'s
software. The license fees range from $25,000 for the first six-month period to
$750,000 for the sixth six-month period. The Company has not and does not
intend to exercise any license rights granted, in which case payment
obligations will not be incurred.
10. Subsequent Events
On December 10, 1999, the Company entered into an Agreement and Plan of
Merger with Chemdex. In the merger, each outstanding share of common stock of
the Company, assuming the conversion of all outstanding preferred stock of the
Company converts into Common Stock, will be converted into and represent the
right to receive Chemdex common stock based on an exchange ratio. The exchange
ratio shall equal the quotient obtained by dividing 1,250,000, the number of
shares given in consideration by Chemdex, by the
number of shares of the Company's common stock, preferred stock (as if
converted), stock options, and stock warrants outstanding or subject to
issuance upon exercise of the Company's options immediately prior to the
effective date of the Agreement Plan of Merger. Each outstanding option and
warrant to purchase the
F-71
<PAGE>
SpecialtyMD.com Corporation
(a development stage company)
Notes to Financial Statements--(Continued)
Information as of September 30, 1999 and for the
period from inception (May 27, 1998) through September 30, 1998
and the nine-month period ended September 30, 1999 is unaudited
10. Subsequent Events (continued)
Company's common stock will be converted into an option or warrant,
respectively, to purchase shares of Chemdex common stock in accordance with the
same exchange ratio.
In connection with the proposed Chemdex merger, Chemdex agreed to provide
the Company a $4 million secured promissory note drawable ratably beginning
within five days of the execution of the Agreement and Plan of Merger, January
15, 2000 and February 15, 2000. The note bears interest at 9% and is secured by
substantially all of the Company's assets. The outstanding balance is due on
December 31, 2000.
F-72
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of September 21, 1999
among
CHEMDEX CORPORATION,
POPCORN ACQUISITIONS CORP.
and
PROMEDIX.COM, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I THE MERGER.................................................... A-2
Section 1.1 Effective Time of the Merger........................... A-2
Section 1.2 Closing................................................ A-2
Section 1.3 Effects of the Merger.................................. A-2
Section 1.4 Directors and Officers................................. A-2
ARTICLE II CONVERSION OF SECURITIES..................................... A-3
Section 2.1 Conversion of Capital Stock............................ A-3
Section 2.2 Escrow Agreement....................................... A-4
Section 2.3 Dissenting Shares...................................... A-5
Section 2.4 Exchange of Certificates............................... A-5
Section 2.5 Distributions with Respect to Unexchanged Shares....... A-6
Section 2.6 No Fractional Shares................................... A-6
Section 2.7 Tax and Accounting Consequences........................ A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PROMEDIX.................. A-7
Section 3.1 Organization of Promedix............................... A-7
Section 3.2 Promedix Capital Structure............................. A-7
Section 3.3 Authority; No Conflict; Required Filings and Consents.. A-8
Section 3.4 Financial Statements; Absence of Undisclosed
Liabilities............................................ A-9
Section 3.5 Tax Matters............................................ A-10
Section 3.6 Absence of Certain Changes or Events................... A-11
Section 3.7 Title and Related Matters.............................. A-12
Section 3.8 Proprietary Rights..................................... A-13
Section 3.9 Employee Benefit Plans................................. A-15
Section 3.10 Bank Accounts.......................................... A-16
Section 3.11 Contracts.............................................. A-16
Section 3.12 Compliance With Law.................................... A-17
Section 3.13 Labor Difficulties; No Discrimination.................. A-18
Section 3.14 Insider Transactions................................... A-18
Section 3.15 Employees, Independent Contractors and Consultants..... A-18
Section 3.16 Insurance.............................................. A-19
Section 3.17 Litigation............................................. A-19
Section 3.18 Governmental Authorizations and Regulations............ A-19
Section 3.19 Subsidiaries........................................... A-19
Section 3.20 Compliance with Environmental Requirements............. A-19
Section 3.21 Trade Regulation....................................... A-20
Section 3.22 Year 2000 Compliance................................... A-20
Section 3.23 Corporate Documents.................................... A-20
Section 3.24 No Brokers............................................. A-20
Section 3.25 Promedix Action........................................ A-20
Section 3.26 Offers................................................. A-20
Section 3.27 Disclosure............................................. A-20
Section 3.28 Registration Statement; Proxy Statement/Prospectus..... A-21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CHEMDEX AND SUB............ A-21
Section 4.1 Organization of Chemdex and Sub........................ A-21
Section 4.2 Capitalization......................................... A-21
Section 4.3 Authority; No Conflict; Required Filings and Consents.. A-22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.4 Commission Filings; Financial Statements............... A-23
Section 4.5 Compliance with Laws................................... A-23
Section 4.6 Interim Operations of Sub.............................. A-24
Section 4.7 Disclosure............................................. A-24
Section 4.8 Registration Statement; Proxy Statement/Prospectus..... A-24
Section 4.9 No Brokers............................................. A-24
Section 4.10 Chemdex Action......................................... A-24
Section 4.11 Offers................................................. A-24
Section 4.12 Litigation............................................. A-24
Section 4.13 Absence of Certain Changes or Events................... A-25
ARTICLE V PRECLOSING COVENANTS OF PROMEDIX.............................. A-25
Section 5.1 Advice of Changes...................................... A-25
Section 5.2 Operation of Business.................................. A-25
Section 5.3 Access to Information.................................. A-27
Section 5.4 Satisfaction of Conditions Precedent................... A-27
Section 5.5 Other Negotiations..................................... A-27
ARTICLE VI PRECLOSING AND OTHER COVENANTS OF CHEMDEX AND SUB............ A-28
Section 6.1 Advice of Changes...................................... A-28
Section 6.2 Reservation of Chemdex Common Stock.................... A-28
Section 6.3 Satisfaction of Conditions Precedent................... A-28
Section 6.4 Nasdaq National Market Listing......................... A-28
Section 6.5 Stock Options.......................................... A-28
Section 6.6 Certain Employee Benefit Matters....................... A-29
Section 6.7 Contingent Financing................................... A-30
Section 6.8 D&O Indemnification.................................... A-30
Section 6.9 Salt Lake City Presence................................ A-30
Section 6.10 Operation of Business.................................. A-30
Section 6.11 Other Negotiations..................................... A-30
ARTICLE VII PRECLOSING COVENANTS OF PROMEDIX AND CHEMDEX AND OTHER
AGREEMENTS............................................................. A-31
Section 7.1 Proxy Statement/Prospectus............................. A-31
Section 7.2 Stockholder Meetings................................... A-32
Section 7.3 Confidentiality........................................ A-33
Section 7.3 No Public Announcement................................. A-33
Section 7.4 Regulatory Filings; Consents; Reasonable Efforts....... A-33
Section 7.5 Further Assurances..................................... A-33
Section 7.6 Escrow Agreement....................................... A-33
Section 7.7 FIRPTA................................................. A-33
Section 7.8 Other Filings.......................................... A-34
Section 7.10 Tax Matters............................................ A-34
ARTICLE VIII CONDITIONS TO MERGER....................................... A-34
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger................................................. A-34
Section 8.2 Additional Conditions to Obligations of Chemdex and
Sub.................................................... A-35
Section 8.3 Additional Conditions to Obligations of Promedix....... A-36
ARTICLE IX TERMINATION AND AMENDMENT.................................... A-36
Section 9.1 Termination............................................ A-36
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 9.2 Effect of Termination................................... A-37
Section 9.3 Fees and Expenses....................................... A-37
ARTICLE X ESCROW AND INDEMNIFICATION...................................... A-38
Section 10.1 Indemnification......................................... A-38
Section 10.2 Escrow Fund............................................. A-38
Section 10.3 Escrow Periods.......................................... A-38
Section 10.4 Claims Upon Escrow Fund................................. A-38
Section 10.5 Valuation............................................... A-39
Section 10.6 Objections to Claims.................................... A-39
Section 10.7 Resolution of Conflicts................................. A-39
Section 10.8 Stockholders' Agents.................................... A-40
Section 10.9 Actions of the Stockholders' Agents..................... A-40
Section 10.10 Claims.................................................. A-40
ARTICLE XI MISCELLANEOUS.................................................. A-41
Section 11.1 Survival of Representations and Covenants............... A-41
Section 11.2 Notices................................................. A-41
Section 11.3 Interpretation.......................................... A-42
Section 11.4 Counterparts............................................ A-42
Section 11.5 Entire Agreement; No Third Party Beneficiaries.......... A-42
Section 11.6 Governing Law; Jurisdiction............................. A-42
Section 11.7 Assignment.............................................. A-42
Section 11.8 Amendment............................................... A-42
Section 11.9 Extension; Waiver....................................... A-42
Section 11.10 Specific Performance.................................... A-43
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <C> <S> <C>
EXHIBIT A -- VOTING AGREEMENT.......................................... A-45
EXHIBIT B -- EMPLOYMENT AGREEMENT...................................... A-51
EXHIBIT C -- AFFILIATES AGREEMENT...................................... A-67
EXHIBIT D -- STOCK RESTRICTION AGREEMENT............................... A-73
EXHIBIT E -- ESCROW AGREEMENT.......................................... A-74
EXHIBIT F -- SUBJECT MATTER OF OPINION OF COUNSEL TO PROMEDIX.......... A-86
EXHIBIT G -- LOAN AGREEMENT............................................ A-89
EXHIBIT H -- FULFILLMENT BUSINESS TERM SHEET........................... A-118
EXHIBIT I -- SUBJECT MATTER OF OPINION OF COUNSEL TO CHEMDEX........... A-123
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 21, 1999 (this
"Agreement"), is entered into by and among Chemdex Corporation, a Delaware
corporation ("Chemdex"), Popcorn Acquisitions Corp., a Delaware corporation and
a wholly-owned subsidiary of Chemdex ("Sub"), and Promedix.com, Inc., a
Delaware corporation ("Promedix").
RECITALS
A. The Boards of Directors of Chemdex, Sub and Promedix deem it advisable
and in the best interests of each corporation and their respective stockholders
that Chemdex and Promedix combine in order to advance the long-term business
interests of Chemdex and Promedix;
B. The combination of Chemdex and Promedix shall be effected by the terms of
this Agreement through a transaction in which Sub will merge with and into
Promedix, Promedix will become a wholly-owned subsidiary of Chemdex and the
stockholders of Promedix will become stockholders of Chemdex (the "Merger");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase transaction;
E. As a condition and inducement to Chemdex's willingness to enter into this
Agreement, certain Promedix common and preferred stockholders have,
concurrently with the execution of this Agreement, executed and delivered
Voting Agreements in the form attached hereto as Exhibit A (the "Voting
Agreements"), pursuant to which such stockholders have, among other things,
agreed to vote their shares of Promedix capital stock in favor of the Merger
and to grant Chemdex irrevocable proxies to vote such shares;
F. As a further condition and inducement to Chemdex's willingness to enter
into this Agreement, certain employees of Promedix who are also Promedix equity
holders will have concurrently with the execution of this Agreement, executed
and delivered Employment and Noncompetition Agreements in the form attached
hereto as Exhibit B (the "Employment Agreements"), which agreements shall only
become effective at the Effective Time (as defined in Section 1.1 below);
G. As a further condition and inducement to Chemdex's and Promedix's
willingness to enter into this Agreement, certain stockholders of Promedix have
executed and delivered an Affiliates Agreement in the form attached hereto as
Exhibit C (the "Affiliates Agreement").
H. As a further condition and inducement to Chemdex's willingness to enter
into this Agreement, Skip Klintworth and Brad Bond have, concurrently with the
execution of this Agreement, executed and delivered their Stock Restriction
Agreements in the form attached hereto as Exhibit D (the "Stock Restriction
Agreements"), which agreements shall only become effective at the Effective
Time.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger.
(a) Subject to the provisions of this Agreement, a certificate of merger
(the "Certificate of Merger") in such mutually acceptable form as is
required by the relevant provisions of the Delaware General Corporation Law
("Delaware Law") shall be duly executed and delivered by the parties hereto
and thereafter delivered to the Secretary of State of the State of Delaware
for filing on the Closing Date (as defined in Section 1.2).
(b) The Merger shall become effective upon the due and valid filing of
the Certificate of Merger with the Secretary of State of the State of
Delaware or at such time thereafter as is provided in the Certificate of
Merger (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., California time, on a date (the "Closing Date") to be
specified by Chemdex and Promedix, which shall be no later than the second
business day after satisfaction or waiver of the latest to occur of the
conditions set forth in Article VIII, at the offices of Venture Law Group, A
Professional Corporation, 2775 Sand Hill Road, Menlo Park, California unless
another date, time or place is agreed to in writing by Chemdex and Promedix.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall cease
and Sub shall be merged with and into Promedix (Sub and Promedix are
sometimes referred to herein as the "Constituent Corporations" and Promedix
following consummation of the Merger is sometimes referred to herein as the
"Surviving Corporation"), (ii) the Certificate of Incorporation of Sub
shall be the Certificate of Incorporation of the Surviving Corporation and
(iii) the Bylaws of Sub as in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation.
(b) At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of Delaware Law. Without limiting the
generality of the foregoing, at and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and
franchises, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations.
Section 1.4 Directors and Officers. The directors of Sub immediately prior
to the Effective Time shall become the directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation, and the officers of Sub immediately prior
to the Effective Time shall become the officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed
and qualified.
A-2
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Series A, Series B-1, or Series B-2 Preferred Stock of Promedix, each $0.0001
par value (collectively, the "Promedix Preferred Stock"), or shares of Common
Stock of Promedix, $0.0001 par value ("Promedix Common Stock"), or capital
stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $0.0001 par value, of the Surviving
Corporation.
(b) Cancellation of Chemdex-Owned and Promedix-Owned Stock. Any shares
of Promedix Common Stock or Promedix Preferred Stock that are owned by
Chemdex, Sub, Promedix or any other direct or indirect wholly-owned
Subsidiary of Chemdex or Promedix shall be canceled and retired and shall
cease to exist and no stock of Chemdex or other consideration shall be
delivered in exchange. As used in this Agreement, the word "Subsidiary"
means, with respect to any other party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party
or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions
with respect to such corporation or other organization or a majority of the
profit interests in such other organization is directly or indirectly owned
or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(c) Exchange Ratio.
(i) Each issued and outstanding share of Promedix Common Stock and
Promedix Preferred Stock (other than shares to be canceled in
accordance with Section 2.1(b) and any Dissenting Shares as defined in
and to the extent provided in Section 2.3) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive a fraction of a fully paid and
nonassessable share of Chemdex Common Stock (as defined in Section 4.2)
equal to the Exchange Ratio, as defined in and determined in accordance
with the provisions of subparagraph (ii) below.
(ii) For purposes of this Agreement:
(A) the "Total Consideration Shares" shall be equal to 12,057,366
shares of Chemdex Common Stock.
(B) The "Exchange Ratio" shall be equal to the quotient obtained
by dividing (1) the number of the Total Consideration Shares by (2)
the number of shares of Promedix Common Stock outstanding or subject
to issuance upon exercise of Promedix Options (as defined in Section
2.1(d) below) and Promedix Warrants (as defined in Section 2.1(d)
below) and upon conversion of all shares of Promedix Preferred Stock
issued and outstanding, in each case immediately prior to the
Effective Time.
(iii) In no event will the total number of shares of Chemdex Common
Stock issuable by Chemdex pursuant to the Merger (including shares of
Chemdex Common Stock issuable upon exercise of Promedix Options or
Promedix Warrants assumed by Chemdex in the Merger) exceed the Total
Consideration Shares. The allocation of the Total Consideration Shares
among each holder of Promedix capital stock, warrants, and options
based upon the capitalization of Promedix as of the
A-3
<PAGE>
date of this Agreement is set forth in the Promedix Disclosure
Schedule. An updated version of such Schedule reflecting the
capitalization of Promedix on the Closing Date shall be delivered by
Promedix to Chemdex on the Closing Date.
(iv) If, on or after the date of this Agreement and prior to the
Effective Time, the outstanding shares of Chemdex Common Stock or
Promedix capital stock shall have been changed into a different number
of shares or a different class by reason of any reclassification,
split-up, stock dividend (including any dividend or distribution of
securities convertible into Chemdex Common Stock) or stock combination,
then the Exchange Ratio shall be correspondingly adjusted. The Exchange
Ratio shall not change as a result of fluctuations in the market price
of Chemdex Common Stock between the date of this Agreement and the
Effective Time.
(v) All such shares of Promedix Common Stock and Promedix Preferred
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive
the shares of Chemdex Common Stock and any cash in lieu of fractional
shares of Chemdex Common Stock to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with
Section 2.4, without interest.
(d) Promedix Stock Options and Warrants. At the Effective Time, all then
outstanding options, whether vested or unvested ("Promedix Options"), to
purchase Promedix Common Stock issued under Promedix's 1998 Stock Option
Plan (the "Promedix Option Plan"), and all outstanding warrants to purchase
Promedix capital stock ("Promedix Warrants") that by their terms survive
the closing, will be assumed by Chemdex in accordance with Section 6.5. All
of the Promedix Options and Promedix Warrants issued and outstanding as of
the date of this Agreement are listed on Schedule 2.1(d) attached hereto.
An updated Schedule 2.1(d) of Promedix Options and Promedix Warrants shall
be delivered by Promedix to Chemdex on the Closing Date.
(e) Restricted Shares. Any shares of Promedix Common Stock which are
subject to repurchase by Promedix in the event the holder thereof ceases to
be employed by Promedix ("Promedix Restricted Shares") shall be converted
into Chemdex Common Stock on the same basis as provided in subsection (c)
above and shall be registered in such holder's name, but shall be held by
the Surviving Corporation or Chemdex pursuant to the applicable restricted
stock repurchase agreements with the same repurchase provisions applicable
to such shares prior to the conversion. Holders of the Promedix Restricted
Shares are identified on Schedule 2.1(e) of the Promedix Disclosure
Schedule.
Section 2.2 Escrow Agreement. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), Chemdex will, on behalf of the
holders of Promedix Common Stock and Promedix Preferred Stock, deposit in
escrow certificates representing the percentage of the Total Consideration
Shares set forth below allocable to Promedix Common Stock and Promedix
Preferred Stock in the Merger. Such shares shall be held in escrow on behalf of
the persons who are the holders of Promedix Common Stock or Promedix Preferred
Stock in the Merger immediately prior to the Effective Time (the "Former
Promedix Stockholders"), in accordance with the portion of Total Consideration
Shares allocable to each such Former Promedix Stockholder in the manner
contemplated by Section 2.1 ("Pro Rata Portion"). If the Closing shall occur
prior to January 22, 2000, then ninety percent (90%) of such shares
(collectively, the "Locked Up Shares") shall be held in escrow on behalf of the
former Promedix Stockholders until January 22, 2000, after which the
certificates representing the Locked Up Shares will be distributed to the
Former Promedix Stockholders. The Locked Up Shares shall not be subject to
Article X of this Agreement. Ten percent (10%) of such shares (collectively,
the "Escrow Shares") shall be held in escrow and applied pursuant to the
provisions of an escrow agreement (the "Escrow Agreement") to be executed
pursuant to Section 7.6. All calculations to determine the number of Locked Up
Shares and Escrow Shares to be delivered by each stockholder of Promedix into
escrow as aforesaid shall be rounded down to the nearest whole share.
A-4
<PAGE>
Section 2.3 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Promedix Common Stock or Promedix Preferred Stock held by a
holder who has exercised such holder's appraisal rights in accordance with
Section 262 of Delaware Law, and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal rights ("Dissenting Shares"),
shall not be converted into or represent a right to receive Chemdex Common
Stock pursuant to Section 2.1, but the holder of the Dissenting Shares
shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder of
shares of Promedix Common Stock or Promedix Preferred Stock who demands his
appraisal rights with respect to such shares under Section 2.1 shall
effectively withdraw or lose (through failure to perfect or otherwise) his
rights to receive payment for such shares under Delaware Law, then, as of
the later of the Effective Time or the occurrence of such event, such
holder's shares shall automatically be converted into and represent only
the right to receive Chemdex Common Stock and payment for fractional shares
as provided in Section 2.1(c), without interest, upon surrender of the
certificate or certificates representing such shares; provided that if such
holder effectively withdraws or loses his right to receive payment for such
shares after the Effective Time, then, at such time Chemdex will deposit in
the escrow created pursuant to the Escrow Agreement additional certificates
representing such holder's Pro Rata Portion of the Escrow Shares.
(c) Promedix shall give Chemdex (i) prompt notice of any written demands
for payment with respect to any shares of capital stock of Promedix
pursuant to the appraisal rights under Delaware Law, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and
received by the Promedix and (ii) the opportunity to participate at its own
expense in all negotiations and proceedings with respect to demands for
appraisal rights under Delaware Law. Promedix shall not, except with the
prior written consent of Chemdex, voluntarily make any payment with respect
to any demands for appraisal rights with respect to Promedix Common Stock
or Promedix Preferred Stock or offer to settle or compromise any such
demands.
Section 2.4 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates ("Certificates") which represented shares of
Promedix Common Stock or Promedix Preferred Stock immediately prior to the
Effective Time shall have the right to surrender each Certificate to
Chemdex (or at Chemdex's option, an exchange agent to be appointed by
Chemdex), and subject to and in accordance with Section 2.2 above and the
Escrow Agreement, receive in exchange for all Certificates held by such
holder a certificate representing the number of whole shares of Chemdex
Common Stock (other than the Escrow Shares) into which the Promedix Common
Stock or Promedix Preferred Stock evidenced by the Certificates so
surrendered shall have been converted pursuant to the provisions of Article
II of this Agreement. The surrender of Certificates shall be accompanied by
duly completed and executed Letters of Transmittal in such form as may be
reasonably specified by Chemdex. Until surrendered, each outstanding
Certificate which prior to the Effective Time represented shares of
Promedix Common Stock or Promedix Preferred Stock shall be deemed for all
corporate purposes to evidence ownership of the number of whole shares of
Chemdex Common Stock into which the shares of Promedix Common Stock have
been converted but shall, subject to applicable appraisal rights under
Delaware Law, have no other rights (except as provided in Section 2.6 with
respect to fractional shares, if any). Subject to applicable appraisal
rights under Delaware Law, from and after the Effective Time, the holders
of shares of Promedix Common Stock and Promedix Preferred Stock shall cease
to have any rights in respect of such shares and their rights shall be
solely in respect of the Chemdex Common Stock into which such shares of
Promedix Common Stock or Promedix Preferred Stock have been converted
(except as provided in Section 2.6 with respect to fractional shares, if
any). From and after the Effective Time, there shall be no further
registration of transfers on the records of Promedix of shares of Promedix
Common Stock and Promedix Preferred Stock outstanding immediately prior to
the Effective Time.
A-5
<PAGE>
(b) If any shares of Chemdex Common Stock are to be issued in the name
of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to
the issuance of such shares that (i) the Certificate(s) so surrendered
shall be transferable, and shall be properly assigned, endorsed or
accompanied by appropriate stock powers, (ii) such transfer shall otherwise
be proper and (iii) the person requesting such transfer shall pay Chemdex,
or its exchange agent, any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of Chemdex that such taxes have
been paid or are not required to be paid. Notwithstanding the foregoing,
neither Chemdex nor Promedix shall be liable to a holder of shares of
Promedix Common Stock or Promedix Preferred Stock for shares of Chemdex
Common Stock issuable to such holder pursuant to the provisions of Article
II of this Agreement that are delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, Chemdex shall
issue in exchange for such lost, stolen or destroyed Certificate the shares
of Chemdex Common Stock issuable in exchange therefor pursuant to the
provisions of Article II of the Agreement. The Board of Directors of
Chemdex may in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
provide to Chemdex an indemnity agreement or bond against any claim that
may be made against Chemdex with respect to the Certificate alleged to have
been lost, stolen or destroyed.
Section 2.5 Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect
to Chemdex Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Chemdex Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.6
below until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Chemdex Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Chemdex Common
Stock to which such holder is entitled pursuant to Section 2.6 below and the
amount of any dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Chemdex
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Chemdex Common Stock.
Section 2.6 No Fractional Shares. No certificate or scrip representing
fractional shares of Chemdex Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Chemdex.
Notwithstanding any other provision of this Agreement, each holder of shares of
Promedix Common Stock or Promedix Preferred Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Chemdex Common Stock (after taking into account all Certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Chemdex Common Stock
multiplied by the average closing price of Chemdex's Common Stock on the Nasdaq
Stock Market for the ten (10) trading day period ending two (2) trading days
prior to the Closing Date (the "Average Stock Price").
Section 2.7 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the
Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Income Tax Regulations.
A-6
<PAGE>
(b) It is intended by the parties hereto that the Merger shall qualify
for financial accounting treatment as purchase accounting.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PROMEDIX
Promedix represents and warrants to Chemdex and Sub that the statements
contained in this Article III are true and correct, except as expressly set
forth in the disclosure schedule delivered by Promedix to Chemdex on or before
the date of this Agreement (the "Promedix Disclosure Schedule"). The Promedix
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III.
Section 3.1 Organization of Promedix. Promedix is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business or
ownership or leasing of properties makes such qualification or licensing
necessary and where the failure to be so qualified or licensed would result in
a material adverse effect on the business, assets (including intangible
assets), condition (financial or otherwise), or results of operations (a
"Material Adverse Effect") of Promedix. The Promedix Disclosure Schedule
contains a true and complete listing of the locations of all sales offices,
development facilities, and any other offices or facilities of Promedix and a
true and complete list of all states in which Promedix maintains any employees.
The Promedix Disclosure Schedule contains a true and complete list of all
states in which Promedix is duly qualified or licensed to transact business as
a foreign corporation.
Section 3.2 Promedix Capital Structure.
(a) The authorized capital stock of Promedix consists of 25,000,000
shares of Promedix Common Stock and 5,709,443 shares of Preferred Stock, of
which 4,030,089 shares are designated as Series A Preferred Stock, 333,334
shares are designated as Series B-1 Preferred Stock, and 346,020 shares are
designated as Series B-2 Preferred Stock, and 1,000,000 shares are
designated as Series C Preferred Stock. As of the date of this Agreement,
there are (i) 3,546,250 shares of Promedix Common Stock issued and
outstanding, all of which are validly issued, fully paid and nonassessable
and 100,000 shares of which are subject to repurchase rights pursuant to
agreements or arrangements between the holder thereof and Promedix, (ii)
4,030,089 shares of Series A Preferred Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable, and each share of
which is convertible into one share of Promedix Common Stock, (iii) 333,334
shares of Series B-1 Preferred Stock issuable upon exercise of outstanding
warrants, (iv) 346,020 shares of Series B-2 Preferred Stock issuable upon
conversion of outstanding convertible notes (the "Convertible Debt"), (v)
no shares of Series C Preferred Stock are issued or outstanding, (vi)
Promedix Options to purchase up to 1,197,761 shares of Promedix Common
Stock, (vii) 5,709,443 shares of Promedix Common Stock reserved for future
issuance upon conversion of the Promedix Preferred Stock, and (viii)
572,239 shares of Promedix Common Stock reserved for issuance upon exercise
of options available to be granted in the future under the Promedix Option
Plan. The issued and outstanding shares of Promedix Common Stock and of
Promedix Preferred Stock are held of record by the stockholders of Promedix
as set forth and identified on Schedule 3.2(a) of the Promedix Disclosure
Schedule. The issued and outstanding Promedix Options are held of record by
the option holders identified on, in the amounts and subject to the vesting
schedules set forth on, Schedule 3.2(a) of the Promedix Disclosure
Schedule. The issued and outstanding Promedix Warrants are held of record
by the warrantholders set forth in Schedule 3.2(a) of the Promedix
Disclosure Schedule. All shares of Promedix Common Stock subject to
issuance upon the exercise of Promedix Options and Promedix Warrants, upon
issuance on the terms and conditions (including payment) specified in the
instrument pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. All outstanding
A-7
<PAGE>
shares of Promedix Common Stock, Promedix Preferred Stock and outstanding
Promedix Options and Promedix Warrants (collectively "Promedix Securities")
were issued in compliance with applicable federal and state securities
laws. Except as set forth in the Promedix Disclosure Schedule, there are no
obligations, contingent or otherwise, of Promedix to repurchase, redeem or
otherwise acquire any shares of Promedix Common Stock or Promedix Preferred
Stock or make any investment (in the form of a loan, capital contribution
or otherwise) in any other entity. An updated Schedule 3.2(a) reflecting
changes permitted by this Agreement in the capitalization of Promedix
between the date hereof and the Effective Time shall be delivered by
Promedix to Chemdex on the Closing Date.
(b) Except as set forth in this Section 3.2, there are no equity
securities of any class or series of Promedix, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for
issuance or outstanding. Except as set forth in this Section 3.2, there are
no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which Promedix is a party or by which it is
bound obligating Promedix to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Promedix or
obligating Promedix to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. Except in the case of Tenet Healthcare Corporation and other
strategic investors approved in writing in advance by Chemdex ("Strategic
Investors"), Promedix is not in active discussion, formal or informal, with
any person or entity regarding the issuance of any form of additional
Promedix equity that has not been issued or committed to prior to the date
of this Agreement. Except as provided in this Agreement and the other
Transaction Documents (as defined in Section 3.3(a)) or any transaction
contemplated hereby or thereby, there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the shares
of capital stock of Promedix.
(c) All Promedix Options have been issued in accordance with the terms
of the Promedix Option Plan and pursuant to the standard forms of option
agreement previously provided to Chemdex or its representatives. No
Promedix Option will by its terms require an adjustment in connection with
the Merger. Except as otherwise contemplated by Section 6.5(b), neither the
consummation of transactions contemplated by this Agreement or the other
Transaction Documents, nor any action taken or to be taken by Promedix in
connection with such transactions will result in (i) any acceleration of
vesting in favor of any optionee under any Promedix Option; (ii) any
additional benefits for any optionee under any Promedix Option; or (iii)
the inability of Chemdex after the Effective Time to exercise any right or
benefit held by Promedix prior to the Effective Time with respect to any
Promedix Option assumed by Chemdex, including, without limitation, the
right to repurchase an optionee's unvested shares on termination of such
optionee's employment. Except as otherwise contemplated by Section 6.5(b),
the assumption by Chemdex of Promedix Options in accordance with Section
6.5 hereunder will not (i) give the optionees additional benefits which
they did not have under their options prior to such assumption (after
taking into account the existing provisions of the options, such as their
respective exercise prices and vesting schedules) or (ii) constitute a
breach of the Promedix Plan or any agreement entered into pursuant to such
plan.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Promedix has all requisite corporate power and authority to enter
into this Agreement and all Transaction Documents to which it is or will
become a party and to consummate the transactions contemplated by this
Agreement and such Transaction Documents. The execution and delivery of
this Agreement and such Transaction Documents and the consummation of the
transactions contemplated by this Agreement and such Transaction Documents
have been duly authorized by all necessary corporate action on the part of
Promedix, subject only to the approval of the Merger by Promedix's
stockholders under the provisions of Delaware Law and Promedix's
Certificate of Incorporation. This Agreement has been and such Transaction
Documents have been or, to the extent not executed by Promedix as of the
date hereof, will be duly executed and delivered by Promedix. This
Agreement and each of the Transaction Documents to which Promedix is a
party constitutes, and each of the Transaction Documents to which Promedix
will become a party, when executed and delivered by Promedix, will
constitute, assuming the
A-8
<PAGE>
due authorization, execution and delivery by the other parties hereto and
thereto, the valid and binding obligation of Promedix, enforceable against
Promedix in accordance with their respective terms, except to the extent
that enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of
equity, regardless of whether such enforceability is considered. For
purposes of this Agreement, "Transaction Documents" means all documents or
agreements required to be delivered by any party under this Agreement
including the Certificate of Merger, the Escrow Agreement, the Voting
Agreements, the Affiliate Agreements, the Stock Restriction Agreements and
the Employment Agreements.
(b) The execution and delivery by Promedix of this Agreement and the
Transaction Documents to which it is or will become a party does not, and
the consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Promedix, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit)
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Promedix is a party or by which it or any of its
properties or assets may be bound, or (iii) conflict or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Promedix or any of its
properties or assets; except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or
accelerations which would not have a Material Adverse Effect on Promedix
and its Subsidiaries, taken as a whole.
(c) None of the execution and delivery by Promedix of this Agreement or
of any other Transaction Document to which Promedix is or will become a
party or the consummation of the transactions contemplated by this
Agreement or such Transaction Document will require any consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority
or instrumentality ("Governmental Entity"), except for (i) the filing of
the Certificate of Merger with the Delaware Secretary of State, (ii)
filings required under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and (iv) such other consents,
authorizations, filings, approvals and registrations which are listed on
the Promedix Disclosure Schedule, or which, if not obtained, would not have
a Material Adverse Effect on Promedix and its Subsidiaries, taken as a
whole.
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities.
(a) Promedix has delivered to Chemdex copies of Promedix's unaudited
balance sheet as of July 31, 1999 (the "Most Recent Balance Sheet") and
statements of operations for the eight-month period then-ended (together
with the Most Recent Balance Sheet, the "Promedix Interim Financials") and
Promedix's audited balance sheet as of December 31, 1998, and the related
audited statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1998 (collectively, the "Promedix Financial
Statements").
(b) The Promedix Financial Statements are in accordance with the books
and records of Promedix and present fairly in all material respects the
financial position, results of operations and cash flows of Promedix as of
their historical dates and for the periods indicated subject to normal
year-end audit adjustments. The Promedix Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods (except as disclosed
therein, and except for the absence of footnotes in the unaudited Promedix
Financial Statements). The reserves, if any, reflected on the Promedix
Financial Statements are adequate in light of the contingencies with
respect to which they were made.
(c) Promedix has no material debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether
due or to become due, that is not reflected or reserved against in the
A-9
<PAGE>
Most Recent Balance Sheet, except for those (i) that may have been incurred
after the date of the Most Recent Balance Sheet, which were incurred in the
ordinary course of business and are not material both individually and in
the aggregate to Promedix or its business and (ii) that are not required to
be reflected therein under generally accepted accounting principles.
Section 3.5 Tax Matters.
(a) For purposes of this Section 3.5 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may
become payable in respect thereof, (A) imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income
or profits taxes (including but not limited to, federal income taxes
and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes,
business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, ozone depleting chemicals
taxes, transfer taxes, workers' compensation, Pension Benefit Guaranty
Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing,
which are required to be paid, withheld or collected, (B) any liability
for the payment of amounts referred to in (A) as a result of being a
member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of
any obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes,
including information returns or reports with respect to backup
withholding and other payments to third parties.
(b) All Returns required to be filed prior to the date hereof by or on
behalf of Promedix have been duly filed on a timely basis, and such Returns
are true, complete and correct in all material respects. All Taxes shown to
be payable on such Returns or on subsequent assessments with respect
thereto, and all payments of estimated Taxes required to be made prior to
the date hereof by or on behalf of Promedix under Section 6655 of the Code
or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis or have been accrued on the Most Recent Balance
Sheet, and no other Taxes are payable by Promedix with respect to items or
periods covered by such Returns (whether or not shown on or reportable on
such Returns). Promedix has withheld and paid over all Taxes required to
have been withheld and paid over prior to the date hereof, and complied
with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of
the assets of Promedix with respect to Taxes, other than liens for Taxes
not yet due and payable or for Taxes that Promedix is contesting in good
faith through appropriate proceedings and for which appropriate reserves
have been established on the Most Recent Balance Sheet. Promedix has not at
any time been (i) a member of an affiliated group of corporations filing
consolidated, combined or unitary income or franchise tax returns, or (ii)
a member of any partnership or joint venture for a period for which the
statue of limitations for any Tax potentially applicable as a result of
such membership has not expired.
(c) The amount of Promedix's liability for unpaid Taxes (whether actual
or contingent) for all periods through the date of the Most Recent Balance
Sheet does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes reflected on the Most Recent Balance Sheet,
and the Most Recent Balance Sheet reflects proper accrual in accordance
with generally accepted accounting principles applied on a basis consistent
with prior periods of all liabilities for Taxes payable after the date of
the Most Recent Balance Sheet attributable to transactions and events
occurring prior to such date. No liability
A-10
<PAGE>
for Taxes has been incurred (or prior to Closing will be incurred) since
such date other than in the ordinary course of business.
(d) Chemdex has been furnished by Promedix with true and complete copies
of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of
Promedix relating to Taxes, and (ii) all federal and state income or
franchise tax Returns and state sales and use tax Returns for or including
Promedix for all periods since the inception of Promedix. Promedix does not
do business in or derive income from any state other than states for which
Returns have been duly filed and furnished to Chemdex.
(e) The Returns of or including Promedix have never been audited by a
government or taxing authority, nor has Promedix received notice that any
such audit is in process, pending or threatened (either in writing or
verbally, formally or informally). No deficiencies exist or have been
asserted (either in writing or verbally, formally or informally), and
Promedix has not received notice (either in writing or verbally, formally
or informally) that it has not filed a Return or paid Taxes required to be
filed or paid. Promedix is neither a party to any action or proceeding for
assessment or collection of Taxes, nor has such event been asserted or
threatened (either in writing or orally, formally or informally) against
Promedix or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Promedix.
Promedix has disclosed on its federal and state income and franchise tax
Returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662 or
comparable provisions of applicable state, local, foreign or other tax
laws.
(f) Promedix has not been and is not required to include any material
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing.
(g) Promedix is not, nor has it ever been, a party to any tax sharing
agreement.
(h) Promedix is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code, and Chemdex is not required to withhold tax by reason of Section 1445
of the Code. Promedix is not a "consenting corporation" under Section
341(f) of the Code. Promedix has not entered into any compensatory
agreements with respect to the performance of services which payment
thereunder would result in a nondeductible expense to Promedix pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. Promedix has not agreed to, nor is it
required to make any adjustment under Code Section 481(a) by reason of, a
change in accounting method. Promedix is not, nor has it been, a "reporting
corporation" subject to the information reporting and record maintenance
requirements of Section 6038A and the regulations thereunder. Promedix is
in compliance with the terms and conditions of any applicable tax
exemptions, agreements or orders of any foreign government to which it may
be subject or which it may have claimed, and the transactions contemplated
by this Agreement will not have any adverse effect on such compliance.
(i) The Promedix Disclosure Schedule sets forth accurate and complete
information regarding Promedix's net operating losses for federal and each
applicable state income tax purposes. Except as a result of the
transactions contemplated hereby, Promedix has no net operating losses and
credit carryovers or other tax attributes currently subject to limitation
under Sections 382, 383, or 384 of the Code.
Section 3.6 Absence of Certain Changes or Events. Since December 31, 1998,
Promedix has not:
(a) suffered any material adverse change in its business, assets
(including intangible assets), condition (financial or otherwise), or
results of operations ("Material Adverse Change");
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to
result, in a Material Adverse Effect on Promedix;
A-11
<PAGE>
(c) granted or agreed to make any increase in the compensation payable
or to become payable by Promedix to its officers or employees, except in
the ordinary course of business, consistent with its past practice;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of
Promedix or declared any direct or indirect redemption, retirement,
purchase or other acquisition by Promedix of such shares, except pursuant
to repurchase provisions set forth in stock purchase agreements with
employees and consultants;
(e) issued any shares of capital stock of Promedix or any warrants,
rights, options or entered into any commitment relating to the shares of
Promedix, except for the (i) issuance of shares of Promedix capital stock
pursuant to the exercise of Promedix Options and Promedix Warrants listed
in the Promedix Disclosure Schedule and as permitted under Section 5.2(c),
(ii) the conversion of outstanding Promedix Preferred Stock, (iii) issuance
of shares of Promedix capital stock to Strategic Investors that is approved
in writing in advance by Chemdex, and (iv) conversion of the Convertible
Debt and exercise of the Promedix Warrants listed in the Promedix
Disclosure Schedule;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property with an individual
net book value in excess of $10,000;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
material patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright) invention, work of
authorship, process, know-how, formula or trade secret or interest
thereunder or other intangible asset, except in the ordinary course of
business;
(i) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind (except those permitted under Section 3.7);
(j) made any capital expenditure or commitment individually in excess of
$10,000 or in the aggregate in excess of $50,000;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets, or entered into any agreement or
arrangement with, any of its Affiliates (as defined in Section 3.16),
officers, directors or stockholders or any affiliate of any of the
foregoing, except in the case of Promedix's fulfillment business that
Promedix intends to sell prior to the Closing pursuant to the letter of
intent, list of assets to be transferred, and list of liabilities to be
assumed attached to this Agreement as Exhibit H (the "Fulfillment Business
Sale");
(l) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the Promedix
Disclosure Schedule; or
(m) agreed to take any action described in this Section 3.6 or which
would constitute a breach of any of the representations of Promedix
contained in this Agreement.
Section 3.7 Title and Related Matters. Promedix owns its properties and
assets, real and personal, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (1) the lien of
current taxes not yet due and payable, (2) minor imperfections of and
encumbrances on title, if any, as do not materially interfere with the present
use of the property affected thereby and (3) liens securing debt reflected on
the Most Recent Balance Sheet (collectively, "Permitted Encumbrances"). The
equipment of Promedix used in the operation of its business is, taken as a
whole, (i) adequate for the business conducted by Promedix and (ii) in good
operating condition and repair, ordinary wear and tear excepted. All personal
property leases to which Promedix is a party are valid, binding, and
enforceable against the parties thereto and in effect in accordance with their
respective terms. To the knowledge of Promedix, there is not under any of such
leases any existing default or event of default or event which, with notice or
lapse of time or both, would
A-12
<PAGE>
constitute a default. The Promedix Disclosure Schedule contains a description
of all items of personal property with an individual net book value in excess
of $2,500 and real property leased by Promedix, describing its interest in said
property. True and correct copies of Promedix's real property and personal
property leases have been provided to Chemdex or its representatives.
Section 3.8 Proprietary Rights.
(a) Promedix owns all right, title and interest in and to, or otherwise
possesses legally sufficient rights to use, all patents, copyrights,
technology, software, software tools, know-how, processes, trade secrets,
trademarks, service marks, trade names, Internet domain names and other
proprietary rights used in the conduct of Promedix's business as conducted
to the date of this Agreement and as reasonably expected to be conducted
following the date hereof, including, without limitation, the technology,
information, databases, data lists, data compilations, and all proprietary
rights developed or discovered or used in connection with or contained in
all versions and implementations of Promedix's World Wide Web sites
(including www.promedix.com and the other domain names listed in the
Promedix Disclosure Schedule) or any product which has been or is being
distributed or sold by Promedix or currently is under development by
Promedix or has previously been under development by Promedix
(collectively, including such Web sites, the "Promedix Products"), free and
clear of all liens, claims and encumbrances (including without limitation
licensing and distribution rights) other than Permitted Encumbrances (all
of which are referred to as "Promedix Proprietary Rights"). The Promedix
Disclosure Schedule contains an accurate and complete (i) description of
all patents, trademarks (with separate listings of registered and
unregistered trademarks), trade names, Internet domain names and registered
copyrights in or related to the Promedix Products or otherwise included in
the Promedix Proprietary Rights and all applications and registration
statements therefor, including the jurisdictions in which each such
Promedix Proprietary Right has been issued or registered or in which any
such application of such issuance and registration has been filed,
(ii) list of all licenses and other agreements with third parties (the
"Third Party Licenses") relating to any material patents, copyrights, trade
secrets, software, inventions, technology, know-how, processes or other
proprietary rights that Promedix is licensed or otherwise authorized by
such third parties to use, market, distribute or incorporate in Promedix
Products (such patents, copyrights, trade secrets, software, inventions,
technology, know-how, processes or other proprietary rights are
collectively referred to as the "Third Party Technology") and (iii) list of
all licenses and other agreements with third parties relating to any
material information, compilations, data lists or databases that Promedix
is licensed or otherwise authorized by such third parties to use, market,
disseminate distribute or incorporate in Promedix Products. All of
Promedix's patents, copyrights, trademarks, trade names or Internet domain
name registrations related to or in the Promedix Products are valid and in
full force and effect, and consummation of the transactions contemplated by
this Agreement will not alter or impair any such rights. No claims have
been asserted or threatened against Promedix (and Promedix is not aware of
any claims which are likely to be asserted or threatened against Promedix
or which have been asserted or threatened against others relating to
Promedix Proprietary Rights or Promedix Products) by any person challenging
Promedix's use, possession, manufacture, sale or distribution of Promedix
Products under any Promedix Proprietary Rights (including, without
limitation, the Third Party Technology) or challenging or questioning the
validity or effectiveness of any material license or agreement relating
thereto (including, without limitation, the Third Party Licenses) or
alleging a violation of any person's or entity's privacy, personal or
confidentiality rights. Promedix knows of no valid basis for any claim of
the type specified in the immediately preceding sentence which could in any
material way relate to or interfere with the continued enhancement and
exploitation by Promedix of any of the Promedix Products. None of the
Promedix Products nor the use or exploitation of any Promedix Proprietary
Rights in Promedix's current business infringes on the rights of or
constitutes misappropriation of any proprietary information or intangible
property right of any third person or entity, including without limitation
any patent, trade secret, copyright, trademark or trade name, and except as
set forth on the Promedix Disclosure Schedule, Promedix has not been sued
or named in any suit, action or proceeding which involves a claim of such
infringement, misappropriation or unfair competition.
A-13
<PAGE>
(b) Promedix has not granted any third party any right to reproduce,
distribute, market or exploit any of the Promedix Products or any
adaptations, translations, or derivative works based on the Promedix
Products or any portion thereof. Except with respect to the rights of third
parties to the Third Party Technology, no third party has any express right
to reproduce, distribute, market or exploit any works or materials of which
any of the Promedix Products are a "derivative work" as that term is
defined in the United States Copyright Act, Title 17, U.S.C. Section 101.
(c) All material designs, drawings, specifications, source code, object
code, scripts, documentation, flow charts, diagrams, data lists, databases,
compilations and information incorporating, embodying or reflecting any of
the Promedix Products at any stage of their development (the "Promedix
Components") were written, developed and created solely and exclusively by
employees of Promedix without the assistance of any third party or entity
or were created by third parties who assigned ownership of their rights to
Promedix by means of valid and enforceable confidentiality and invention
assignment agreements, copies of which have been delivered to Chemdex.
Promedix has at all times used commercially reasonable efforts customary in
its industry to treat the Promedix Proprietary Rights related to Promedix
Products and Promedix Components as containing trade secrets and has not
disclosed or otherwise dealt with such items in a manner intended or
reasonably likely to cause the loss of such trade secrets by release into
the public domain.
(d) To Promedix's knowledge, after due investigation, no employee,
contractor or consultant of Promedix is in violation in any material
respect of any term of any written employment contract, patent disclosure
agreement or any other written contract or agreement relating to the
relationship of any such employee, consultant or contractor with Promedix
or, to Promedix's knowledge, any other party because of the nature of the
business conducted by Promedix or proposed to be conducted by Promedix. The
Promedix Disclosure Schedule lists all employees, contractors and
consultants who have participated in any way in the development of any
material portion of the Promedix Products or the Promedix Proprietary
Rights.
(e) Each person presently or previously employed by Promedix (including
independent contractors, if any) with access authorized by Promedix to
confidential information of Promedix has executed a confidentiality and
non-disclosure agreement pursuant to the form of agreement previously
provided to Chemdex or its representatives.
(f) No product liability or warranty claims have been communicated in
writing to or threatened against Promedix.
(g) To Promedix's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Promedix Proprietary
Rights, or any Third Party Technology to the extent licensed by or through
Promedix, by any third party, including any employee or former employee of
Promedix. Promedix has not entered into any agreement to indemnify any
other person against any charge of infringement of any Promedix Proprietary
Rights, other than indemnification agreements contained in Promedix's
standard form of license agreement in the ordinary course of business.
(h) Promedix has taken all steps customary and reasonable in the
industry to protect and preserve the confidentiality and proprietary nature
of all Intellectual Property and other confidential information not
otherwise protected by patents, patent applications or copyright
("Confidential Information"). All use, disclosure or appropriation by
Promedix or, to the best knowledge of Promedix, by another party pursuant
to rights granted to it by Promedix, of Confidential Information owned by
Promedix to a third party has been pursuant to the terms of a written
agreement between Promedix and such third party. All use, disclosure or
appropriation by Promedix of Confidential Information not owned by Promedix
has been pursuant to the terms of a written agreement between Promedix and
the owner of such Confidential Information, or is otherwise lawful.
A-14
<PAGE>
Section 3.9 Employee Benefit Plans.
(a) The Promedix Disclosure Schedule lists, with respect to Promedix and
any trade or business (whether or not incorporated) which is treated as a
single employer with Promedix (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), (ii) each loan to a non-officer employee,
loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability, employee
relocation, cafeteria benefit (Code Section 125) or dependent care (Code
Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to
senior management of Promedix and that do not generally apply to all
employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit
of, or relating to, any present or former employee, consultant or director
of Promedix as to which (with respect to any of items (i) through (v)
above) any potential material liability is borne by Promedix (together, the
"Promedix Employee Plans").
(b) Promedix has delivered to Chemdex or its representatives a copy of
each of the Promedix Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and, to the
extent still in its possession, any material employee communications
relating thereto) and has, with respect to each Promedix Employee Plan
which is subject to ERISA reporting requirements, provided copies of any
Form 5500 reports filed for the last three plan years. Any Promedix
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments
to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has applied to the Internal Revenue Service for such a
determination, notification or opinion letter prior to the expiration of
the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination,
notification or opinion letter and to make any amendments necessary to
obtain a favorable determination. Promedix has also furnished Chemdex with
the most recent Internal Revenue Service determination, notification or
opinion letter issued with respect to each such Promedix Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Promedix Employee Plan subject to Code Section 401(a).
(c) Except as required by Section 4980B of the Code and Section 601 of
ERISA, (i) none of the Promedix Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Promedix Employee
Plan; (iii) each Promedix Employee Plan has been administered in all
material respects in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), and Promedix and each subsidiary or ERISA
Affiliate have performed all material obligations required to be performed
by them under, are not in any material respect in default, under or
violation of, and have no knowledge of any material default or violation by
any other party to, any of the Promedix Employee Plans; (iv) neither
Promedix nor any subsidiary or ERISA Affiliate is subject to any liability
or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA
with respect to any of the Promedix Employee Plans; (v) all contributions
required to be made by Promedix or any subsidiary or ERISA Affiliate to any
Promedix Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Promedix
Employee Plan for the current plan years; (vi) with respect to each
Promedix Employee Plan, no "reportable event" within the meaning of Section
4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062,
A-15
<PAGE>
4063 or 4041 of ERISA has occurred; and (vii) no Promedix Employee Plan is
covered by, and neither Promedix nor any subsidiary or ERISA Affiliate has
incurred or expects to incur any material liability under Title IV of ERISA
or Section 412 of the Code. With respect to each Promedix Employee Plan
subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Promedix has prepared in good faith and
timely filed all requisite governmental reports (which were true and
correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such Promedix Employee
Plan. No suit, administrative proceeding, action or other litigation has
been brought, or to the knowledge of Promedix is threatened, against or
with respect to any such Promedix Employee Plan, including any audit or
inquiry by the IRS or United States Department of Labor. Neither Promedix
nor any ERISA Affiliate is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multi-employer plan" as
defined in Section 3(37) of ERISA.
(d) With respect to each Promedix Employee Plan, Promedix has complied
in all material respects with (i) the applicable health care continuation
and notice provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985 ("COBRA") and the proposed regulations thereunder, (ii) the
applicable requirements of the Family Leave Act of 1993 and the regulations
thereunder, and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA") and the temporary
regulations thereunder.
(e) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service
provider of Promedix or any other ERISA Affiliate to severance benefits or
any other payment (including, without limitation, unemployment
compensation, golden parachute or bonus), except as expressly provided in
this Agreement, or (ii) accelerate the time of payment or vesting of any
such benefits, or (iii) increase or accelerate any benefits or the amount
of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Promedix or other ERISA Affiliate
relating to, or change in participation or coverage under, any Promedix
Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for
the most recent fiscal year included in the Promedix Financial Statements.
Section 3.10 Bank Accounts. The Promedix Disclosure Schedule sets forth the
names and locations of all banks, trust companies, savings and loan
associations, and other financial institutions at which Promedix maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 Contracts.
(a) Except for the contracts listed in Schedule 3.11(a) to the Promedix
Disclosure Schedule (the "Material Contracts"):
(i) Promedix has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by Promedix of any
Promedix Products or Promedix Proprietary Rights. Without limiting the
foregoing, except as set forth on the Promedix Disclosure Schedule,
Promedix has not granted to any third party (including, without
limitation, original equipment manufacturers ("OEMs") and site-license
customers) any rights to reproduce, manufacture or distribute any of
the Promedix Products, nor has Promedix granted to any third party any
exclusive rights of any kind (including, without limitation,
exclusivity with regard to categories of advertisers on Promedix's
World Wide Web site, territorial exclusivity or exclusivity with
respect to particular versions, implementations or translations of any
of the Promedix Products), nor has Promedix granted any third party any
right to market any of the Promedix Products under any private label or
"OEM" arrangements, nor has Promedix granted any license of any
Promedix trademarks or service marks.
A-16
<PAGE>
(ii) Promedix has no Third Party Licenses.
(iii) Promedix has no agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to Promedix
in excess of $10,000 (including, without limitation, any advertising or
revenue sharing arrangement).
(iv) Promedix has no outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion
orders, slotting agreements or other agreements under which Promedix
has allowed third parties to advertise on or otherwise be included in
Promedix's World Wide Web sites) that Promedix currently expects to
result in any loss to Promedix upon completion or performance thereof.
(v) Promedix has no outstanding agreements, contracts or commitments
with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable
by Promedix "at will" and without liability, penalty or premium.
(vi) Promedix has no employment, independent contractor or similar
agreement, contract or commitment that is not terminable on thirty (30)
days' notice or less without penalty, liability or premium of any type,
including, without limitation, severance or termination pay.
(vii) Promedix has no currently effective collective bargaining or
union agreements, contracts or commitments.
(viii) Promedix is not restricted by agreement from competing with
any person or from carrying on its business anywhere in the world.
(ix) Promedix has not guaranteed any obligations of other persons or
made any agreements to acquire or guarantee any obligations of other
persons.
(x) Promedix has no outstanding loan or advance to any person; nor
is it party to any line of credit, standby financing, revolving credit
or other similar financing arrangement of any sort which would permit
the borrowing by Promedix of any sum.
(xi) Promedix has no agreements pursuant to which Promedix has
agreed to manufacture for, supply to or distribute to any third party
any Promedix Products or Promedix Components.
True and correct copies of each document or instrument listed on the
Promedix Disclosure Schedule pursuant to this Section 3.11(a) have been
provided to Chemdex or its representatives.
(b) All of the Material Contracts listed on the Promedix Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by
Promedix in accordance with their respective terms. Except as disclosed in
the Promedix Disclosure Schedule, no Material Contract contains any
liquidated damages, penalty or similar provision. To the knowledge of
Promedix, no party to any such Material Contract intends to cancel,
withdraw, modify or amend such contract, agreement or arrangement.
(c) Promedix is not in default under or in breach or violation of, nor,
to Promedix's knowledge, is there any valid basis for any claim of default
by Promedix under, or breach or violation by Promedix of, any material
provision of any Material Contract. To Promedix's knowledge, no other party
is in default under or in breach or violation of, nor is there any valid
basis for any claim of default by any other party under or any breach or
violation by any other party of, any Material Contract.
(d) Except as specifically indicated on the Promedix Disclosure
Schedule, none of the Material Contracts provides for indemnification by
Promedix of any third party. No claims have been made or threatened that
would require indemnification by Promedix, and Promedix has not paid any
amounts to indemnify any third party as a result of indemnification
requirements of any kind.
Section 3.12 Compliance With Law. Promedix and the operation of its business
are in compliance in all material respects with all applicable laws and
regulations material to the operation of its business. Neither
A-17
<PAGE>
Promedix nor, to Promedix's knowledge, any of its employees has directly or
indirectly paid or delivered any fee, commission or other sum of money or item
of property, however characterized, to any finder, agent, government official
or other party in the United States or any other country, that was or is in
violation of any federal, state, or local statute or law or of any statute or
law of any other country having jurisdiction. Promedix has not participated
directly or indirectly in any boycotts or other similar practices affecting any
of its customers. Promedix has complied in all material respects at all times
with any and all applicable federal, state and foreign laws, rules,
regulations, proclamations and orders relating to the importation or
exportation of its products, except for such noncompliance as would not in the
aggregate reasonably be expected to have a Material Adverse Effect on Promedix.
Promedix has complied with all applicable federal, state and local laws, and
regulations relating to the collection and use of user information gathered in
the course of Promedix's operations, and Promedix has at all times complied
with all rules, policies and procedures established by Promedix from time to
time with respect to the foregoing.
Section 3.13 Labor Difficulties; No Discrimination.
(a) Promedix is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and
hours. There is no unfair labor practice complaint against Promedix
actually pending or, to the knowledge of Promedix, threatened before the
National Labor Relations Board. There is no strike, labor dispute,
slowdown, or stoppage actually pending or, to the knowledge of Promedix,
threatened against Promedix. To the knowledge of Promedix, no union
organizing activities are taking place with respect to the business of
Promedix. No grievance, or any arbitration proceeding arising out of or
under any collective bargaining agreement is pending and, to the knowledge
of Promedix, no claims therefor exist. No collective bargaining agreement
that is binding on Promedix restricts it from relocating or closing any of
its operations. Promedix has not experienced any material work stoppage or
other material labor difficulty.
(b) There is and has not been any claim against Promedix or its officers
or employees, or to Promedix's knowledge, threatened against Promedix or
its officers or employees, based on actual or alleged race, age, sex,
disability or other harassment or discrimination, or similar tortious
conduct, or based on actual or alleged breach of contract with respect to
any person's employment by Promedix, nor, to the knowledge of Promedix, is
there any basis for any such claim.
(c) There are no pending claims against Promedix under any workers
compensation plan or policy or for long term disability. Promedix has no
material obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder. There are no proceedings pending or,
to the knowledge of Promedix, threatened, between Promedix and any of its
employees, which proceedings have or could reasonably be expected to have a
Material Adverse Effect on Promedix.
Section 3.14 Insider Transactions. To the knowledge of Promedix, no
affiliate ("Affiliate") as defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") of Promedix has any interest in
any equipment or other property, real or personal, tangible or intangible of
Promedix, including, without limitation, any Promedix Proprietary Rights or any
creditor, supplier, customer, manufacturer, agent, representative, or
distributor of Promedix Products; provided, however, that no such Affiliate or
other person shall be deemed to have such an interest solely by virtue of the
ownership of less than 1% of the outstanding stock or debt securities of any
publicly-held company, the stock or debt securities of which are traded on a
recognized stock exchange or quoted on the Nasdaq Stock Market.
Section 3.15 Employees, Independent Contractors and Consultants. The
Promedix Disclosure Schedule lists all past and all currently effective written
or oral consulting, independent contractor and/or employment agreements and
other material agreements concluded with individual employees, independent
contractors or consultants to which Promedix is a party. True and correct
copies of all such written agreements have been provided to Chemdex or its
representatives. All independent contractors have been properly classified as
independent contractors for the purposes of federal and applicable state tax
laws, laws applicable to employee benefits and other applicable law. All
salaries and wages paid by Promedix are in compliance in
A-18
<PAGE>
all material respects with applicable federal, state and local laws. Also shown
on the Promedix Disclosure Schedule are the names, positions and salaries or
rates of pay, including bonuses, of all persons presently employed by Promedix.
Section 3.16 Insurance. The Promedix Disclosure Schedule contains a list of
the principal policies of fire, liability and other forms of insurance
currently or previously held by Promedix, and all claims made by Promedix under
such policies. To the knowledge of Promedix, Promedix has not done anything,
either by way of action or inaction, which might invalidate such policies in
whole or in part. There is no claim pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Promedix is otherwise in compliance
with the terms of such policies and bonds in all material respects. Promedix
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
Section 3.17 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Promedix,
threatened against Promedix or any of its properties or any of its officers or
directors (in their capacities as such). There is no judgment, decree or order
against Promedix, or, to the knowledge of Promedix, any of its directors or
officers (in their capacities as such). To Promedix's knowledge, no
circumstances exist that could reasonably be expected to result in a claim
against Promedix as a result of the conduct of Promedix's business (including,
without limitation, any claim of infringement of any intellectual property
right).
Section 3.18 Governmental Authorizations and Regulations. Promedix has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Promedix currently operates or holds any interest in any of
its properties or (ii) that is required for the operation of Promedix's
business or the holding of any such interest, and all of such authorizations
are in full force and effect, except when the failure to obtain such
authorization could not be reasonably expected to have a Material Adverse
Effect.
Section 3.19 Subsidiaries. Promedix has no Subsidiaries. Promedix does not
own or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and Promedix does not control (directly or
indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
Section 3.20 Compliance with Environmental Requirements. Promedix has
obtained all permits, licenses and other authorizations which are required
under federal, state and local laws applicable to Promedix and relating to
pollution or protection of the environment, including laws or provisions
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or
wastes into air, surface water, groundwater, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes or which are intended to assure the safety of
employees, workers or other persons, except where the failure to obtain such
authorizations could not be reasonably expected to have a Material Adverse
Effect. Promedix is in compliance in all material respects with all terms and
conditions of all such permits, licenses and authorizations. There are no
conditions, circumstances, activities, practices, incidents, or actions known
to Promedix which could reasonably be expected to form the basis of any claim,
action, suit, proceeding, hearing, or investigation of, by, against or relating
to Promedix, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic substance, material or waste, or
relating to the safety of employees, workers or other persons.
A-19
<PAGE>
Section 3.21 Trade Regulation. All of the prices charged by Promedix in
connection with the marketing or sale of any products or services have been in
compliance in all material respects with all applicable laws and regulations.
No claims have been threatened in writing against Promedix with respect to
wrongful termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other violation of any laws or regulations relating to anti-competitive
practices or unfair trade practices of any kind, and to Promedix's knowledge,
no specific situation, set of facts, or occurrence provides any basis for any
such claim.
Section 3.22 Year 2000 Compliance. Except as would not reasonably be
expected to have a Material Adverse Effect on Promedix, all Information
Technology (as defined below) developed by or for Promedix effectively
addresses the Year 2000 issue and will not cause an interruption in the ongoing
operations of Promedix's business on or after January 1, 2000, and Promedix has
received assurances from all of its vendors that all Information Technology
provided to Promedix by its vendors, effectively addresses the Year 2000 issue
and will not cause an interruption in the ongoing operations of Promedix's
business on or after January 1, 2000. For purposes of the foregoing, the term
"Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by a party
hereto in the conduct of its business, or purchased by a party hereto from
third party suppliers. In addition, none of the Promedix Products and Promedix
Components will cause an interruption in the ongoing operations of any customer
of Promedix or of the combined company on or after January 1, 2000.
Section 3.23 Corporate Documents. Promedix has furnished to Chemdex or its
representatives: (a) copies of its Certificate of Incorporation and Bylaws, as
amended to date; (b) its minute book containing consents, actions, and meetings
of the stockholders, the board of directors and any committees thereof; (c) all
material permits, orders, and consents issued by any regulatory agency with
respect to Promedix, or any securities of Promedix, and all applications for
such permits, orders, and consents; and (d) the stock transfer books of
Promedix setting forth all transfers of any capital stock. The corporate minute
books, stock certificate books, stock registers and other corporate records of
Promedix are complete and accurate, and the signatures appearing on all
documents contained therein are the true or facsimile signatures of the persons
purporting to have signed the same.
Section 3.24 No Brokers. Neither Promedix nor, to Promedix's knowledge, any
Promedix stockholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of
this Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
Section 3.25 Promedix Action. The Board of Directors of Promedix, by
unanimous written consent or at a meeting duly called and held, has by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of Promedix and its stockholders, (ii) approved the Merger
and this Agreement in accordance with the provisions of Delaware Law, and (iii)
directed that this Agreement and the Merger be submitted to Promedix
stockholders for their approval and resolved to recommend that Promedix
stockholders vote in favor of the approval of this Agreement and the Merger.
Section 3.26 Offers. Promedix has suspended or terminated, and has the legal
right to terminate or suspend, all negotiations and discussions of Acquisition
Transactions (as defined in Section 5.5) with parties other than Chemdex.
Section 3.27 Disclosure. No statements by Promedix contained in this
Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to
be delivered by Promedix to Chemdex or Sub under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Promedix has disclosed
to
A-20
<PAGE>
Chemdex all material information of which it is aware relating specifically to
the operations and business of Promedix as of the date of this Agreement or the
transactions contemplated by this Agreement.
Section 3.28 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Promedix for inclusion in the Form S-4 (or any similar
successor form thereto) Registration Statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the "Commission") in
accordance with the Securities Act in connection with the Merger, shall not at
the time the Registration Statement becomes effective under the Securities Act
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information supplied by Promedix for inclusion in the proxy
statement/prospectus to be sent to the stockholders of Promedix and Chemdex in
connection with the meeting of Promedix's stockholders to consider the approval
and adoption of this Agreement and the approval of the Merger (the "Promedix
Stockholders' Meeting") and the meeting of Chemdex's stockholders to consider
the approval and adoption of this Agreement and the approval of the Merger (the
"Chemdex Stockholders' Meeting") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement/Prospectus") shall
not, on the date the Proxy Statement/Prospectus is first mailed to Promedix's
stockholders or at the time of the Promedix Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Promedix Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to Promedix or any of its affiliates, officers or directors should be
discovered by Promedix which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus,
Promedix shall promptly inform Chemdex. Notwithstanding the foregoing, Promedix
makes no representation or warranty with respect to any information supplied by
Chemdex or Sub that is contained in any of the foregoing documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHEMDEX AND SUB
Chemdex and Sub jointly and severally represent and warrant to Promedix
that, except as disclosed in a filing with the Securities and Exchange
Commission as of the date of this Agreement (the "Commission"), the statements
contained in this Article IV are true and correct.
Section 4.1 Organization of Chemdex and Sub. Each of Chemdex and its
Subsidiaries, including Sub, is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power to own, lease and operate
its property and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Material Adverse Effect on Chemdex or Sub. The authorized capital stock of Sub
consists of 1,000 shares of Common Stock, all of which are issued and
outstanding, duly paid and nonassessable and are owned by Chemdex free and
clear of all liens, charges and encumbrances.
Section 4.2 Capitalization.
(a) The authorized capital stock of Chemdex consists of 175,000,000
shares of Common Stock, par value $0.00002 per share ("Chemdex Common
Stock"), and 2,500,000 shares of undesignated Preferred Stock, par value
$0.00002 per share ("Chemdex Preferred Stock"). As of September 20, 1999,
there were (i) 32,797,737 shares of Chemdex Common Stock issued and
outstanding, all of which are validly
A-21
<PAGE>
issued, fully paid and non-assessable, (ii) no shares of Chemdex Preferred
Stock issued or outstanding. (iii) options to purchase up to 3,194,363
shares of Chemdex Common Stock ("Chemdex Options"); (iv) warrants to
purchase up to 179,999 shares of Chemdex Common Stock; (vi) 2,500,000
shares of Chemdex Common Stock reserved for future issuance upon conversion
of the Chemdex Preferred Stock; and (vii) 1,799,398 shares of Chemdex
Common Stock reserved for issuance upon exercise of options available to be
granted in the future under the Chemdex 1998 Stock Plan ("Chemdex Stock
Plan"). All shares of Chemdex Common Stock subject to issuance upon the
exercise of Chemdex Options, upon issuance on the terms and conditions
(including payment) specified in the instrument pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. All outstanding shares of Chemdex Common Stock and
outstanding Chemdex Options (collectively "Chemdex Securities") were issued
in compliance with applicable federal and state securities laws. Except as
disclosed in a filing with the Commission, there are no obligations,
contingent or otherwise, of Chemdex to repurchase, redeem or otherwise
acquire any shares of Chemdex Common Stock or Chemdex Preferred Stock or
make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity.
(b) Except as disclosed in a filing with the Commission, there are no
equity securities of any class or series of Chemdex, or any security
exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as disclosed in a filing with
the Commission, there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Chemdex is a
party or by which it is bound obligating Chemdex to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock of Chemdex or obligating Chemdex to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. Except as disclosed in a filing with the
Commission and as provided in this Agreement and the other Transaction
Documents, or any transaction contemplated hereby or thereby, there are no
voting trusts, proxies or other agreements or understandings with respect
to the voting of the shares of capital stock of Chemdex.
(c) All Chemdex Options have been issued in accordance with the terms of
the Chemdex Stock Plan and pursuant to the standard forms of option
agreement.
(d) The shares of Chemdex's Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-
assessable and no person will have any preemptive right of subscription or
purchase in respect thereof.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of Chemdex and Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents
to which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The
execution and delivery of this Agreement and such Transaction Documents and
the consummation of the transactions contemplated by this Agreement and
such Transaction Documents have been duly authorized by all necessary
corporate action on the part of Chemdex and Sub. This Agreement has been
and such Transaction Documents have been or, to the extent not executed as
of the date hereof, will be duly executed and delivered by Chemdex and Sub.
This Agreement and each of the Transaction Documents to which Chemdex or
Sub is a party constitutes, and each of the Transaction Documents to which
Chemdex or Sub will become a party when executed and delivered by Chemdex
or Sub will constitute, a valid and binding obligation of Chemdex or Sub,
enforceable by Promedix against Chemdex or Sub, as the case may be, in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered.
(b) The execution and delivery by Chemdex or Sub of this Agreement and
the Transaction Documents to which it is or will become a party does not,
and consummation of the transactions
A-22
<PAGE>
contemplated by this Agreement or the Transaction Documents to which it is
or will become a party will not, (i) conflict with, or result in any
violation or breach of any provision of the Certificate of Incorporation or
Bylaws of Chemdex or Sub, (ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Chemdex or
Sub is a party or by which either of them or any of their properties or
assets may be bound, or (iii) conflict or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Chemdex or Sub or any of their properties or
assets, except in the case of (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which
would not have a Material Adverse Effect on Chemdex and its Subsidiaries,
taken as a whole.
(c) Neither the execution and delivery of this Agreement by Chemdex or
Sub or the Transaction Documents to which Chemdex or Sub is or will become
a party or the consummation of the transactions contemplated hereby or
thereby will require any consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, except
for (i) the filing of the Certificate of Merger with the Delaware Secretary
of State, (ii) filings required under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of
any foreign country, and (iv) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, could be
expected to have a Material Adverse Effect on Chemdex and its Subsidiaries,
taken as a whole.
Section 4.4 Commission Filings; Financial Statements.
(a) Chemdex has filed with the Commission and made available, and will
continue to make available, to Promedix or its representatives all forms,
reports and documents required to be filed by Chemdex with the Commission
since July 26, 1999 until the Closing (collectively, the "Chemdex
Commission Reports"). The Chemdex Commission Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, (the "Securities Act"), and the
Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated in
such Chemdex Commission Reports or necessary in order to make the
statements in such Chemdex Commission Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any
related notes) contained in the Chemdex Commission Reports, including any
Chemdex Commission Reports filed after the date of this Agreement until the
Closing, complied or will comply as to form in all material respects with
the applicable published rules and regulations of the Commission with
respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission) and fairly presented the consolidated financial
position of Chemdex and its Subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
Section 4.5 Compliance with Laws. Chemdex has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which would not have a Material Adverse
Effect on Chemdex and its Subsidiaries, taken as a whole.
A-23
<PAGE>
Section 4.6 Interim Operations of Sub. Sub was formed by Chemdex solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement. Sub has no liabilities and, except for a
subscription agreement pursuant to which all of its authorized capital stock
was issued to Chemdex, is not a party to any agreement other than this
Agreement.
Section 4.7 Disclosure. No statements by Chemdex contained in this
Agreement, its exhibits and schedules, or any of the certificates or documents,
including any of the Transaction Documents, required to be delivered by Chemdex
or Sub to Promedix under this Agreement contain any untrue statement of
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
Section 4.8 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Chemdex or Sub for inclusion in the Registration
Statement shall not at the time the Registration Statement becomes effective
under the Securities Act contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The information supplied by Chemdex or Sub for
inclusion in the Proxy Statement/Prospectus shall not, on the date the Proxy
Statement/Prospectus is first mailed to Promedix's stockholders or at the time
of the Promedix Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Promedix
Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to Chemdex, Sub or any of their affiliates, officers or directors
should be discovered by Chemdex or Sub which is required to be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Chemdex shall promptly inform Promedix. Notwithstanding
the foregoing, Chemdex makes no representation or warranty with respect to any
information supplied by Promedix that is contained in any of the foregoing
documents.
Section 4.9 No Brokers. None of Chemdex, Sub or, to Chemdex's knowledge, any
Chemdex stockholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of
this Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
Section 4.10 Chemdex Action. The Board of Directors of Chemdex, by unanimous
written consent or at a meeting duly called and held, has by the unanimous vote
of all directors (i) determined that the Merger is fair and in the best
interests of Chemdex and its stockholders, (ii) approved the Merger and this
Agreement in accordance with the provisions of Delaware Law, and (iii) directed
that this Agreement and the Merger be submitted to Chemdex stockholders for
their approval and resolved to recommend that Chemdex stockholders vote in
favor of the approval of this Agreement and the Merger.
Section 4.11 Offers. Chemdex has suspended or terminated, and has the legal
right to terminate or suspend, all negotiations and discussions of any Chemdex
Acquisition Transactions (as defined in Section 6.11) with parties other than
Promedix.
Section 4.12 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Chemdex,
threatened against Chemdex or any of its properties or any of its officers or
directors (in their capacities as such) that would be reasonably likely to
materially interfere or delay Chemdex's ability to consummate the transactions
contemplated by this Agreement.
A-24
<PAGE>
Section 4.13 Absence of Certain Changes or Events. Since June 30, 1999,
Chemdex has not:
(a) suffered any Material Adverse Change;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to
result, in a Material Adverse Effect on Chemdex;
(c) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Chemdex
or declared any direct or indirect redemption, retirement, purchase or
other acquisition by Chemdex of such shares, except pursuant to repurchase
provisions set forth in stock purchase agreements with employees and
consultants; or
(d) agreed to take any action described in this Section 4.13 or which
would constitute a breach of any of the representations of Chemdex
contained in this Agreement.
ARTICLE V
PRECLOSING COVENANTS OF PROMEDIX
Section 5.1 Advice of Changes. Promedix will promptly advise Chemdex in
writing of any event known to Promedix occurring subsequent to the date of this
Agreement which would render any representation or warranty of Promedix
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect.
Section 5.2 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, Promedix agrees (except to the extent that Chemdex shall
otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted,
to pay its debts and taxes when due, subject to good faith disputes over such
debts or taxes, to pay or perform other obligations when due, and, to the
extent consistent with such business, use all reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, to the end
that its goodwill and ongoing businesses would be unimpaired at the Effective
Time. Promedix shall promptly notify Chemdex of any event or occurrence not in
the ordinary course of business of Promedix. Except as expressly contemplated
by this Agreement or the Promedix Disclosure Schedule, Promedix shall not,
without the prior written consent of Chemdex:
(a) except as otherwise contemplated by Section 6.5(b), accelerate,
amend or change the period of exercisability or the vesting schedule of
Promedix Restricted Shares or Promedix Options granted under any employee
stock plan or agreements or authorize cash payments in exchange for any
Promedix Restricted Shares or Promedix Options granted under any of such
plans except as specifically required by the terms of such plans or any
related agreements or any such agreements in effect as of the date of this
Agreement and disclosed in the Promedix Disclosure Schedule;
(b) declare or pay any dividends on or make or agree to make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of such party, or
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service by such party;
(c) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any
A-25
<PAGE>
character obligating it to issue any such shares or other convertible
securities, other than (i) the issuance of (A) shares of Promedix Common
Stock issuable upon exercise of Promedix Options, and Promedix Warrants
which are outstanding on the date of this Agreement, (B) shares of Promedix
Common Stock issuable upon conversion of shares of Promedix Preferred
Stock, or (C) shares of Promedix capital stock upon conversion of the
Convertible Debt; (ii) the repurchase of shares of Common Stock from
terminated employees pursuant to the terms of outstanding stock restriction
or similar agreements; or (iii) the grant of options or issuance of
restricted stock under the Promedix Stock Option Plan at fair market value
in the ordinary course of business in accordance with prior practice.
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets;
(e) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Promedix, except nonexclusive licenses of Promedix's products
and services in the ordinary course of business consistent with past
practice;
(f) (i) increase or agree to increase the compensation payable or to
become payable to its officers or employees (except to non-officer
employees in the ordinary course of business consistent with past
practice), (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, officers, employees
or agents, (iii) enter into any collective bargaining agreement, or (iv)
establish, adopt, enter into or amend in any material respect any bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the benefit
of any directors, officers or employees;
(g) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(h) incur, in excess of $25,000, any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities or guarantee any debt
securities of others;
(i) amend or propose to amend its Certificate of Incorporation or
Bylaws;
(j) incur or commit to incur any capital expenditures in excess of
$50,000 in the aggregate or in excess of $25,000 as to any individual
matter;
(k) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, Promedix Proprietary Right or other property
associated with the business of Promedix (including sales or transfers to
Affiliates of Promedix), except nonexclusive licenses of Promedix's
products and services in the ordinary course of business consistent with
prior practice;
(1) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business
consistent with past practice;
(m) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the
date of this Agreement, subject only to ordinary wear and tear;
(n) change accounting methods;
(o) amend or terminate any material contract, agreement or license to
which it is a party;
(p) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(q) waive or release any material right or claim;
A-26
<PAGE>
(r) make or change any Tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any amended
Return, enter into any closing agreement, settle any Tax claim or
assessment relating to Promedix, surrender any right to claim refund of
Taxes, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment relating to Promedix, or take any
other action or omit to take any action that would have the effect of
increasing the Tax liability of Promedix or Chemdex;
(s) take any action or fail to take any action that would cause there to
be a Material Adverse Change with respect to Promedix;
(t) enter into any agreement outside of the ordinary course of business
in which the obligation of Promedix exceeds $50,000 or shall not terminate
or be subject to termination for convenience within 180 days following
execution;
(u) enter into any agreement not in the ordinary course of business;
(v) allow any intellectual property deadline, registrations or
applications to lapse; or
(w) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (v) above, or any action which is
reasonably likely to make any of Promedix's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
Section 5.3 Access to Information. Until the Closing, Promedix shall allow
Chemdex and its agents reasonable free access during normal business hours upon
reasonable notice to its files, books, records, and offices, including, without
limitation, any and all information relating to taxes, commitments, contracts,
leases, licenses, personnel, and personal property and financial condition and
such other information and data requested by Chemdex or its agents. Until the
Closing, Promedix shall cause its accountants to cooperate with Chemdex and its
agents in making available all financial information requested, including
without limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants. No information or
knowledge obtained in any investigation pursuant to this Section shall affect
or be deemed to modify any representation or warranty contained in this
Agreement or its exhibits and schedules. All such access shall be subject to
the terms of the Confidentiality Agreement (as defined in Section 7.1).
Section 5.4 Satisfaction of Conditions Precedent. Promedix will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Sections 8.1 and 8.2, and Promedix will use its best efforts
to cause the transactions contemplated by this Agreement to be consummated,
and, without limiting the generality of the foregoing, to obtain all consents
and authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated by this Agreement, and
any and all consents necessary with respect to those Material Contracts listed
on Schedule 5.4 of the Promedix Disclosure Schedule required to consummate the
Merger (collectively, such authorizations, notices and consents are referred to
herein as the "Material Consents").
Section 5.5 Other Negotiations. Except with respect to Strategic Investors,
following the date hereof and until termination of this Agreement pursuant to
Section 9.1, Promedix will not (and it will not permit any of its officers,
directors, employees, agents and Affiliates on its behalf to) take any action
to solicit, initiate, seek, encourage or support any inquiry, proposal or offer
from, furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group (other than Chemdex)
regarding any acquisition of Promedix, any merger or consolidation with or
involving Promedix, or any acquisition of any material portion of the assets of
Promedix, or any acquisition of any capital stock of Promedix, or any material
license of Promedix Proprietary Rights (any of the foregoing being referred to
in this Agreement as an "Acquisition Transaction") or enter into an agreement
concerning any Acquisition Transaction with any party other than Chemdex. If
between the date of this Agreement and the termination of this Agreement
pursuant to Section 9.1, Promedix receives from a third party any offer or
indication of interest regarding any
A-27
<PAGE>
Acquisition Transaction, or any request for information regarding any
Acquisition Transaction, Promedix shall (i) notify Chemdex immediately (orally
and in writing) of such offer, indication of interest or request, including the
identity of such party and the full terms of any proposal therein, and (ii)
notify such third party of Promedix's obligations under this Agreement (without
any reference to Chemdex). Notwithstanding the foregoing, nothing in this
Section 5.5 shall be construed to restrict the ability of the Promedix Board of
Directors to take such actions in connection with any proposed Acquisition
Transactions that such Board reasonably determines in good faith to be required
to permit it to discharge properly its fiduciary duties, provided that this
qualification shall in no way affect the obligations of Promedix and the
Promedix Board of Directors pursuant to Section 7.1.
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF CHEMDEX AND SUB
Section 6.1 Advice of Changes. Chemdex and Sub will promptly advise Promedix
in writing of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of Chemdex or Sub contained
in this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect.
Section 6.2 Reservation of Chemdex Common Stock. Chemdex shall prior to the
Effective Time reserve for issuance, out of its authorized but unissued capital
stock, the maximum number of shares of Chemdex Common Stock as may be issuable
upon consummation of the Merger.
Section 6.3 Satisfaction of Conditions Precedent. Chemdex and Sub will use
their best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.3, and Chemdex and Sub will
use their best efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions
contemplated hereby.
Section 6.4 Nasdaq National Market Listing. Chemdex shall prior to the
Effective Time cause the shares of Chemdex Common Stock issuable to the
stockholders of Promedix in the Merger to be authorized for listing on the
Nasdaq National Market.
Section 6.5 Stock Options.
(a) At the Effective Time, each outstanding Promedix Option under the
Promedix Option Plan, whether vested or unvested, shall be assumed by
Chemdex and deemed to constitute an option (an "Chemdex Option") to acquire
the same number of shares of Chemdex Common Stock as the holder of such
Promedix Option would have been entitled to receive pursuant to the Merger
had such option been fully vested and had such holder exercised such option
in full immediately prior to the Effective Time (rounded down to the
nearest whole number), at a price per share (rounded up to the nearest
whole cent) equal to (i) the aggregate exercise price for the shares of
Promedix Common Stock otherwise purchasable pursuant to such Promedix
Option divided by (ii) the number of full shares of Chemdex Common Stock
deemed purchasable pursuant to such Chemdex Option in accordance with the
foregoing; provided, however, that, in the case of any Promedix Option to
which Section 422 of the Code applies ("Incentive Stock Options"), the
option price, the number of shares purchasable pursuant to such option and
the terms and conditions of exercise of such option shall be determined in
order to comply with Section 424(a) of the Code. In connection with the
assumption by Chemdex of the Promedix Options pursuant to this Section
6.5(a), Promedix shall be deemed to have assigned to Chemdex, effective at
the Effective Time, Promedix's right to repurchase unvested shares of
Promedix Common Stock issuable upon the exercise of the Promedix Options or
previously issued upon the exercise of options granted under the
A-28
<PAGE>
Promedix Option Plan, in accordance with the terms of the Promedix Option
Plan and the related stock option agreements and stock purchase agreements
entered into under the Promedix Option Plan.
(b) As soon as practicable after the Effective Time, Chemdex shall
deliver to the participants in the Promedix Option Plan appropriate notice
setting forth such participants' rights pursuant thereto and the grants
pursuant to the Promedix Option Plan shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section
6.5 after giving effect to the Merger). Chemdex shall comply with the terms
of the Promedix Option Plan and the parties intend that, to the extent
required by, and subject to the provisions of, such Promedix Option Plan
and Sections 422 and 424(a) of the Code, that Promedix Options which
qualified as Incentive Stock Options prior the Effective Time continue to
qualify as Incentive Stock Options after the Effective Time, and this
provision shall be interpreted consistent with that intent.
(c) Chemdex shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Chemdex Common Stock for delivery
upon exercise of Promedix Options assumed in accordance with this Section
6.5. As soon as practicable after the Effective Time and in any event no
later than 10 business days after the Closing Date, Chemdex shall file a
registration statement on Form S-8 (or any successor or other appropriate
forms) under the Securities Act or another appropriate form with respect to
the shares of Chemdex Common Stock subject to such options and shall use
its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of
the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(d) Each Promedix Warrant, to the extent outstanding at the Effective
Time, whether or not exercisable and whether or not vested at the Effective
Time, shall remain outstanding at the Effective Time. At the Effective
Time, Promedix Warrants shall, by virtue of the Merger and without any
further action on the part of Promedix or the holder of any of Promedix
Warrants (unless further action may be required by the terms of any of
Promedix Warrants), be assumed by Chemdex pursuant to such documentation as
is reasonably acceptable to Promedix and each Promedix Warrant assumed by
Chemdex shall be exercisable upon the same terms and conditions as under
the applicable warrant agreements with respect to such Promedix Warrants,
except that (A) each such Promedix Warrant shall be exercisable for that
whole number of shares of Chemdex Common Stock (rounded down to the nearest
whole share) into which the number of shares of Promedix Common Stock
subject to such Promedix Warrant would be converted under Section 2.1(c),
and (B) the exercise price per share of Chemdex Common Stock shall be an
amount equal to the exercise price per share of Promedix Common Stock
subject to such Promedix Warrant in effect immediately prior to the
Effective Time divided by the applicable Exchange Ratio (the exercise price
per share, so determined, being rounded to the nearest full cent). From and
after the Effective Time, all references to Promedix in the warrant
agreements underlying Promedix Warrants shall be deemed to refer to
Chemdex. Chemdex further agrees that, notwithstanding any other term of
this Section 6.5(d) to the contrary, if required under the terms of
Promedix Warrants or if otherwise appropriate under the terms of Promedix
Warrants, it will execute a supplemental agreement with the holders of
Promedix Warrants to effectuate the foregoing. No payment shall be made for
fractional shares. Chemdex shall (i) on or prior to the Effective Time,
reserve for issuance the number of shares of Chemdex Common Stock that will
become subject to warrants to purchase Chemdex Common Stock ("Chemdex
Warrants") pursuant to this Section 6.5(d), (ii) from and after the
Effective Time, upon exercise of the Chemdex Warrants in accordance with
the terms thereof, make available for issuance all shares of Chemdex Common
Stock covered thereby and (iii) as promptly as practicable following the
Effective Time, issue to each holder of an outstanding Promedix Warrant a
document evidencing the foregoing assumption by Chemdex.
Section 6.6 Certain Employee Benefit Matters. From and after the Effective
Time, employees of Promedix at the Effective Time (each, an "Promedix
Employee") will be provided with employee benefits by the Surviving Corporation
or Chemdex which in the aggregate are no less favorable to such employees than
those provided from time to time by Chemdex to its similarly situated
employees. If any employee of Promedix
A-29
<PAGE>
becomes a participant in any employee benefit plan, program, policy or
arrangement of Chemdex, such employee shall be given credit for all service
prior to the Effective Time with Promedix to the extent permissible under such
plan, program, policy or arrangement. It is the present intention of Chemdex
that no Promedix Employee as of the time of Closing shall be required to
relocate from Salt Lake City, Utah in order to continue their employment with
Promedix and Chemdex following the Closing.
Section 6.7 Contingent Financing. Within 15 days after the execution of this
Agreement, Chemdex shall provide Promedix a line of credit of $10,000,000 that
is secured by Promedix's assets, or such larger amount as the parties agree
pursuant to a secured loan agreement in the form attached hereto as Exhibit G
(the "Loan Agreement"). Chemdex agrees to enter into a subordination agreement
with Promedix's and its Subsidiaries existing secured creditors upon terms and
conditions reasonably satisfactory to Chemdex and such secured creditors, and
to the extent necessary, to modify the Loan Agreement in accordance with such
subordination agreement.
Section 6.8 D&O Indemnification. From and after the Effective Time, Chemdex
will cause the Surviving Corporation to fulfill and honor in all respects the
obligations of Promedix pursuant to any indemnification agreements between
Promedix and its directors and officers as of the date of this Agreement (the
"Indemnified Parties"). The Certificate of Incorporation and Bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Certificate of Incorporation and Bylaws of Promedix as
in effect on the date hereof, which provisions will not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who
were directors, officer, employees or agents of Promedix, unless such
modification is required by law.
Section 6.9 Salt Lake City Presence. Chemdex will maintain a significant
presence in Salt Lake City for at least two (2) years following the Closing
Date.
Section 6.10 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, except as expressly contemplated by this Agreement or
the Chemdex Disclosure Schedule, Chemdex shall not, without the prior written
consent of Promedix:
(a) declare or pay any dividends on or make or agree to make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock; or
(b) amend its Certificate of Incorporation.
Section 6.11 Other Negotiations. Following the date hereof and until
termination of this Agreement pursuant to Section 9.1, Chemdex will not (and it
will not permit any of its officers, directors, employees, agents and
Affiliates on its behalf to) take any action to solicit, initiate, seek,
encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than Promedix) regarding
any acquisition of a direct e-commerce competitor of Promedix (a "Promedix
Competitor"), any merger or consolidation with or involving a Promedix
Competitor, or any acquisition of any material portion of the assets of a
Promedix Competitor, or any acquisition of any capital stock of a Promedix
Competitor, or any material license of a Promedix Competitor's Proprietary
Rights (any of the foregoing being referred to in this Agreement as a "Chemdex
Acquisition Transaction") or enter into an agreement concerning any Chemdex
Acquisition Transaction with any party other than Promedix. If between the date
of this Agreement and the termination of this Agreement pursuant to Section
9.1, Chemdex receives from a third party any offer or indication of interest
regarding any Chemdex Acquisition Transaction, or any request for information
regarding any Chemdex Acquisition Transaction, Chemdex shall (i) notify
Promedix immediately (orally and in writing) of such offer, indication of
interest or request, including the identity of such party and the full terms of
any proposal therein, and (ii) notify such third party of Chemdex's obligations
under this Agreement (without any reference to Promedix). Notwithstanding the
foregoing, nothing in this Section 6.11 shall be construed to restrict the
ability
A-30
<PAGE>
of the Chemdex Board of Directors to take such actions in connection with any
proposed Chemdex Acquisition Transactions that such Board reasonably determines
in good faith to be required to permit it to discharge properly its fiduciary
duties, provided that this qualification shall in no way affect the obligations
of Chemdex and the Chemdex Board of Directors pursuant to Section 7.1.
ARTICLE VII
PRECLOSING COVENANTS OF PROMEDIX AND
CHEMDEX AND OTHER AGREEMENTS
During the period from the date of this Agreement until the Effective Time,
the parties covenant and agree as follows:
Section 7.1 Proxy Statement/Prospectus.
(a) As soon as practicable after the execution of this Agreement,
Promedix and Chemdex shall mutually cooperate in jointly preparing and
filing with the Commission the Proxy Statement/Prospectus. The Proxy
Statement/Prospectus shall constitute a disclosure document for the offer
and issuance of the shares of Chemdex Common Stock to be received by the
holders of the capital stock of Promedix in the Merger and for the other
transactions contemplated by this Agreement. As promptly as practicable
after comments, if any, are received from the Commission with respect to
such Proxy Statement/Prospectus and after the furnishing by Promedix and
Chemdex of all information required to be contained therein, Promedix and
Chemdex shall prepare and file with the Commission the Registration
Statement, in which the Proxy Statement/Prospectus shall be included, in
connection with the registration under the Securities Act of the shares of
Chemdex Common Stock to be issued to the holders of the capital stock of
Promedix pursuant to the Merger. Chemdex and Promedix shall use all
reasonable efforts to have or cause the Registration Statement to become
effective as promptly as practicable, and shall take all or any action
required under any applicable federal or state securities laws in
connection with the issuance of Chemdex Common Stock pursuant to the
Merger. As promptly as practicable after the Registration Statement shall
have become effective, Chemdex and Promedix shall each mail or cause to be
mailed the Proxy Statement/Prospectus to their respective stockholders.
(b) Chemdex and Promedix shall each use its best efforts to cause the
Proxy Statement/Prospectus to comply with applicable federal and state
securities laws requirements. Each of Chemdex and Promedix agrees to
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for
inclusion in the Proxy Statement/Prospectus, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate
with the other's counsel and auditors in the preparation of the Proxy
Statement/Prospectus. The information supplied by each of Chemdex and
Promedix for inclusion in the Proxy Statement/Prospectus and Registration
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement/Prospectus is first mailed to
the holders of capital stock of Promedix, (iii) the time of the Promedix
Stockholders' Meeting, (iv) the time of the Chemdex Stockholders' meeting,
and (v) the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. Promedix
will promptly advise Chemdex, and Chemdex will promptly advise Promedix, in
writing if at any time prior to the Effective Time either Promedix or
Chemdex shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Proxy Statement/Prospectus in order
to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law.
(c) The Proxy Statement/Prospectus shall contain the unanimous
recommendation of the Board of Directors of Promedix that the Promedix
stockholders approve the Merger and this Agreement and the
A-31
<PAGE>
conclusion of the Board of Directors that the terms and conditions of the
Merger are fair and reasonable to the stockholders of Promedix. The Proxy
Statement/Prospectus shall contain the unanimous recommendation of the
Board of Directors of Chemdex that the Chemdex stockholders approve the
issuance of Common Stock to the Promedix stockholders and this Agreement
and the conclusion of the Board of Directors that the terms and conditions
of the Merger are fair and reasonable to the stockholders of Chemdex.
Anything to the contrary contained herein notwithstanding, Promedix shall
not include in the Proxy Statement/Prospectus any information with respect
to Chemdex or its affiliates or associates, the form and content of which
information shall not have been approved by Chemdex prior to such
inclusion. Anything to the contrary contained herein notwithstanding,
Chemdex shall not include in the Proxy Statement/Prospectus any information
with respect to Promedix or its affiliates or associates, the form and
content of which information shall not have been approved by Promedix prior
to such inclusion.
Section 7.2 Stockholder Meetings.
(a) Promptly after the date hereof, Promedix will take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Promedix Stockholders' Meeting to
be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon
this Agreement and the Merger or the issuance of shares of Chemdex Common
Stock pursuant to the Merger, respectively. Promedix will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of
the Merger and will take all other action necessary or advisable to secure
the vote or consent of its stockholders required by the rules of the NASD
or Delaware Law to obtain such approvals. Notwithstanding anything to the
contrary contained in this Agreement, Promedix may adjourn or postpone
Promedix Stockholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Proxy Statement/Prospectus is
provided to Promedix's stockholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which Promedix Stockholders'
Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Promedix capital
stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Promedix's Stockholders' Meeting.
Promedix shall ensure that the Promedix Stockholders' Meeting is called,
noticed, convened, held and conducted and that all proxies solicited by the
Promedix in connection with the Promedix Stockholders' Meeting are
solicited, in compliance with the Delaware Law, its Certificate of
Incorporation and Bylaws, the rules of the NASD and all other applicable
legal requirements. Promedix's obligation to call, give notice of, convene
and hold the Promedix Stockholders' Meeting in accordance with this Section
7.2(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission to Promedix of any proposed Promedix
Acquisition Transaction, or by any withdrawal, amendment or modification of
the recommendation of the Board of Directors of Promedix with respect to
the Merger.
(b) Promptly after the date hereof, Chemdex will take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Chemdex Stockholders' Meeting to be
held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon
this Agreement and the Merger or the issuance of shares of Chemdex Common
Stock pursuant to the Merger, respectively. Chemdex will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of
the Merger and will take all other action necessary or advisable to secure
the vote or consent of its stockholders required by the rules of the NASD
or Delaware Law to obtain such approvals. Notwithstanding anything to the
contrary contained in this Agreement, Chemdex may adjourn or postpone
Chemdex Stockholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Proxy Statement/Prospectus is
provided to Chemdex's stockholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which Chemdex Stockholders'
Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of
A-32
<PAGE>
Chemdex capital stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the Chemdex's
Stockholders' Meeting. Chemdex shall ensure that the Chemdex Stockholders'
Meeting is called, noticed, convened, held and conducted that all proxies
solicited by the Chemdex in connection with the Chemdex Stockholders'
Meeting are solicited, in compliance with the Delaware Law, its Certificate
of Incorporation and Bylaws, the rules of the NASD and all other applicable
legal requirements. Chemdex's obligation to call, give notice of, convene
and hold the Chemdex Stockholders' Meeting in accordance with this Section
7.2(b) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission to Chemdex of any proposed Chemdex
Acquisition Transaction, or by any withdrawal, amendment or modification of
the recommendation of the Board of Directors of Chemdex with respect to the
Merger.
Section 7.3 Confidentiality. Each party acknowledges that Chemdex and
Promedix have executed a Mutual Non-Disclosure Agreement in August 1999 (the
"Confidentiality Agreement"), which agreement shall continue in full force and
effect in accordance with its terms.
Section 7.3 No Public Announcement. Each of Chemdex and Promedix agrees that
neither it nor any of their respective representatives, officers, directors,
agents, stockholder or affiliates shall make any public announcement with
respect to this Agreement or the transactions contemplated hereby, or disclose
the terms or existence of this Agreement to any third party prior to the public
announcement of the transactions contemplated hereby. All public announcements
with respect to this Agreement or the transactions contemplated hereby will be
made upon the mutual agreement of the parties and only after each party has had
the opportunity to review and comment on the proposed public announcement.
Section 7.4 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, Promedix and Chemdex shall use their
respective reasonable good faith efforts to (i) make all necessary filings with
respect to the Merger and this Agreement under the Exchange Act and applicable
blue sky or similar securities laws and obtain required approvals and
clearances with respect thereto and supply all additional information requested
in connection therewith; (ii) make merger notification or other appropriate
filings with federal, state or local governmental bodies or applicable foreign
governmental agencies and obtain required approvals and clearances with respect
thereto and supply all additional information requested in connection
therewith; (iii) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger; and (iv) take, or cause to
be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable.
Section 7.5 Further Assurances. Prior to and following the Closing, each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better
evidence and reflect the transactions described herein and contemplated hereby
and to carry into effect the intents and purposes of this Agreement.
Section 7.6 Escrow Agreement. On or before the Effective Time, Chemdex
shall, and the parties hereto shall exercise their reasonable good faith
efforts to cause the Escrow Agent (as defined in Section 10.2) and the
Stockholders' Agents (as defined in Section 10.8), to enter into an Escrow
Agreement in substantially the form attached hereto as Exhibit E.
Section 7.7 FIRPTA. Promedix shall, prior to the Closing Date, provide
Chemdex with a properly executed Foreign Investment and Real Property Tax Act
of 1980 ("FIRPTA") FIRPTA Notification Letter which states that shares of
capital stock of Promedix do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Chemdex's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such FIRPTA Notification Letter,
Promedix shall provide to Chemdex, as agent for Promedix, a form of notice to
the Internal Revenue Service in
A-33
<PAGE>
accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2),
along with written authorization for Chemdex to deliver such notice form to the
Internal Revenue Service on behalf of Promedix upon the Closing of the Merger.
Section 7.8 Other Filings. As promptly as practicable after the date of this
Agreement, Promedix and Chemdex will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal,
foreign or state securities or blue sky laws relating to the Merger and the
transactions contemplated by this Agreement (the "Other Filings"). The Other
Filings will comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Other Filings, Promedix or Chemdex, as the case may be, will promptly inform
the other of such occurrence and cooperate in making any appropriate amendment
or supplement, and/or mailing to stockholders of Promedix, such amendment or
supplement.
Section 7.10 Tax Matters.
(a) Neither Chemdex nor Sub (nor any of their respective affliliates)
(i) has through the date of this Agreement taken or agreed to take any
action that could reasonably be expected to prevent the Merger to qualify
as a tax-free reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code, and (b) shall take any action after the date
hereof that could reasonably be expected to cause the Merger not to qualify
as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code. Each of Chemdex and Promedix shall not take a
position on any Tax Return inconsistent with such treatment. Chemdex and
Promedix each shall give the other prompt notice of any challenges or
investigations undertaken by any Tax agency in connection with such
reporting and shall keep the other fully informed of all aspects of any
such ongoing challenge or investigation.
(b) Each of Promedix and Chemdex shall cooperate with each other in
obtaining the opinion of Orrick, Herrington & Sutcliffe LLP, to be rendered
to Promedix, and Venture Law Group, to be rendered to Chemdex, each dated
as of the Closing Date, to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code. In
connection therewith, if counsel shall so request, each of Chemdex, Sub and
Promedix shall deliver to Orrick, Herrington & Sutcliffe LLP and Venture
Law Group customary representation letters (such representation letters
collectively referred to as the "Tax Certificates"), to the extent that
they are able to make such customary representations.
Section 7.11 Transition Planning. Promedix and Chemdex shall work together
to coordinate all aspects of transition planning and implementation relating to
the Merger and the other transactions contemplated hereby. During the period
between the date hereof and the Effective Time, Promedix and Chemdex shall
jointly examine various alternatives regarding the manner in which to best
organize and manage the business of Promedix and Chemdex after the Effective
Time.
ARTICLE VIII
CONDITIONS TO MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The stockholders of Promedix entitled to vote
on or consent to this Agreement and the Merger in accordance with Delaware
Law and Promedix's Certificate of Incorporation, shall have approved this
Agreement and the Merger. The stockholders of Chemdex entitled to vote on
or consent to this Agreement and the Merger in accordance with the Delaware
Law and Chemdex's Certificate of Incorporation shall have approved this
Agreement and the issuance of the shares Chemdex Common Stock in connection
with the Merger.
A-34
<PAGE>
(b) Approvals. Other than the filing provided for by Section 1.2, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity shall have been filed, occurred or been obtained.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting the conduct or operation of the business of Promedix by Chemdex
after the Merger shall have been issued, nor shall any proceeding brought
by a domestic administrative agency or commission or other domestic
Governmental Entity or other third party, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal.
(d) Nasdaq. The shares of Chemdex Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq Stock Market.
(e) Effectiveness of Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the Commission
with respect to the Registration Statement.
(f) Tax Opinion. Promedix shall have received the opinion dated the
Closing Date of Orrick, Herrington & Sutcliffe LLP, and Chemdex shall have
received the opinion dated the Closing Date of Venture Law Group, each to
the effect that the Merger, for federal income tax purposes, will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of
Chemdex, Sub and Promedix.
(g) Act. The waiting period applicable to the consummation of the Merger
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended,
shall have expired or been terminated.
(h) Blue Sky Laws. Chemdex shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of
Chemdex Common Stock pursuant to the Merger.
Section 8.2 Additional Conditions to Obligations of Chemdex and Sub. The
obligations of Chemdex and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Chemdex and Sub:
(a) Representations and Warranties. The representations and warranties
of Promedix set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except
for changes contemplated by this Agreement; and Chemdex shall have received
a certificate signed on behalf of Promedix by the chief executive officer
and the chief financial officer of Promedix to such effect.
(b) Performance of Obligations of Promedix. Promedix shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and Chemdex
shall have received a certificate signed on behalf of Promedix by the chief
executive officer of Promedix to such effect.
(c) Dissenting Stockholders. Holders of Promedix's issued and
outstanding capital stock as of the Closing representing no more than 5% of
the outstanding shares of Promedix capital stock shall have elected to, or
continue to have contingent rights to, exercise appraisal rights under
Delaware Law as to such shares.
(d) Escrow Agreement. The Escrow Agent and Stockholders' Agents shall
have executed and delivered to Chemdex the Escrow Agreement and such
agreement shall remain in full force and effect.
A-35
<PAGE>
(e) Ancillary Agreements. Each of the Voting Agreements, Employment
Agreements, Affiliates Agreement, and the Stock Restriction Agreements
executed and delivered concurrently with the execution of this Agreement
shall remain in full force and effect.
(f) Opinion of Promedix's Counsel. Chemdex shall have received an
opinion dated the Closing Date of Orrick, Herrington & Sutcliffe LLP,
counsel to Promedix, as to the matters set forth on Exhibit H.
(g) Approvals. All Material Consents shall have been obtained.
(h) Board Resignations. Promedix shall have received written letters of
resignation from the Promedix Board of Directors from each of the current
members of such Board, in each case effective at the Effective Time.
(i) Fulfillment Business Sale. The Fulfillment Business Sale shall have
closed prior to the Closing.
(j) Conversion of Convertible Debt. The Convertible Debt shall have
converted into Promedix capital stock or have been repaid prior to the
Closing.
Section 8.3 Additional Conditions to Obligations of Promedix. The
obligation of Promedix to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Promedix:
(a) Representations and Warranties. The representations and warranties
of Chemdex and Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Promedix shall have
received a certificate signed on behalf of Chemdex by the chief financial
officer of Chemdex to such effect.
(b) Performance of Obligations of Chemdex and Sub. Chemdex and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Promedix shall have received a certificate signed on behalf of Chemdex by
the chief financial officer of Chemdex to such effect.
(c) Board Matters. Effective upon the Closing Date, Skip Klintworth and
one outside director to be mutually agreed upon shall become members of
Chemdex's Board of Directors.
(d) Opinion of Chemdex's Counsel. Promedix shall have received an
opinion dated the Closing Date of Venture Law Group, counsel to Chemdex, as
to the matters set forth on Exhibit H.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual written consent of Chemdex and Promedix;
(b) by either Chemdex or Promedix, by giving written notice to the other
party, if a court of competent jurisdiction or other Governmental Entity
shall have issued a nonappealable final order, decree or ruling or taken
any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, except, if such
party relying on such order, decree or ruling or other action shall not
have complied with its respective obligations under Sections 5.5 or 6.3 of
this Agreement, as the case may be;
(c) by Chemdex or Promedix, by giving written notice to the other party,
if the other party is in material breach of any representation, warranty,
or covenant of such other party contained in this Agreement, which breach
shall not have been cured, if subject to cure, within 10 business days
following receipt by the breaching party of written notice of such breach
by the other party;
A-36
<PAGE>
(d) by Chemdex, by giving written notice to Promedix, if the Closing
shall not have occurred on or before February 29, 2000 by reason of the
failure of any condition precedent under Section 8.1 or 8.2 (unless the
failure results primarily from a breach by Chemdex of any representation,
warranty, or covenant of Chemdex contained in this Agreement or Chemdex's
failure to fulfill a condition precedent to closing or other default);
(e) by Promedix, by giving written notice to Chemdex, if the Closing
shall not have occurred on or before February 29, 2000 by reason of the
failure of any condition precedent under Section 8.1 or 8.3 (unless the
failure results primarily from a breach by Promedix of any representation,
warranty, or covenant of Promedix contained in this Agreement or Promedix's
failure to fulfill a condition precedent to closing or other default);
(f) by Chemdex, by giving written notice to Promedix, if (i) the Board
of Directors of Promedix shall have recommended an alternative transaction
in which a third party (other than a Strategic Investor) would receive from
Promedix 20% or more of the outstanding capital stock or assets of
Promedix, (ii) the Board of Directors of Promedix shall have recommended
that stockholders of Promedix tender their shares in a tender offer from a
third party for more than 20% of the Promedix outstanding capital stock, or
(iii) the required approvals of the stockholders of Promedix contemplated
by this Agreement shall not have been obtained by reason of the failure to
obtain the required consents or votes upon a vote taken by written consent
or at a meeting of stockholders, duly convened therefor or at any
adjournment thereof; or
(g) by Promedix, by giving written notice to Chemdex, if (i) the Board
of Directors of Chemdex shall have recommended an alternative transaction
in which a third party would receive from Chemdex 20% or more of the
outstanding capital stock or assets of Chemdex, (ii) the Board of Directors
of Chemdex shall have recommended that stockholders of Chemdex tender their
shares in a tender offer from a third party for more than 20% of the
Chemdex outstanding capital stock, or (iii) the required approvals of the
stockholders of Chemdex contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required consents or votes
upon a vote taken by written consent or at a meeting of stockholders, duly
convened therefor or at any adjournment thereof.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Chemdex,
Promedix, Sub or their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 9.3 and further except to the extent
that such termination results from the willful breach by any such party of any
of its representations, warranties or covenants set forth in this Agreement.
Section 9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated. Promedix has submitted a budget
to Chemdex for completion of the Merger. Promedix shall use its best
efforts to consummate the Merger within such budget and shall not enter
into any agreement inconsistent with such budget.
(b) If the Merger is consummated, all expenses incurred by Promedix
shall be assumed by Chemdex.
(c) In the event that this Agreement shall be terminated by Promedix (i)
pursuant to Section 9.1(c) and the breach or series of breaches giving rise
to such termination right shall have been intentional or willful on the
part of Chemdex, or (ii) pursuant to Section 9.1(g), then within two
business days of such termination Chemdex shall pay Promedix by wire
transfer a fee equal to $10,000,000.
(d) In the event that this Agreement shall be terminated by Chemdex (i)
pursuant to Section 9.1(c) and the breach or series of breaches giving rise
to such termination right shall have been intentional or willful on the
part of Promedix, or (ii) pursuant to Section 9.1(f), then within two
business days of such termination Promedix shall pay Chemdex by wire
transfer a fee equal to $10,000,000.
A-37
<PAGE>
(e) Payment of the fee by either party as set forth in Section 9.3(c) or
(d) above shall not be in lieu of, but shall be in addition to, any other
legal or equitable remedies available to the other party for breach of this
Agreement.
(f) Each party agrees that if it fails to pay the entire fee within two
business days of termination, then any unpaid amounts shall accrue interest
at a rate of 9% per annum until paid.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification. From and after the Effective Time and subject
to the limitations contained in Section 10.2, the Former Promedix Stockholders
will, severally and pro rata, in accordance with their Pro Rata Portion,
indemnify and hold Chemdex harmless against any loss, expense, liability or
other damage, including attorneys' fees, to the extent of the amount of such
loss, expense, liability or other damage (collectively "Damages") that Chemdex
has incurred by reason of the breach by Promedix of any representation,
warranty, covenant or agreement of Promedix contained in this Agreement that
occurs or becomes known to Chemdex during the Escrow Period (as defined in
Section 10.3 below) in excess of $150,000. Chemdex, Promedix and Sub
acknowledge and agree, and the Former Promedix Stockholders, by their approval
of this Agreement and their execution of the Voting Agreements, agree that
notwithstanding anything to the contrary contained in this Agreement or any
other Transaction Document, such indemnification under this Article X shall be
the sole and exclusive remedy for any such claim of breach by Promedix, except
for Damages based upon a claim of fraud.
Section 10.2 Escrow Fund. As security and the sole and exclusive recourse
for the indemnities in Section 10.1, as soon as practicable after the Effective
Time, the Escrow Shares shall be deposited with U.S. Bank Trust, National
Association (or such other institution selected by Chemdex with the reasonable
consent of Promedix) as escrow agent (the "Escrow Agent"), such deposit to
constitute the Escrow Fund (the "Escrow Fund") and to be governed by the terms
set forth in this Article X and in the Escrow Agreement. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement or in any
Transaction Document, the indemnification obligations of the Former Promedix
Stockholders pursuant to this Article X or otherwise shall be limited to the
amount and assets deposited and present in the Escrow Fund and Chemdex shall
not be entitled to pursue any claims for indemnification under this Article X
or otherwise against the Former Promedix Stockholders directly or personally,
and the sole recourse of Chemdex shall be to make claims against the Escrow
Fund in accordance with the terms of the Escrow Agreement.
Section 10.3 Escrow Periods. The Escrow Fund shall terminate upon the first
anniversary date of the Closing Date (the period from the Closing Date to such
date referred to as the "Escrow Period"), provided, however, that the number of
Escrow Shares, which, in the reasonable judgment of Chemdex, subject to the
objection of the Stockholders' Agents and the subsequent resolution of the
matter in the manner provided in Section 10.7, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Stockholders' Agents prior to termination of the
Escrow Period with respect to Damages incurred or litigation pending prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been finally resolved.
Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Chemdex (an "Officer's Certificate"):
(i) Stating the aggregate amount of Chemdex's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
A-38
<PAGE>
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid
or properly accrued or arose, and the nature of the misrepresentation,
breach or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of Sections 10.3 and 10.7 hereof and of the
Escrow Agreement, deliver to Chemdex out of the Escrow Fund, as promptly as
practicable, Escrow Shares having a value equal to such Damages all in
accordance with the Escrow Agreement and Section 10.5 below. Amounts paid
or distributed from the Escrow Fund shall be paid or distributed pro rata
among the Holders (as defined in the Escrow Agreement) based upon their
respective percentage interests therein at the time.
Section 10.5 Valuation. For the purpose of compensating Chemdex for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Chemdex in respect of a claim for Damages shall be
the Average Stock Price (as appropriately adjusted for stock splits,
recapitalizations and the like).
Section 10.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agents (as defined in Section 10.8
below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 10.3 unless
the Escrow Agent shall have received written authorization from the
Stockholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.3, provided that no such delivery
may be made if the Stockholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Chemdex prior to the expiration of such
thirty (30) day period.
Section 10.7 Resolution of Conflicts.
(a) In case the Stockholders' Agents shall so object in writing to any
claim or claims by Chemdex made in any Officer's Certificate, Chemdex shall
have thirty (30) days to respond in a written statement to the objection of
the Stockholders' Agents. If after such thirty (30) day period there
remains a dispute as to any claims, the Stockholders' Agents and Chemdex
shall attempt in good faith for thirty (30) days to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholders' Agents and Chemdex should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Escrow Shares from the
Escrow Fund in accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Chemdex or the Stockholders' Agents may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15)
days after such written notice is sent, Chemdex (on the one hand) and the
Stockholders' Agents (on the other hand) shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator. The
decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties
to this Agreement, and notwithstanding anything in Section 10.3, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the commercial rules then in effect of
the American Arbitration Association. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the
expenses, including, without limitation, the reasonable attorneys' fees and
costs, incurred by the prevailing party to the arbitration.
A-39
<PAGE>
Section 10.8 Stockholders' Agents.
(a) Skip Klintworth and Brad Bond shall be constituted and appointed as
agents (the "Stockholders' Agents") for and on behalf of the Former
Promedix Stockholders to give and receive notices and communications, to
authorize delivery to Chemdex of the Escrow Shares or other property from
the Escrow Fund in satisfaction of claims by Chemdex, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary
or appropriate in the judgment of the Stockholders' Agents for the
accomplishment of the foregoing. All actions of the Stockholders' Agents
shall be taken jointly, not individually. Such agency may be changed by the
holders of a majority in interest of the Escrow Shares from time to time
upon not less than ten (10) days' prior written notice to Chemdex. No bond
shall be required of the Stockholders' Agents, and the Stockholders' Agents
shall receive no compensation for services. Notices or communications to or
from the Stockholders' Agents shall constitute notice to or from each of
the Former Promedix Stockholders.
(b) The Stockholders' Agents shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and
any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Former Promedix Stockholders
shall severally and pro rata, in accordance with their Pro Rata Portion,
indemnify the Stockholders' Agents and hold them harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the
part of the Stockholders' Agents and arising out of or in connection with
the acceptance or administration of their duties hereunder under this
Agreement or the Escrow Agreement.
(c) The Stockholders' Agents shall have reasonable access to information
about Promedix and Chemdex and the reasonable assistance of Promedix's and
Chemdex's officers and employees for purposes of performing their duties
and exercising their rights under this Article X, provided that the
Stockholders' Agents shall treat confidentially and not disclose any
nonpublic information from or about Promedix or Chemdex to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
Section 10.9 Actions of the Stockholders' Agents. A decision, act, consent
or instruction of the Stockholders' Agents shall constitute a decision of all
of the Former Promedix Stockholders for whom shares of Chemdex Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Promedix Stockholder, and the
Escrow Agent and Chemdex may rely upon any decision, act, consent or
instruction of the Stockholders' Agents as being the decision, act, consent or
instruction of each and every such Former Promedix Stockholder. The Escrow
Agent and Chemdex are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Stockholders' Agents.
Section 10.10 Claims. In the event Chemdex becomes aware of a third-party
claim which Chemdex believes may result in a demand against the Escrow Fund,
Chemdex shall promptly notify the Stockholders' Agents of such claim, and the
Stockholders' Agents and the Former Promedix Stockholders for whom shares of
Chemdex Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Chemdex shall have the right in its sole discretion to settle any such
claim; provided, however, that Chemdex may not effect the settlement of any
such claim without the consent of the Stockholders' Agents, which consent shall
not be unreasonably withheld. In the event that the Stockholders' Agents have
consented to any such settlement, the Stockholders' Agents shall have no power
or authority to object to the amount of any claim by Chemdex against the Escrow
Fund for indemnity with respect to such settlement in the amount agreed to.
A-40
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1 Survival of Representations and Covenants. All representations
and warranties of Promedix contained in this Agreement shall survive the
Closing and any investigation at any time made by or on behalf of Chemdex until
the end of the Escrow Period. If Escrow Shares or other assets are retained in
the Escrow Fund beyond expiration of the period specified in the Escrow
Agreement, then (notwithstanding the expiration of such time period) the
representation, warranty, covenant or agreement applicable to such claim shall
survive until, but only for purposes of, the resolution of the claim to which
such retained Escrow Shares or other assets relate. All representations and
warranties of Chemdex contained in this Agreement shall terminate as of the
Effective Time. All covenants and other agreements of Promedix and Chemdex
contained in this Agreement shall survive the Closing until fulfilled or
waived.
Section 11.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or two business days after being mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Chemdex or Sub:
Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94308
Attention: Chief Executive Officer
Fax No: (650) 813-0304
Telephone No: (650) 813-0300
with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
(b) if to Promedix, to:
Promedix, Inc.
448 East Winchester Avenue, Suite 200
Salt Lake City, Utah 84107
Attention:
Fax No: (801) 261-7475
Telephone No: (800) 453-1264
with a copy to:
Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Attention: Geoffrey P. Leonard, Esq.
Fax No.: (650) 614-7401
Fax No.: (650) 614-7470
A-41
<PAGE>
Section 11.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" is used in this Agreement they shall be deemed to be
followed by the words "without limitation." Whenever the words "to the
knowledge of Promedix" or "known to Promedix" or similar phrases are used in
this Agreement, they mean to the actual knowledge, after reasonable inquiry, of
Skip Klintworth and all other executive officers of Promedix.
Section 11.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein), the
Confidentiality Agreement, the Transaction Documents, and the Standstill
Agreement dated September 21, 1999 by and between Chemdex and Promedix (a)
constitute the entire agreement and supersedes all prior agreements and
understandings (including the Summary of Transaction Terms dated September 2,
1999 by and between Chemdex and Promedix and the Mutual Exclusive Negotiations
Agreement dated September 3, 1999 by and between Chemdex and Promedix, as
extended), both written and oral, among the parties with respect to the subject
matter hereof, and (b) are not intended to confer upon any person other than
the parties hereto (including without limitation any Promedix employees) any
rights or remedies hereunder.
Section 11.6 Governing Law; Jurisdiction. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware without
regard to any applicable conflicts of law. Any action or proceeding initiated
under this Agreement or in connection with the subject matter hereof shall be
maintained in the County of Santa Clara, State of California, United States of
America, and each party hereby submits to the jurisdiction of the courts of the
State of California and the court of the United States of America for the
Northern District of the State of California for the purposes of any such
action or proceeding. Each party irrevocably waives to the fullest extent such
party may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding and agrees that any process or any
paper to be served in connection therewith shall, if delivered or sent in
accordance with Section 11.2 of this Agreement, constitutes good, proper and
sufficient service thereof. Each party further irrevocably waives any trial by
jury.
Section 11.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 11.8 Amendment. This Agreement may be amended by the parties hereto,
at any time before or after approval of matters presented in connection with
the Merger by the stockholders of Promedix, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
A-42
<PAGE>
Section 11.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Signature Page Follows]
A-43
<PAGE>
IN WITNESS WHEREOF, Chemdex, Sub and Promedix have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
CHEMDEX CORPORATION
/s/ David P. Perry
By: _________________________________
David P. Perry
Name: _______________________________
CEO
Title: ______________________________
POPCORN ACQUISITIONS CORP.
/s/ David P. Perry
By: _________________________________
David P. Perry
Name: _______________________________
CEO
Title: ______________________________
PROMEDIX.COM, INC.
/s/ W.C Klintworth
By: _________________________________
W. C Klintworth, Jr.
Name: _______________________________
CEO
Title: ______________________________
A-44
<PAGE>
EXHIBIT A
VOTING AGREEMENT
A-45
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
September , 1999, between Chemdex Corporation ("Chemdex"), a Delaware
corporation, and the undersigned stockholder (the "Stockholder") of
Promedix.com, Inc., a Delaware corporation ("Promedix").
RECITALS
A. Concurrently with the execution of this Agreement, Chemdex, Promedix and
Popcorn Acquisitions Corp., a Delaware corporation and wholly-owned subsidiary
of Chemdex ("Merger Sub"), have entered into an Agreement and Plan of Merger
(the "Merger Agreement"), which provides for the merger (the "Merger") of
Merger Sub with and into Promedix and the conversion of each outstanding share
of Promedix's capital stock into shares of Chemdex Common Stock.
B. As a condition to its willingness to enter into the Merger Agreement,
Chemdex has requested that the Stockholder agree to certain matters regarding
the retention and voting of the Shares (as defined below) in connection with
the Merger.
AGREEMENT
The parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer, sell, exchange, pledge or otherwise dispose of or encumber
(in each case, other than as a result of death) any shares of capital
stock of Promedix owned or beneficially held by him (the "Shares") or
New Shares, as defined in Section 1.2 below, or to make any offer or
agreement relating thereto, at any time prior to the Expiration Date.
As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement, or
(ii) the date on which the Merger Agreement shall be terminated in
accordance with Section 9.1 thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares of
capital stock of Promedix that such Stockholder shall purchase or with
respect to which such Stockholder shall otherwise acquire beneficial
ownership after the execution of this Agreement and prior to the
Expiration Date (the "New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted
Shares.
2. Agreement to Vote Shares and Grant Proxy. At every meeting of the
stockholders of Promedix called with respect to any of the following, and
on every action or approval by written consent of the stockholders of
Promedix with respect to any of the following, the Stockholder agrees to
vote the Shares and any New Shares in favor of approval of the Merger
Agreement and the Merger and any matter that could reasonably be expected
to facilitate the Merger, including the manner in which the Escrow Fund
under the Merger Agreement is to be established as contemplated by Section
2.2 and Article X of the Merger Agreement. The Stockholder further agrees
not, directly or indirectly, to solicit or encourage any offer from any
party concerning the possible disposition of all or any substantial portion
of Promedix's business, assets or capital stock. In the event Promedix's
board of directors does not call a meeting to approve the Merger, the
Stockholder agrees to take all action necessary to call a meeting to
approve the Merger or to approve the Merger by written consent. In order to
effectuate the foregoing, the Stockholder does hereby constitute and
appoint Chemdex, or any nominee of Chemdex, with full power of
substitution, from the date hereof to the Expiration Date, as its true and
lawful proxy, for and in its name, place and
A-46
<PAGE>
stead, including the right to sign its name (as stockholder) to any
consent, certificate or other document relating to Promedix, for the sole
purpose of causing the Shares and any New Shares to be voted in the manner
contemplated by this Section 2. The parties acknowledge that the proxy
provided for here is irrevocable and coupled with an interest.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder represents, warrants and covenants to Chemdex as follows:
3.1 Ownership of Shares. The Stockholder (together with such
Stockholder's spouse, if applicable) is the sole beneficial and record
owner and holder of the Shares, which at the date hereof and at all
times up until the Expiration Date, will be free and clear of any
liens, claims, options, charges, security interests, equities, options,
warrants, rights to purchase (including, without limitation,
restrictions on rights of disposition other than those imposed by
applicable securities laws), third party rights of any nature or other
encumbrances; and (ii) does not own any shares of capital stock of
Promedix other than the Shares.
3.2 Authority; Due Execution. The Stockholder has full power and
authority to make, enter into and carry out the terms of this
Agreement. The Stockholder has duly executed and delivered this
Agreement and (assuming the due authorization, execution and delivery
of this Agreement by Chemdex) this Agreement constitutes a valid and
binding obligation of the Stockholder.
4. Representations, Warranties and Covenants of Chemdex. Chemdex
represents, warrants and covenants to the Stockholder as follows:
4.1 Due Authorization. This Agreement has been authorized by all
necessary corporate action on the part of Chemdex and has been duly
executed by a duly authorized officer of Chemdex.
4.2 Validity; No Conflict. This Agreement constitutes the legal,
valid and binding obligation of Chemdex. Neither the execution of this
Agreement by Chemdex nor the consummation of the transactions
contemplated hereby will result in a breach or violation of the terms
of any agreement by which Chemdex is bound or by any decree, judgment,
order, law or regulation now in effect of any court or other
governmental body applicable to Chemdex.
5. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
6.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
parties hereto may be assigned by either of the parties without the
prior written consent of the other.
6.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery
of a written agreement executed by the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Chemdex will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of
A-47
<PAGE>
the covenants or agreements of the Stockholder set forth herein.
Therefore, it is agreed that, in addition to any other remedies that
may be available to Chemdex upon any such violation, Chemdex shall have
the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to
Chemdex at law or in equity.
6.5 Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with, the internal laws of the State of
Delaware as such laws are applied to contracts entered into and to be
performed entirely within Delaware.
6.6 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof,
and supersedes all prior negotiations and understandings between the
parties with respect to such subject matter.
6.7 Notices. Any notice or other communication required or permitted
to be delivered under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by
facsimile confirmation) to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other
address or facsimile telephone number as such party shall have
specified in a written notice given to the other party):
If to Chemdex:
Chemdex
3950 Fabian Way
Palo Alto, CA 94308
Attention: Chief Executive Officer
Telephone No.: (650) 813-0300
Telecopy No.: (650) 813-0304
with a copy at the same address to the attention of the General Counsel and
Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Telephone No.: (650) 854-4488
Telecopy No.: (650) 233-8386
If to Stockholder:
at the address or facsimile phone number set forth below Stockholder's
signature on the signature page hereof.
With a copy to:
Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Attention: Geoffrey P. Leonard, Esq.
Telephone No.: (650) 614-7470
Telecopy No.: (650) 614-7401
A-48
<PAGE>
6.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
6.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or
interpretation of this Agreement.
6.10 No Limitation on Actions of the Stockholder as Director. In the
event the Stockholder is a director of Promedix, notwithstanding
anything to the contrary in this Agreement, nothing in this Agreement
is intended or shall be construed to require the Stockholder to take or
in any way limit any action that the Stockholder may take to discharge
the Stockholder's fiduciary duties as a director of Promedix.
[Signature Page Follows]
A-49
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the day and year first written above.
CHEMDEX CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
STOCKHOLDER
_____________________________________
Name: _______________________________
A-50
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
A-51
<PAGE>
CHEMDEX CORPORATION
3950 Fabian Way
Palo Alto, CA 94303
September 21, 1999
(Name of Employee)
c/o Promedix, Inc.
448 East Winchester Avenue, Suite 200
Salt Lake City, UT 84107
Dear :
In connection with the proposed acquisition of Promedix.com, Inc.
("Promedix") pursuant to that Agreement and Plan of Merger dated as of
September 21, 1999 (the "Merger Agreement"), Chemdex Corporation (the
"Company") is pleased to offer you employment on the following terms:
Position. You will serve in a full-time capacity as of the Promedix.com
subsidiary of the Company. You will report to the of the Company. Your role
at the present time includes .
Cash Compensation. You will be paid a monthly salary of not less than
$ which is equivalent to $ on an annual basis, payable in
semi-monthly installments in accordance with the Company's standard payroll
practices for salaried employees.
Proprietary Information and Inventions Agreement. Like all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Employee Confidentiality and Inventions
Agreement, a copy of which is attached hereto as Exhibit A.
Change of Control Agreement. You will be entitled to enter into the standard
Change of Control Agreement for the Company's officers in the form attached
hereto as Exhibit B.
Noncompetition Agreement. As a condition to the Company's entrance into the
Merger Agreement and the consummation of the transactions contemplated in the
Merger Agreement, you will be required to execute the Noncompetition Agreement
in the form attached hereto as Exhibit C.
Stock Restriction Agreement. As a condition to the Company's entrance into
the Merger Agreement and the consummation of the transactions contemplated in
the Merger Agreement, you will be required to execute the Stock Restriction
Agreement in the form attached hereto as Exhibit D.
Period of Employment. Your employment with the Company will commence
immediately after the consummation of the transactions contemplated by the
Merger Agreement. Your employment with the Company will be "at will," meaning
that either you or the Company will be entitled to terminate your employment at
any time and for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
This is the full and complete agreement between you and the Company on this
term. Although your job duties, title, compensation and benefits, as well as
the Company's personnel policies and procedures, may change from time to time,
the "at will" nature of your employment may only be changed in an express
written agreement signed by you and a duly authorized officer of the Company.
Severance. In the event your employment with the Company is either
terminated by the Company without Cause or as a result of a Constructive
Termination during the first year following the closing of the transactions
contemplated by the Merger Agreement, your Company stock and options will
immediately vest in full. After the initial one-year period, if your employment
with the Company is either terminated by the
A-52
<PAGE>
Company without Cause or as a result of a Constructive Termination, your
Company stock and options shall become vested on the effective date of such
termination as if you had been employed by the Company for an additional twelve
months following such termination. In addition, in the event your employment
with the Company is either terminated by the Company without Cause or as a
result of a Constructive Termination at any time, you will be paid an amount
equal to the greater of (i) six (6) months of your then-current salary, or (ii)
$100,000, in each case payable in twelve (12) equal semi-monthly installments
in accordance with the Company's standard payroll practices for salaried
employees. In return for these severance benefits, you agree that you will: (a)
sign an agreement releasing the Company and its officers, directors,
stockholders and employees from any and all employment-related claims with
standard provisions for agreements of this type; (b) reaffirm that you are
bound by the provisions of your Employee Confidentiality Agreement and other
agreements between you and the Company, including any Noncompetition Agreement;
(c) not make any disparaging remarks about the Company or its officers,
directors, employees, products or business practices.
"Cause" means (a) willful and repeated failure to comply with the lawful
directions of the Board, (b) gross negligence or willful misconduct in the
performance of your duties to the Company, (c) commission of any act of fraud
against, or the misappropriation of material property belonging to, the Company
or (d) conviction of a crime that is materially injurious to the business or
reputation of the Company, in each case as determined in good faith by the
Board.
"Constructive Termination" means your voluntary termination, upon 30 days
prior written notice to the Company, following (a) a material reduction or
change in your job duties, responsibilities and requirements inconsistent with
your position with the Company and your prior duties, responsibilities and
requirements; (b) any reduction of greater than 5% in your base compensation
(including salary, benefits, incentive payments and bonuses), other than in
connection with a general decrease in base salaries for most officers of the
Company and any successor corporation; or (d) your refusal to relocate to a
facility or location more than 50 miles from the current location of the
Promedix.com subsidiary.
Proof of Right to Work. For purposes of federal immigration law, you will be
required to provide to the Company documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated and, in such event, you
would not be entitled to the severance payment set forth in the preceding
paragraph.
Withholding Taxes. All forms of compensation referred to in this letter are
subject to reduction to reflect applicable withholding and payroll taxes.
Entire Agreement. This letter and the Exhibits attached hereto contain all
of the terms of your employment with the Company and supersede any prior
understandings or agreements, whether oral or written, between you and the
Company.
Amendment and Governing Law. This letter agreement may not be amended or
modified except by an express written agreement signed by you and a duly
authorized officer of the Company. The terms of this letter agreement and the
resolution of any disputes will be governed by California law, except as
provided in the Noncompetition Agreement.
A-53
<PAGE>
We hope that you find the foregoing terms acceptable. You may indicate your
agreement with these terms and accept this offer by signing and dating the
enclosed duplicate original of this letter and the enclosed Exhibits and
returning them to me.
Very truly yours,
CHEMDEX CORPORATION
David Perry
Chief Executive Officer
I have read and accept this
employment offer:
_____________________________________
Signature of Employee.
Dated , 1999
A-54
<PAGE>
Employee Confidentiality and Inventions Agreement
In consideration of my employment with Chemdex Corporation or its
subsidiaries (together, "the Company"), I agree as follows:
1. Nondisclosure and Nonuse of Confidential Information. Except as
required by the nature of my duties or with the prior written approval of
an authorized officer of the Company, I will never, during my employment or
thereafter, use or disclose any confidential information of the Company or
any of its customers, including without limitation customer lists, market
research, strategic plans or other information or discoveries, inventions,
improvements, know-how, methods or other trade secrets, whether developed
by me or others. I will comply with the Company's policies and procedures
for the protection of confidential information.
2. Use and Return of Documents. I will not disclose any documents,
records, tapes and other media that contain confidential information and
will not copy any such material or remove it from the Company's premises,
except as required by the nature of my duties or as approved by an
authorized officer of the Company. Upon termination of my employment, I
will return to the Company all copies of documents, records, tapes, and
other media that contain confidential information.
3. Assignments of Rights. I will promptly disclose to the Company all
inventions, discoveries, methods, processes, works, and concepts (whether
or not patentable or copyrightable or constituting trade secrets)
conceived, created, developed or reduced to practice by me (whether alone
or with others, and whether or not during normal business hours or on or
off the Company premises) during my employment that relate to any present
or proposed activity of the Company ("Property"). I assign to the Company
my full right, title and interest to all Property. I agree to execute such
documents and take such action reasonably requested by the Company in
connection with the Property. I will not charge the Company for my time
spent in complying with this obligation. All copyrightable works that I
create shall be considered "works made for hire."
4. This Agreement does not apply to Property which qualifies fully as a
nonassignable invention under the provisions of Section 2870 of the
California Labor Code as follows: "THIS IS TO NOTIFY you in accordance with
Section 2872 of the California Labor Code that the foregoing Agreement
between you and the Company does not require you to assign or offer to
assign to the Company any invention that you developed entirely on your own
time without using the Company's equipment, supplies, facilities or trade
secret information except for those inventions that either: (1) relate at
the time of conception or reduction to practice of the invention to the
Company's business, or actual or demonstrably anticipated research or
development of the Company; or (2) result from any work performed by you
for the Company. To the extent a provision in the foregoing Agreement
purports to require you to assign an invention otherwise excluded from the
preceding paragraph, the provision is against the public policy of this
state and is unenforceable. This limited exclusion does not apply to any
patent or invention covered by a contract between the Company and the
United States or any of its agencies requiring full title to such patent or
invention to be in the United States.
5. Non-Recruitment. For a period of one year after termination of my
employment, I will not hire or assist in hiring any employees of the
Company or encourage any employee of the Company to become employed in any
business competitive with the Company's business, nor encourage any
consultant or supplier of the Company to discontinue its relationship with
the Company.
6. Restricted Activities. I agree that some restrictions on my
activities during and after my employment are necessary to protect the
goodwill, confidential information and other legitimate interests of the
Company. While employed, I will not undertake any planning for any outside
business competitive with the Company. During my employment and for one
year after my employment terminates, I will not engage in any business in
the United States, whether as an employee, consultant, or otherwise, that
is competitive with the business of the Company conducted or under
consideration during my employment and will not accept employment or a
consulting position with any business that is, or at any time within one
year prior to my termination was, a customer of the Company. I may,
however, own 5% or less of the securities of any publicly traded company.
A-55
<PAGE>
7. Employment. Except as provided otherwise in any other agreement
between me and the Company, my employment is "at will" and either the
Company or I may terminate my employment at any time with or without cause.
My employment and my execution and performance of this Agreement do not
conflict with any obligations of mine to third parties. I will not disclose
to the Company any proprietary information of any third party without its
consent.
8. Remedies. I understand that if I violate this Agreement the harm to
the Company could be irreparable. I agree that, in addition to any other
remedies provided by law, the Company will be entitled to obtain injunctive
relief against any such violations without having to post a bond.
9. Consent to Jurisdiction. I consent to the jurisdiction of the federal
and state courts in California in respect of any matter relating to this
Agreement and agree that any dispute relating to this Agreement shall be
litigated exclusively in such courts.
10. General. This Agreement shall inure to the benefit of the Company
and any successor of the Company by reorganization, merger, consolidation
or liquidation and any assignee of all or substantially all of the business
or assets of the Company or of any division or line of business of the
Company with which I am at any time associated. This Agreement will take
effect as a sealed instrument, will continue in effect after termination of
my employment for any reason, and will be governed by California law. If
any part of this Agreement is held invalid or unenforceable, the remainder
of this Agreement will be still enforceable.
Date: _______________________________ Name: _______________________________
(Employee)
ACCEPTED:
CHEMDEX CORPORATION
By: _________________________________
Title: ______________________________
A-56
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into
effective as of (Date), by and between (Employee) (the "Employee") and Chemdex
Corporation, a Delaware corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time to time
consider the possibility of acquiring the Company or that a change in control
may otherwise occur, with or without the approval of the Company's Board of
Directors (the "Board"). The Board recognizes that such consideration can be a
distraction to the Employee and can cause the Employee to consider alternative
employment opportunities. The Board has determined that it is in the best
interests of the Company and its stockholders to assure that the Company will
have the continued dedication and objectivity of the Employee, notwithstanding
the possibility, threat or occurrence of a Corporate Transaction (as defined
below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his or
her employment with the Company.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon termination of the Employee's employment in connection
with a Corporate Transaction, which benefits are intended to provide the
Employee with financial security and provide sufficient encouragement to the
Employee to remain with the Company notwithstanding the possibility of a
Corporate Transaction.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in Section 3
below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Corporate
Transaction, the Employee shall not be entitled to any payments or
benefits, other than as provided by this Agreement, or as may otherwise be
available in accordance with the terms of Employee's offer letter from the
Company (the "Offer Letter") and the Company's established employee plans
and written policies at the time of termination. The terms of this
Agreement shall terminate upon the earlier of (i) the date on which
Employee ceases for any reason to be employed by the Company prior to the
occurrence of a Corporate Transaction, (ii) the date that all obligations
of the parties hereunder have been satisfied, or (iii) one (1) year after
the closing of any Corporate Transaction. A termination of the terms of
this Agreement pursuant to the preceding sentence shall be effective for
all purposes, except that such termination shall not affect the payment or
provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this
Agreement.
2. Stock Options and Restricted Stock. Subject to Sections 4 and 5
below, in the event of a Corporate Transaction, if either Employee's
employment with the Company is terminated by the surviving entity without
Cause or by Employee as the result of a Constructive Termination by the
surviving entity within twelve months of the closing of the Corporate
Transaction, each unvested stock option granted for the Company's
securities held by Employee and any shares of the Company's Common Stock
that are subject to a right of repurchase by the Company pursuant to the
terms of a Restricted Stock Purchase Agreement ("Restricted Stock") held by
the Employee shall become vested on the effective date of the termination
or Constructive Termination as if Employee had been employed by the
surviving entity for an
A-57
<PAGE>
additional six months following such termination. Each stock option shall
otherwise vest in accordance with the provisions of the Stock Option
Agreement and the Company's 1998 Stock Option Plan pursuant to which such
option was granted and each Share of Restricted Stock shall be freely
transferable to the extent so vested in accordance with the provisions of
the Restricted Stock Purchase Agreement pursuant to which such stock was
purchased by Employee.
3. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Corporate Transaction. "Corporate Transaction" shall mean the
occurrence of either of the following stockholder-approved events to
which the Company is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
(b) Cause. "Cause" shall mean:
(i) conviction of a felony or a crime involving fraud or moral
turpitude; or
(ii) intentional or reckless conduct or gross negligence
materially harmful to the surviving entity after a Corporation
Transaction, including violation of a non-competition or
confidentiality agreement.
Cause shall not include poor performance in the achievement of the
Employee's job objectives or the death or physical disability of the
Employee.
(c) Constructive Termination. "Constructive Termination" shall mean
the Employee's voluntary termination, upon 30 days prior written notice
to the Company, following:
(i) a material reduction or change in the Employee's job duties,
responsibilities and requirements inconsistent with the Employee's
position with the Company and the Employee's prior duties,
responsibilities and requirements;
(ii) any reduction of greater than 5% in the Employee's base
compensation (including salary, benefits, incentive payments and
bonuses), other than in connection with a general decrease in base
salaries for most officers of the Company and any successor
corporation; or
(iii) the Employee's refusal to relocate to a facility or
location more than 50 miles from the Company's current location.
4. Limitation on Payments. In the event that the benefits provided for
in this Agreement to the Employee (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section, would be subject to the
excise tax imposed by Section 4999 of the Code, then the Employee's
benefits under Section 2 shall be payable either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of
such severance benefits being subject to excise tax under Section 4999
of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-tax basis, of the
greatest amount of benefits under Section 2 notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999
of the Code. Unless the Company and the Employee otherwise agree in
writing, any determination required under this Section 4 shall be made in
A-58
<PAGE>
writing by the Company's independent public accountants (the
"Accountants"), whose determination shall be conclusive and binding upon
the Employee and the Company for all purposes. For purposes of making the
calculations required by this Section 4, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Section 280G and 4999 of the Code. The Company and the
Employee shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination
under this Section. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
Section 4.
5. Certain Business Combinations. In the event it is determined by the
Board, upon consultation with Company management and the Company's
independent auditors, that the enforcement of any Section of this
Agreement, including, but not limited to, Section 2 hereof, which allows
for the acceleration of vesting of stock options and Restricted Stock
granted for the Company's securities upon the effective date of a Corporate
Transaction would preclude accounting for any proposed business combination
of the Company involving a Corporate Transaction as a pooling of interests,
and the Board otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any
such Section of this Agreement shall be null and void. For purposes of this
Section 5, the Board's determination shall require the unanimous approval
of the non-employee Board members.
6. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. The terms of this
Agreement and all of the Employee's rights hereunder shall inure to the
benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. Mailed notices to the
Employee shall be addressed to the Employee at the home address which the
Employee most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
8. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any benefit contemplated by this Agreement
(whether by seeking new employment or in any other manner), nor, except
as otherwise provided in this Agreement, shall any such benefit be
reduced by any earnings that the Employee may receive from any other
source.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another
time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
This Agreement supersedes any agreement of the same title and
concerning similar subject matter dated prior to the
A-59
<PAGE>
date of this Agreement, and by execution of this Agreement both parties
agree that any such predecessor agreement shall be deemed null and
void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and
to any extent, be invalid or unenforceable, such term or provision
shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering
unenforceable the remaining terms and provisions of this Agreement or
the application of such terms and provisions to circumstances other
than those as to which it is held invalid or unenforceable, and a
suitable and equitable term or provision shall be substituted therefor
to carry out, insofar as may be valid and enforceable, the intent and
purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either
party by binding arbitration in the County of San Mateo, California, in
accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this
Agreement.
(h) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this subsection (h) shall be void.
(i) Employment Taxes. Any payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment
taxes.
(j) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the
Company; provided, however, that no assignment shall be made if the net
worth of the assignee is less than the net worth of the Company at the
time of assignment. In the case of any such assignment, the term
"Company" when used in a section of this Agreement shall mean the
corporation that actually employs the Employee.
(k) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together
will constitute one and the same instrument.
[Signature Page Follows]
A-60
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year
first above written.
CHEMDEX CORPORATION (EMPLOYEE)
By: _______________________________ _________________________________
Title: ____________________________
A-61
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
September 21, 1999, by and between Chemdex Corporation, a Delaware corporation
("Chemdex") and (Name) ("Individual"), an employee of Promedix.com, Inc.
("Promedix.com").
RECITALS
A. Promedix.com is engaged in the business of operating an online exchange
for buyers and suppliers of specialty medical products.
B. Individual is a stockholder and an employee of Promedix.com and has
confidential and proprietary information relating to the business and operation
of Promedix.com.
C. Individual's covenant not to compete with Chemdex, as reflected in this
Agreement, is an essential part of the transactions described in that certain
Agreement and Plan of Merger dated as of September 21, 1999 (the "Merger
Agreement"), among Chemdex, Popcorn Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Chemdex ("Sub"), and Promedix.com, whereby Sub
will be merged with and into Promedix.com (the transactions contemplated by the
Merger Agreement are referred to hereinafter as the "Merger").
D. As a condition to its willingness to enter into the Merger Agreement,
Chemdex has required that Individual agree, and Individual has agreed, to the
noncompetition and nonsolicitation covenants and the confidentiality agreements
provided in this Agreement.
E. References to Chemdex hereinafter shall include all subsidiaries of
Chemdex and shall include Promedix.com which is the surviving corporation in
the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and to induce Chemdex to
consummate the transactions contemplated by the Merger Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Individual hereby covenants and agrees as follows:
1. Noncompetition.
(a) Individual and Chemdex agree that due to the nature of
Individual's employment with Promedix.com, Individual has confidential
and proprietary information relating to the business and operations of
Promedix.com. Individual acknowledges that such information is of
importance to the "Business" (as defined below) and will continue to be
so after the Merger and that disclosure of such confidential
information to others or the unauthorized use of such information by
others would cause substantial loss and harm to Promedix.com and,
following the Merger, Chemdex.
(b) During the period which shall commence at the Effective Time
and shall terminate on the first anniversary of the termination of
Individual's employment with the Company (such period, the "Restricted
Period"), Individual shall not directly or indirectly (including
without limitation, through any Affiliate (as defined below) of
Individual), own, manage, operate, control or otherwise engage or
participate in, or be connected as an owner, partner, principal,
creditor, salesman, guarantor, advisor, member of the board of
directors of, employee of or consultant in any entity or business where
such entity or business (i) devotes 20% or more of its resources to a
division, group, or other subset of such entity or business, that is
engaging in or is developing a business competitive with the Business
or (ii) generates 20% or more of its gross revenues or earnings from a
business competitive with the Business.
A-62
<PAGE>
(c) Notwithstanding the foregoing provisions of Section 1(b) and
the restrictions set forth therein, Individual may own securities in
any publicly held corporation that is covered by the restrictions set
forth in Section 1(b), but only to the extent that Individual does not
own, of record or beneficially, more than 1% of the outstanding
beneficial ownership of such corporation.
(d) The restrictions set forth in Section 1(b) shall apply to the
United States (the "Business Area").
(e) "Affiliate" as used herein, means, with respect to any person
or entity, any person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such
other person or entity.
(f) "Business" as used herein means the operation of a business
primarily engaged in health care e-commerce.
2. Nonsolicitation of Chemdex Employees. During the Restricted Period,
Individual shall not, without the prior written consent of Chemdex,
directly or indirectly (including without limitation, through any Affiliate
of Individual), solicit, request, cause or induce any person who is at the
time, or 12 months prior thereto had been, an employee of or a consultant
of Chemdex to leave the employ of or terminate such person's relationship
with Chemdex.
3. Nonsolicitation of Customers. During the Restricted Period,
Individual shall not, directly or indirectly (including without limitation,
through any Affiliate of Individual) (i) solicit, induce or attempt to
induce any customer of Chemdex, including but not limited to any customer
of Promedix.com that was a customer of Chemdex or Promedix.com while the
Individual was an employee of Chemdex or Promedix.com, as the case may be,
or during the Restricted Period, to cease doing business in whole or in
part with Chemdex with respect to the Business; (ii) attempt to limit or
interfere with any business agreement or relationship existing between
Chemdex and/or its Affiliates with any third party; or (iii) make
materially false statements, or take intentional actions, which are
intended to disparage the business reputation of Chemdex (or its management
team) or take any intentional actions which are intended to result in
material harm to Chemdex's goodwill with its customers, content providers,
bandwidth or other network infrastructure providers, vendors, employees,
the media or the public.
4. Confidentiality. Prior to the Effective Time, Individual will execute
Chemdex's standard employee proprietary information and invention
assignment agreement.
5. Stay of Time. In the event that either party shall request a court of
competent jurisdiction (collectively a "Court") or other entity or person
mutually selected by the parties to determine whether the Individual has
violated the provisions of this Agreement, the running of the time period
of such provisions so violated shall be automatically suspended as of the
date of such violation and shall resume on the date of the final order or
remedy that the Court or other entity or person rules or determines that
such violation occurred.
6. Injunctive Relief. The remedy at law for any breach of this Agreement
is and will be inadequate, and in the event of a breach or threatened
breach by Individual of the provisions of Sections 1, 2 or 3 of this
Agreement, Promedix.com and Chemdex shall be entitled to seek an injunction
restraining Individual from the conduct which would constitute a breach of
this Agreement. Nothing herein contained shall be construed as prohibiting
Promedix.com or Chemdex from pursuing any other remedies available to it or
them for such breach or threatened breach, including, without limitation,
the recovery of damages from Individual.
7. Separate Covenants. This Agreement shall be deemed to consist of a
series of separate covenants, one for each line of business carried on by
the Business and each county, state, country or other region included
within the Business Area. The parties expressly agree that the character,
duration and geographical scope of this Agreement are reasonable in light
of the circumstances as they exist on the date upon which this Agreement
has been executed. However, should a determination nonetheless be made
A-63
<PAGE>
by a court of competent jurisdiction at a later date that the character,
duration or geographical scope of this Agreement is unreasonable in light
of the circumstances as they then exist, then it is the intention and the
agreement of Individual that this Agreement shall be construed by the court
in such a manner as to impose only those restrictions on the conduct of
Individual that are reasonable in light of the circumstances as they then
exist and as are necessary to assure Promedix.com. and Chemdex of the
intended benefit of this Agreement. If, in any judicial proceeding, a court
shall refuse to enforce all of the separate covenants deemed included
herein because, taken together, they are more extensive than necessary to
assure Chemdex of the intended benefit of this Agreement, it is expressly
understood and agreed among the parties hereto that those of such covenants
that, if eliminated, would permit the remaining separate covenants to be
enforced in such proceeding shall, for the purpose of such proceeding, be
deemed eliminated from the provisions hereof.
8. Severability. If any of the provisions of this Agreement shall
otherwise contravene or be invalid under the laws of any state, country or
other jurisdiction where this Agreement is applicable but for such
contravention or invalidity, such contravention or invalidity shall not
invalidate all of the provisions of this Agreement but rather it shall be
construed, insofar as the laws of that state, country or jurisdiction are
concerned, as not containing the provision or provisions contravening or
invalid under the laws of that state or jurisdiction, and the rights and
obligations created hereby shall be construed and enforced accordingly.
9. Construction. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Utah, without
regard to principles of conflicts or choice of laws; provided, however,
that with respect to activities occurring in a particular jurisdiction, the
law of such jurisdiction shall apply solely to the extent it results in the
greatest enforcement of the terms of this Agreement.
10. Amendments and Waivers. This Agreement may be modified only by a
written instrument duly executed by each party hereto. No breach of any
covenant, agreement, warranty or representation shall be deemed waived
unless expressly waived in writing by the party who might assert such
breach. No waiver of any right hereunder shall operate as a waiver of any
other right or of the same or a similar right on another occasion.
11. Entire Agreement. This Agreement, together with the Merger
Agreement, the offer letter to which this is attached and Chemdex's
employee confidentiality and investors agreement, and the ancillary
documents executed in connection therewith, contains the entire
understanding of the parties relating to the subject matter hereof,
supersedes all prior and contemporaneous agreements and understandings
relating to the subject matter hereof and shall not be amended except by a
written instrument signed by each of the parties hereto.
12. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which, when so executed and delivered, shall
be an original, but all of which, when taken as a whole, shall constitute
one and the same instrument.
13. Section Headings. The headings of each Section, subsection or other
subdivision of this Agreement are for reference only and shall not limit or
control the meaning thereof.
14. Assignment. Neither this Agreement nor any right, remedy, obligation
or liability arising hereunder or by reason hereof nor any of the documents
executed in connection herewith may be assigned by any party without the
consent of the other parties; provided, however, that Chemdex and
Promedix.com may assign their rights hereunder, without the consent of
Individual, to any entity that acquires or succeeds to the Business.
15. Further Assurances. From time to time, at Chemdex's request and
without further consideration, Individual shall execute and deliver such
additional documents and take all such further action as reasonably
requested by Promedix.com or Chemdex to be necessary or desirable to make
effective, in the most expeditious manner possible, the terms of this
Agreement.
A-64
<PAGE>
16. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or two business
days after being mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Chemdex:
Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94303
Attention: Chief Executive Officer
with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, CA 94025
Attention: Jeffrey Y. Suto
(b) if to Individual:
to the address set forth below the name of Individual on the
signature page hereof.
17. Effectiveness. Notwithstanding any other provision of this
Agreement, this Agreement shall become effective only upon the Effective
Time, and if such Effective Time shall not occur prior to the termination
of the Merger Agreement this Agreement shall be deemed void ab initio and
have no further force or effect upon such termination of the Merger
Agreement.
19. Defined Terms. Capitalized terms not otherwise defined herein shall
have the meanings given to them in the Merger Agreement.
********
A-65
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first above written.
CHEMDEX CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
INDIVIDUAL:
_____________________________________
(Name)
Address c/o Promedix, Inc.
448East Winchester Avenue, Suite
200
Salt Lake City, UT
A-66
<PAGE>
EXHIBIT C
AFFILIATES AGREEMENT
A-67
<PAGE>
COMPANY AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT is entered into as of September , 1999 (this
"Agreement"), by and among Chemdex Corporation, a Delaware corporation
("Parent"), Promedix.com, Inc., a Delaware corporation (the "Company"), and
("Affiliate").
RECITALS
A. Parent, Popcorn Acquisitions Corp., a Delaware corporation and wholly
owned subsidiary of Parent ("Merger Sub"), and the Company have entered into
an Agreement and Plan of Merger dated as of September , 1999 (the "Merger
Agreement"), providing for the merger of Merger Sub with and into the Company
(the "Merger"). The Merger Agreement contemplates that, upon consummation of
the Merger, (i) the holders of the capital stock of the Company ("Company
Capital Stock") will receive shares of common stock of Parent ("Parent Common
Stock") in exchange for their shares of Company Capital Stock, and (ii) the
Company will become a wholly-owned subsidiary of Parent. It is accordingly
contemplated that Affiliate will receive shares of Parent Common Stock in the
Merger.
B. Affiliate understands that the Parent Common Stock being issued in the
Merger will be issued pursuant to a registration statement on Form S-4 and
that Affiliate may be deemed to be an "affiliate" of the Company, as the term
"affiliate" is used for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") of the General Rules and Regulations of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), and as such, Affiliate may only transfer, sell or dispose
of such Parent Common Stock in accordance with this Affiliate Agreement and
Rule 145.
NOW, THEREFORE, in order to induce Parent to consummate the transactions
contemplated by the Merger Agreement, and for other valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by Affiliate),
Affiliate hereby covenants and agrees as follows:
ARTICLE I
1. Representations and Warranties of Affiliate. Affiliate represents and
warrants to Parent as follows:
1.1 Ownership. Affiliate is the holder and "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of the number of shares of the Company Capital Stock set forth
under Affiliate's signature below (the "Company Shares"), and Affiliate has
good and valid title to the Company Shares, free and clear of any liens,
pledges, security interests, adverse claims, equities, options, proxies,
charges, encumbrances or restrictions of any nature.
1.2 Limitation on Transfer. Affiliate has carefully read this
Agreement, and has discussed with Affiliate's own independent counsel to
the extent Affiliate felt necessary the limitations imposed on Affiliate's
ability to sell, transfer or otherwise dispose of the shares of Parent
Common Stock that Affiliate is to receive in the Merger (the "Parent
Shares"). Affiliate fully understands the limitations this Agreement places
upon Affiliate's ability to sell, transfer or otherwise dispose of the
Parent Shares and the Company Shares.
ARTICLE II
2. Transfer Restrictions.
2.1 Prohibition Against Transfer. In addition to the restrictions set
forth elsewhere herein, Affiliate agrees that Affiliate shall not effect
any sale, transfer or other disposition of the Parent Shares unless:
(a) such sale, transfer or other disposition is made in conformity
with the volume and other requirements of Rule 145 under the Securities
Act;
A-68
<PAGE>
(b) such sale, transfer or other disposition is effected pursuant to
an effective registration statement under the Securities Act; or
(c) an authorized representative of the SEC shall have rendered
written advice to Affiliate to the effect that the SEC would take no
action, or that the staff of the SEC would not recommend that the SEC
take action, with respect to such proposed sale, transfer or other
disposition, and a copy of such written advice and all other related
communications with the SEC shall have been delivered to Parent.
2.2 Stop Transfer Instructions; Legend. Affiliate acknowledges and
agrees that (a) stop transfer instructions will be given to Parent's
transfer agent with respect to the Parent Shares, and (b) each certificate
representing any of such shares of Parent Common Stock or any substitutions
thereof shall bear a legend (together with any other legend or legends
required by applicable state securities laws or otherwise), stating in
substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF SUCH RULE AND IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED AS OF SEPTEMBER , 1999 BETWEEN THE
REGISTERED HOLDER HEREOF AND CHEMDEX CORPORATION, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF CHEMDEX CORPOATION.
ARTICLE III
3. General Provisions.
3.1 Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with its specific terms or were otherwise
breached. Affiliate agrees that, in the event of any breach or threatened
breach by Affiliate of any covenant or obligation contained in this
Agreement, each of Parent and the Company shall be entitled (in addition to
any other remedy that may be available to it, including monetary damages)
to seek and obtain (a) a decree or order of specific performance to enforce
the observance and performance of such covenant or obligation, and (b) an
injunction restraining such breach or threatened breach.
3.2 Independence of Obligations. The covenants and obligations of
Affiliate set forth in this Affiliate Agreement shall be construed as
independent of any other agreement or arrangement between Affiliate, on the
one hand, and the Company or Parent, on the other. The existence of any
claim or cause of action by Affiliate against the Company or Parent shall
not constitute a defense to the enforcement of any of such covenants or
obligations against Affiliate.
3.3 Notices. Any notice or other communication required or permitted to
be delivered under this Agreement shall be in writing and shall be deemed
properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile
confirmation) to the address or facsimile telephone number set forth
beneath the name of such party below (or to such other address or facsimile
telephone number as such party shall have specified in a written notice
given to the other party):
If to Parent: Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94308
Attention: Chief Executive Officer
Telephone No.: (650) 813-0300
Telecopy No.: (650) 813-0304
A-69
<PAGE>
with a copy at the same address to the attention of the General Counsel and
Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Telephone No.: (650) 854-4488
Telecopy No.: (650) 233-8386
If to Company: Promedix.com, Inc.
448 East Winchester Avenue, Suite 200
Salt Lake City, Utah 84107
Attention: Chief Executive Officer
Telephone No.: (800) 453-1264
Telecopy No.: (801) 261-7475
With a copy to: Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Attention: Geoffrey P. Leonard, Esq.
Telephone No.: (650) 614-7470
Telecopy No.: (650) 614-7401
If to Affiliate:
at the address or facsimile phone number set forth below Affiliate's
signature on the signature page hereof.
With a copy to:
Attention:
Telephone No.:
Telecopy No.:
3.4 Severability. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be
deemed amended to conform to applicable laws so as to be valid and
enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances
and in such jurisdiction shall not affect the validity or enforceability of
such provision or part thereof under any other circumstances or in any
other jurisdiction, and (c) the invalidity or unenforceability of such
provision or part thereof shall not affect the validity or enforceability
of the remainder of such provision or the validity or enforceability of any
other provision of this Agreement. Each provision of this Agreement is
separable from every other provision of this Agreement, and each part of
each provision of this Agreement is separable from every other part of such
provision.
A-70
<PAGE>
3.5 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of Delaware (without
giving effect to principles of conflicts of laws).
3.6 Waiver. No failure on the part of Parent or the Company to exercise
any power, right, privilege or remedy under this Agreement, and no delay on
the part of Parent or the Company in exercising any power, right, privilege
or remedy under this Agreement, shall operate as a waiver of such power,
right, privilege or remedy; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy. Neither
Parent or the Company shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of the party deemed to be charged; and any such waiver
shall not be applicable or have any effect except in the specific instance
in which it is given.
3.7 Captions. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction
or interpretation of this Agreement.
3.8 Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent or the Company such instruments and other documents and
shall take such other actions as Parent or the Company may reasonably
request to effectuate the intent and purposes of this Agreement.
3.9 Entire Agreement. This Agreement, the Merger Agreement and any
Voting Agreement (including any irrevocable proxy contained therein)
between Affiliate and Parent constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and supersede
all prior agreements and understandings between the parties with respect
thereto.
3.10 Non-Exclusivity. The rights and remedies of Parent and the Company
hereunder are not exclusive of or limited by any other rights or remedies
which Parent may have, whether at law, in equity, by contract or otherwise,
all of which shall be cumulative (and not alternative). Nothing in this
Agreement shall limit any of Affiliate's obligations, or the rights or
remedies of Parent or the Company, under any Voting Agreement (including
any irrevocable proxy contained therein) between Parent and Affiliate (to
the extent that Affiliate shall have entered into such an agreement), and
nothing in any such Voting Agreement (including any irrevocable proxy
contained therein) shall limit any of Affiliate's obligations, or any of
the rights or remedies of Parent, under this Agreement.
3.11 Amendments. This Agreement may not be amended, modified, altered,
or supplemented other than by means of a written instrument duly executed
and delivered on behalf of Parent, the Company and Affiliate.
3.12 Binding Nature. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of the Company,
Parent and their respective successors and assigns.
3.13 Attorney's Fees and Expenses. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement
is brought against Affiliate, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements (in addition to
any other relief to which the prevailing party may be entitled).
3.14 Assignment. This Agreement and all obligations of Affiliate
hereunder are personal to Affiliate and may not be transferred or delegated
by Affiliate at any time. The Company or Parent may freely assign any or
all of its rights under this Affiliate Agreement, in whole or in part to
any other person or entity without obtaining the consent or approval of
Affiliate.
3.15 Survival. Each of the representations, warranties, covenants and
obligations contained in this Agreement shall survive the consummation of
the Merger.
[Signature Page Follows]
A-71
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Company Affiliate
Agreement as of the date first set forth above.
CHEMDEX CORPORATION
By: _________________________________
Title: ______________________________
PROMEDIX.COM, INC.
By: _________________________________
Title: ______________________________
AFFILIATE: __________________________
Address: ____________________________
_____________________________________
_____________________________________
Facsimile: __________________________
COMPANY STOCK BENEFICIALLY OWNED BY
AFFILIATE:
shares of Common Stock
shares of Common Stock issuable
upon exercise of outstanding options
****COMPANY AFFILIATE AGREEMENT****
A-72
<PAGE>
EXHIBIT D
STOCK RESTRICTION AGREEMENT
deleted by First Amendment dated December 21, 1999 to the Merger Agreement
A-73
<PAGE>
EXHIBIT E
ESCROW AGREEMENT
A-74
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of September ,
1999, by and among Chemdex Corporation, a Delaware corporation ("Chemdex"),
Promedix.com, Inc., a Delaware corporation ("Promedix"), U.S. Bank Trust,
National Association, as Escrow Agent ("Escrow Agent"), and Skip Klintworth and
Brad Bond, as Stockholders' Agents ("Stockholders' Agents") with respect to the
shares of Chemdex capital stock to be issued to the former Promedix
Stockholders (collectively, the "Holders") in the Merger (as defined below).
RECITALS
A. Chemdex, Promedix, and Promedix Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Chemdex ("Sub"), have entered into a Agreement
and Plan of Merger dated as of September 21, 1999 (the "Merger Agreement"),
pursuant to which Sub will merge with and into Promedix (the "Merger"), with
Promedix surviving the Merger as the surviving corporation. Capitalized terms
used in this Agreement and not otherwise defined in this Agreement shall have
the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the Effective Time,
or such later time as determined in accordance with Section 2.3(b) of the
Merger Agreement with respect to Dissenting Shares for which dissenters' rights
shall have been withdrawn or lost, Chemdex will deposit in escrow (such deposit
constituting the "Escrow Fund") certificates representing an aggregate of
12,057,366 shares of Chemdex Common Stock issuable to the Holders in the
Merger, on a pro rata basis, in accordance with each Holder's percentage
ownership of Chemdex Common Stock issuable pursuant to the Merger. Pursuant to
the Merger Agreement, (i) ninety percent (90%) of such shares (the "Locked Up
Shares") shall be held in escrow on behalf of the holders until January 22,
2000, but not held as security for Promedix's indemnification obligations under
Article X of the Merger Agreement; and (ii) ten percent (10%) of such shares
(the "Escrow Shares") shall be held as security for Promedix's indemnification
obligations under Article X of the Merger Agreement and shall represent
Chemdex's sole and exclusive remedy with respect to such indemnification
obligations, except for damages based upon a claim of fraud. The Locked Up
Shares and Escrow Shares are collectively referred to herein as the "Escrow
Securities."
C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Escrow Securities will be deposited, held in,
and disbursed from the Escrow Fund.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the
Escrow Securities; and (b) hold such Escrow Securities in escrow as part of
the Escrow Fund, all subject to the terms and conditions of this Agreement
and Section 2.2 and Article X of the Merger Agreement (which Section 2.2
and Article X are attached to this Agreement as Appendix I and incorporated
by reference into this Agreement) (collectively, the "Escrow Provisions").
The Escrow Securities will include "Additional Escrow Securities" as that
term is defined in Section 2(c) of this Agreement.
2. Deposit of Escrow Securities: Release from Escrow.
(a) Delivery of Escrow Securities. As soon as practicable after the
Effective Time, the Escrow Securities will be delivered by Chemdex on
behalf of the Holders to the Escrow Agent. Such shares shall be issued
in the name of the Escrow Agent. In the event Chemdex issues any
Additional Escrow Securities, such Escrow Securities will be issued in
the name of the Escrow Agent and delivered to the Escrow Agent in the
same manner as the Escrow Securities.
A-75
<PAGE>
(b) Holders' Accounts. The Escrow Agent will maintain for each
Holder an accounting record (each Holder's "Account") specifying the
Escrow Securities held for the record of each Holder pursuant to the
Escrow Provisions. All Escrow Securities received under Section 2(a)
will be allocated to each Holder's Account in accordance with such
Holder's percentage interest in the Escrow Fund as set forth on
Appendix II.
(c) Dividends, Voting and Rights of Ownership. Except for tax-free
dividends paid in stock declared with respect to the Escrow Securities
pursuant to Section 305(a) of the Internal Revenue Code of 1986, as
amended (the "Code") ("Additional Escrow Securities"), there will be
distributed promptly to the Holders any cash dividends or dividends
payable in securities or other distributions of any kind made in
respect of the Escrow Securities. Each Holder will have voting rights
with respect to the Escrow Securities deposited in the Escrow Fund with
respect to such Holder so long as such Escrow Securities are held in
escrow, and Chemdex will take all reasonable steps necessary to allow
the exercise of such rights. While the Escrow Securities remain in the
Escrow Agent's possession pursuant to this Agreement and the Merger
Agreement, the Holders will retain and will be able to exercise all
other incidents of ownership of said Escrow Securities which are not
inconsistent with the terms and conditions of this Agreement and the
Merger Agreement.
(d) Release. The Locked Up Shares will be held by the Escrow Agent
until January 22, 2000. The Locked Up Shares shall not be subject to,
or held as security for, Promedix's indemnification obligations under
Article X of the Merger Agreement. The Escrow Shares will be held by
the Escrow Agent until required to be released to the Holders pursuant
to Section 10.3 of the Merger Agreement, unless previously delivered to
Chemdex pursuant to Section 10.4 of the Merger Agreement. Within five
(5) business days after the applicable release condition is met, the
Escrow Agent will deliver to each Holder the Escrow Securities to be
released on such date as identified by Chemdex and the Stockholders'
Agents to the Escrow Agent in writing. Escrow Securities will be in the
form of stock certificate(s) issued in the name of such Holder. Chemdex
and the Stockholders' Agents will undertake to deliver a notice to the
Escrow Agent identifying the number of Escrow Securities to be released
with respect to each Holder within such five-day period. Escrow
Securities will be released to the respective Holders in accordance
with their respective Accounts. Chemdex will take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate Holders. Cash will be paid in lieu of fractions of Escrow
Securities in an amount equal to the product determined by multiplying
such fraction by $ (the "Per Share Value"). Within five (5)
business days after written request from the Stockholders' Agents,
Chemdex will deposit with the Escrow Agent sufficient funds to pay such
cash amounts for fractional shares.
(e) No Encumbrance. Except as provided in this Agreement and as may
be set forth in the Target Disclosure Schedule, no Escrow Securities or
any beneficial interest in the Escrow Securities may be pledged, sold,
assigned or transferred, including by operation of law, by a Holder or
be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of a Holder, prior to the delivery to
such Holder of the Escrow Securities by the Escrow Agent.
(f) Power to Transfer Escrow Securities. The Escrow Agent is granted
the power to effect any transfer of Escrow Securities contemplated by
the Escrow Provisions. Chemdex will cooperate with the Escrow Agent in
promptly issuing stock certificates to effect such transfers.
(g) Reporting. Each Holder will provide the Escrow Agent with
his/her/its Taxpayer Identification Number at or prior to Closing. On
or before January 31 of each year under this Agreement, the Escrow
Agent will prepare and mail to each Holder, other than Holders who
demonstrate their status as non-resident aliens in accordance with the
United States Treasury Regulations, a Form 1099-B reporting any cash
payments, in accordance with such Treasury Regulations. The Escrow
Agent will also prepare and file copies of such Forms 1099-B by
magnetic tape with the IRS, in accordance with Treasury Regulations. If
the Escrow Agent has not received notice from a Holder of such Holder's
certified Taxpayer Identification Number, the Escrow Agent
A-76
<PAGE>
shall deduct and withhold backup withholding tax from any cash payment
made pursuant to the Internal Revenue Code and applicable regulations
thereunder. Should any issue arise regarding federal income tax
reporting or withholding, the Escrow Agent shall act in accordance with
the written instructions of the Stockholders' Agents and Chemdex.
3. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other document believed by it to be
genuine and duly authorized, nor for any other action or inaction,
except its own willful misconduct, bad faith or gross negligence. The
Escrow Agent will not be responsible for the validity or sufficiency of
the Escrow Provisions. In all questions arising under the Escrow
Provisions, the Escrow Agent may rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent
based on such advice, the Escrow Agent will not be liable to anyone.
The Escrow Agent will not be required to take any action under the
Escrow Provisions involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served
upon the Escrow Agent with respect to the Escrow Fund, the Escrow Agent
will have the absolute right, at the Escrow Agent's election, to do
either or both of the following: resign so a successor can be appointed
pursuant to Section 5 or file a suit in interpleader and obtain an
order from a court of competent jurisdiction requiring the parties to
interplead and litigate in such court their several claims and rights
among themselves. In the event such interpleader suit is brought, the
Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under the Escrow Provisions, and
Chemdex will pay the Escrow Agent (subject to reimbursement from the
Holders pursuant to Section 4) all costs, expenses and reasonable
attorney's fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 3 (such
costs, fees and expenses will be treated as extraordinary fees and
expenses for the purposes of Section 4).
4. Expenses.
(a) Escrow Agent. All fees and expenses of the Escrow Agent incurred
in the ordinary course of performing its responsibilities hereunder
will be paid by Chemdex upon receipt of a written invoice by the Escrow
Agent. Any extraordinary fees and expenses, including without
limitation any fees or expenses incurred by the Escrow Agent in
connection with a dispute over the distribution of Escrow Securities or
the validity of a claim or claims by Chemdex made in an Officer's
Certificate, will be paid 50% by Chemdex and 50% by the Holders. The
Holders' liability for the extraordinary fees and expenses of the
Escrow Agent may be paid by Chemdex and recovered as a claim hereunder
out of the Escrow Fund. If Chemdex has paid the Holders' portion of
such fees and expenses as permitted under this Section 4(a), then the
Escrow Agent will, upon demand by Chemdex, transfer to Chemdex a number
of Escrow Securities having an aggregate Per Share Value equal to such
portion of fees and expenses.
In the event the balance in the Escrow Fund is not sufficient to pay
the extraordinary fees and expenses of the Escrow Agent, as described
in the prior paragraph, or in the event the Escrow Agent incurs any
liability to any person, firm or corporation by reason of its
acceptance or administration of this Escrow Agreement, the other
parties hereto, jointly and severally, agree to indemnify the Escrow
Agent for its extraordinary fees and expenses or costs and expenses,
including, without limitation, counsel fees and expenses, as the case
may be. Notwithstanding the foregoing, no indemnity need be paid in the
event of the Escrow Agent's gross negligence, bad faith or willful
misconduct.
(b) Stockholders' Agents. The Stockholders' Agents will not be
entitled to receive any compensation from Chemdex or the Holders in
connection with this Agreement. Any fees and expenses incurred by the
Stockholders' Agents in connection with actions taken pursuant to the
terms of the Escrow Provisions will be paid by the Holders.
A-77
<PAGE>
5. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity as such, the Escrow
Agent may resign and be discharged from its duties or obligations hereunder
by giving resignation to the parties to this Agreement, specifying not less
than thirty (30) days' prior written notice of such a date when such
resignation will take effect. Chemdex will designate a successor Escrow
Agent prior to the expiration of such 30-day period by giving written
notice to the Escrow Agent and the Stockholders' Agents. Chemdex may
appoint a successor Escrow Agent with the consent of the Stockholders'
Agents, which will not be unreasonably withheld. The Escrow Agent will
promptly transfer the Escrow Securities to such designated successor. In
the event no successor Escrow Agent is appointed as described in this
Section 5, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent.
6. Limitation of Responsibility. The Escrow Agent's duties are limited
to those set forth in the Escrow Provisions and the Escrow Agent may rely
upon the written notices delivered to the Escrow Agent under the Escrow
Provisions.
7. Incorporation by Reference of Article X. The parties agree that the
terms of Section 2.2 and Article X of the Merger Agreement shall be deemed
to be incorporated by reference in this Agreement as if such Article had
been set forth in its entirety herein. The parties acknowledge that the
administration of the Escrow Fund by the Escrow Agent will require
reference to both the terms of this Agreement as well as the terms of such
Article X.
8. Notices. Any notice provided for or permitted under the Escrow
Provisions will be treated as having been given when (i) delivered
personally, (ii) sent by confirmed telex or Fax, (iii) sent by commercial
overnight courier with written verification of receipt, or (iv) mailed
postage prepaid by certified or registered mail, return receipt requested,
to the party to be notified, at the address set forth below, or at such
other place of which the other party has been notified in accordance with
the provisions of this Section 8.
Escrow Agent: U.S. Bank Trust, National Association
One California Street, 4th Floor
San Francisco, California 94111
Attention: Ann Gadsby
Fax No: (415) 273-4593
Telephone No: (415) 273-4532
Stockholders' Agents:
Promedix, Inc.
448 East Winchester Avenue, Suite 200
Salt Lake City, Utah 84107
Attention: Skip Klintworth
Brad Bond
Fax No: (801) 261-7475
Telephone No: (800) 453-1264
With copy to: Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Attention: Geoffrey P. Leonard, Esq.
Fax No: (650) 614-7401
Telephone No: (650) 614-7470
Chemdex: Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94308
Attention: Chief Executive Officer
Fax No: (650) 813-0304
Telephone No: (650) 813-0300
A-78
<PAGE>
With copy to: Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
Such notice will be treated as having been received upon actual receipt.
9. General.
(a) Governing Laws. It is the intention of the parties hereto that
the internal laws of the State of Delaware (irrespective of its choice
of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of
the rights and duties of the parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the permitted successors,
executors, heirs, representatives, administrators and assigns of the
parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party
whose signature appears on such counterpart and all of which together
shall constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts of this Agreement,
individually or taken together, shall bear the signatures of all of the
parties reflected in this Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Merger Agreement,
this Agreement, the documents referenced in this Agreement and the
exhibits to such documents, constitute the entire understanding and
agreement of the parties to this Agreement with respect to the subject
matter of this Agreement and of such documents and exhibits and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between
the parties with respect to this Agreement. The express terms of this
Agreement control and supersede any course of performance or usage of
the trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any
condition or of any breach of any provision of this Agreement will be
effective unless in writing. No waiver by any party of any such
condition or breach, in any one instance, will be deemed to be a
further or continuing waiver of any such condition or breach or a
waiver of any other condition or breach of any other provision
contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written
consent of Chemdex, the Escrow Agent and the Stockholders' Agents;
provided, however, that if the Escrow Agent does not agree to an
amendment agreed upon by Chemdex and the Stockholders' Agents, a
successor Escrow Agent will be appointed in accordance with Section 5.
[Signature Page Follows]
A-79
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first written above and will be effective as to all the
Holders when executed by Chemdex, the Escrow Agent and the Stockholders'
Agents.
CHEMDEX CORPORATION
By: _________________________________
Its: ________________________________
PROMEDIX.COM, INC.
By: _________________________________
Its: ________________________________
ESCROW AGENT:
U.S. BANK TRUST, NATIONAL
ASSOCIATION
By: _________________________________
Its: ________________________________
STOCKHOLDERS' AGENTS:
_____________________________________
Skip Klintworth
_____________________________________
Brad Bond
A-80
<PAGE>
APPENDIX I
Section 2.2 and Article X of Merger Agreement
A-81
<PAGE>
Section 2.2 Escrow Agreementt. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), Chemdex will, on behalf of the
holders of Promedix Common Stock and Promedix Preferred Stock, deposit in
escrow certificates representing the percentage of the Total Consideration
Shares set forth below allocable to Promedix Common Stock and Promedix
Preferred Stock in the Merger. Such shares shall be held in escrow on behalf of
the persons who are the holders of Promedix Common Stock or Promedix Preferred
Stock in the Merger immediately prior to the Effective Time (the "Former
Promedix Stockholders"), in accordance with the portion of Total Consideration
Shares allocable to each such Former Promedix Stockholder in the manner
contemplated by Section 2.1 ("Pro Rata Portion"). If the Closing shall occur
prior to January 22, 2000, then ninety percent (90%) of such shares
(collectively, the "Locked Up Shares") shall be held in escrow on behalf of the
former Promedix Stockholders until January 22, 2000, after which the
certificates representing the Locked Up Shares will be distributed to the
Former Promedix Stockholders. The Locked Up Shares shall not be subject to
Article X of this Agreement. Ten percent (10%) of such shares (collectively,
the "Escrow Shares") shall be held in escrow and applied pursuant to the
provisions of an escrow agreement (the "Escrow Agreement") to be executed
pursuant to Section 7.6. All calculations to determine the number of Locked Up
Shares and Escrow Shares to be delivered by each stockholder of Promedix into
escrow as aforesaid shall be rounded down to the nearest whole share.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification. From and after the Effective Time and subject
to the limitations contained in Section 10.2, the Former Promedix Stockholders
will, severally and pro rata, in accordance with their Pro Rata Portion,
indemnify and hold Chemdex harmless against any loss, expense, liability or
other damage, including attorneys' fees, to the extent of the amount of such
loss, expense, liability or other damage (collectively "Damages") that Chemdex
has incurred by reason of the breach by Promedix of any representation,
warranty, covenant or agreement of Promedix contained in this Agreement that
occurs or becomes known to Chemdex during the Escrow Period (as defined in
Section 10.3 below) in excess of $150,000. Chemdex, Promedix and Sub
acknowledge and agree, and the Former Promedix Stockholders, by their approval
of this Agreement and their execution of the Voting Agreements, agree that
notwithstanding anything to the contrary contained in this Agreement or any
other Transaction Document, such indemnification under this Article X shall be
the sole and exclusive remedy for any such claim of breach by Promedix, except
for Damages based upon a claim of fraud.
Section 10.2 Escrow Fund. As security and the sole and exclusive recourse
for the indemnities in Section 10.1, as soon as practicable after the Effective
Time, the Escrow Shares shall be deposited with U.S. Bank Trust, National
Association (or such other institution selected by Chemdex with the reasonable
consent of Promedix) as escrow agent (the "Escrow Agent"), such deposit to
constitute the Escrow Fund (the "Escrow Fund") and to be governed by the terms
set forth in this Article X and in the Escrow Agreement. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement or in any
Transaction Document, the indemnification obligations of the Former Promedix
Stockholders pursuant to this Article X or otherwise shall be limited to the
amount and assets deposited and present in the Escrow Fund and Chemdex shall
not be entitled to pursue any claims for indemnification under this Article X
or otherwise against the Former Promedix Stockholders directly or personally,
and the sole recourse of Chemdex shall be to make claims against the Escrow
Fund in accordance with the terms of the Escrow Agreement.
Section 10.3 Escrow Periods. The Escrow Fund shall terminate upon the first
anniversary date of the Closing Date (the period from the Closing Date to such
date referred to as the "Escrow Period"), provided, however, that the number of
Escrow Shares, which, in the reasonable judgment of Chemdex, subject to the
objection of the Stockholders' Agents and the subsequent resolution of the
matter in the manner provided in Section 10.7, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore
A-82
<PAGE>
delivered to the Escrow Agent and the Stockholders' Agents prior to termination
of the Escrow Period with respect to Damages incurred or litigation pending
prior to expiration of the Escrow Period, shall remain in the Escrow Fund until
such claims have been finally resolved.
Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Chemdex (an "Officer's Certificate"):
(i) Stating the aggregate amount of Chemdex's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid
or properly accrued or arose, and the nature of the misrepresentation,
breach or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of Sections 10.3 and 10.7 hereof and of the
Escrow Agreement, deliver to Chemdex out of the Escrow Fund, as promptly as
practicable, Escrow Shares having a value equal to such Damages all in
accordance with the Escrow Agreement and Section 10.5 below. Amounts paid
or distributed from the Escrow Fund shall be paid or distributed pro rata
among the Holders (as defined in the Escrow Agreement) based upon their
respective percentage interests therein at the time.
Section 10.5 Valuation. For the purpose of compensating Chemdex for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Chemdex in respect of a claim for Damages shall be
the Average Stock Price (as appropriately adjusted for stock splits,
recapitalizations and the like).
Section 10.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agents (as defined in Section 10.8
below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 10.3 unless
the Escrow Agent shall have received written authorization from the
Stockholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.3, provided that no such delivery
may be made if the Stockholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Chemdex prior to the expiration of such
thirty (30) day period.
Section 10.7 Resolution of Conflicts.
(a) In case the Stockholders' Agents shall so object in writing to any
claim or claims by Chemdex made in any Officer's Certificate, Chemdex shall
have thirty (30) days to respond in a written statement to the objection of
the Stockholders' Agents. If after such thirty (30) day period there
remains a dispute as to any claims, the Stockholders' Agents and Chemdex
shall attempt in good faith for thirty (30) days to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholders' Agents and Chemdex should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Escrow Shares from the
Escrow Fund in accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Chemdex or the Stockholders' Agents may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15)
days after such written notice is sent, Chemdex (on the one hand) and the
Stockholders' Agents (on the other
A-83
<PAGE>
hand) shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The decision of the arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 10.3, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the commercial rules then in effect of
the American Arbitration Association. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the
expenses, including, without limitation, the reasonable attorneys' fees and
costs, incurred by the prevailing party to the arbitration.
Section 10.8 Stockholders' Agents.
(a) Skip Klintworth and Brad Bond shall be constituted and appointed as
agents (the "Stockholders' Agents") for and on behalf of the Former
Promedix Stockholders to give and receive notices and communications, to
authorize delivery to Chemdex of the Escrow Shares or other property from
the Escrow Fund in satisfaction of claims by Chemdex, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary
or appropriate in the judgment of the Stockholders' Agents for the
accomplishment of the foregoing. All actions of the Stockholders' Agents
shall be taken jointly, not individually. Such agency may be changed by the
holders of a majority in interest of the Escrow Shares from time to time
upon not less than ten (10) days' prior written notice to Chemdex. No bond
shall be required of the Stockholders' Agents, and the Stockholders' Agents
shall receive no compensation for services. Notices or communications to or
from the Stockholders' Agents shall constitute notice to or from each of
the Former Promedix Stockholders.
(b) The Stockholders' Agents shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and
any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Former Promedix Stockholders
shall severally and pro rata, in accordance with their Pro Rata Portion,
indemnify the Stockholders' Agents and hold them harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the
part of the Stockholders' Agents and arising out of or in connection with
the acceptance or administration of their duties hereunder under this
Agreement or the Escrow Agreement.
(c) The Stockholders' Agents shall have reasonable access to information
about Promedix and Chemdex and the reasonable assistance of Promedix's and
Chemdex's officers and employees for purposes of performing their duties
and exercising their rights under this Article X, provided that the
Stockholders' Agents shall treat confidentially and not disclose any
nonpublic information from or about Promedix or Chemdex to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
Section 10.9 Actions of the Stockholders' Agents. A decision, act, consent
or instruction of the Stockholders' Agents shall constitute a decision of all
of the Former Promedix Stockholders for whom shares of Chemdex Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Promedix Stockholder, and the
Escrow Agent and Chemdex may rely upon any decision, act, consent or
instruction of the Stockholders' Agents as being the decision, act, consent or
instruction of each and every such Former Promedix Stockholder. The Escrow
Agent and Chemdex are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Stockholders' Agents.
Section 10.10 Claims. In the event Chemdex becomes aware of a third-party
claim which Chemdex believes may result in a demand against the Escrow Fund,
Chemdex shall promptly notify the Stockholders' Agents of such claim, and the
Stockholders' Agents and the Former Promedix Stockholders for whom shares of
Chemdex Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their
A-84
<PAGE>
expense, to participate in any defense of such claim. Chemdex shall have the
right in its sole discretion to settle any such claim; provided, however, that
Chemdex may not effect the settlement of any such claim without the consent of
the Stockholders' Agents, which consent shall not be unreasonably withheld. In
the event that the Stockholders' Agents have consented to any such settlement,
the Stockholders' Agents shall have no power or authority to object to the
amount of any claim by Chemdex against the Escrow Fund for indemnity with
respect to such settlement in the amount agreed to.
APPENDIX II
HOLDERS' INTEREST IN ESCROW FUND
<TABLE>
<CAPTION>
Chemdex
Shares Percentage
to of Escrow
Stockholder Escrow Shares
- ----------- ------- ----------
<S> <C> <C>
--- ------
Totals 100.00%
=== ======
</TABLE>
A-85
<PAGE>
EXHIBIT F
SUBJECT MATTER OF OPINION OF COUNSEL TO PROMEDIX
A-86
<PAGE>
EXHIBIT F
SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
All capitalized terms used herein and not otherwise defined have the
meanings given them in the Agreement and Plan of Merger dated as of September
21, 1999 (the "Merger Agreement"), by and among Chemdex Corporation, a Delaware
corporation ("Acquiror"), Popcorn Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Acquiror ("Sub"), and Promedix.com, Inc., a
Delaware corporation ("Target").
(1) Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite corporate
power to own, lease and operate its property and to carry on its business as
now being conducted and is duly qualified or licensed to do business and is in
good standing as a foreign corporation in the states identified on Exhibit A
thereto.
(2) The authorized capital stock of Target consists of 20,000,000 shares of
Target Common Stock and 9,929,355 shares of Preferred Stock, of which 4,030,089
shares are designated as Series A Preferred Stock, 333,334 shares are
designated as Series B-1 Preferred Stock, and 346,021 share are designated as
Series B-2 Preferred Stock. As of the date of this Agreement, there are (i)
shares of Target Common Stock issued and outstanding, all of which
are validly issued, fully paid and nonassessable and of which are
subject to repurchase rights pursuant to agreements or arrangements between the
holder thereof and Target, (ii) 4,030,089 shares of Series A Preferred Stock
issued and outstanding, all of which are validly issued, fully paid and non-
assessable, and each share of which is convertible into one share of Target
Common Stock, (iii) no shares of Series B-1 Preferred Stock issued and
outstanding, (iv) no shares of Series B-2 Preferred Stock issued and
outstanding, (v) Target Options to purchase up to shares of Target
Common Stock; (vi) shares of Target Common Stock reserved for future
issuance upon conversion of the Target Preferred Stock; and (vi)
shares of Target Common Stock reserved for issuance upon exercise of options
available to be granted in the future under the Target Option Plan. To our
knowledge, except as set forth above and in the Target Disclosure Schedule, (i)
there are no equity securities of any class or series of Target, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding, and (ii) there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character to
which Target is a party or by which it is bound obligating Target to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of Target or obligating Target to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. To our knowledge, and except as set forth on
the Target Disclosure Schedule, (i) there are no voting trusts, proxies or
other agreements understandings with respect to the voting of the share of
capital stock of Target that will not terminate at the Effective Time, and (ii)
Target does not own or control (directly or indirectly) any capital stock,
bonds or other securities of, and does not have a proprietary interest in, any
other corporation, general or limited partnership, firm, association or
business organization, entity or enterprise.
(3) Target has all requisite corporate power and authority to enter into
the Merger Agreement and the Certificate of Merger, and to consummate the
transactions contemplated thereby. The Merger Agreement and the Certificate of
Merger are collectively referred to herein as the "Opinion Documents." The
execution and delivery of the Opinion Documents and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of Target, including the approval of the Merger
and the related transactions by Target's stockholders under the provisions of
the Delaware General Corporation Law and Target's Certificate of Incorporation
and Bylaws. The Opinion Documents have been duly and validity executed and
delivered by Target and, assuming due execution and delivery by the other
parties thereto, constitute the valid and binding obligations of Target,
enforceable against Target in accordance with their respective terms.
(4) The execution and delivery by Target of the Opinion Documents and the
consummation of the transactions contemplated thereby will not, (i) result in
any violation or breach of any provision of the
A-87
<PAGE>
Certificate of Incorporation, or any Certificate of Designation thereunder, or
Bylaws of Target, (ii) result in any material violation or material breach of,
or constitute (with or without notice or lapse of time, or both) a material
default (or give rise to a right of termination, cancellation or acceleration
of any obligation) under any of the terms, conditions or provisions of any
Material Contract or any other written contract or agreement listed in the
Target Disclosure Schedules as being an obligation of Target, or (iii) to our
knowledge, violate any permit, concession, franchise, license, judgment, order
decree, statute, law, ordinance, rule or regulation applicable to Target or any
of its properties or assets.
(5) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required on the part of
Target in connection with the execution and delivery of the Opinion Documents
or the consummation of the transactions contemplated thereby, except for (i)
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (ii) filings required under the Hart-Scott Rodino Antitrust
Improvement Act of 1976, as amended, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws and the laws of any foreign
country, and (iv) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, could not be expected to have a
Material Adverse Effect on Target.
(6) To our knowledge and except as set forth on the Target Disclosure
Schedule, there is no action, proceeding or investigation pending or threatened
in writing against Target before any court or administrative agency that
questions the validity of the Merger Agreement or that, either in any case or
in the aggregate, might be reasonably expected to result in any materially
adverse change in the business or financial condition of Target or any of its
properties assets, or in any material impairment of the right or ability of
Target to carry on its business as now conducted, or in any material liability
on the part of Target.
A-88
<PAGE>
EXHIBIT G
LOAN AGREEMENT
A-89
<PAGE>
EXHIBIT G
SECURED PROMISSORY NOTE AND AGREEMENT
("Note and Agreement")
$10,000,000.00 Salt Lake City, Utah
September , 1999
FOR VALUE RECEIVED, Promedix.com, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to the order of Chemdex Corporation, a Delaware
corporation ("Lender"), the principal sum of TEN MILLION DOLLARS
($10,000,000.00) or such lesser amount as shall equal the outstanding principal
amount of all sums advanced to Borrower hereunder and to pay interest on the
outstanding balance of said sum at a rate per annum equal to nine percent (9%),
compounded annually. All then outstanding principal and accrued interest
hereunder shall be due and payable in full upon the earlier of (i) September
, 2000 in the event that the Agreement and Plan of Merger dated as of
September , 1999 (the "Merger Agreement") by and among Borrower, Lender and a
wholly owned subsidiary of Lender shall be terminated for any reason pursuant
to the terms of Article IX thereof [the first anniversary of the signing date];
(ii) the sale of all or substantially all of the assets of Borrower to any
person or entity other than Lender or an affiliate of Lender or the acquisition
of Borrower by any person or entity other than Lender or an affiliate of Lender
by means of a transaction that results in the transfer of more than forty
percent (40%) of the total outstanding power of Borrower; or (iii) December 31,
2000 (the "Maturity Date"). The events described in items (i) through (iii)
above are collectively referred to herein as "Note Termination Events."
In the event that Borrower receives any debt or equity financing in excess
of $500,000 at any time (and from time to time) prior to September , 2000,
Borrower agrees that twenty-five percent (25%) of any amounts so raised shall
be used by Borrower to immediately repay amounts that may be outstanding
hereunder, whether or not such amounts may be due under the immediately
preceding paragraph.
Borrower shall make all payments hereunder for the account of Lender at 3950
Fabian Way, Palo Alto, California 94308, or to such other address as Lender
shall notify Borrower, in lawful money of the United States and in same day or
immediately available funds not later than 12:00 noon on the date due, or as
otherwise agreed to by Lender. Any and all amounts owing under this Note and
Agreement may be prepaid at any time and from time to time by Borrower without
penalty.
All computations of interest under this Note and Agreement shall be based on
a year of 365 or 366 days, as applicable, for actual days elapsed. In the event
that, Borrower pays interest under this Note and Agreement and it is determined
that such interest rate was in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal then due under this Note and Agreement.
Merger Agreement
This Note and Agreement is being entered into in connection with the Merger
Agreement (as the same may be amended, restated, supplemented or otherwise
modified pursuant to the terms thereof). Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Merger Agreement.
Security Agreement
This Note and Agreement is secured by certain collateral (the "Collateral")
more specifically described in (i) the Security Agreement of even date herewith
between Borrower and Lender, and (ii) the Patent and Trademark Security
Agreement of even date herewith between Borrower and Lender (such two
agreements together, the "Security Agreement").
A-90
<PAGE>
Conditions to Advances; Use of Proceeds; Covenants
Amounts shall be advanced to Borrower under this Note and Agreement solely
in accordance with the terms and conditions set forth in this Note and
Agreement, including Schedule A attached hereto and incorporated herein by
reference. Borrower shall use the proceeds of any amount advanced under this
Note and Agreement solely for general corporate purposes, including normal
working capital in the ordinary course of business as presently conducted and
as presently proposed to be conducted. Until the termination of this Note and
Agreement and payment in full by Borrower or forgiveness by Lender of all
amounts outstanding under this Note and Agreement, Borrower agrees that it
shall comply with and duly perform all of its covenants, obligations and
agreements set forth in the Merger Agreement, which are hereby incorporated
herein by reference as if fully set forth herein.
Representations and Warranties
Borrower represents and warrants to Lender that:
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the law of the State of Delaware and has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Note and Agreement.
(b) The execution, delivery and performance by Borrower of this Note and
Agreement have been duly authorized by all necessary corporate action of
Borrower, and this Note and Agreement constitutes the legal, valid and
binding obligation of Borrower, enforceable against Borrower in accordance
with its terms.
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or
approval or consent of any other person or entity, is required for the due
execution, delivery or performance by Borrower of this Note and Agreement.
Events of Default
The occurrence of any one or more of the following events shall constitute
an "Event of Default" hereunder:
(d) Borrower shall fail to pay any then outstanding principal when due
or any interest or other amount payable under this Note and Agreement
within five (5) business days of when due; or
(e) Borrower shall fail in any material respect to perform any of its
other covenants, obligations or agreements contained in this Note and
Agreement or the Merger Agreement and such failure shall continue for ten
(10) business days after written notice thereof by Lender; or
(f) Any representation, warranty, certificate, or other statement
(financial or otherwise) made or furnished by or on behalf of Borrower in
writing to Lender in connection with this Note and Agreement or the Merger
Agreement, or as an inducement to Lender to advance the sums under this
Note and Agreement or to enter into the Merger Agreement, shall have been
false or incorrect, in any material respect when made or shall become false
or incorrect in any material respect following the date hereof; or
(g) Borrower (i) shall fail to make any payment when due under the terms
of any bond, debenture, note or other evidence of indebtedness, if any,
individually in excess of $500,000 to be paid by Borrower, and such failure
shall continue beyond any period of grace provided with respect thereto, or
(ii) shall default in the observance or performance of any other agreement,
term or condition contained in any such bond, debenture, note or other
evidence of indebtedness providing for principal payments in excess of
$500,000, and in the case of either clause (i) or (ii) the effect of such
failure or default is to cause the holder or holders thereof to accelerate
the indebtedness to become due prior to its stated date of maturity; or
A-91
<PAGE>
(h) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or any part
of its property; (ii) admit in writing its inability, to pay its debts
generally as they mature; (iii) make a general assignment for the benefit
of its or any of its creditors; (iv) be dissolved or liquidated in full or
in part; (v) become insolvent (as such term may be defined or interpreted
under any applicable statute); (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it; or (vii) take
any action for the purpose of affecting any of the foregoing; or
(i) Proceedings for the appointment of a receiver, trustee, liquidator
or custodian of Borrower or of all or any material part of its property, or
an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to Borrower or the debts
thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect, shall be commenced and an order for relief entered or
such proceeding shall not be dismissed or discharged within sixty (60) days
of commencement; or
(j) A final judgment or final judgments for the payment of money, which
individually or in the aggregate, exceed $500,000 in excess of the amount
covered by insurance, shall be rendered against Borrower and the same shall
remain undischarged for a period of thirty (30) days during which execution
shall not be effectively stayed; or any judgment, writ, assessment, warrant
of attachment, execution, levy or similar process shall be issued or levied
against any material part of the property of Borrower and such judgment,
writ, assessment, warrant of attachment, execution, levy or similar process
shall not be released, stayed, vacated or otherwise dismissed within ten
(10) days after issue or levy; or
(k) This Note and Agreement shall cease to be, or be asserted by
Borrower not to be, a legal, valid and binding obligation of Borrower,
enforceable in accordance with its terms; or
(l) An "Event of Default" (as defined in the Security Agreement) shall
have occurred.
Upon the occurrence or existence of any Event of Default, Lender may (a) at any
time terminate any obligation to make loans or advance sums to Borrower under
this Note and Agreement; (b) at any time declare all unpaid amounts owing or
payable under this Note and Agreement to be immediately due and payable without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by Borrower; and/or (c) exercise all rights and
remedies available to Lender under this Note and Agreement, the Security
Agreement or applicable law; provided, however, that upon the occurrence or
existence of any Event of Default described in clause (h) or (i) above,
immediately and without notice, (i) any obligation to make loans or advance
sums to Borrower under this Note and Agreement shall automatically terminate
and (ii) all unpaid amounts owing or payable under this Note and Agreement
shall automatically become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by Borrower.
Borrower agrees to pay on demand all reasonable costs and expenses of
Lender, and the reasonable fees and disbursements of counsel, in connection
with the enforcement or attempted enforcement of, and preservation of any
rights or interests under, this Note and Agreement, including in any out-of-
court workout or other refinancing or restructuring or in any bankruptcy case.
Any amounts payable to Lender pursuant to this paragraph if not paid upon
demand shall bear interest from the date of such demand until paid in full, at
the rate of interest set forth herein in respect of principal outstanding
hereunder.
If at any time any provision of this Note and Agreement is or becomes
illegal, invalid or unenforceable in any respect, neither the legality,
validity nor enforceability of the remaining provisions shall in any way be
affected or impaired thereby.
A-92
<PAGE>
Any term, covenant, agreement or condition of this Note and Agreement may be
amended or waived if such amendment or waiver is in writing and is signed by
Borrower and Lender. No failure or delay by Lender in exercising any right or
remedy hereunder shall operate as a waiver thereof or of any other right or
remedy nor shall any single or partial exercise of any such right or remedy
preclude any other further exercise thereof or of any other right or remedy.
The acceptance at any time by Lender of any past-due amount hereunder shall not
be deemed to be a waiver of the right to require prompt payment when due of any
other amounts then or thereafter due and payable. Unless otherwise specified in
such waiver or consent, a waiver or consent given hereunder shall be effective
only in the specific instance and for the specific purpose for which given.
This Note and Agreement shall be binding upon and inure to the benefit of
Borrower, Lender, and their respective successors and permitted assigns, except
that Borrower may not assign or transfer any of its rights or obligations under
this Note and Agreement without the prior written consent of Lender. Prior to
the occurrence of any Note Termination Event, Lender may at any time sell,
assign, or otherwise transfer only to any of its affiliates or subsidiaries all
or part of the obligations of Borrower and Lender under this Note and
Agreement. After the occurrence of any Note Termination Event, Lender may at
any time sell, assign, or otherwise transfer to any other person or entity all
or part of the obligations of Borrower and Lender under this Note and
Agreement.
Nothing expressed in or to be implied from this Note and Agreement is
intended to give, or shall be construed to give, any person or entity, other
than the parties hereto and their permitted successors and assigns hereunder,
any benefit or legal or equitable right, remedy or claim under or by virtue of
this Note and Agreement or under or by virtue of any provision herein.
The words "hereof," "herein," "hereunder" and similar words refer to this
Note and Agreement as a whole (including the Schedules attached hereto) and not
to any particular provision of this Note and Agreement.
Borrower hereby waives presentment, demand, protest, notice of dishonor and
all other notices, except as expressly provided herein, any release or
discharge arising from any extension of time, discharge of a prior party, or
other cause of release or discharge other than actual payment in full hereof.
This Note and Agreement shall be construed in accordance with and governed
by the laws of the State of California, excluding conflict of laws principles.
All notices and other communications hereunder shall be given as provided in
Section 11.2 of the Merger Agreement.
A-93
<PAGE>
IN WITNESS WHEREOF, the undersigned duly authorized officer of Borrower has
executed this Note and Agreement as of the date first set forth above.
PROMEDIX.COM, INC.
By:__________________________________
Name:
Title:
A-94
<PAGE>
Schedule A
CONDITIONS TO ANY ADVANCE
Subject to the terms and conditions set forth herein and in the Note and
Agreement, Lender agrees to advance to Borrower from time to time on the
"Advance Dates" set forth below, such loans as Borrower may request hereunder
(each such loan an "Advance" and collectively, the "Advances"); provided,
however, that the aggregate principal amount of all Advances hereunder shall
not exceed Ten Million Dollars ($10,000,000); provided, further, that the
aggregate principal amount of each Advance on any Advance Date shall not exceed
the amount of One Million Six Hundred Sixty Six Thousand Six Hundred Sixty
Seven Dollars ($1,666,667). Borrower agrees and acknowledges that upon the
occurrence of any Note Termination Event, Lender's obligation to advance any
unadvanced amounts hereunder shall automatically terminate and be of no further
force and effect and all then outstanding principal and accrued interest
hereunder shall be immediately due and payable in full.
a. Advance Dates. Upon the request of the Borrower as provided in paragraph
b. below, provided that no Note Termination Event shall have occurred and
subject to the other terms and conditions set forth herein, Lender shall make
Advances hereunder on each of (1) October 1, 1999, (2) November 1, 1999,
(3) December 1, 1999, (4) January 1, 2000, (5) February 1, 2000 and (6) March
1, 2000 (each such date, and any other date on which Lender makes an Advance,
an "Advance Date", and collectively, the "Advance Dates").
b. Borrowing Request. Borrower shall request each Advance by delivering to
Lender an irrevocable written notice (the "Borrowing Request") which shall
specify (i) the principal amount of the requested Advance, (ii) the applicable
Advance Date, (iii) the account or accounts to which Lender shall disburse the
proceeds of the requested Advance, and (iv) that all conditions set forth in
paragraph c. below have been satisfied in respect of such Advance. Each
Borrowing Request shall be in writing and shall be given to Lender at least
five (5) business days before the applicable Advance Date by delivery of such
notice to Lender to the address and in the manner set forth in Section 11.2 of
the Merger Agreement. Disbursements of any Advance shall be made by wire
transfer to the account(s) of Borrower specified in the Borrowing Request
before the close of business on the applicable Advance Date; provided, however,
that Lender shall not be deemed to be in default hereunder if it fails to make
such Advance provided that it cures such failure within five (5) business days
after written notice thereof by Borrower.
c. Conditions Precedent to Each Advance. The obligation of Lender to make
any Advance is subject to the satisfaction of the following conditions, each in
form and substance reasonably satisfactory to Lender:
(i) The representations and warranties of Borrower set forth in the Note
and Agreement and in the Merger Agreement shall be true and correct in all
material respects on each Advance Date as if made on such date and shall
remain true and correct in all material respects;
(ii) No Event of Default or event which with the giving of notice or
lapse of time, or both, would constitute an Event of Default shall have
occurred or be continuing;
(iii) The Collateral shall be subject to no mortgages, liens, security
interests, pledges, charges or encumbrances of any kind or character,
except (A) liens in favor of Lender, (B) nonconsensual liens arising in the
ordinary course of business which alone or in the aggregate are not
substantial in amount and which do not materially detract from the value of
the property subject thereto or interfere with the ordinary conduct of the
business of the Borrower or otherwise impair Lender's rights with respect
thereto and (C) Permitted Liens (as defined in the Security Agreement);
(iv) Lender shall have a perfected first priority security interest in
and to all of the Collateral, subject to the Permitted Liens; and
(v) No Note Termination Event shall have occurred.
A-95
<PAGE>
The submission by Borrower of each Borrowing Request shall be deemed to be a
representation and warranty by Borrower as of the date thereof and as of the
applicable Advance Date that the conditions in this paragraph c. are satisfied.
A-96
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of September , 1999,
is made by and between Promedix.com, Inc., a Delaware corporation ("Debtor"),
and Chemdex Corporation, a Delaware corporation ("Secured Party").
Debtor and Secured Party hereby agree as follows:
Section 1 Definitions; Interpretation.
(a) As used in this Agreement, the following terms shall have the following
meanings:
"Collateral" has the meaning set forth in Section 2.
"Documents" means this Agreement, the Note, the Merger Agreement and all
other certificates, documents, agreements and instruments delivered to
Secured Party under the Note or in connection with the Obligations.
"Event of Default" has the meaning set forth in Section 8.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge or encumbrance, lien, or other type
of preferential arrangement.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
September , 1999 among Debtor, Secured Party and a wholly owned
subsidiary of Secured Party.
"Note" means that certain Secured Promissory Note and Agreement of even
date herewith made by Debtor in favor of Secured Party, as amended,
modified, renewed, extended or replaced from time to time.
"Obligations" means the indebtedness, liabilities and other obligations
of Debtor to Secured Party under or in connection with this Agreement and
the Note, including, without limitation, all unpaid principal of the Note,
all interest accrued thereon, all fees and all other amounts payable by
Debtor to Secured Party thereunder or in connection therewith, whether now
existing or hereafter arising, and whether due or to become due, absolute
or contingent, liquidated or unliquidated, determined or undetermined.
"Permitted Lien" means (i) any Lien in favor of Secured Party, (ii)
nonconsensual Liens which arise in the ordinary course of business and do
not materially impair Debtor's ownership or use of the Collateral or the
value thereof, (iii) purchase money security interests and liens in
connection with capital leases incurred in the ordinary course of business,
(iv) liens existing on property as of the date of this Agreement, (v) liens
existing on property at the time of its acquisition by the Debtor, (vi)
liens securing the performance of bids, trade contracts, leases, surety
bonds and the like, and (vii) liens in connection with judgments that do
not constitute an Event of Default under the Note.
"Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization, governmental agency or authority, or
any other entity of whatever nature.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Utah; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Utah, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions related to such provisions.
(b) Where applicable and except as otherwise defined herein, terms used in
this Agreement shall have the meanings assigned to them in the UCC.
A-97
<PAGE>
(c) In this Agreement, (i) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; and (ii)
the captions and headings are for convenience of reference only and shall not
affect the construction of this Agreement.
Section 2 Security Interest.
(a) As security for the payment and performance of the Obligations,
Debtor hereby grants to Secured Party a security interest in, all of
Debtor's right, title and interest in, to and under the following property,
wherever located and whether now existing or owned or hereafter acquired or
arising (collectively, the "Collateral"):
(i) all accounts, accounts receivable, contract rights, rights to
payment, chattel paper, letters of credit, documents, securities, money
and instruments, and investment property, whether held directly or
through a securities intermediary, and other obligations of any kind
owed to Debtor, however evidenced;
(ii) all deposits and deposit accounts with any bank, savings and
loan association, credit union or like organization, and all funds and
amounts therein, and whether or not held in trust, or in custody or
safekeeping, or otherwise restricted or designated for a particular
purpose;
(iii) all inventory, including, without limitation, all materials,
raw materials, parts, components, work in progress, finished goods,
merchandise, supplies, and all other goods which are held for sale,
lease or other disposition or furnished under contracts of service or
consumed in Debtor's business, including, without limitation, those
held for display or demonstration or out on lease or consignment;
(iv) all owned equipment, including, without limitation, all
machinery, furniture, furnishings, fixtures, trade fixtures, tools,
parts and supplies, automobiles, trucks and other vehicles, appliances,
computer and other electronic data processing equipment and other
office equipment, computer programs and related data processing
software, and all additions, substitutions, replacements, parts,
accessories, and accessions to and for the foregoing;
(v) all general intangibles and other personal property of Debtor,
including, without limitation, (A) all tax and other refunds, rebates
or credits of every kind and nature to which Debtor is now or hereafter
may become entitled; (B) all intellectual property and all rights
therein of any type or description, including, without limitation, all
inventions and discoveries, patents and patent applications, copyrights
and applications for copyright (together with the underlying works of
authorship) whether or not registered, together with any renewals and
extensions thereof, trademarks, service marks and trade names, and
applications for registration of such trademarks, service marks and
trade names, trade secrets, trade dress, trade styles, logos, other
source of business identifiers, mask-works, mask-work registrations,
mask-work applications, software, confidential and proprietary
information, customer lists, other license rights, advertising
materials, operating manuals, methods, processes, know-how, algorithms,
formulae, databases, quality control procedures, product, service and
technical specifications, operating, production and quality control
manuals, sales literature, drawings, specifications, blue prints,
descriptions, inventions, name plates and catalogs, and the entire
goodwill of or associated with the businesses now or hereafter
conducted by Debtor connected with and symbolized by any of the
aforementioned properties and assets, and all licenses relating to any
of the foregoing, all reissuance, continuations and continuations-in-
part of the foregoing, all other rights derived from or associated with
the foregoing, including the right to sue and recover for past
infringement, and all income and royalties with respect thereto; (C)
all goodwill, chooses in action and causes of action; (D) all interests
in limited and general partnerships and limited liability companies;
and (E) all indemnity agreements, guaranties, insurance policies,
insurance claims, and other contractual, equitable and legal rights of
whatever kind or nature;
(vi) all books, records and other written, electronic or other
documentation in whatever form maintained by or for Debtor in
connection with the ownership of its assets or the conduct of its
business or evidencing or containing information relating to the
Collateral; and
A-98
<PAGE>
(vii) all products and proceeds, including insurance proceeds, of any
and all of the foregoing.
(b) Anything herein to the contrary notwithstanding, (i) Debtor shall
remain liable under any contracts, agreements and other documents included
in the Collateral, to the extent set forth therein, to perform all of its
duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (ii) the exercise by Secured Party of any of the
rights hereunder shall not release Debtor from any of its duties or
obligations under such contracts, agreements and other documents included
in the Collateral, and (iii) Secured Party shall not have any obligation or
liability under any contracts, agreements and other documents included in
the Collateral by reason of this Agreement, nor shall Secured Party be
obligated to perform any of the obligations or duties of Debtor thereunder
or to take any action to collect or enforce any such contract, agreement or
other document included in the Collateral hereunder.
(c) Notwithstanding the foregoing provisions of this Section 2, the
grant of a security interest as provided herein shall not extend to, and
the term "Collateral" shall not include, any general intangibles of Debtor
(whether owned or held as licensee or lessee, or otherwise), to the extent
that (i) such general intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of the license, lease or
other agreement applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law), without the consent
of the licensor or lessor thereof or other applicable party thereto and
(ii) such consent has not been obtained; provided, however, that the
foregoing grant of security interest shall extend to, and the term
"Collateral" shall include, (A) any general intangible which is an account
receivable or a proceed of, or otherwise related to the enforcement or
collection of, any account receivable, or goods which are the subject of
any account receivable, (B) any and all proceeds of any general intangibles
which are otherwise excluded to the extent that the assignment or
encumbrance of such proceeds is not so restricted, and (C) upon obtaining
the consent of any such licensor, lessor or other applicable party's
consent with respect to any such otherwise excluded general intangibles,
(but without obligating Debtor to obtain such consent) such general
intangibles as well as any and all proceeds thereof that might have
theretofore have been excluded from such grant of a security interest and
the term "Collateral."
(d) This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 19 hereof.
Section 3 Financing Statements, Etc. Debtor shall execute and deliver to
Secured Party concurrently with the execution of this Agreement, and at any
time and from time to time thereafter, all financing statements, assignments,
continuation financing statements, termination statements, account control
agreements, and other documents and instruments, in form reasonably
satisfactory to Secured Party, and take all other action, as Secured Party may
reasonably request, to perfect and continue perfected, maintain the priority
of or provide notice of the security interest of Secured Party in the
Collateral and to accomplish the purposes of this Agreement.
Section 4 Representations and Warranties. Debtor represents and warrants to
Secured Party as of the date of this Agreement that:
(a) Debtor is a corporation duly organized, validly existing and in good
standing under the law of the jurisdiction of its incorporation and has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(b) The execution, delivery and performance by Debtor of this Agreement
have been duly authorized by all necessary corporate action of Debtor, and
this Agreement constitutes the legal, valid and binding obligation of
Debtor, enforceable against Debtor in accordance with its terms.
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by Debtor of this Agreement.
A-99
<PAGE>
(d) Debtor's chief executive office and principal place of business is
located at the address set forth in Schedule 1; all other locations where
Debtor conducts business or Collateral is kept are set forth in Schedule 1;
and all trade names and fictitious names under which Debtor at any time in
the past has conducted or presently conducts its business operations are
set forth in Schedule 1 or Schedule 2.
(e) Debtor is the sole and complete owner of the Collateral, free from
any Lien other than Permitted Liens.
(f) All of Debtor's U.S. and foreign patents and patent applications,
copyrights (whether or not registered), applications for copyright,
trademarks, service marks and trade names (whether registered or
unregistered), and applications for registration of such trademarks,
service marks and trade names, are set forth in Schedule 2.
Section 5 Covenants. So long as any of the Obligations remain unsatisfied,
or until this Security Agreement has terminated pursuant to Section 19 hereof,
Debtor agrees that Debtor shall not do, cause, or permit any of the following
without the prior consent of Secured Party:
(a) Debtor shall appear in and defend any action, suit or proceeding
which may affect to a material extent its title to, or right or interest
in, or Secured Party's right or interest in any material portion of the
Collateral, and shall do and perform all reasonable acts that may be
necessary and appropriate to maintain, preserve and protect the Collateral
in all material respects.
(b) Debtor shall give prompt written notice to Secured Party (and in any
event not later than 30 days following any change described below in this
subsection) of: (i) any change in the location of Debtor's chief executive
office or principal place of business, (ii) any change in the locations set
forth in Schedule 1; (iii) any change in its name, (iv) any changes in,
additions to or other modifications of its trade names and trade styles set
forth in Schedule 1 or Schedule 2, and (v) any changes in its identity or
structure in any manner which might make any financing statement filed
hereunder incorrect or misleading.
(c) Debtor shall carry and maintain in full force and effect, at its own
expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in the same or similar businesses of similar size and owning
similar properties in the localities where Debtor operates.
(d) All insurance policies shall provide that Secured Party shall be a
loan payee. During the continuance of an Event of Default and so long as
the Obligations have been accelerated, in its sole discretion, Secured
Party may apply all or any portion of such insurance proceeds to the
payment of Obligations or may release all or any portion thereof to Debtor.
(e) Debtor shall keep accurate and complete books and records in
accordance with generally accepted accounting principles.
(f) Debtor shall not surrender or lose possession of (other than to
Secured Party), sell, lease, rent, or otherwise dispose of or transfer any
of the Collateral or any right or interest therein, except in the ordinary
course of business and except to the extent obsolete or no longer useful to
its business; provided that no such disposition or transfer of Collateral
consisting of investment property or instruments shall be permitted while
any Event of Default exists.
(g) Debtor shall keep the Collateral free of all Liens except Permitted
Liens.
(h) Debtor shall pay and discharge all material taxes, fees, assessments
and governmental charges or levies imposed upon it with respect to the
Collateral prior to the date on which penalties attach thereto, except to
the extent such taxes, fees, assessments or governmental charges or levies
are being contested in good faith by appropriate proceedings.
(i) Debtor shall maintain and preserve its corporate existence, its
rights to transact business and all other rights, franchises and privileges
necessary or desirable in the normal course of its business and operations
and the ownership of the Collateral, except in connection with any
transactions expressly permitted by the Note or any other Document.
A-100
<PAGE>
(j) Upon the request of Secured Party after the occurrence of an Event
of Default, Debtor shall (1) immediately deliver to Secured Party, or an
agent designated by it, appropriately endorsed or accompanied by
appropriate instruments of transfer or assignment, all documents and
instruments, all certificated securities with respect to any investment
property, all letters of credit and all accounts and other rights to
payment at any time evidenced by promissory notes, trade acceptances or
other instruments, (ii) cause any securities intermediaries to show on
their books that Secured Party is the entitlement holder with respect to
any investment property, and/or obtain account control agreements in favor
of Secured Party from such securities intermediaries, in form and substance
satisfactory to Secured Party, with respect to any investment property, as
requested by Secured Party, (iii) mark all documents and chattel paper with
such legends as Secured Party shall reasonably specify, and (iv) obtain
consents from any letter of credit issuers with respect to the assignment
to Secured Party of any letter of credit proceeds.
(k) Debtor shall (i) notify Secured Party of any material claim made or
asserted against the Collateral by any Person or other event which could
reasonably be expected to materially adversely affect the value of the
Collateral or Secured Party's Lien thereon; (ii) furnish to Secured Party
such statements and schedules further identifying and describing the
Collateral and such other reports and other information in connection with
the Collateral as Secured Party may reasonably request, all in reasonable
detail; and (iii) upon reasonable request of Secured Party make such
demands and requests for information and reports as Debtor is entitled to
make in respect of the Collateral.
(l) If and when Debtor shall obtain rights to any new patents,
trademarks, service marks, trade names or copyrights, or otherwise acquire
or become entitled to the benefit of, or apply for registration of, any of
the foregoing, Debtor (i) shall promptly notify Secured Party thereof and
(ii) hereby authorizes Secured Party to modify, amend, or supplement
Schedule 2 and from time to time to include any of the foregoing and make
all necessary or appropriate filings with respect thereto.
(m) Debtor shall not enter into any material agreement (including any
license or royalty agreement) pertaining to any of its patents, copyrights,
trademarks, service marks and trade names, except for non-exclusive
licenses in the ordinary course of business.
(n) Debtor shall give Secured Party immediate notice of the
establishment of any new deposit account and any new securities account
with respect to any investment property.
Section 6 Collection of Accounts. Until Secured Party exercises its rights
hereunder to collect the accounts and other rights to payment, Debtor shall
endeavor in the first instance diligently to collect all amounts due or to
become due on or with respect to the accounts and other rights to payment. At
the request of Secured Party, upon the occurrence and during the continuance of
any Event of Default, all remittances received by Debtor shall be held in trust
for Secured Party and, in accordance with Secured Party's instructions,
remitted to Secured Party or deposited to an account of Secured Party in the
form received (with any necessary endorsements or instruments of assignment or
transfer). At the request of Secured Party, upon and after the occurrence of
any Event of Default, Secured Party shall be entitled to receive all
distributions and payments of any nature with respect to any investment
property or instruments, and all such distributions or payments received by the
Debtor shall be held in trust for Secured Party and, in accordance with Secured
Party's instructions, remitted to Secured Party or deposited to an account with
Secured Party in the form received (with any necessary endorsements or
instruments of assignment or transfer). Following the occurrence of an Event of
Default any such distributions and payments with respect to any investment
property held in any securities account shall be held and retained in such
securities account, in each case as part of the Collateral hereunder.
Additionally, Secured Party shall have the right, upon the occurrence of an
Event of Default, following prior written notice to the Debtor, to vote and to
give consents, ratifications and waivers with respect to any investment
property and instruments, and to exercise all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining thereto, as
if Secured Party were the absolute owner thereof; provided that Secured Party
shall have no duty to exercise any of the foregoing rights afforded to it and
shall not be responsible to the Debtor or any other Person for any failure to
do so or delay in doing so.
A-101
<PAGE>
Section 7 Authorization; Secured Party Appointed Attorney-in-Fact. Secured
Party shall have the right to, in the name of Debtor, or in the name of Secured
Party or otherwise, upon notice to but without the requirement of assent by
Debtor, and Debtor hereby constitutes and appoints Secured Party (and any of
Secured Party's officers, employees or agents designated by Secured Party) as
Debtor's true and lawful attorney-in-fact, with full power and authority to:
(i) sign any of the financing statements and other documents and instruments
which must be executed or filed to perfect or continue perfected, maintain the
priority of or provide notice of Secured Party's security interest in the
Collateral (including any notices to or agreements with any securities
intermediary); (ii) assert, adjust, sue for, compromise or release any claims
under any policies of insurance; and (iii) execute any and all such other
documents and instruments, and do any and all acts and things for and on behalf
of Debtor, which Secured Party may deem reasonably necessary or advisable to
maintain, protect, realize upon and preserve the Collateral and Secured Party's
security interest therein and to accomplish the purposes of this Agreement.
Secured Party agrees that, except upon and during the continuance of an Event
of Default, it shall not exercise the power of attorney, or any rights granted
to Secured Party, pursuant to clauses (ii) and (iii). The foregoing power of
attorney is coupled with an interest and irrevocable so long as the Obligations
have not been paid and performed in full. Debtor hereby ratifies, to the extent
permitted by law, all that Secured Party shall lawfully and in good faith do or
cause to be done by virtue of and in compliance with this Section 7.
Section 8 Events of Default. Any of the following events which shall occur
and be continuing shall constitute an "Event of Default":
(a) Any "Event of Default" as defined in the Note shall have occurred.
(b) Any representation or warranty by Debtor under or in connection with
this Agreement, shall prove to have been incorrect in any material respect
when made or shall become incorrect in any material respect following the
date hereof.
(c) Debtor shall fail to perform or observe in any material respect any
other term, covenant or agreement contained in this Agreement, on its part
to be performed or observed and any such failure shall remain unremedied
for a period of 10 days after written notice thereof by Secured Party.
(d) Any loss, theft or substantial damage to, or destruction of, any
material portion of the Collateral (unless within 10 days after the
occurrence of any such event, Debtor furnishes to Secured Party evidence
satisfactory to Secured Party that the amount of any such loss, theft,
damage to or destruction of the Collateral is adequately insured under
policies naming Secured Party as an additional named insured or loss
payee).
Section 9 Remedies.
(a) Prior to termination of this Security Agreement, and upon the
occurrence and continuance of an Event of Default, Secured Party may
declare any of the Obligations to be immediately due and payable and shall
have, in addition to all other rights and remedies granted to it in this
Agreement or the Note, all rights and remedies of a secured party under the
UCC and other applicable laws. Without limiting the generality of the
foregoing, Secured Party may sell, resell, lease, use, assign, license,
sublicense, transfer or otherwise dispose of any or all of the Collateral
in its then condition or following any commercially reasonable preparation
or processing (utilizing in connection therewith any of Debtor's assets,
without charge or liability to Secured Party therefor) at public or private
sale, by one or more contracts, in one or more parcels, at the same or
different times, for cash or credit, or for future delivery without
assumption of any credit risk, all as Secured Party deems advisable;
provided, however, that Debtor shall be credited with the net proceeds of
sale only when such proceeds are finally collected by Secured Party.
Secured Party shall have the right upon any such public sale, and, to the
extent permitted by law, upon any such private sale, to purchase the whole
or any part of the Collateral so sold, free of any right or equity of
redemption, which right or equity of redemption Debtor hereby releases, to
the extent permitted by law. Debtor hereby agrees that the sending of
notice by ordinary mail, postage prepaid, to the address of Debtor
A-102
<PAGE>
set forth herein, of the place and time of any public sale or of the time
after which any private sale or other intended disposition is to be made,
shall be deemed reasonable notice thereof if such notice is sent ten days
prior to the date of such sale or other disposition or the date on or after
which such sale or other disposition may occur.
(b) For the purpose of enabling Secured Party to exercise its rights and
remedies under this Section 9 or otherwise in connection with this
Agreement, Debtor hereby grants to Secured Party an irrevocable, non-
exclusive and assignable license (exercisable without payment or royalty or
other compensation to Debtor) to use, license or sublicense any
intellectual property Collateral.
(c) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise
provided for herein, shall be applied first, to the payment of the
reasonable costs and expenses of Secured Party in exercising or enforcing
its rights hereunder and in collecting or attempting to collect any of the
Collateral, and to the payment of all other amounts payable to Secured
Party pursuant to Section 13 hereof; and second, to the payment of the
Obligations. Any surplus thereof which exists after payment and performance
in full of the Obligations shall be promptly paid over to Debtor or
otherwise disposed of in accordance with the UCC or other applicable law.
Debtor shall remain liable to Secured Party for any deficiency which exists
after any sale or other disposition or collection of Collateral.
Section 10 Certain Waivers. Debtor waives, to the fullest extent permitted
by law, (i) any right of redemption with respect to the Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling of the
Collateral or other collateral or security for the Obligations; (ii) any right
to require Secured Party (A) to proceed against any Person, (B) to exhaust any
other collateral or security for any of the Obligations, (C) to pursue any
remedy in Secured Party's power, or (D) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(iii) all claims, damages, and demands against Secured Party arising out of the
repossession, retention, sale or application of the proceeds of any sale of the
Collateral.
Section 11 Notices. All notices and other communications hereunder shall be
given as provided in Section 11.2 of the Merger Agreement.
Section 12 No Waiver; Cumulative Remedies. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.
Section 13 Costs and Expenses. Debtor agrees to pay on demand: all
reasonable costs and expenses of Secured Party, and the reasonable fees and
disbursements of counsel, in connection with the enforcement or attempted
enforcement of, and preservation of any rights or interests under, this
Agreement and the Note, including in any out-of-court workout or other
refinancing or restructuring or in any bankruptcy case, and the protection,
sale or collection of, or other realization upon, any of the Collateral,
including all expenses of taking, collecting, holding, sorting, handling,
preparing for sale, selling, or the like, and other such expenses of sales and
collections of Collateral. Any amounts payable to Secured Party under this
Section 13 or otherwise under this Agreement if not paid when due shall bear
interest from the date such payment is due until paid in full, at the rate of
interest set forth in the Note.
Section 14 Binding Effect. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by Debtor, Secured Party and their respective
successors and assigns.
Section 15 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of California, except as required by
mandatory provisions of law and to the extent the validity or perfection of the
security interests hereunder, or the remedies hereunder, in respect of any
Collateral are governed by the law of a jurisdiction other than California.
A-103
<PAGE>
Section 16 Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and shall
not be amended except by the written agreement of the parties.
Section 17 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such
provision in any other jurisdiction.
Section 18 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
Section 19 Termination. Upon indefeasible payment and performance in full of
all Obligations, this Agreement shall terminate and Secured Party shall
promptly execute and deliver to Debtor such documents and instruments
reasonably requested by Debtor as shall be necessary to evidence termination of
all security interests given by Debtor to Secured Party hereunder; provided,
however, that the obligations of Debtor under Section 13 hereof shall survive
such termination.
[Signature page follows.]
A-104
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as
of the date first above written.
PROMEDIX.COM, INC.
By:__________________________________
Name:
Title:
CHEMDEX CORPORATION
By:__________________________________
Name:
Title:
A-105
<PAGE>
SCHEDULE 1
to the Security Agreement
1. Locations of Chief Executive Office and Other Locations, Including of
Collateral
a. Chief Executive Office and Principal Place of Business:
b. Other locations where Debtor conducts business or Collateral is kept:
2. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
Etc.
A-106
<PAGE>
SCHEDULE 2
to the Security Agreement
1. Patents and Patent Applications.
2. Copyrights (Registered) and Copyright Applications.
3. Trademarks, Service Marks and Trade Names and Trademark, Service Mark and
Trade Name Applications.
A-107
<PAGE>
PATENT AND TRADEMARK SECURITY AGREEMENT
THIS PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of
September , 1999, is made by and between Promedix.com, Inc., a Delaware
corporation ("Debtor") and Chemdex Corporation, a Delaware corporation
("Secured Party").
Debtor and Secured Party are parties to a Security Agreement of even date
herewith (as amended, modified, renewed or extended from time to time, the
"Security Agreement"), which Security Agreement provides, among other things,
for the grant by Debtor to Secured Party of a security interest in certain of
Debtor's property and assets, including, without limitation, its patents and
patent applications, its trademarks, service marks and trade names, and its
applications for registration of such trademarks, service marks and trade
names. Pursuant to the Security Agreement, Debtor has agreed to execute and
deliver this Agreement to Secured Party for filing with the United States
Patent and Trademark Office (the "PTO") (and any other relevant recording
systems in any domestic or foreign jurisdiction), and as further evidence of
and to effectuate such grant of a security interest in such patents and patent
applications, trademarks, service marks and trade names, and applications for
registration of such trademarks, service marks and trade names, and the other
general intangibles described herein. Accordingly, Debtor and Secured Party
hereby agree as follows:
Section 1 Definitions; Interpretation.
(a) All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Security
Agreement.
(b) In this Agreement, (i) the meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms
defined; and (ii) the captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
Section 2 Security Interest.
(a) As security for the payment and performance of the Obligations (as
defined in the Security Agreement), Debtor hereby grants a security
interest in and mortgage to Secured Party, for security purposes, all of
Debtor's right, title and interest in, to and under the following property,
whether now existing or owned or hereafter acquired, developed or arising
(collectively, the "Intellectual Property Collateral"):
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties
with respect to any licenses (including, without limitation, such
patents and patent applications as described in Schedule A hereto), all
rights to sue for past, present or future infringement thereof, all
rights arising therefrom and pertaining thereto and all reissues,
divisions, continuations, renewals, extensions and continuations-in-
part thereof;
(ii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for
registration of such trademarks, service marks and trade names, all
licenses relating to any of the foregoing and all income and royalties
with respect to any licenses (including, without limitation, such
marks, names and applications as described in Schedule B hereto),
whether registered or unregistered and wherever registered, all rights
to sue for past, present or future infringement or unconsented use
thereof, all rights arising therefrom and pertaining thereto and all
reissues, extensions and renewals thereof;
(iii) the entire goodwill of or associated with the businesses now
or hereafter conducted by Debtor connected with and symbolized by any
of the aforementioned properties and assets;
(iv) all general intangibles (as defined in the UCC) and all
intangible intellectual or other similar property of the Debtor of any
kind or nature, associated with or arising out of any of the
aforementioned properties and assets and not otherwise described above;
and
(v) all products and proceeds of any and all of the foregoing.
A-108
<PAGE>
(b) This Agreement shall create a continuing security interest in the
Intellectual Property Collateral which shall remain in effect until
terminated in accordance with Section 17 hereof.
(c) Notwithstanding the foregoing provisions of this Section 2, the
grant of a security interest as provided herein shall not extend to, and
the term "Collateral" shall not include, any general intangibles of Debtor
(whether owned or held as licensee or lessee, or otherwise), to the extent
that (i) such general intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of the license, lease or
other agreement applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law), without the consent
of the licensor or lessor thereof or other applicable party thereto and
(ii) such consent has not been obtained; provided, however, that the
foregoing grant of security interest shall extend to, and the term
"Collateral" shall include, (A) any general intangible which is an account
receivable or a proceed of, or otherwise related to the enforcement or
collection of, any account receivable, or goods which are the subject of
any account receivable, (B) any and all proceeds of any general intangibles
which are otherwise excluded to the extent that the assignment or
encumbrance of such proceeds is not so restricted, and (C) upon obtaining
the consent of any such licensor, lessor or other applicable party's
consent with respect to any such otherwise excluded general intangibles,
(but without obligating Debtor to obtain such consent) such general
intangibles as well as any and all proceeds thereof that might have
theretofore have been excluded from such grant of a security interest and
the term "Collateral."
Section 3 Further Assurances; Appointment of Secured Party as Attorney-in-
Fact. Debtor at its expense shall execute and deliver, or cause to be executed
and delivered, to Secured Party any and all documents and instruments, in form
and substance satisfactory to Secured Party, and take any and all action, which
Secured Party may reasonably request from time to time, to perfect and continue
perfected, maintain the priority of or provide notice of Secured Party's
security interest in the Intellectual Property Collateral and to accomplish the
purposes of this Agreement. Secured Party shall have the right to, in the name
of the Debtor, or in the name of Secured Party or otherwise, without notice to
or assent by the Debtor, and the Debtor hereby irrevocably constitutes and
appoints Secured Party (and any of Secured Party's officers or employees or
agents designated by Secured Party) as the Debtor's true and lawful attorney-
in-fact with full power and authority, (i) to sign the name of the Debtor on
all or any of such documents or instruments and perform all other acts that
Secured Party deems necessary or advisable in order to perfect or continue
perfected, maintain the priority or enforceability of or provide notice of
Secured Party's security interest in, the Intellectual Property Collateral, and
(ii) to execute any and all other documents and instruments, and to perform any
and all acts and things for and on behalf of the Debtor, which Secured Party
may deem necessary or advisable to maintain, preserve and protect the
Intellectual Property Collateral and to accomplish the purposes of this
Agreement, including (A) to defend, settle, adjust or (after the occurrence of
any Event of Default) institute any action, suit or proceeding with respect to
the Intellectual Property Collateral, and, after the occurrence of any Event of
Default, (B) to assert or retain any rights under any license agreement for any
of the Intellectual Property Collateral, including without limitation any
rights of the Debtor arising under Section 365(n) of the Bankruptcy Code, and
(C) after the occurrence of any Event of Default, to execute any and all
applications, documents, papers and instruments for Secured Party to use the
Intellectual Property Collateral, to grant or issue any exclusive or non-
exclusive license or sub-license with respect to any Intellectual Property
Collateral, and to assign, convey or otherwise transfer title in or dispose of
the Intellectual Property Collateral; provided, however, that in no event shall
Secured Party have the unilateral power, prior to the occurrence and
continuation of an Event of Default, to assign any of the Intellectual Property
Collateral to any Person, including itself, without the Debtor's written
consent. The foregoing shall in no way limit Secured Party's rights and
remedies upon or after the occurrence of an Event of Default. The power of
attorney set forth in this Section 3, being coupled with an interest, is
irrevocable so long as this Agreement shall not have terminated in accordance
with Section 17.
Section 4 Future Rights. Except as otherwise expressly agreed to in writing
by Secured Party, if and when the Debtor shall obtain rights to any new
patentable inventions or any new trademarks, or become entitled to the benefit
of any of the foregoing, or obtain rights or benefits with respect to any
reissue, division, continuation, renewal, extension or continuation-in-part of
any patents or trademarks, or any improvement of any patent, the provisions of
Section 2 shall automatically apply thereto and the Debtor shall give to
Secured
A-109
<PAGE>
Party prompt notice thereof. Debtor shall do all things deemed necessary or
advisable by Secured Party to ensure the validity, perfection, priority and
enforceability of the security interests of Secured Party in such future
acquired Intellectual Property Collateral; provided, however, that Debtor shall
not be required to register any patents or trademarks with the PTO except to
the extent consistent with Debtor's past practices. Debtor hereby authorizes
Secured Party to modify, amend, or supplement the Schedules hereto and to
reexecute this Agreement from time to time on Debtor's behalf and as its
attorney-in-fact to include any such future Intellectual Property Collateral
and to cause such reexecuted Agreement or such modified, amended or
supplemented Schedules to be filed with PTO.
Section 5 Secured Party's Duties. Notwithstanding any provision contained in
this Agreement, Secured Party shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to the Debtor
or any other Person for any failure to do so or delay in doing so. Except for
the accounting for moneys actually received by Secured Party hereunder or in
connection herewith, Secured Party shall have no duty or liability to exercise
or preserve any rights, privileges or powers pertaining to the Intellectual
Property Collateral.
Section 6 Representations and Warranties. Debtor represents and warrants to
Secured Party as of the date of this Agreement that:
(a) A true and correct list of all of the existing Intellectual Property
Collateral consisting of U.S. patents and patent applications and/or
registrations owned by the Debtor, in whole or in part, is set forth in
Schedule A.
(b) A true and correct list of all of the existing Intellectual Property
Collateral consisting of U.S. trademarks, trademark registrations and/or
applications owned by the Debtor, in whole or in part, is set forth in
Schedule B.
(c) All patents, trademarks, service marks and trade names of Debtor are
subsisting and have not been adjudged invalid or unenforceable in whole or
in part.
(d) All maintenance fees required to be paid on account of any patents
or trademarks of Debtor have been timely paid for maintaining such patents
and trademarks in force, and, to Debtor's knowledge, each of the patents
and trademarks constituting part of the Intellectual Property Collateral is
valid and enforceable.
(e) To Debtor's knowledge, no material infringement or unauthorized use
presently is being made of any Intellectual Property Collateral by any
Person.
(f) To Debtor's knowledge, Debtor is the sole and exclusive owner of the
Intellectual Property Collateral and the past, present and contemplated
future use of such Intellectual Property Collateral by Debtor has not, does
not and will not infringe or violate any right, privilege or license
agreement of or with any other Person.
Section 7 Covenants. So long as any of the Obligations remain unsatisfied or
until this Agreement has terminated pursuant to Section 17 hereof, Debtor
agrees that Debtor shall not do, cause or permit any of the following without
the prior consent of Secured Party:
(a) Assignor will appear in and defend any action, suit or proceeding
which may affect to a material extent its title to, or Assignee's rights or
interest in, the Intellectual Property Collateral.
(b) To the extent deemed reasonably necessary or appropriate by Secured
Party, Debtor will not allow or suffer any Intellectual Property Collateral
to become abandoned, nor any registration thereof to be terminated,
forfeited, expired or dedicated to the public.
(c) To the extent deemed reasonably necessary or appropriate by Secured
Party, Debtor will diligently prosecute all applications for patents and
trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for
certificate of correction and like matters as shall be reasonable and
appropriate in accordance with prudent business practice, and promptly pay
any and all maintenance, license, registration and other fees, taxes and
expenses incurred in connection with any Intellectual Property Collateral.
A-110
<PAGE>
Section 8 Secured Party's Rights and Remedies.
(a) Secured Party shall have all rights and remedies available to it
under the Security Agreement, the Note and applicable law with respect to
the security interests in any of the Intellectual Property Collateral or
any other collateral. Debtor agrees that such rights and remedies include,
but are not limited to, the right of Secured Party as a secured party to
sell or otherwise dispose of its collateral after default pursuant to the
UCC. Debtor agrees that Secured Party shall at all times have such royalty
free licenses, to the extent permitted by law, for any Intellectual
Property Collateral that shall be reasonably necessary to permit the
exercise of any of Secured Party's rights or remedies upon or after the
occurrence of an Event of Default and shall additionally have the right to
license and/or sublicense any Intellectual Property Collateral, whether
general, special or otherwise, and whether on an exclusive or a
nonexclusive basis, any of the Intellectual Property Collateral, throughout
the world for such term or terms, on such conditions, and in such manner,
as Secured Party in its sole discretion shall determine in connection with
the exercise of any of such rights or remedies. In addition to and without
limiting any of the foregoing, upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right but
shall in no way be obligated to bring suit, or to take such other action as
Secured Party deems necessary or advisable, in the name of the Debtor or
Secured Party, to enforce or protect any of the Intellectual Property
Collateral, in which event the Debtor shall, at the request of Secured
Party, do any and all lawful acts and execute any and all documents
required by Secured Party in aid of such enforcement. To the extent that
Secured Party shall elect not to bring suit to enforce such Intellectual
Property Collateral, Debtor agrees to use all reasonable measures and its
diligent efforts, whether by action, suit, proceeding or otherwise, to
prevent the infringement, misappropriation or violations thereof by others
and for that purpose agrees diligently to maintain any action, suit or
proceeding against any Person necessary to prevent such infringement,
misappropriation or violation.
(b) The cash proceeds actually received from the sale or other
disposition or collection of Intellectual Property Collateral, and any
other amounts received in respect of the Intellectual Property Collateral
the application of which is not otherwise provided for herein, shall be
applied as provided in the Security Agreement.
Section 9 Notices. All notices and other communications hereunder shall be
given as provided in Section 11.2 of the Merger Agreement.
Section 10 No Waiver; Cumulative Remedies. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.
Section 11 Costs and Expenses; Indemnity.
(a) Debtor agrees to pay on demand all of Secured Party's reasonable
costs and expenses, including reasonable attorneys' fees, in connection
with the enforcement or attempted enforcement of, and preservation of any
rights or interests under, this Agreement, and the assignment, sale or
other disposal of any of the Intellectual Property Collateral.
(b) Debtor hereby agrees to indemnify Secured Party, any affiliate
thereof, and their respective directors, officers, employees, agents,
counsel and other advisors (each an "Indemnified Person") against, and hold
each of them harmless from, any and all liabilities, obligations, losses,
claims, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever, including, without
limitation, reasonable attorneys' fees and attorneys' fees incurred
pursuant to 11 U.S.C., which may be imposed on, incurred by, or asserted
against any Indemnified Person, relating to or arising out of this
Agreement, including in connection with any infringement or alleged
infringement with respect to any Intellectual Property Collateral, or any
action taken or omitted to be taken by it hereunder (the
A-111
<PAGE>
"Indemnified Liabilities"); provided that Debtor shall not be liable to any
Indemnified Person for any portion of such Indemnified Liabilities to the
extent they are found by a final decision of a court of competent
jurisdiction to have resulted from such Indemnified Person's gross
negligence or willful misconduct. If and to the extent that the foregoing
indemnification is for any reason held unenforceable, Debtor agrees to make
the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
(c) Any amounts payable to Secured Party under this Section 11 or
otherwise under this Agreement if not paid upon demand shall bear interest
from the date of such demand until paid in full, at the rate of interest
set forth in the Note.
Section 12 Binding Effect. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by Debtor, Secured Party and their respective
successors and assigns.
Section 13 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of California, except to the extent
that the validity or perfection of the security interests hereunder in respect
of any Intellectual Property Collateral are governed by federal law and except
to the extent that Secured Party shall have greater rights or remedies under
federal law, in which case such choice of California law shall not be deemed to
deprive Secured Party of such rights and remedies as may be available under
federal law.
Section 14 Amendment. This Agreement shall not be amended except by the
written agreement of the parties.
Section 15 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such
provision in any other jurisdiction.
Section 16 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
Section 17 Termination. Upon payment and performance in full of all
Obligations, this Agreement shall terminate and Secured Party shall promptly
execute and deliver to Debtor such documents and instruments reasonably
requested by Debtor as shall be necessary to evidence termination of all
security interests given by Debtor to Secured Party hereunder, including
cancellation of this Agreement by written notice from Secured Party to the PTO;
provided, however, that the obligations of Debtor under Section 11 hereof shall
survive such termination.
Section 18 Security Agreement. Debtor acknowledges that the rights and
remedies of Secured Party with respect to the security interests in the
Intellectual Property Collateral granted hereby are more fully set forth in the
Security Agreement and all such rights and remedies are cumulative.
Section 19 No Inconsistent Requirements. Debtor acknowledges that this
Agreement and the Security Agreement may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and the
Debtor agrees that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
Section 20 Conflicts. In the event of any conflict or inconsistency between
this Agreement and the Security Agreement, the terms of this Agreement shall
control.
[Signature page follows.]
A-112
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as
of the date first above written.
PROMEDIX.COM, INC.
By: _________________________________
Name:
Title:
CHEMDEX CORPORATION
By: _________________________________
Name:
Title:
A-113
<PAGE>
STATE OF UTAH )
) ss
COUNTY OF)
On , before me, , Notary Public, personally appeared
, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
---------------------
Signature
[SEAL]
A-114
<PAGE>
STATE OF UTAH )
) ss
COUNTY OF )
On , before me, , Notary Public, personally
appeared , personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
---------------------
Signature
[SEAL]
A-115
<PAGE>
SCHEDULE A
Issued U.S. Patents of Debtor
<TABLE>
<CAPTION>
Patent No. Issue Date Inventor Title
- ---------- ---------- -------- -----
<S> <C> <C> <C>
Pending U.S. Patent Applications of Debtor
<CAPTION>
Serial No. Filing Date Inventor Title
- ---------- ----------- -------- -----
<S> <C> <C> <C>
</TABLE>
A-116
<PAGE>
SCHEDULE B
U.S. Trademarks of Debtor
<TABLE>
<CAPTION>
Registration No. Registration Date Filing Date Registered Owner Mark
- ---------------- ----------------- ----------- ---------------- ----
<S> <C> <C> <C> <C>
</TABLE>
Pending U.S. Trademark Applications of Debtor
<TABLE>
<CAPTION>
Application No. Filing Date Applicant Mark
- --------------- ----------- --------- ----
<S> <C> <C> <C>
</TABLE>
A-117
<PAGE>
EXHIBIT H
FULFILLMENT BUSINESS SALE DOCUMENTS
A-118
<PAGE>
November 8, 1999
Mr. Nolan Lehmann
c/o Equus Capital
PO Box 13197
Houston, Texas 77219
Letter Agreement
Dear Mr. Lehmann:
This binding letter of intent and the attached term sheet (the "Agreement")
sets forth the principal business points for the acquisition by you (the "Pro
Med Acquisition Corporation") of Promedix.com, Inc.'s ("the Company") wholly-
owned subsidiary, Pro Med Co., Inc. ("Sub").
1. Sale of Subsidiary. On the terms and conditions set forth below and
in the attached term sheet, Pro Med Acquisition Corporation will buy 100%
of the outstanding capital stock of Sub.
2. Effect and Enforceability of Letter. This letter of intent is a
binding and legally enforceable agreement, which the parties anticipate
will be superseded by additional documentation memorializing the agreement
set forth herein. The parties will use their best efforts to negotiate in
good faith agreements containing the terms set forth in this letter of
intent and in the attached term sheet and other appropriate terms,
representations, warranties and covenants for transactions of this kind.
3. Governing Law; Counterparts. This Letter Agreement and all acts and
transactions pursuant hereto shall be governed, construed and interpreted
in accordance with the laws of the State of Utah, without giving effect to
principles of conflicts of law.
4. This Letter Agreement may be executed in counterparts, each of which
shall be considered an original, and when taken together shall be
considered one instrument.
Sincerely,
William C. Klintworth, Jr.
CEO
AGREED AND ACCEPTED:
- -------------------------------------
Pro Med Acquisition Corporation
A-119
<PAGE>
STOCK PURCHASE OF PRO MED CO., INC.
Term Sheet
The following sets forth the principal terms upon which Promedix.com, Inc.
(the "Company") will sell its wholly-owned subsidiary, Pro Med Co., Inc.
("Sub") to Pro Med Acquisition Corporation. This term sheet is attached to and
incorporated into a Letter Agreement between the parties dated November ,
1999. Capitalized terms used herein have the meanings given them in the Letter
Agreement to which this Term Sheet is attached.
<TABLE>
<C> <S>
1.Structure: Promedix.com, Inc. (the "Company")
will sell 100% of the outstanding
capital stock of its wholly-owned
subsidiary, Pro Med Co., Inc. (the
"Sub") to Pro Med Acquisition
Corporation.
2.Assets and Liabilities: Sub's principal assets and
liabilities include (and will include
at the time of the closing of the
transaction contemplated by this Term
Sheet), those assets and liabilities
listed on Schedule A to this Term
Sheet.
3.Purchase Price: The purchase price will equal Three
Million Five-Hundred Thousand Dollars
($3,500,000.00) payable in cash to
the Company on or before closing of
this Agreement.
4.Other Terms: Normal and customary terms, including
representations and warranties,
securities law compliance and
standard closing conditions.
5.Closing Date: The Closing Date will occur on or
about January 22, 2000 and is
conditional on the closing of the
merger between Chemdex Corporation,
Popcorn Acquisition, Inc. and
Promedix.com, Inc.
6.Expenses: Each party shall pay for its own
expenses related to this transaction,
including but not limited to
Attorneys fees.
7.Operational Agreement: Sub will enter into a Supplier
Agreement with the Company pursuant
to which the Company will have the
right to purchase products from Sub
for at least Seven Percent (7%) off
of Sub's suggested retail price.
8.Restrictions of Company regarding Sub: Company agrees not to: (1) incur any
indebtedness other than in the
ordinary course of business of Sub;
(2) increase the compensation of any
officer, employee or agent of Sub;
(3) create any additional employee
benefit plan or amend any existing
employee benefit plan of Sub; or (4)
enter into any agreement not in the
ordinary course of business of Sub.
9.Confidential Information: Pro Med Acquisition Corporation and
the Company will enter into a
confidentiality agreement with
respect to the transactions
contemplated by this letter.
</TABLE>
A-120
<PAGE>
<TABLE>
<C> <S>
10.Enforceability: This Agreement is intended to be a binding and legally
enforceable agreement. It is understood and agreed that
money damages would not be a sufficient remedy for any
beach of the enforceable provisions of this Agreement by
either party hereto and that the parties shall be entitled
to equitable relief, including injunction and specific
performance, as a remedy for any such breach. Such remedies
shall not be deemed to be the exclusive remedies for a
breach by either party of the enforceable provisions but
shall be in addition to all other remedies available at law
or equity to the non-breaching party. In the event of
litigation relating to this letter of intent, if a court of
competent jurisdiction determines that any party has
breached the enforceable provisions of this Agreement, then
such party shall pay to the other the reasonable legal fees
incurred in connection with litigation relating thereto,
including any appeal.
</TABLE>
A-121
<PAGE>
SCHEDULE A
PRO MED CO., INC. 11/5/99
(in thousands)
BALANCE SHEET DATA
September 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash.................................................................. $ --
A/R................................................................... 2,143
Note Rec.--affiliate.................................................. 217
A/R--Promedix......................................................... 1,090
Inventory............................................................. 1,931
PP&E.................................................................. 329
Other................................................................. 101
------
$5,811
======
<CAPTION>
LIABILITIES AND EQUITY
<S> <C>
A/P................................................................... $1,441
Accrued liabilities................................................... 284
Line of credit........................................................ 1,532
------
Total liabilities..................................................... 3,257
Equity................................................................ 2,554
------
$5,811
======
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine
Months
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Revenue.............................................. 18,019 19,355 15,868
COS.................................................. 13,611 14,319 11,672
Gross margin......................................... 4,508 5,036 4,196
25% 26% 26%
SG & A............................................... 3,732 4,079 3,512
====== ====== ======
EBITDA............................................... 776 957 684
Depreciation......................................... (90) (99) (73)
Interest expense..................................... (150) (149) (113)
Other................................................ 7 28 118
====== ====== ======
Pretax............................................... 543 737 616
Taxes................................................ (208) (268) (146)
====== ====== ======
Net Income........................................... $ 335 469 470
====== ====== ======
</TABLE>
A-122
<PAGE>
EXHIBIT I
SUBJECT MATTER OF OPINION OF COUNSEL TO CHEMDEX
All capitalized terms used herein and not otherwise defined have the
meanings given them in the Agreement and Plan of Merger dated as of September
21, 1999 (the "Merger Agreement"), by and among Chemdex Corporation, a Delaware
corporation ("Acquiror"), Popcorn Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Acquiror ("Sub"), and Promedix, a Delaware
corporation ("Target").
(1) Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power to own, lease and operate its property and to carry on its
business as now being conducted.
(2) The shares of Acquiror's Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-
assessable and no person will have any preemptive right of subscription or
purchase in respect thereof.
(3) Acquiror has all requisite corporate power and authority to enter
into the Merger Agreement and the Certificate of Merger, and to consummate
the transactions contemplated thereby. The Merger Agreement and the
Certificate of Merger are collectively referred to herein as the "Opinion
Documents." The execution and delivery of the Opinion Documents and the
consummation of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of Acquiror. The
Opinion Documents have been duly and validly executed and delivered by
Acquiror and, assuming due execution and delivery by the other parties
thereto, constitute the valid and binding obligations of Acquiror,
enforceable against Acquiror in accordance with their respective terms.
(4) The execution and delivery by Acquiror of the Opinion Documents and
the consummation of the transactions contemplated thereby will not, (i)
result in any violation or breach of any provision of the Certificate of
Incorporation, or any Certificate of Designation thereunder, or Bylaws of
Acquiror, or (ii) to our knowledge, violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Target or any of its properties or assets.
(5) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required on the part
of Acquiror in connection with the execution and delivery of the Opinion
Documents or the consummation of the transactions contemplated thereby,
except for (i) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, (ii) filings required under the Hart-
Scott Rodino Antitrust Improvement Act of 1976, as amended, (iii) such
consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal and state
securities laws and the laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which, if
not obtained or made, could not be expected to have a Material Adverse
Effect on Acquiror.
A-123
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
A-124
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of December
21, 1999 (this "Amendment"), is entered into by and among Chemdex Corporation,
a Delaware corporation ("Chemdex"), Popcorn Acquisitions Corp., a Delaware
corporation and a wholly-owned subsidiary of Chemdex ("Sub"), and
Promedix.com., Inc., a Delaware corporation ("Promedix").
RECITALS
A. The parties hereto are parties to an Agreement and Plan of Merger, dated
as of September 21, 1999 (the "Original Merger Agreement"); and
B. The parties hereto wish to amend the Original Merger Agreement as set
forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth below, the parties hereto hereby agree as follows:
1. Stock Restriction Agreements. Recital H and Exhibit D in the Original
Merger Agreement are hereby deleted in their entirety. All references to the
Stock Restriction Agreements, as defined in the Original Merger Agreement,
including, without limitation, the reference in Section 8.2(e) of the Original
Merger Agreement, are hereby deleted in their entirety.
2. New Term Sheet for Fulfillment Business Sale. Exhibit H attached to the
Original Merger Agreement is hereby replaced and superceded in its entirety by
the letter agreement, term sheet and list of assets and liabilities attached to
this Agreement as Exhibit A.
3. Extension of Termination Date. The date set forth in each of Sections
9.1(d) and 9.1(e) of the Original Merger Agreement is hereby extended to March
31, 1999.
4. Miscellaneous. The provisions of Article XI of the Original Merger
Agreement are hereby restated in their entirety and incorporated herein by
reference, to the extent applicable to this Agreement.
5. No Other Changes. All other provisions of the Original Merger Agreement
are hereby reconfirmed and the Original Merger Agreement shall continue in full
force and effect except as expressly modified by this Agreement.
A-125
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Agreement and Plan of Merger to be signed by their respective officers
thereunto duly authorized as of the date first written above.
CHEMDEX CORPORATION
/s/ David Perry
By: _________________________________
David Perry
Name: _______________________________
President and CEO
Title: ______________________________
POPCORN ACQUISITIONS CORP.
/s/ David Perry
By: _________________________________
David Perry
Name: _______________________________
President and CEO
Title: ______________________________
PROMEDIX.COM, INC.
/s/ William C. Klintworth, Jr.
By: _________________________________
William C. Klintworth, Jr.
Name: _______________________________
CEO
Title: ______________________________
A-126
<PAGE>
EXHIBIT A
Fulfillment Business Letter Agreement,
Term Sheet and List of Assets & Liabilities
November 8, 1999
Mr. Nolan Lehmann
c/o Equus Capital
P.O. Box 130197
Houston, Texas 77219
Letter Agreement
Dear Mr. Lehmann:
This binding letter of intent and the attached term sheet (the "Agreement")
sets forth the principal business points for the acquisition by you (the "Pro
Med Acquisition Corporation") of Promedix.com, Inc.'s (the "Company") wholly-
owned subsidiary, Pro Med Co., Inc ("Sub").
1. Sale of Subsidiary. On the terms and conditions set forth below and in
the attached term sheet, the Pro Med Acquisition Corporation will buy
100% of the outstanding capital stock of Sub.
2. Effect and Enforceability of Letter. This letter of intent is a binding
and legally enforceable agreement, which the parties anticipate will be
superseded by additional documentation memorializing the agreement set
forth herein. The parties will use their best efforts to negotiate in
good faith agreements containing the terms set forth in this letter of
intent and in the attached term sheet and other appropriate terms,
representations, warranties and covenants for transactions of this kind.
3. Governing Law; Counterparts. This Letter Agreement and all acts and
transactions pursuant hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Utah, without
giving effect to principles of conflicts of law.
4. This Letter Agreement may be executed in counterparts, each of which
shall be considered an original, and when taken together shall be
considered one instrument.
PROMEDIX.COM, INC.
Sincerely,
/s/ William C. Klintworth,
Jr.
By: _________________________________
William C. Klintworth, Jr.
CEO
AGREED AND ACCEPTED
/s/ Nolan Lehmann, President
By: _________________________________
Nolan Lehmann, President
Pro Med Acquisition Corporation
A-127
<PAGE>
STOCK PURCHASE OF PRO MED CO., INC.
Term Sheet
The following sets forth the principal terms upon which Promedix.com, Inc.
(the "Company") will sell its wholly-owned subsidiary, Pro Med Co., Inc.
("Sub") to Pro Med Acquisition Corporation. This term sheet is attached to and
incorporated into a Letter Agreement between the parties dated November 8,
1999. Capitalized terms used herein have the meanings given them in the Letter
Agreement to which this Term Sheet is attached.
<TABLE>
<C> <S>
1.Structure: Promedix.com, Inc. (the "Company")
will sell 100% of the outstanding
capital stock of its wholly-owned
subsidiary, Pro Med Co., Inc. (the
"Sub") to Pro Med Acquisition
Corporation.
2.Assets and Liabilities: Sub's principal assets and
liabilities include (and will include
at the time of the closing of the
transaction contemplated by this Term
Sheet), those assets and liabilities
listed on Schedule A to this Term
Sheet.
3.Purchase Price: The purchase price will equal Three
Million Five-Hundred Thousand Dollars
($3,500,000.00) payable in cash to
the Company on or before closing of
this Agreement.
4.Other Terms: Normal and customary terms, including
representations and warranties,
securities law compliance and
standard closing conditions.
5.Closing Date: The Closing Date will occur on or
about January 22, 2000 and is
conditional on the closing of the
merger between Chemdex Corporation,
Popcorn Acquisition, Inc. and
Promedix.com, Inc.
6.Expenses: Each party shall pay for its own
expenses related to this transaction,
including but not limited to
Attorneys fees.
7.Operational Agreement: Sub will enter into a Supplier
Agreement with the Company pursuant
to which the Company will have the
right to purchase products from Sub
for at least Seven Percent (7%) off
of Sub's suggested retail price.
8.Restrictions of Company regarding Sub: Company agrees not to: (1) incur any
indebtedness other than in the
ordinary course of business of Sub;
(2) increase the compensation of any
officer, employee or agent of Sub;
(3) create any additional employee
benefit plan or amend any existing
employee benefit plan of Sub; or (4)
enter into any agreement not in the
ordinary course of business of Sub.
9.Confidential Information: Pro Med Acquisition Corporation and
the Company will enter into a
confidentiality agreement with
respect to the transactions
contemplated by this letter.
</TABLE>
A-128
<PAGE>
<TABLE>
<C> <S>
10.Enforceability: This Agreement is intended to be a binding and legally
enforceable agreement. It is understood and agreed that
money damages would not be a sufficient remedy for any
beach of the enforceable provisions of this Agreement by
either party hereto and that the parties shall be entitled
to equitable relief, including injunction and specific
performance, as a remedy for any such breach. Such remedies
shall not be deemed to be the exclusive remedies for a
breach by either party of the enforceable provisions but
shall be in addition to all other remedies available at law
or equity to the non-breaching party. In the event of
litigation relating to this letter of intent, if a court of
competent jurisdiction determines that any party has
breached the enforceable provisions of this Agreement, then
such party shall pay to the other the reasonable legal fees
incurred in connection with litigation relating thereto,
including any appeal.
</TABLE>
A-129
<PAGE>
SCHEDULE A
PRO MED CO., INC. 11/5/99
(in thousands)
BALANCE SHEET DATA
September 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash.................................................................. $ --
A/R................................................................... 2,143
Note Rec.--affiliate.................................................. 217
A/R--Promedix......................................................... 1,090
Inventory............................................................. 1,931
PP&E.................................................................. 329
Other................................................................. 101
------
$5,811
======
<CAPTION>
LIABILITIES AND EQUITY
<S> <C>
A/P................................................................... $1,441
Accrued liabilities................................................... 284
Line of credit........................................................ 1,532
------
Total liabilities..................................................... 3,257
Equity................................................................ 2,554
------
$5,811
======
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine
Months
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Revenue.............................................. 18,019 19,355 15,868
COS.................................................. 13,611 14,319 11,672
Gross margin......................................... 4,508 5,036 4,196
25% 26% 26%
SG & A............................................... 3,732 4,079 3,512
====== ====== ======
EBITDA............................................... 776 957 684
Depreciation......................................... (90) (99) (73)
Interest expense..................................... (150) (149) (113)
Other................................................ 7 28 118
====== ====== ======
Pretax............................................... 543 737 616
Taxes................................................ (208) (268) (146)
====== ====== ======
Net Income........................................... $ 335 469 470
====== ====== ======
</TABLE>
A-130
<PAGE>
ANNEX B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of September 21,
1999, by and among Chemdex Corporation, a Delaware corporation ("Chemdex"),
Promedix.com, Inc., a Delaware corporation ("Promedix"), U.S. Bank Trust,
National Association, as Escrow Agent ("Escrow Agent"), and Skip Klintworth and
Brad Bond, as Stockholders' Agents ("Stockholders' Agents") with respect to the
shares of Chemdex capital stock to be issued to the former Promedix
Stockholders (collectively, the "Holders") in the Merger (as defined below).
RECITALS
A. Chemdex, Promedix, and Promedix Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Chemdex ("Sub"), have entered into a Agreement
and Plan of Merger dated as of September 21, 1999 (the "Merger Agreement"),
pursuant to which Sub will merge with and into Promedix (the "Merger"), with
Promedix surviving the Merger as the surviving corporation. Capitalized terms
used in this Agreement and not otherwise defined in this Agreement shall have
the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the Effective Time,
or such later time as determined in accordance with Section 2.3(b) of the
Merger Agreement with respect to Dissenting Shares for which dissenters' rights
shall have been withdrawn or lost, Chemdex will deposit in escrow (such deposit
constituting the "Escrow Fund") certificates representing an aggregate of
12,057,366 shares of Chemdex Common Stock issuable to the Holders in the
Merger, on a pro rata basis, in accordance with each Holder's percentage
ownership of Chemdex Common Stock issuable pursuant to the Merger. Pursuant to
the Merger Agreement, (i) ninety percent (90%) of such shares (the "Locked Up
Shares") shall be held in escrow on behalf of the holders until January 22,
2000, but not held as security for Promedix's indemnification obligations under
Article X of the Merger Agreement; and (ii) ten percent (10%) of such shares
(the "Escrow Shares") shall be held as security for Promedix's indemnification
obligations under Article X of the Merger Agreement and shall represent
Chemdex's sole and exclusive remedy with respect to such indemnification
obligations, except for damages based upon a claim of fraud. The Locked Up
Shares and Escrow Shares are collectively referred to herein as the "Escrow
Securities."
C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Escrow Securities will be deposited, held in,
and disbursed from the Escrow Fund.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the
Escrow Securities; and (b) hold such Escrow Securities in escrow as part of
the Escrow Fund, all subject to the terms and conditions of this Agreement
and Section 2.2 and Article X of the Merger Agreement (which Section 2.2
and Article X are attached to this Agreement as Appendix I and incorporated
by reference into this Agreement) (collectively, the "Escrow Provisions").
The Escrow Securities will include "Additional Escrow Securities" as that
term is defined in Section 2(c) of this Agreement.
2. Deposit of Escrow Securities: Release from Escrow.
(a) Delivery of Escrow Securities. As soon as practicable after the
Effective Time, the Escrow Securities will be delivered by Chemdex on
behalf of the Holders to the Escrow Agent. Such shares shall be issued
in the name of the Escrow Agent. In the event Chemdex issues any
Additional Escrow Securities, such Escrow Securities will be issued in
the name of the Escrow Agent and delivered to the Escrow Agent in the
same manner as the Escrow Securities.
B-1
<PAGE>
(b) Holders' Accounts. The Escrow Agent will maintain for each
Holder an accounting record (each Holder's "Account") specifying the
Escrow Securities held for the record of each Holder pursuant to the
Escrow Provisions. All Escrow Securities received under Section 2(a)
will be allocated to each Holder's Account in accordance with such
Holder's percentage interest in the Escrow Fund as set forth on
Appendix II.
(c) Dividends, Voting and Rights of Ownership. Except for tax-free
dividends paid in stock declared with respect to the Escrow Securities
pursuant to Section 305(a) of the Internal Revenue Code of 1986, as
amended (the "Code") ("Additional Escrow Securities"), there will be
distributed promptly to the Holders any cash dividends or dividends
payable in securities or other distributions of any kind made in
respect of the Escrow Securities. Each Holder will have voting rights
with respect to the Escrow Securities deposited in the Escrow Fund with
respect to such Holder so long as such Escrow Securities are held in
escrow, and Chemdex will take all reasonable steps necessary to allow
the exercise of such rights. While the Escrow Securities remain in the
Escrow Agent's possession pursuant to this Agreement and the Merger
Agreement, the Holders will retain and will be able to exercise all
other incidents of ownership of said Escrow Securities which are not
inconsistent with the terms and conditions of this Agreement and the
Merger Agreement.
(d) Release. The Locked Up Shares will be held by the Escrow Agent
until January 22, 2000. The Locked Up Shares shall not be subject to,
or held as security for, Promedix's indemnification obligations under
Article X of the Merger Agreement. The Escrow Shares will be held by
the Escrow Agent until required to be released to the Holders pursuant
to Section 10.3 of the Merger Agreement, unless previously delivered to
Chemdex pursuant to Section 10.4 of the Merger Agreement. Within five
(5) business days after the applicable release condition is met, the
Escrow Agent will deliver to each Holder the Escrow Securities to be
released on such date as identified by Chemdex and the Stockholders'
Agents to the Escrow Agent in writing. Escrow Securities will be in the
form of stock certificate(s) issued in the name of such Holder. Chemdex
and the Stockholders' Agents will undertake to deliver a notice to the
Escrow Agent identifying the number of Escrow Securities to be released
with respect to each Holder within such five-day period. Escrow
Securities will be released to the respective Holders in accordance
with their respective Accounts. Chemdex will take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate Holders. Cash will be paid in lieu of fractions of Escrow
Securities in an amount equal to the product determined by multiplying
such fraction by $ (the "Per Share Value"). Within five (5)
business days after written request from the Stockholders' Agents,
Chemdex will deposit with the Escrow Agent sufficient funds to pay such
cash amounts for fractional shares.
(e) No Encumbrance. Except as provided in this Agreement and as may
be set forth in the Target Disclosure Schedule, no Escrow Securities or
any beneficial interest in the Escrow Securities may be pledged, sold,
assigned or transferred, including by operation of law, by a Holder or
be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of a Holder, prior to the delivery to
such Holder of the Escrow Securities by the Escrow Agent.
(f) Power to Transfer Escrow Securities. The Escrow Agent is granted
the power to effect any transfer of Escrow Securities contemplated by
the Escrow Provisions. Chemdex will cooperate with the Escrow Agent in
promptly issuing stock certificates to effect such transfers.
(g) Reporting. Each Holder will provide the Escrow Agent with
his/her/its Taxpayer Identification Number at or prior to Closing. On
or before January 31 of each year under this Agreement, the Escrow
Agent will prepare and mail to each Holder, other than Holders who
demonstrate their status as non-resident aliens in accordance with the
United States Treasury Regulations, a Form 1099-B reporting any cash
payments, in accordance with such Treasury Regulations. The Escrow
Agent will also prepare and file copies of such Forms 1099-B by
magnetic tape with the IRS, in accordance with Treasury Regulations. If
the Escrow Agent has not received notice from a Holder of such Holder's
certified Taxpayer Identification Number, the Escrow Agent
B-2
<PAGE>
shall deduct and withhold backup withholding tax from any cash payment
made pursuant to the Internal Revenue Code and applicable regulations
thereunder. Should any issue arise regarding federal income tax
reporting or withholding, the Escrow Agent shall act in accordance with
the written instructions of the Stockholders' Agents and Chemdex.
3. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other document believed by it to be
genuine and duly authorized, nor for any other action or inaction,
except its own willful misconduct, bad faith or gross negligence. The
Escrow Agent will not be responsible for the validity or sufficiency of
the Escrow Provisions. In all questions arising under the Escrow
Provisions, the Escrow Agent may rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent
based on such advice, the Escrow Agent will not be liable to anyone.
The Escrow Agent will not be required to take any action under the
Escrow Provisions involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served
upon the Escrow Agent with respect to the Escrow Fund, the Escrow Agent
will have the absolute right, at the Escrow Agent's election, to do
either or both of the following: resign so a successor can be appointed
pursuant to Section 5 or file a suit in interpleader and obtain an
order from a court of competent jurisdiction requiring the parties to
interplead and litigate in such court their several claims and rights
among themselves. In the event such interpleader suit is brought, the
Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under the Escrow Provisions, and
Chemdex will pay the Escrow Agent (subject to reimbursement from the
Holders pursuant to Section 4) all costs, expenses and reasonable
attorney's fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 3 (such
costs, fees and expenses will be treated as extraordinary fees and
expenses for the purposes of Section 4).
4. Expenses.
(a) Escrow Agent. All fees and expenses of the Escrow Agent incurred
in the ordinary course of performing its responsibilities hereunder
will be paid by Chemdex upon receipt of a written invoice by the Escrow
Agent. Any extraordinary fees and expenses, including without
limitation any fees or expenses incurred by the Escrow Agent in
connection with a dispute over the distribution of Escrow Securities or
the validity of a claim or claims by Chemdex made in an Officer's
Certificate, will be paid 50% by Chemdex and 50% by the Holders. The
Holders' liability for the extraordinary fees and expenses of the
Escrow Agent may be paid by Chemdex and recovered as a claim hereunder
out of the Escrow Fund. If Chemdex has paid the Holders' portion of
such fees and expenses as permitted under this Section 4(a), then the
Escrow Agent will, upon demand by Chemdex, transfer to Chemdex a number
of Escrow Securities having an aggregate Per Share Value equal to such
portion of fees and expenses.
In the event the balance in the Escrow Fund is not sufficient to pay
the extraordinary fees and expenses of the Escrow Agent, as described
in the prior paragraph, or in the event the Escrow Agent incurs any
liability to any person, firm or corporation by reason of its
acceptance or administration of this Escrow Agreement, the other
parties hereto, jointly and severally, agree to indemnify the Escrow
Agent for its extraordinary fees and expenses or costs and expenses,
including, without limitation, counsel fees and expenses, as the case
may be. Notwithstanding the foregoing, no indemnity need be paid in the
event of the Escrow Agent's gross negligence, bad faith or willful
misconduct.
(b) Stockholders' Agents. The Stockholders' Agents will not be
entitled to receive any compensation from Chemdex or the Holders in
connection with this Agreement. Any fees and expenses incurred by the
Stockholders' Agents in connection with actions taken pursuant to the
terms of the Escrow Provisions will be paid by the Holders.
B-3
<PAGE>
5. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity as such, the Escrow
Agent may resign and be discharged from its duties or obligations hereunder
by giving resignation to the parties to this Agreement, specifying not less
than thirty (30) days' prior written notice of such a date when such
resignation will take effect. Chemdex will designate a successor Escrow
Agent prior to the expiration of such 30-day period by giving written
notice to the Escrow Agent and the Stockholders' Agents. Chemdex may
appoint a successor Escrow Agent with the consent of the Stockholders'
Agents, which will not be unreasonably withheld. The Escrow Agent will
promptly transfer the Escrow Securities to such designated successor. In
the event no successor Escrow Agent is appointed as described in this
Section 5, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent.
6. Limitation of Responsibility. The Escrow Agent's duties are limited
to those set forth in the Escrow Provisions and the Escrow Agent may rely
upon the written notices delivered to the Escrow Agent under the Escrow
Provisions.
7. Incorporation by Reference of Article X. The parties agree that the
terms of Section 2.2 and Article X of the Merger Agreement shall be deemed
to be incorporated by reference in this Agreement as if such Article had
been set forth in its entirety herein. The parties acknowledge that the
administration of the Escrow Fund by the Escrow Agent will require
reference to both the terms of this Agreement as well as the terms of such
Article X.
8. Notices. Any notice provided for or permitted under the Escrow
Provisions will be treated as having been given when (i) delivered
personally, (ii) sent by confirmed telex or Fax, (iii) sent by commercial
overnight courier with written verification of receipt, or (iv) mailed
postage prepaid by certified or registered mail, return receipt requested,
to the party to be notified, at the address set forth below, or at such
other place of which the other party has been notified in accordance with
the provisions of this Section 8.
Escrow Agent: U.S. Bank Trust, National Association
One California Street, 4th Floor
San Francisco, California 94111
Attention: Ann Gadsby
Fax No: (415) 273-4593
Telephone No: (415) 273-4532
Stockholders' Agents:
Promedix, Inc.
448 East Winchester Avenue, Suite 200
Salt Lake City, Utah 84107
Attention: Skip Klintworth
Brad Bond
Fax No: (801) 261-7475
Telephone No: (800) 453-1264
With copy to: Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Attention: Geoffrey P. Leonard, Esq.
Fax No: (650) 614-7401
Telephone No: (650) 614-7470
Chemdex: Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94308
Attention: Chief Executive Officer
Fax No: (650) 813-0304
Telephone No: (650) 813-0300
B-4
<PAGE>
With copy to: Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
Such notice will be treated as having been received upon actual receipt.
9. General.
(a) Governing Laws. It is the intention of the parties hereto that
the internal laws of the State of Delaware (irrespective of its choice
of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of
the rights and duties of the parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the permitted successors,
executors, heirs, representatives, administrators and assigns of the
parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party
whose signature appears on such counterpart and all of which together
shall constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts of this Agreement,
individually or taken together, shall bear the signatures of all of the
parties reflected in this Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Merger Agreement,
this Agreement, the documents referenced in this Agreement and the
exhibits to such documents, constitute the entire understanding and
agreement of the parties to this Agreement with respect to the subject
matter of this Agreement and of such documents and exhibits and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between
the parties with respect to this Agreement. The express terms of this
Agreement control and supersede any course of performance or usage of
the trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any
condition or of any breach of any provision of this Agreement will be
effective unless in writing. No waiver by any party of any such
condition or breach, in any one instance, will be deemed to be a
further or continuing waiver of any such condition or breach or a
waiver of any other condition or breach of any other provision
contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written
consent of Chemdex, the Escrow Agent and the Stockholders' Agents;
provided, however, that if the Escrow Agent does not agree to an
amendment agreed upon by Chemdex and the Stockholders' Agents, a
successor Escrow Agent will be appointed in accordance with Section 5.
[Signature Page Follows]
B-5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first written above and will be effective as to all the
Holders when executed by Chemdex, the Escrow Agent and the Stockholders'
Agents.
CHEMDEX CORPORATION
By: _________________________________
Its: ________________________________
PROMEDIX.COM, INC.
By: _________________________________
Its: ________________________________
ESCROW AGENT:
U.S. BANK TRUST, NATIONAL
ASSOCIATION
By: _________________________________
Its: ________________________________
STOCKHOLDERS' AGENTS:
_____________________________________
Skip Klintworth
_____________________________________
Brad Bond
B-6
<PAGE>
ANNEX C
September 21, 1999
Board of Directors
Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94303
Members of the Board of Directors:
We understand that Chemdex Corporation ("Chemdex"), Promedix.com, Inc.
("Promedix.com"), and Popcorn Acquisitions Corp. ("Merger Sub"), a wholly-owned
subsidiary of Chemdex, propose to enter into an Agreement and Plan of Merger,
substantially in the form of the draft dated as of September 16, 1999 (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into Promedix.com. Pursuant to the Merger,
Promedix.com will become a wholly-owned subsidiary of Chemdex and each
outstanding share of common stock, par value $0.0001, of Promedix.com (the
"Promedix.com Common Stock"), or Series A , Series B-1 or Series B-2 Preferred
Stock, each with a par value of $0.0001 per share, of Promedix.com
(collectively, the "Preferred Stock"), other than shares held in treasury or
held by Chemdex or any affiliate of Chemdex or Promedix.com or as to which
dissenters' rights have been perfected, will be converted into the right to
receive in the aggregate 12,057,366 shares of common stock, par value $0.0002
per share, of Chemdex (the "Chemdex Common Stock"), determined pursuant to a
certain formula set forth in the Merger Agreement (collectively, the
"Consideration"). The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be paid by
Chemdex pursuant to the Merger Agreement is fair from a financial point of view
to Chemdex.
For purposes of the opinion set forth herein, we have, among other things:
(i) reviewed certain publicly available financial statements and other
information of Chemdex;
(ii) analyzed certain financial projections relating to Promedix.com
prepared by the management of Promedix.com;
(iii) reviewed certain internal financial statements and other financial
and operating data concerning Chemdex and Promedix.com prepared by
the managements of Chemdex and Promedix.com, respectively;
(iv) discussed the past and current operations and financial condition and
the prospects of Promedix.com, including information relating to
certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of Promedix.com;
(v) discussed the past and current operations and financial condition and
the prospects of Chemdex, including information relating to certain
strategic, financial and operational synergies and benefits anticipated
from the Merger, with senior executives of Chemdex;
(vi) reviewed the pro forma impact of the Merger on the earnings per share
and balance sheet of Chemdex;
(vii) reviewed the reported prices and trading activity of the Chemdex
Common Stock;
(viii) reviewed the stock prices and trading activity of certain other
publicly-traded companies comparable to Promedix.com and Chemdex;
C-1
<PAGE>
Members of the Board of Directors
September 21, 1999
Page 2
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(x) reviewed and discussed with the senior managements of Chemdex and
Promedix.com the strategic rationale for the Merger;
(xi) participated in negotiations and discussions among representatives of
Chemdex and Promedix.com and their legal advisors;
(xii) reviewed the draft Merger Agreement and certain related documents;
and
(xiii) performed such other analysis and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the internal financial statements and other
financial and operating data and estimates of the strategic, financial and
operational benefits anticipated from the Merger provided by Chemdex and
Promedix.com, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
prospects of Chemdex and Promedix.com, respectively. We have relied upon the
assessment by the managements of Chemdex and Promedix.com of their ability to
retain key employees of Promedix.com. We have also relied upon, without
independent verification, the assessment by the managements of Chemdex and
Promedix.com of: (i) the strategic and other benefits expected to result from
the Merger; (ii) Promedix.com's technologies, products and intellectual
property; (iii) the timing and risks associated with the integration of Chemdex
and Promedix.com; and (iv) the validity of, and risks associated with,
Chemdex's and Promedix.com's existing and future technologies, products and
intellectual property. We have not made any independent valuation or appraisal
of the assets, liabilities, technologies and intellectual property of
Promedix.com, nor have we been furnished with any such appraisals. In addition,
we have assumed that the Merger will be treated as a tax-free reorganization
pursuant to the Internal Revenue Code of 1986 and will be consummated in
accordance with the terms set forth in the Merger Agreement. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Chemdex in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financing services for Chemdex and have received fees for the rendering of
these services. In addition, in the ordinary course of our business we may
actively trade the securities of Chemdex for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Chemdex and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Chemdex with the Securities and Exchange Commission in
respect of the transaction. In addition, this opinion does not in any manner
address the prices at which the Chemdex Common Stock will trade following the
consummation of the Merger, and we express no opinion or recommendation as to
how the stockholders of Chemdex Common Stock should vote at the shareholder
meeting held in connection with the Merger.
C-2
<PAGE>
Members of the Board of Directors
September 21, 1999
Page 3
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be paid by Chemdex pursuant to the Merger
Agreement is fair from a financial point of view to Chemdex.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By:__________________________________
Geoffrey D. Baldwin
Principal
C-3
<PAGE>
ANNEX D
AGREEMENT AND PLAN OF MERGER
dated as of December 10, 1999
among
CHEMDEX CORPORATION,
SPINACH ACQUISITIONS CORP.
and
SpecialtyMD.com Corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I--THE MERGER................................................... D-1
Section 1.1 Effective Time of the Merger........................... D-1
Section 1.2 Closing................................................ D-2
Section 1.3 Effects of the Merger.................................. D-2
Section 1.4 Directors and Officers................................. D-2
Section 1.5 Definitions............................................ D-2
ARTICLE II--CONVERSION OF SECURITIES.................................... D-7
Section 2.1 Conversion of Capital Stock............................ D-7
Section 2.2 Escrow Agreements...................................... D-8
Section 2.3 Dissenting Shares...................................... D-8
Section 2.4 Exchange of Certificates............................... D-9
Section 2.5 Distributions with Respect to Unexchanged Shares....... D-9
Section 2.6 No Fractional Shares................................... D-10
Section 2.7 Tax and Accounting Consequences........................ D-10
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF TARGET................... D-10
Section 3.1 Organization of Target................................. D-10
Section 3.2 Target Capital Structure............................... D-10
Section 3.3 Authority; No Conflict; Required Filings and Consents.. D-12
Financial Statements; Absence of Undisclosed
Section 3.4 Liabilities............................................ D-12
Section 3.5 Tax Matters............................................ D-13
Section 3.6 Absence of Certain Changes or Events................... D-14
Section 3.7 Title and Related Matters.............................. D-15
Section 3.8 Proprietary Rights..................................... D-15
Section 3.9 Employee Benefit Plans................................. D-17
Section 3.10 Bank Accounts.......................................... D-19
Section 3.11 Contracts.............................................. D-19
Section 3.12 Compliance With Law.................................... D-20
Section 3.13 Labor Difficulties; No Discrimination.................. D-21
Section 3.14 Insider Transactions................................... D-21
Section 3.15 Employees, Independent Contractors and Consultants..... D-21
Section 3.16 Insurance.............................................. D-21
Section 3.17 Litigation............................................. D-22
Section 3.18 Governmental Authorizations and Regulations............ D-22
Section 3.19 Subsidiaries........................................... D-22
Section 3.20 Compliance with Environmental Requirements............. D-22
Section 3.21 Trade Regulation....................................... D-22
Section 3.22 Year 2000 Compliance................................... D-22
Section 3.23 Corporate Documents.................................... D-23
Section 3.24 No Brokers............................................. D-23
Section 3.25 Target Action.......................................... D-23
Section 3.26 Offers................................................. D-23
Section 3.27 Disclosure............................................. D-23
Section 3.28 Registration Statement; Proxy Statement/Prospectus..... D-23
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF CHEMDEX AND SUB........... D-24
Section 4.1 Organization of Chemdex and Sub........................ D-24
Section 4.2 Capitalization......................................... D-24
</TABLE>
D-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.3 Authority; No Conflict; Required Filings and Consents.. D-25
Section 4.4 Commission Filings; Financial Statements............... D-26
Section 4.5 Compliance with Laws................................... D-26
Section 4.6 Interim Operations of Sub.............................. D-26
Section 4.7 Disclosure............................................. D-26
Section 4.8 Registration Statement; Proxy Statement/Prospectus..... D-26
Section 4.9 No Brokers............................................. D-27
Section 4.10 Chemdex Action......................................... D-27
Section 4.11 Offers................................................. D-27
Section 4.12 Litigation............................................. D-27
Section 4.13 Absence of Certain Changes or Events................... D-27
ARTICLE V--PRECLOSING COVENANTS OF TARGET............................... D-28
Section 5.1 Advice of Changes...................................... D-28
Section 5.2 Operation of Business.................................. D-28
Section 5.3 Access to Information.................................. D-30
Section 5.4 Satisfaction of Conditions Precedent................... D-30
Section 5.5 Other Negotiations..................................... D-30
ARTICLE VI--PRECLOSING AND OTHER COVENANTS OF CHEMDEX AND SUB........... D-31
Section 6.1 Advice of Changes...................................... D-31
Section 6.2 Reservation of Chemdex Common Stock.................... D-31
Section 6.3 Satisfaction of Conditions Precedent................... D-31
Section 6.4 Nasdaq National Market Listing......................... D-31
Section 6.5 Stock Options.......................................... D-31
Section 6.6 Certain Employee Benefit Matters....................... D-32
Section 6.7 Contingent Financing................................... D-32
Section 6.8 D&O Indemnification.................................... D-32
Section 6.9 Operation of Business.................................. D-33
Section 6.10 Other Negotiations..................................... D-33
ARTICLE VII--PRECLOSING COVENANTS OF TARGET AND CHEMDEX AND OTHER
AGREEMENTS............................................................. D-33
Section 7.1 Proxy Statement/Prospectus............................. D-33
Section 7.2 Stockholder Meeting.................................... D-34
Section 7.3 Confidentiality........................................ D-35
Section 7.4 No Public Announcement................................. D-35
Section 7.5 Regulatory Filings; Consents; Reasonable Efforts....... D-35
Section 7.6 Further Assurances..................................... D-35
Section 7.7 Escrow Agreements...................................... D-35
Section 7.8 FIRPTA................................................. D-35
Section 7.9 Other Filings.......................................... D-35
Section 7.10 Tax Matters............................................ D-36
Section 7.11 Transition Planning.................................... D-36
ARTICLE VIII--CONDITIONS TO MERGER...................................... D-36
Conditions to Each Party's Obligation to Effect the
Section 8.1 Merger................................................. D-36
Additional Conditions to Obligations of Chemdex and
Section 8.2 Sub.................................................... D-37
Section 8.3 Additional Conditions to Obligations of Target......... D-37
</TABLE>
D-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE IX--TERMINATION AND AMENDMENT..................................... D-38
Section 9.1 Termination............................................. D-38
Section 9.2 Effect of Termination................................... D-38
Section 9.3 Fees and Expenses....................................... D-39
ARTICLE X--ESCROW AND INDEMNIFICATION..................................... D-39
Section 10.1 Indemnification......................................... D-39
Section 10.2 Indemnity Escrow Fund................................... D-39
Section 10.3 Escrow Periods.......................................... D-39
Section 10.4 Claims Upon Escrow Fund................................. D-40
Section 10.5 Valuation............................................... D-40
Section 10.6 Objections to Claims.................................... D-40
Section 10.7 Resolution of Conflicts................................. D-40
Section 10.8 Stockholders' Agents.................................... D-41
Section 10.9 Actions of the Stockholders' Agents..................... D-41
Section 10.10 Claims.................................................. D-41
ARTICLE XI--MISCELLANEOUS................................................. D-42
Section 11.1 Survival of Representations and Covenants............... D-42
Section 11.2 Notices................................................. D-42
Section 11.3 Interpretation.......................................... D-42
Section 11.4 Counterparts............................................ D-43
Section 11.5 Entire Agreement; No Third Party Beneficiaries.......... D-43
Section 11.6 Governing Law; Jurisdiction............................. D-43
Section 11.7 Assignment.............................................. D-43
Section 11.8 Amendment............................................... D-43
Section 11.9 Extension; Waiver....................................... D-43
Section 11.10 Specific Performance.................................... D-43
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S> <C>
EXHIBIT A -- VOTING AGREEMENT......................................... D-45
EXHIBIT B -- FORM OF EMPLOYMENT AGREEMENT............................. D-51
EXHIBIT C -- FORM OF STOCK RESTRICTION AGREEMENT...................... D-70
EXHIBIT D-1 -- LOCK-UP ESCROW AGREEMENT................................. D-78
EXHIBIT D-2 -- INDEMNITY ESCROW AGREEMENT............................... D-85
EXHIBIT E -- SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET........... D-97
EXHIBIT F -- SECURED PROMISSORY NOTE AND AGREEMENT.................... D-99
EXHIBIT G -- SUBJECT MATTER OF OPINION OF COUNSEL TO CHEMDEX.......... D-105
</TABLE>
D-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 10, 1999 (this
"Agreement"), is entered into by and among Chemdex Corporation, a Delaware
corporation ("Chemdex"), Spinach Acquisitions Corp., a Delaware corporation and
a wholly-owned subsidiary of Chemdex ("Sub"), and SpecialtyMD.com Corporation,
a Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Chemdex, Sub and Target deem it advisable and
in the best interests of each corporation and their respective stockholders
that Chemdex and Target combine in order to advance the long-term business
interests of Chemdex and Target;
B. The combination of Chemdex and Target shall be effected by the terms of
this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly-owned subsidiary of Chemdex and the
stockholders of Target will become stockholders of Chemdex (the "Merger");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase transaction;
E. As a condition and inducement to Chemdex's willingness to enter into this
Agreement, certain Target common and preferred stockholders have, concurrently
with the execution of this Agreement, executed and delivered Voting Agreements
in the form attached hereto as Exhibit A (the "Voting Agreements"), pursuant to
which such stockholders have, among other things, agreed to vote their shares
of Target capital stock in favor of the Merger and to grant Chemdex irrevocable
proxies to vote such shares;
F. As a further condition and inducement to Chemdex's willingness to enter
into this Agreement, certain employees of Target who are also Target equity
holders will have concurrently with the execution of this Agreement, executed
and delivered Employment and Noncompetition Agreements in the form attached
hereto as Exhibits B (the "Employment Agreements"), which agreements shall only
become effective at the Effective Time (as defined in Section 1.1 below);
G. As a further condition and inducement to Chemdex's willingness to enter
into this Agreement, Ashfaq Munshi and Joseph L. Meresman have, concurrently
with the execution of this Agreement, executed and delivered their Stock
Restriction Agreements in the form attached hereto as Exhibits D (the "Stock
Restriction Agreements"), which agreements shall only become effective at the
Effective Time.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger.
(a) Subject to the provisions of this Agreement, a certificate of merger
(the "Certificate of Merger") in such mutually acceptable form as is
required by the relevant provisions of Delaware Law shall be duly executed
and delivered by the parties hereto and thereafter delivered to the
Secretary of State of the State of Delaware for filing on the Closing Date
(as defined in Section 1.2) on a date to be specified
D-1
<PAGE>
by Chemdex and Target, which shall be no later than the second business day
after satisfaction or waiver of the latest to occur of the conditions set
forth in Article VIII.
(b) The Merger shall become effective upon the due and valid filing of
the Certificate of Merger with the Secretary of State of the State of
Delaware or at such time thereafter as is provided in the Certificate of
Merger (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., California time, on the date referred to in Section 1.1(a)
hereof, at the offices of Venture Law Group, A Professional Corporation, 2775
Sand Hill Road, Menlo Park, California unless another date, time or place is
agreed to in writing by Chemdex and Target.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall cease
and Sub shall be merged with and into Target (Sub and Target are sometimes
referred to herein as the "Constituent Corporations" and Target following
consummation of the Merger is sometimes referred to herein as the
"Surviving Corporation"), (ii) the Certificate of Incorporation of Sub
shall be the Certificate of Incorporation of the Surviving Corporation and
(iii) the Bylaws of Sub as in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation.
(b) At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of Delaware Law. Without limiting the
generality of the foregoing, at and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and
franchises, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations.
Section 1.4 Directors and Officers. The directors of Sub immediately prior
to the Effective Time shall become the directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation, and the officers of Sub immediately prior
to the Effective Time shall become the officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed
and qualified.
Section 1.5 Definitions
"Acquisition Transaction" shall have the meaning set forth in Section 5.5.
"Affiliate" shall mean an affiliate as defined in Rule 12b-2 under the
Exchange Act.
"Audited Balance Sheet Date" shall mean Target's audited balance sheet as of
December 31, 1998.
"Average Stock Price" shall mean the average closing price of Chemdex's
Common Stock on the Nasdaq Stock Market for the ten (10) trading day period
ending two (2) trading days prior to the Closing Date.
"Certificate of Merger" shall have the meaning set forth in Section 1.1(a).
"Certificates" shall have the meaning set forth in Section 2.4(a).
"Chemdex" shall mean Chemdex Corporation, a Delaware corporation.
"Chemdex Acquisition Transaction" shall have the meaning set forth in
Section 6.10.
"Chemdex Commission Reports" shall have the meaning set forth in Section
4.4(a).
"Chemdex Common Stock" shall have the meaning set forth in Section 4.2(a).
"Chemdex Options" shall have the meaning set forth in Section 4.2(a).
D-2
<PAGE>
"Chemdex Preferred Stock" shall have the meaning set forth in Section
4.2(a).
"Chemdex Securities" shall have the meaning set forth in Section 4.2(a).
"Chemdex Stock Plan" shall have the meaning set forth in Section 4.2(a).
"Chemdex Warrants" shall have the meaning set forth in Section 4.2(a).
"Confidential Information" shall have the meaning set forth in section
3.8(h).
"Confidentiality Agreement" shall have the meaning set forth in Section 7.3.
"Closing" shall have the meaning set forth in Section 1.2(a).
"Closing Date" shall mean the date in which the Effective Time occurs.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Common Consideration Shares" shall be equal to the Total Consideration
Shares less the Series A Preferred Consideration Shares and the Series B
Preferred Consideration Shares.
"Common Exchange Ratio" shall be equal to the quotient obtained by dividing
(1) the number of the Common Consideration Shares by (2) the number of shares
of Target Common Stock outstanding or subject to issuance upon exercise of
Target Options immediately prior to the Effective Time.
"Confidential Information" shall have the meaning set forth in Section
3.8(h).
"Constituent Corporations" shall have the meaning set forth in Section
1.3(a).
"Damages" shall have the meaning set forth in Section 10.1.
"Delaware Law" shall mean the Delaware General Corporation Law.
"Dissenting Shares" shall have the meaning set forth in Section 2.3(a).
"Effective Time" shall have the meaning set forth in Section 1.1(b).
"Employment Agreements" shall mean the employment and noncompetition
agreements executed and delivered by certain employees of Target who are also
Target equity holders in the form attached hereto as Exhibit B, which
agreements shall only become effective at the Effective Time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning set forth in Section 3.9(a).
"Escrow Agent" shall have the meaning set forth in Section 10.2. "Escrow
Agreements" shall mean, collectively, the Indemnity Escrow Agreement and the
Lock-Up Escrow Agreement, to be executed pursuant to Section 7.6."Escrow Fund"
shall have the meaning set forth in Section 10.2.
"Escrow Shares" shall have the meaning set forth in Section 2.2.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
D-3
<PAGE>
"FIRPTA" shall mean the Foreign Investment and Real Property Tax Act of
1980.
"Former Target Stockholders" shall mean the persons other than Chemdex who
are the holders of Target Common Stock, Target Options or Target Preferred
Stock immediately prior to the Effective Time.
"Governmental Entity" shall have the meaning set forth in Section 3.3(c).
"HIPAA" shall mean the Health Insurance Portability and Accountability Act
of 1996.
"Incentive Stock Options" shall have the meaning set forth in Section
6.5(a).
"Indemnified Parties" shall have the meaning set forth in Section 6.8.
"Indemnity Escrow Agreement" shall mean the Indemnity Escrow Agreement as
described in Section 2.2 and to be executed pursuant to Section 7.6.
"Information Technology" shall have the meaning set forth in Section 3.22.
"Loan Agreement" shall have the meaning set forth in Section 6.7.
"Locked Up Shares" shall have the meaning set forth in Section 2.2.
"Lock-Up Escrow Agreement" shall mean the Lock-Up Escrow Agreement as
described in Section 2.2 and to be executed pursuant to Section 7.6.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the condition (financial or otherwise), business, assets or
results of operations of such Person and its Subsidiaries, taken as a whole;
provided, however, that in determining whether there has been a Material
Adverse Effect with respect to any Person, any adverse effect attributable to
circumstances as a result of the announcement of the Merger shall be ignored.
"Material Contracts" shall have the meaning set forth in Section 3.11(a).
"Merger" shall have the meaning set forth in Recital B.
"Most Recent Balance Sheet" shall have the meaning set forth in Section 3.4.
"OEMs" shall have the meaning set forth in Section 3.11(a)(i).
"Officer's Certificate" shall have the meaning set forth in Section 10.4.
"Other Filings" shall have the meaning set forth in Section 7.8.
"Permitted Encumbrances" shall have the meaning set forth in Section 3.7.
"Pro Rata Portion" shall have the meaning set forth in Section 2.2.
"Proxy Statement/Prospectus" shall have the meaning set forth in Section
3.28.
"Registration Statement" shall have the meaning set forth in Section 3.28.
"Returns" shall mean all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
"Securities Act" shall mean the Securities Act of 1933, as amended.
D-4
<PAGE>
"Series A Exchange Ratio" shall be equal to the quotient obtained by
dividing (1) the number of Series A Preferred Consideration Shares by (2) the
total number of shares of Target Series A Preferred stock outstanding
immediately prior to the Effective Time.
"Series A Preferred Consideration Shares" shall be equal to the quotient of
three (3) times total liquidation preference of the Target Series A Preferred
Stock outstanding immediately prior to the Effective Time and the Average Stock
Price.
"Series B Exchange Ratio" shall be equal to the quotient obtained by
dividing (1) the number of Series B Preferred Consideration Shares by (2) the
total number of shares of Target Series B Preferred stock outstanding
immediately prior to the Effective Time.
"Series B Preferred Consideration Shares" shall be equal to the total
liquidation preference of the Target Series B Preferred Shares outstanding or
issuable upon exercise of the Series B Warrant immediately prior to the
Effective Time and the Average Stock Price.
"Series B Warrants" shall have the meaning set forth in Section 2.1(d).
"Stockholders' Agents" shall have the meaning set forth in Section 10.8.
"Stock Restriction Agreements" shall mean the stock restriction agreements
executed and delivered by Ashfaq Munshi and Joseph L. Meresman in the form
attached hereto as Exhibit D which agreements shall only become effective at
the Effective Time.
"Strategic Investors" shall have the meaning set forth in Section 3.2(b).
"Sub" shall mean Spinach Acquisitions Corp., a Delaware corporation and a
wholly-owned subsidiary of Chemdex.
"Subsidiary" means, with respect to any other party, any corporation or
other organization, whether incorporated or unincorporated, of which (i) such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization or a majority of the profit interests in
such other organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and one or
more of its Subsidiaries.
"Surviving Corporation" shall have the meaning set forth in Section 1.3(a).
"Target" shall mean SpecialtyMD.com Corporation, a Delaware corporation.
"Target Common Stock" shall have the meaning set forth in Section 2.1.
"Target Competitor" shall have the meaning set forth in Section 6.10.
"Target Components" shall have the meaning set forth in Section 3.8(c).
"Target Disclosure Schedule" shall be the disclosure schedule delivered by
Target to Chemdex on or before the date of this Agreement attached hereto as
Exhibit H.
"Target Employee Plans" shall have the meaning set forth in Section 3.9(a).
"Target Financial Statements" shall have the meaning set forth in Section
3.4.
"Target Interim Financials" shall have the meaning set forth in Section 3.4
D-5
<PAGE>
"Target Option Plan" shall have the meaning set forth in Section 2.1(d).
"Target Options" shall have the meaning set forth in Section 2.1(d).
"Target Proprietary Rights" shall have the meaning set forth in Section
3.8(a).
"Target Preferred Stock" shall have the meaning set forth in Section 2.1.
"Target Products" shall have the meaning set forth in Section 3.8(a).
"Target Restricted Shares" shall have the meaning set forth in Section
2.1(e).
"Target Securities" shall have the meaning set forth in Section 3.2(a).
"Target Stockholders' Meeting" shall have the meaning set forth in Section
3.28.
"Tax Certificates" shall have the meaning set forth in Section 7.10(b).
"Taxes" shall mean all taxes, however denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
(A) imposed by any federal, territorial, state, local or foreign government or
any agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or
profits taxes (including but not limited to, federal income taxes and state
income taxes), payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp taxes, environmental taxes,
ozone depleting chemicals taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.
"Third Party Licenses" shall have the meaning set forth in Section 3.8(a).
"Third Party Technology" shall have the meaning set forth in Section 3.8(a).
"Total Consideration Shares" shall be equal to 1,250,000 shares of Chemdex
Common Stock.
"Transaction Documents" means all documents or agreements required to be
delivered by any party under this Agreement including the Certificate of
Merger, the Escrow Agreements, the Voting Agreements, the Stock Restriction
Agreements and the Employment Agreements.
"Voting Agreements" shall mean the voting agreements executed and delivered
by certain Target common and preferred stock holders, in the form attached
hereto as Exhibit A.
D-6
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Series A or Series B Preferred Stock of Target, each $0.001 par value
(collectively, the "Target Preferred Stock"), or shares of Common Stock of
Target, $0.001 par value ("Target Common Stock"), or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $0.0001 par value, of the Surviving
Corporation.
(b) Cancellation of Chemdex-Owned and Target-Owned Stock. Any shares of
Target Common Stock or Target Preferred Stock that are owned by Chemdex,
Sub or Target shall be canceled and retired and shall cease to exist and no
stock of Chemdex or other consideration shall be delivered in exchange.
(c) Exchange Ratio.
(i) Each issued and outstanding share of Target Common Stock and
Target Preferred Stock (other than shares to be canceled in accordance
with Section 2.1(b) and any Dissenting Shares as defined in and to the
extent provided in Section 2.3) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
the right to receive a fraction of a fully paid and nonassessable share
of Chemdex Common Stock (as defined in Section 4.2) equal to the Series
A Exchange Ratio, Series B Exchange Ratio, or Common Exchange Ratio, as
the case may be.
(ii) In no event will the total number of shares of Chemdex Common
Stock issuable by Chemdex pursuant to the Merger (including shares of
Chemdex Common Stock issuable upon exercise of Target Options or Series
B Warrants assumed by Chemdex in the Merger) exceed the Total
Consideration Shares. The allocation of the Total Consideration Shares
among each holder of Target capital stock, warrants, and options based
upon the capitalization of Target as of the date of this Agreement is
set forth in the Target Disclosure Schedule. An updated version of such
Schedule reflecting the capitalization of Target on the Closing Date
shall be delivered by Target to Chemdex on the Closing Date.
(iii) If, on or after the date of this Agreement and prior to the
Effective Time, the outstanding shares of Chemdex Common Stock or
Target capital stock shall have been changed into a different number of
shares or a different class by reason of any reclassification, split-
up, stock dividend (including any dividend or distribution of
securities convertible into Chemdex Common Stock) or stock combination,
then the Exchange Ratio shall be correspondingly adjusted.
(iv) All such shares of Target Common Stock and Target Preferred
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive
the shares of Chemdex Common Stock and any cash in lieu of fractional
shares of Chemdex Common Stock to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with
Section 2.4, without interest.
(d) Target Stock Options and Warrants. At the Effective Time, all then
outstanding options, whether vested or unvested ("Target Options"), to
purchase Target Common Stock issued under Target's 1998 Stock Option Plan
(the "Target Option Plan") and all outstanding Warrants to purchase Target
capital stock (the "Series B Warrants") will be assumed by Chemdex in
accordance with Section 6.5. All of the Target Options and Series B
Warrants issued and outstanding as of the date of this Agreement are listed
on Schedule 3.2(a) attached hereto. An updated Schedule 3.2(a) of Target
Options and Series B Warrants shall be delivered by Target to Chemdex on
the Closing Date.
D-7
<PAGE>
(e) Restricted Shares. Any shares of Target Common Stock which are
subject to repurchase by Target ("Target Restricted Shares") shall be
converted into Chemdex Common Stock on the same basis as provided in
subsection (c) above and shall be registered in such holder's name, but
shall be held by the Surviving Corporation or Chemdex pursuant to the
applicable restricted stock repurchase agreements with the same repurchase
provisions applicable to such shares prior to the conversion. Holders of
the Target Restricted Shares are identified on Schedule 2.1(e) of the
Target Disclosure Schedule.
Section 2.2 Escrow Agreements. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), Chemdex will, on behalf of the
Former Target Stockholders, deposit in escrow stock certificates or Chemdex
Options, as appropriate, representing the percentage of the Total Consideration
Shares set forth below allocable to Target Common Stock and Target Series A and
Series B Preferred Stock in the Merger. Such shares or options shall be held in
escrow on behalf Former Target Stockholders, in accordance with the portion of
Total Consideration Shares allocable to each such Former Target Stockholder in
the manner contemplated by Section 2.1 ("Pro Rata Portion"). If the Closing
shall occur prior to July 1, 2000, then ninety percent (90%) of such shares and
options (collectively, the "Locked Up Shares") shall be placed in escrow and
applied pursuant to the provisions of the Lock-Up Escrow Agreement attached
hereto as Exhibit D-1 (the "Lock-Up Escrow Agreement") on behalf of the Former
Target Stockholders until July 1, 2000, after which the certificates
representing such shares or options will be distributed to the Former Target
Stockholders in accordance with the provisions of the Lock-Up Escrow Agreement.
In addition, regardless of whether the Closing shall occur before July 1, 2000,
ten percent (10%) of such shares and options (collectively, the "Escrow
Shares") shall be held in escrow and applied pursuant to the provisions of the
Indemnity Escrow Agreement attached hereto as Exhibit D-2 (the "Indemnity
Escrow Agreement"). All calculations to determine the number of Locked Up
Shares and Escrow Shares to be delivered by each stockholder of Target into
escrow as aforesaid shall be rounded down to the nearest whole share.
Section 2.3 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Target Common Stock or Target Preferred Stock held by a holder
who has exercised such holder's appraisal rights in accordance with Section
262 of Delaware Law, and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive Chemdex Common Stock
pursuant to Section 2.1, but the holder of the Dissenting Shares shall only
be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder of
shares of Target Common Stock or Target Preferred Stock who demands his
appraisal rights with respect to such shares under Section 2.1 shall
effectively withdraw or lose (through failure to perfect or otherwise) his
rights to receive payment for such shares under Delaware Law, then, as of
the later of the Effective Time or the occurrence of such event, such
holder's shares shall automatically be converted into and represent only
the right to receive Chemdex Common Stock and payment for fractional shares
as provided in Section 2.1(c), without interest, upon surrender of the
certificate or certificates representing such shares; provided that if such
holder effectively withdraws or loses his right to receive payment for such
shares after the Effective Time, then, at such time Chemdex will deposit in
the escrow created pursuant to the Escrow Agreements additional
certificates representing such holder's Pro Rata Portion of the Escrow
Shares.
(c) Target shall give Chemdex (i) prompt notice of any written demands
for payment with respect to any shares of capital stock of Target pursuant
to the appraisal rights under Delaware Law, withdrawals of such demands,
and any other instruments served pursuant to Delaware Law and received by
the Target and (ii) the opportunity to participate at its own expense in
all negotiations and proceedings with respect to demands for appraisal
rights under Delaware Law. Target shall not, except with the prior written
consent of Chemdex, voluntarily make any payment with respect to any
demands for appraisal rights with respect to Target Common Stock or Target
Preferred Stock or offer to settle or compromise any such demands.
D-8
<PAGE>
Section 2.4 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates ("Certificates") which represented shares of
Target Common Stock or Target Preferred Stock immediately prior to the
Effective Time shall have the right to surrender each Certificate to
Chemdex (or at Chemdex's option, an exchange agent to be appointed by
Chemdex), and subject to and in accordance with Section 2.2 above and the
Escrow Agreements, receive in exchange for all Certificates held by such
holder a certificate representing the number of whole shares of Chemdex
Common Stock (other than the Escrow Shares) into which the Target Common
Stock or Target Preferred Stock evidenced by the Certificates so
surrendered shall have been converted pursuant to the provisions of Article
II of this Agreement. The surrender of Certificates shall be accompanied by
duly completed and executed Letters of Transmittal in such form as may be
reasonably specified by Chemdex. Until surrendered, each outstanding
Certificate which prior to the Effective Time represented shares of Target
Common Stock or Target Preferred Stock shall be deemed for all corporate
purposes to evidence ownership of the number of whole shares of Chemdex
Common Stock into which the shares of Target Common Stock have been
converted but shall, subject to applicable appraisal rights under Delaware
Law, have no other rights (except as provided in Section 2.6 with respect
to fractional shares, if any). Subject to applicable appraisal rights under
Delaware Law, from and after the Effective Time, the holders of shares of
Target Common Stock and Target Preferred Stock shall cease to have any
rights in respect of such shares and their rights shall be solely in
respect of the Chemdex Common Stock into which such shares of Target Common
Stock or Target Preferred Stock have been converted (except as provided in
Section 2.6 with respect to fractional shares, if any). From and after the
Effective Time, there shall be no further registration of transfers on the
records of Target of shares of Target Common Stock and Target Preferred
Stock outstanding immediately prior to the Effective Time.
(b) If any shares of Chemdex Common Stock are to be issued in the name
of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to
the issuance of such shares that (i) the Certificate(s) so surrendered
shall be transferable, and shall be properly assigned, endorsed or
accompanied by appropriate stock powers, (ii) such transfer shall otherwise
be proper and (iii) the person requesting such transfer shall pay Chemdex,
or its exchange agent, any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of Chemdex that such taxes have
been paid or are not required to be paid. Notwithstanding the foregoing,
neither Chemdex nor Target shall be liable to a holder of shares of Target
Common Stock or Target Preferred Stock for shares of Chemdex Common Stock
issuable to such holder pursuant to the provisions of Article II of this
Agreement that are delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, Chemdex shall
issue in exchange for such lost, stolen or destroyed Certificate the shares
of Chemdex Common Stock issuable in exchange therefor pursuant to the
provisions of Article II of the Agreement. The Board of Directors of
Chemdex may in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
provide to Chemdex an indemnity agreement or bond against any claim that
may be made against Chemdex with respect to the Certificate alleged to have
been lost, stolen or destroyed.
Section 2.5 Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect
to Chemdex Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Chemdex Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.6
below until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Chemdex Common Stock issued in
D-9
<PAGE>
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Chemdex Common
Stock to which such holder is entitled pursuant to Section 2.6 below and the
amount of any dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Chemdex
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Chemdex Common Stock.
Section 2.6 No Fractional Shares. No certificate or scrip representing
fractional shares of Chemdex Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Chemdex.
Notwithstanding any other provision of this Agreement, each holder of shares of
Target Common Stock or Target Preferred Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a
fraction of a share of Chemdex Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, on or
about the Closing Date, cash (without interest) in an amount equal to such
fractional part of a share of Chemdex Common Stock multiplied by the Average
Stock Price.
Section 2.7 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the
Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Treasury Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify
for financial accounting treatment as purchase accounting.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Chemdex and Sub that the statements
contained in this Article III are true and correct, except as expressly set
forth in the disclosure schedule delivered by Target to Chemdex on or before
the date of this Agreement (the "Target Disclosure Schedule"). The Target
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III.
Section 3.1 Organization of Target. Target is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or ownership or leasing of
properties makes such qualification or licensing necessary and where the
failure to be so qualified or licensed would result in a Material Adverse
Effect on the business, assets (including intangible assets), condition
(financial or otherwise), or results of operations of Target. The Target
Disclosure Schedule contains a true and complete listing of the locations of
all sales offices, development facilities, and any other offices or facilities
of Target and a true and complete list of all states in which Target maintains
any employees. The Target Disclosure Schedule contains a true and complete list
of all states in which Target is duly qualified or licensed to transact
business as a foreign corporation.
Section 3.2 Target Capital Structure.
(a) The authorized capital stock of Target consists of 25,000,000 shares
of Target Common Stock and 15,000,000 shares of Preferred Stock, of which
3,050,000 shares are designated as Series A Preferred Stock and 5,000,000
shares are designated as Series B Preferred Stock. As of the date of this
Agreement, there are (i) 5,052,212 shares of Target Common Stock issued and
outstanding, all of which are validly
D-10
<PAGE>
issued, fully paid and nonassessable and 1,925,982 shares of which are
subject to repurchase rights pursuant to agreements or arrangements between
the holder thereof and Target, (ii) 3,050,000 shares of Series A Preferred
Stock issued and outstanding, all of which are validly issued, fully paid
and nonassessable, and each share of which is convertible into one share of
Target Common Stock, (iii) 166,310 shares of Series B Preferred Stock
issuable upon conversion of the Series B Warrants, (iv) 2,522,333 shares of
Series B Preferred Stock issued or outstanding, (v) Target Options to
purchase up to 1,486,500 shares of Target Common Stock, (vi) 8,050,000
shares of Target Common Stock reserved for future issuance upon conversion
of the Target Preferred Stock, and (vii) 432,720 shares of Target Common
Stock reserved for issuance upon exercise of options available to be
granted in the future under the Target Option Plan. The issued and
outstanding shares of Target Common Stock and of Target Preferred Stock are
held of record by the stockholders of Target as set forth and identified on
Schedule 3.2(a) of the Target Disclosure Schedule. The issued and
outstanding Target Options are held of record by the option holders
identified on, in the amounts and subject to the vesting schedules set
forth on, Schedule 3.2(a) of the Target Disclosure Schedule. The issued and
outstanding Series B Warrants are held of record by the Warrant holders set
forth in Schedule 3.2(a) of the Target Disclosure Schedule. All shares of
Target capital stock subject to issuance upon the exercise of Target
Options and Series B Warrants, upon issuance on the terms and conditions
(including payment) specified in the instrument pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. All outstanding shares of Target Common Stock, Target
Preferred Stock and outstanding Target Options and Series B Warrants
(collectively "Target Securities") were issued in compliance with
applicable federal and state securities laws. Except as set forth in the
Target Disclosure Schedule, there are no obligations, contingent or
otherwise, of Target to repurchase, redeem or otherwise acquire any shares
of Target Common Stock or Target Preferred Stock or make any investment (in
the form of a loan, capital contribution or otherwise) in any other entity.
An updated Schedule 3.2(a) reflecting changes permitted by this Agreement
in the capitalization of Target between the date hereof and the Effective
Time shall be delivered by Target to Chemdex on the Closing Date.
(b) Except as set forth in this Section 3.2, there are no equity
securities of any class or series of Target, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for
issuance or outstanding. Except as set forth in this Section 3.2, there are
no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which Target is a party or by which it is
bound obligating Target to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Target or
obligating Target to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or
agreement. Except in the case of strategic investors approved in writing in
advance by Chemdex ("Strategic Investors"), Target is not in active
discussion, formal or informal, with any person or entity regarding the
issuance of any form of additional Target equity that has not been issued
or committed to prior to the date of this Agreement. Except as provided in
this Agreement and the other Transaction Documents or any transaction
contemplated hereby or thereby, there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the shares
of capital stock of Target.
(c) All Target Options have been issued in accordance with the terms of
the Target Option Plan and pursuant to the standard forms of option
agreement previously provided to Chemdex or its representatives. No Target
Option will by its terms require an adjustment in connection with the
Merger. Except as otherwise contemplated by Section 6.5(b), neither the
consummation of transactions contemplated by this Agreement or the other
Transaction Documents, nor any action taken or to be taken by Target in
connection with such transactions will result in (i) any acceleration of
vesting in favor of any optionee under any Target Option; (ii) any
additional benefits for any optionee under any Target Option; or (iii) the
inability of Chemdex after the Effective Time to exercise any right or
benefit held by Target prior to the Effective Time with respect to any
Target Option assumed by Chemdex, including, without limitation, the right
to repurchase an optionee's unvested shares on termination of such
optionee's employment. Except as otherwise contemplated by Section 6.5(b),
the assumption by Chemdex of Target Options in accordance with Section 6.5
hereunder will not (i) give the optionees additional benefits which they
did not have
D-11
<PAGE>
under their options prior to such assumption (after taking into account the
existing provisions of the options, such as their respective exercise
prices and vesting schedules) or (ii) constitute a breach of the Target
Plan or any agreement entered into pursuant to such plan.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Target has all requisite corporate power and authority to enter into
this Agreement and all Transaction Documents to which it is or will become
a party and to consummate the transactions contemplated by this Agreement
and such Transaction Documents. The execution and delivery of this
Agreement and such Transaction Documents and the consummation of the
transactions contemplated by this Agreement and such Transaction Documents
have been duly authorized by all necessary corporate action on the part of
Target, subject only to the approval of the Merger by Target's stockholders
under the provisions of Delaware Law and Target's Certificate of
Incorporation. This Agreement has been and such Transaction Documents have
been or, to the extent not executed by Target as of the date hereof, will
be duly executed and delivered by Target. This Agreement and each of the
Transaction Documents to which Target is a party constitutes, and each of
the Transaction Documents to which Target will become a party, when
executed and delivered by Target, will constitute, assuming the due
authorization, execution and delivery by the other parties hereto and
thereto, the valid and binding obligation of Target, enforceable against
Target in accordance with their respective terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity, regardless
of whether such enforceability is considered.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not, and
the consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Target, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit)
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Target is a party or by which it or any of its
properties or assets may be bound, or (iii) conflict or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties
or assets; except in the case of (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which
would not have a Material Adverse Effect on Target and its Subsidiaries,
taken as a whole.
(c) None of the execution and delivery by Target of this Agreement or of
any other Transaction Document to which Target is or will become a party or
the consummation of the transactions contemplated by this Agreement or such
Transaction Document will require any consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity"), except for (i) the filing of the
Certificate of Merger with the Delaware Secretary of State, (ii) such
consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal and state
securities laws, and (iii) such other consents, authorizations, filings,
approvals and registrations which are listed on the Target Disclosure
Schedule, or which, if not obtained, would not have a Material Adverse
Effect on Target and its Subsidiaries, taken as a whole.
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities.
(a) Target has delivered to Chemdex copies of Target's unaudited balance
sheet as of September 30, 1999 (the "Most Recent Balance Sheet") and
statements of operations for the nine-month period then-ended (together
with the Most Recent Balance Sheet, the "Target Interim Financials") and
Target's audited balance sheet as of the Audited Balance Sheet Date, and
the related audited statements of
D-12
<PAGE>
operations, stockholders' equity and cash flows for the year ended December
31, 1998 (collectively, the "Target Financial Statements").
(b) The Target Financial Statements are in accordance with the books and
records of Target and present fairly in all material respects the financial
position, results of operations and cash flows of Target as of their
historical dates and for the periods indicated subject to normal year-end
audit adjustments. The Target Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods (except as disclosed therein, and except for
the absence of footnotes in the unaudited Target Financial Statements). The
reserves, if any, reflected on the Target Financial Statements are adequate
in light of the contingencies with respect to which they were made.
(c) Target has no material debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the Most Recent
Balance Sheet, except for those that may have been incurred after the date
of the Most Recent Balance Sheet, which were incurred in the ordinary
course of business and are not material both individually and in the
aggregate to Target or its business.
Section 3.5 Tax Matters.
(a) All Returns required to be filed prior to the date hereof by or on
behalf of Target have been duly filed on a timely basis, and such Returns
are true, complete and correct in all material respects. All Taxes shown to
be payable on such Returns or on subsequent assessments with respect
thereto, and all payments of estimated Taxes required to be made prior to
the date hereof by or on behalf of Target under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in
full on a timely basis or have been accrued on the Most Recent Balance
Sheet, and no other Taxes are payable by Target with respect to items or
periods covered by such Returns (whether or not shown on or reportable on
such Returns). Target has withheld and paid over all Taxes required to have
been withheld and paid over prior to the date hereof, and complied with all
information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party. There are no liens on any of the assets of Target with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that Target is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established on the
Most Recent Balance Sheet. Target has not at any time been (i) a member of
an affiliated group of corporations filing consolidated, combined or
unitary income or franchise tax returns, or (ii) a member of any
partnership or joint venture for a period for which the statue of
limitations for any Tax potentially applicable as a result of such
membership has not expired.
(b) The amount of Target's liability for unpaid Taxes (whether actual or
contingent) for all periods through the date of the Most Recent Balance
Sheet does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes reflected on the Most Recent Balance Sheet,
and the Most Recent Balance Sheet reflects proper accrual in accordance
with generally accepted accounting principles applied on a basis consistent
with prior periods of all liabilities for Taxes payable after the date of
the Most Recent Balance Sheet attributable to transactions and events
occurring prior to such date. No material amount of taxable income or
liability for Taxes has been realized or incurred (or prior to Closing will
be realized or incurred) since such date other than in the ordinary course
of business.
(c) Chemdex has been furnished by Target with true and complete copies
of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of
Target relating to Taxes, and (ii) all federal and state income or
franchise tax Returns and state sales and use tax Returns for or including
Target for all periods since the inception of Target. Target does not do
business in or derive income from any state other than states for which
Returns have been duly filed and furnished to Chemdex.
D-13
<PAGE>
(d) [Intentionally Omitted]
(e) The Returns of or including Target have never been audited by a
government or taxing authority, nor has Target received notice that any
such audit is in process, pending or threatened (either in writing or
verbally, formally or informally). No deficiencies exist or have been
asserted (either in writing or verbally, formally or informally), and
Target has not received notice (either in writing or verbally, formally or
informally) that it has not filed a Return or paid Taxes required to be
filed or paid. Target is neither a party to any action or proceeding for
assessment or collection of Taxes, nor has such event been asserted or
threatened (either in writing or orally, formally or informally) against
Target or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Target. Target
has disclosed on its federal and state income and franchise tax Returns all
positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662 or
comparable provisions of applicable state, local, foreign or other tax
laws.
(f) Target has not been and is not required to include any material
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state, local, foreign or other Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(g) Target is not, nor has it ever been, a party to any tax sharing
agreement.
(h) Target is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code, and Chemdex is not required to withhold tax by reason of Section 1445
of the Code. Target is not a "consenting corporation" under Section 341(f)
of the Code. Target has not entered into any agreements which payment
thereunder would result in a nondeductible expense to Target pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code other than an agreement with respect
to which stockholder consent in accordance with Section 280G(b)(5) is
obtained. Target has not agreed to, nor is it required to make any
adjustment under Code Section 481(a) by reason of, a change in accounting
method. Target is not, nor has it been, a "reporting corporation" subject
to the information reporting and record maintenance requirements of Section
6038A and the regulations thereunder. Target is in compliance with the
terms and conditions of any applicable tax exemptions, agreements or orders
of any foreign government to which it may be subject or which it may have
claimed, and the transactions contemplated by this Agreement will not have
any adverse effect on such compliance.
(i) Since April 16, 1997, Target has not distributed to is stockholders
or security holders stock or securities of a controlled corporation in a
transaction to which Section 355(a) of the Code applies.
Section 3.6 Absence of Certain Changes or Events. Since the Audited Balance
Sheet Date, Target has not:
(a) suffered any change in its business, assets (including intangible
assets), condition (financial or otherwise), or results of operations that
has resulted, or could reasonably be expected to result, in a Material
Adverse Effect on Target;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to
result, in a Material Adverse Effect on Target;
(c) granted or agreed to make any increase in the compensation payable
or to become payable by Target to its officers or employees, except in the
ordinary course of business, consistent with its past practice;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Target
or declared any direct or indirect redemption, retirement, purchase or
other acquisition by Target of such shares, except pursuant to repurchase
provisions set forth in stock purchase agreements with employees and
consultants;
D-14
<PAGE>
(e) issued any shares of capital stock of Target or any warrants,
rights, options or entered into any commitment relating to the shares of
Target, except for the (i) issuance of shares of Target capital stock
pursuant to the exercise of Target Options and Series B Warrants listed in
the Target Disclosure Schedule and as permitted under Section 5.2(c), (ii)
the conversion of outstanding Target Preferred Stock, (iii) issuance of
shares of Target capital stock to Strategic Investors that is approved in
writing in advance by Chemdex, and (iv) exercise of the Series B Warrants
listed in the Target Disclosure Schedule;
(f) made any change in the accounting methods, elections or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property with an individual
net book value in excess of $10,000;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
material patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright) invention, work of
authorship, process, know-how, formula or trade secret or interest
thereunder or other intangible asset, except in the ordinary course of
business;
(i) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind (except those permitted under Section 3.7);
(j) made any capital expenditure or commitment individually in excess of
$10,000 or in the aggregate in excess of $50,000;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets, or entered into any agreement or
arrangement with, any of its Affiliates, officers, directors or
stockholders or any affiliate of any of the foregoing;
(l) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the Target
Disclosure Schedule; or
(m) agreed to take any action described in this Section 3.6 or which
would constitute a breach of any of the representations of Target contained
in this Agreement.
Section 3.7 Title and Related Matters. Target owns its properties and
assets, real and personal, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (1) the lien of
current taxes not yet due and payable, (2) minor imperfections of and
encumbrances on title, if any, as do not materially interfere with the present
use of the property affected thereby and (3) liens securing debt reflected on
the Most Recent Balance Sheet (collectively, "Permitted Encumbrances"). The
equipment of Target used in the operation of its business is, taken as a whole,
(i) adequate for the business conducted by Target and (ii) in good operating
condition and repair, ordinary wear and tear excepted. All personal property
leases to which Target is a party are valid, binding, and enforceable against
the parties thereto and in effect in accordance with their respective terms. To
the knowledge of Target, there is not under any of such leases any existing
default or event of default or event which, with notice or lapse of time or
both, would constitute a default. The Target Disclosure Schedule contains a
description of all items of personal property with an individual net book value
in excess of $2,500 and real property leased by Target, describing its interest
in said property. True and correct copies of Target's real property and
personal property leases have been provided to Chemdex or its representatives.
Section 3.8 Proprietary Rights.
(a) Target owns all right, title and interest in and to, or otherwise
possesses legally sufficient rights to use, all patents, copyrights,
technology, software, software tools, know-how, processes, trade secrets,
trademarks, service marks, trade names, Internet domain names and other
proprietary rights used in the conduct of Target's business as conducted to
the date of this Agreement and as reasonably expected to be
D-15
<PAGE>
conducted following the date hereof, including, without limitation, the
technology, information, databases, data lists, data compilations, and all
proprietary rights developed or discovered or used in connection with or
contained in all versions and implementations of Target's World Wide Web
sites (including www.SpecialtyMD.com and the other domain names listed in
the Target Disclosure Schedule) or any product which has been or is being
distributed or sold by Target or currently is under development by Target
or has previously been under development by Target (collectively, including
such Web sites, the "Target Products"), free and clear of all liens, claims
and encumbrances (including without limitation licensing and distribution
rights) other than Permitted Encumbrances (all of which are referred to as
"Target Proprietary Rights"). The Target Disclosure Schedule contains an
accurate and complete (i) description of all patents, trademarks (with
separate listings of registered and unregistered trademarks), trade names,
Internet domain names and registered copyrights in or related to the Target
Products or otherwise included in the Target Proprietary Rights and all
applications and registration statements therefor, including the
jurisdictions in which each such Target Proprietary Right has been issued
or registered or in which any such application of such issuance and
registration has been filed, (ii) list of all licenses and other agreements
with third parties except off-the-shelf software (the "Third Party
Licenses") relating to any material patents, copyrights, trade secrets,
software, inventions, technology, know-how, processes or other proprietary
rights that Target is licensed or otherwise authorized by such third
parties to use, market, distribute or incorporate in Target Products (such
patents, copyrights, trade secrets, software, inventions, technology, know-
how, processes or other proprietary rights are collectively referred to as
the "Third Party Technology") and (iii) list of all licenses and other
agreements with third parties relating to any material information,
compilations, data lists or databases that Target is licensed or otherwise
authorized by such third parties to use, market, disseminate distribute or
incorporate in Target Products. All of Target's patents, copyrights,
trademarks, trade names or Internet domain name registrations related to or
in the Target Products are valid and in full force and effect, and
consummation of the transactions contemplated by this Agreement will not
alter or impair any such rights. No claims have been asserted or threatened
against Target (and Target is not aware of any claims which are likely to
be asserted or threatened against Target or which have been asserted or
threatened against others relating to Target Proprietary Rights or Target
Products) by any person challenging Target's use, possession, manufacture,
sale or distribution of Target Products under any Target Proprietary Rights
(including, without limitation, the Third Party Technology) or challenging
or questioning the validity or effectiveness of any material license or
agreement relating thereto (including, without limitation, the Third Party
Licenses) or alleging a violation of any person's or entity's privacy,
personal or confidentiality rights. Target knows of no valid basis for any
claim of the type specified in the immediately preceding sentence which
could in any material way relate to or interfere with the continued
enhancement and exploitation by Target of any of the Target Products. None
of the Target Products nor the use or exploitation of any Target
Proprietary Rights in Target's current business infringes on the rights of
or constitutes misappropriation of any proprietary information or
intangible property right of any third person or entity, including without
limitation any patent, trade secret, copyright, trademark or trade name,
and except as set forth on the Target Disclosure Schedule, Target has not
been sued or named in any suit, action or proceeding which involves a claim
of such infringement, misappropriation or unfair competition.
(b) Target has not granted any third party any right to reproduce,
distribute, market or exploit any of the Target Products or any
adaptations, translations, or derivative works based on the Target Products
or any portion thereof. Except with respect to the rights of third parties
to the Third Party Technology, no third party has any express right to
reproduce, distribute, market or exploit any works or materials of which
any of the Target Products are a "derivative work" as that term is defined
in the United States Copyright Act, Title 17, U.S.C. Section 101.
(c) All material designs, drawings, specifications, source code, object
code, scripts, documentation, flow charts, diagrams, data lists, databases,
compilations and information incorporating, embodying or reflecting any of
the Target Products at any stage of their development (the "Target
Components") were written, developed and created solely and exclusively by
employees of Target without the assistance of
D-16
<PAGE>
any third party or entity or were created by third parties who assigned
ownership of their rights to Target by means of valid and enforceable
confidentiality and invention assignment agreements, copies of which have
been delivered to Chemdex. Target has at all times used commercially
reasonable efforts customary in its industry to treat the Target
Proprietary Rights related to Target Products and Target Components as
containing trade secrets and has not disclosed or otherwise dealt with such
items in a manner intended or reasonably likely to cause the loss of such
trade secrets by release into the public domain.
(d) To Target's knowledge, after due investigation, no employee,
contractor or consultant of Target is in violation in any material respect
of any term of any written employment contract, patent disclosure agreement
or any other written contract or agreement relating to the relationship of
any such employee, consultant or contractor with Target or, to Target's
knowledge, any other party because of the nature of the business conducted
by Target or proposed to be conducted by Target. The Target Disclosure
Schedule lists all employees, contractors and consultants who have
participated in any way in the development of any material portion of the
Target Products or the Target Proprietary Rights.
(e) Each person presently or previously employed by Target (including
independent contractors, if any) with access authorized by Target to
confidential information of Target has executed a confidentiality and non-
disclosure agreement pursuant to the form of agreement previously provided
to Chemdex or its representatives.
(f) No product liability or warranty claims have been communicated in
writing to or threatened against Target.
(g) To Target's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Target Proprietary
Rights, or any Third Party Technology to the extent licensed by or through
Target, by any third party, including any employee or former employee of
Target. Target has not entered into any agreement to indemnify any other
person against any charge of infringement of any Target Proprietary Rights,
other than indemnification agreements contained in Target's standard form
of license agreement in the ordinary course of business.
(h) Target has taken all steps customary and reasonable in the industry
to protect and preserve the confidentiality and proprietary nature of all
Intellectual Property and other confidential information not otherwise
protected by patents, patent applications or copyright ("Confidential
Information"). All use, disclosure or appropriation by Target or, to the
best knowledge of Target, by another party pursuant to rights granted to it
by Target, of Confidential Information owned by Target to a third party has
been pursuant to the terms of a written agreement between Target and such
third party. All use, disclosure or appropriation by Target of Confidential
Information not owned by Target has been pursuant to the terms of a written
agreement between Target and the owner of such Confidential Information, or
is otherwise lawful.
Section 3.9 Employee Benefit Plans.
(a) The Target Disclosure Schedule lists, with respect to Target and any
trade or business (whether or not incorporated) which is treated as a
single employer with Target (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans
(as defined in Section 3(3) of ERISA), (ii) each loan to a non-officer
employee, loans to officers and directors and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability, employee
relocation, cafeteria benefit (Code Section 125) or dependent care (Code
Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to
senior management of Target and that do not generally apply to all
employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise,
D-17
<PAGE>
for the benefit of, or relating to, any present or former employee,
consultant or director of Target as to which (with respect to any of items
(i) through (v) above) any potential material liability is borne by Target
(together, the "Target Employee Plans").
(b) Target has delivered to Chemdex or its representatives a copy of
each of the Target Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and, to the
extent still in its possession, any material employee communications
relating thereto) and has, with respect to each Target Employee Plan which
is subject to ERISA reporting requirements, provided copies of any Form
5500 reports filed for the last three plan years. Any Target Employee Plan
intended to be qualified under Section 401(a) of the Code has either
obtained from the Internal Revenue Service a favorable determination letter
as to its qualified status under the Code, including all amendments to the
Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to the Internal Revenue Service for such a determination,
notification or opinion letter prior to the expiration of the requisite
period under applicable Treasury Regulations or Internal Revenue Service
pronouncements in which to apply for such determination, notification or
opinion letter and to make any amendments necessary to obtain a favorable
determination. Target has also furnished Chemdex with the most recent
Internal Revenue Service determination, notification or opinion letter
issued with respect to each such Target Employee Plan, and nothing has
occurred since the issuance of each such letter which could reasonably be
expected to cause the loss of the tax-qualified status of any Target
Employee Plan subject to Code Section 401(a).
(c) Except as required by Section 4980B of the Code and Section 601 of
ERISA, (i) none of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Target Employee
Plan; (iii) each Target Employee Plan has been administered in all material
respects in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), and Target and each subsidiary or ERISA
Affiliate have performed all material obligations required to be performed
by them under, are not in any material respect in default, under or
violation of, and have no knowledge of any material default or violation by
any other party to, any of the Target Employee Plans; (iv) neither Target
nor any subsidiary or ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA
with respect to any of the Target Employee Plans; (v) all contributions
required to be made by Target or any subsidiary or ERISA Affiliate to any
Target Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Target
Employee Plan for the current plan years; (vi) with respect to each Target
Employee Plan, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of ERISA)
nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred; and (vii) no Target Employee Plan is covered by, and neither
Target nor any subsidiary or ERISA Affiliate has incurred or expects to
incur any material liability under Title IV of ERISA or Section 412 of the
Code. With respect to each Target Employee Plan subject to ERISA as either
an employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed) and
has properly and timely filed and distributed or posted all notices and
reports to employees required to be filed, distributed or posted with
respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the
knowledge of Target is threatened, against or with respect to any such
Target Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. Neither Target nor any ERISA Affiliate is a
party to, or has made any contribution to or otherwise incurred any
obligation under, any "multi-employer plan" as defined in Section 3(37) of
ERISA.
D-18
<PAGE>
(d) With respect to each Target Employee Plan, Target has complied in
all material respects with (i) the applicable health care continuation and
notice provisions of COBRA and the proposed regulations thereunder, (ii)
the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder, and (iii) the applicable requirements of HIPAA and
the temporary regulations thereunder.
(e) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service
provider of Target or any other ERISA Affiliate to severance benefits or
any other payment (including, without limitation, unemployment
compensation, golden parachute or bonus), except as expressly provided in
this Agreement, or (ii) accelerate the time of payment or vesting of any
such benefits, or (iii) increase or accelerate any benefits or the amount
of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target
Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for
the most recent fiscal year included in the Target Financial Statements.
Section 3.10 Bank Accounts. The Target Disclosure Schedule sets forth the
names and locations of all banks, trust companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 Contracts.
(a) Except for the contracts listed in Schedule 3.11(a) to the Target
Disclosure Schedule (the "Material Contracts"):
(i) Target has no agreements, contracts or commitments that provide
for the sale, licensing or distribution by Target of any Target
Products or Target Proprietary Rights. Without limiting the foregoing,
except as set forth on the Target Disclosure Schedule, Target has not
granted to any third party (including, without limitation, original
equipment manufacturers ("OEMs") and site-license customers) any rights
to reproduce, manufacture or distribute any of the Target Products, nor
has Target granted to any third party any exclusive rights of any kind
(including, without limitation, exclusivity with regard to categories
of advertisers on Target's World Wide Web site, territorial exclusivity
or exclusivity with respect to particular versions, implementations or
translations of any of the Target Products), nor has Target granted any
third party any right to market any of the Target Products under any
private label or "OEM" arrangements, nor has Target granted any license
of any Target trademarks or service marks.
(ii) Target has no Third Party Licenses.
(iii) Target has no agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to Target in
excess of $10,000 (including, without limitation, any advertising or
revenue sharing arrangement).
(iv) Target has no outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion
orders, slotting agreements or other agreements under which Target has
allowed third parties to advertise on or otherwise be included in
Target's World Wide Web sites) that Target currently expects to result
in any loss to Target upon completion or performance thereof.
(v) Target has no outstanding agreements, contracts or commitments
with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable
by Target "at will" and without liability, penalty or premium.
D-19
<PAGE>
(vi) Target has no employment, independent contractor or similar
agreement, contract or commitment that is not terminable on thirty (30)
days' notice or less without penalty, liability or premium of any type,
including, without limitation, severance or termination pay.
(vii) Target has no currently effective collective bargaining or
union agreements, contracts or commitments.
(viii) Target is not restricted by agreement from competing with any
person or from carrying on its business anywhere in the world.
(ix) Target has not guaranteed any obligations of other persons or
made any agreements to acquire or guarantee any obligations of other
persons.
(x) Target has no outstanding loan or advance to any person; nor is
it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort which would permit the
borrowing by Target of any sum.
(xi) Target has no agreements pursuant to which Target has agreed to
manufacture for, supply to or distribute to any third party any Target
Products or Target Components.
True and correct copies of each document or instrument listed on the Target
Disclosure Schedule pursuant to this Section 3.11(a) have been provided to
Chemdex or its representatives.
(b) All of the Material Contracts listed on the Target Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by
Target in accordance with their respective terms. Except as disclosed in
the Target Disclosure Schedule, no Material Contract contains any
liquidated damages, penalty or similar provision. To the knowledge of
Target, no party to any such Material Contract intends to cancel, withdraw,
modify or amend such contract, agreement or arrangement.
(c) Target is not in default under or in breach or violation of, nor, to
Target's knowledge, is there any valid basis for any claim of default by
Target under, or breach or violation by Target of, any material provision
of any Material Contract. To Target's knowledge, no other party is in
default under or in breach or violation of, nor is there any valid basis
for any claim of default by any other party under or any breach or
violation by any other party of, any Material Contract.
(d) Except as specifically indicated on the Target Disclosure Schedule,
none of the Material Contracts provides for indemnification by Target of
any third party. No claims have been made or threatened that would require
indemnification by Target, and Target has not paid any amounts to indemnify
any third party as a result of indemnification requirements of any kind.
Section 3.12 Compliance With Law. Target and the operation of its business
are in compliance in all material respects with all applicable laws and
regulations material to the operation of its business. Neither Target nor, to
Target's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property,
however characterized, to any finder, agent, government official or other party
in the United States or any other country, that was or is in violation of any
federal, state, or local statute or law or of any statute or law of any other
country having jurisdiction. Target has not participated directly or indirectly
in any boycotts or other similar practices affecting any of its customers.
Target has complied in all material respects at all times with any and all
applicable federal, state and foreign laws, rules, regulations, proclamations
and orders relating to the importation or exportation of its products, except
for such noncompliance as would not in the aggregate reasonably be expected to
have a Material Adverse Effect on Target. Target has complied with all
applicable federal, state and local laws, and regulations relating to the
collection and use of user information gathered in the course of Target's
operations, and Target has at all times complied with all rules, policies and
procedures established by Target from time to time with respect to the
foregoing.
D-20
<PAGE>
Section 3.13 Labor Difficulties; No Discrimination.
(a) Target is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and
hours. There is no unfair labor practice complaint against Target actually
pending or, to the knowledge of Target, threatened before the National
Labor Relations Board. There is no strike, labor dispute, slowdown, or
stoppage actually pending or, to the knowledge of Target, threatened
against Target. To the knowledge of Target, no union organizing activities
are taking place with respect to the business of Target. No grievance, or
any arbitration proceeding arising out of or under any collective
bargaining agreement is pending and, to the knowledge of Target, no claims
therefor exist. No collective bargaining agreement that is binding on
Target restricts it from relocating or closing any of its operations.
Target has not experienced any material work stoppage or other material
labor difficulty.
(b) There is and has not been any claim against Target or its officers
or employees, or to Target's knowledge, threatened against Target or its
officers or employees, based on actual or alleged race, age, sex,
disability or other harassment or discrimination, or similar tortious
conduct, or based on actual or alleged breach of contract with respect to
any person's employment by Target, nor, to the knowledge of Target, is
there any basis for any such claim.
(c) There are no pending claims against Target under any workers
compensation plan or policy or for long term disability. Target has no
material obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder. There are no proceedings pending or,
to the knowledge of Target, threatened, between Target and any of its
employees, which proceedings have or could reasonably be expected to have a
Material Adverse Effect on Target.
Section 3.14 Insider Transactions. To the knowledge of Target, no Affiliate
of Target has any interest in any equipment or other property, real or
personal, tangible or intangible of Target, including, without limitation, any
Target Proprietary Rights or any creditor, supplier, customer, manufacturer,
agent, representative, or distributor of Target Products; provided, however,
that no such Affiliate or other person shall be deemed to have such an interest
solely by virtue of the ownership of less than 1% of the outstanding stock or
debt securities of any publicly-held company, the stock or debt securities of
which are traded on a recognized stock exchange or quoted on the Nasdaq Stock
Market.
Section 3.15 Employees, Independent Contractors and Consultants. The Target
Disclosure Schedule lists all past and all currently effective written or oral
consulting, independent contractor and/or employment agreements and other
material agreements concluded with individual employees, independent
contractors or consultants to which Target is a party. True and correct copies
of all such written agreements have been provided to Chemdex or its
representatives. All independent contractors have been properly classified as
independent contractors for the purposes of federal and applicable state tax
laws, laws applicable to employee benefits and other applicable law. All
salaries and wages paid by Target are in compliance in all material respects
with applicable federal, state and local laws. Also shown on the Target
Disclosure Schedule are the names, positions and salaries or rates of pay,
including bonuses, of all persons presently employed by Target.
Section 3.16 Insurance. The Target Disclosure Schedule contains a list of
the principal policies of fire, liability and other forms of insurance
currently or previously held by Target, and all claims made by Target under
such policies. To the knowledge of Target, Target has not done anything, either
by way of action or inaction, which might invalidate such policies in whole or
in part. There is no claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and Target is otherwise in compliance with the terms
of such policies and bonds in all material respects. Target has no knowledge of
any threatened termination of, or material premium increase with respect to,
any of such policies.
D-21
<PAGE>
Section 3.17 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target,
threatened against Target or any of its properties or any of its officers or
directors (in their capacities as such). There is no judgment, decree or order
against Target, or, to the knowledge of Target, any of its directors or
officers (in their capacities as such). To Target's knowledge, no circumstances
exist that could reasonably be expected to result in a claim against Target as
a result of the conduct of Target's business (including, without limitation,
any claim of infringement of any intellectual property right).
Section 3.18 Governmental Authorizations and Regulations. Target has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Target's business or
the holding of any such interest, and all of such authorizations are in full
force and effect, except when the failure to obtain such authorization could
not be reasonably expected to have a Material Adverse Effect.
Section 3.19 Subsidiaries. Target has no Subsidiaries. Target does not own
or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and Target does not control (directly or
indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
Section 3.20 Compliance with Environmental Requirements. Target has obtained
all permits, licenses and other authorizations which are required under
federal, state and local laws applicable to Target and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes or which are intended to assure the safety of employees,
workers or other persons, except where the failure to obtain such
authorizations could not be reasonably expected to have a Material Adverse
Effect. Target is in compliance in all material respects with all terms and
conditions of all such permits, licenses and authorizations. There are no
conditions, circumstances, activities, practices, incidents, or actions known
to Target which could reasonably be expected to form the basis of any claim,
action, suit, proceeding, hearing, or investigation of, by, against or relating
to Target, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic substance, material or waste, or
relating to the safety of employees, workers or other persons.
Section 3.21 Trade Regulation. All of the prices charged by Target in
connection with the marketing or sale of any products or services have been in
compliance in all material respects with all applicable laws and regulations.
No claims have been threatened in writing against Target with respect to
wrongful termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other violation of any laws or regulations relating to anti-competitive
practices or unfair trade practices of any kind, and to Target's knowledge, no
specific situation, set of facts, or occurrence provides any basis for any such
claim.
Section 3.22 Year 2000 Compliance. Except as would not reasonably be
expected to have a Material Adverse Effect on Target, all Information
Technology (as defined below) developed by or for Target effectively addresses
the Year 2000 issue and will not cause an interruption in the ongoing
operations of Target's business on or after January 1, 2000, and Target has
received assurances from all of its vendors that all Information Technology
provided to Target by its vendors, effectively addresses the Year 2000 issue
and will not cause an interruption in the ongoing operations of Target's
business on or after January 1, 2000. For purposes of the foregoing, the term
"Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or
D-22
<PAGE>
services that are owned or used by a party hereto in the conduct of its
business, or purchased by a party hereto from third party suppliers. In
addition, none of the Target Products and Target Components will cause an
interruption in the ongoing operations of any customer of Target or of the
combined company on or after January 1, 2000.
Section 3.23 Corporate Documents. Target has furnished to Chemdex or its
representatives: (a) copies of its Certificate of Incorporation and Bylaws, as
amended to date; (b) its minute book containing consents, actions, and meetings
of the stockholders, the board of directors and any committees thereof; (c) all
material permits, orders, and consents issued by any regulatory agency with
respect to Target, or any securities of Target, and all applications for such
permits, orders, and consents; and (d) the stock transfer books of Target
setting forth all transfers of any capital stock. The corporate minute books,
stock certificate books, stock registers and other corporate records of Target
are complete and accurate, and the signatures appearing on all documents
contained therein are the true or facsimile signatures of the persons
purporting to have signed the same.
Section 3.24 No Brokers. Neither Target nor, to Target's knowledge, any
Target stockholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of
this Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
Section 3.25 Target Action. The Board of Directors of Target, by unanimous
written consent or at a meeting duly called and held, has by the unanimous vote
of all directors (i) determined that the Merger is fair and in the best
interests of Target and its stockholders, (ii) approved the Merger and this
Agreement in accordance with the provisions of Delaware Law, and (iii) directed
that this Agreement and the Merger be submitted to Target stockholders for
their approval and resolved to recommend that Target stockholders vote in favor
of the approval of this Agreement and the Merger.
Section 3.26 Offers. Target has suspended or terminated, and has the legal
right to terminate or suspend, all negotiations and discussions of Acquisition
Transactions (as defined in Section 5.5) with parties other than Chemdex.
Section 3.27 Disclosure. No statements by Target contained in this
Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to
be delivered by Target to Chemdex or Sub under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Target has disclosed to
Chemdex all material information of which it is aware relating specifically to
the operations and business of Target as of the date of this Agreement or the
transactions contemplated by this Agreement.
Section 3.28 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Target for inclusion in the Form S-4 (or any similar
successor form thereto) Registration Statement (the "Registration Statement")
to be filed with the Commission accordance with the Securities Act in
connection with the Merger, shall not at the time the Registration Statement
becomes effective under the Securities Act contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The information
supplied by Target for inclusion in the proxy statement/prospectus to be sent
to the stockholders of Target in connection with the meeting of Target's
stockholders to consider the approval and adoption of this Agreement and the
approval of the Merger (the "Target Stockholders' Meeting") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
("Proxy Statement/Prospectus") shall not, on the date the Proxy
Statement/Prospectus is first mailed to Target's stockholders or at the time of
the Target Stockholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
D-23
<PAGE>
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to Target or any of its affiliates, officers or directors should be
discovered by Target which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus,
Target shall promptly inform Chemdex. Notwithstanding the foregoing, Target
makes no representation or warranty with respect to any information supplied by
Chemdex or Sub that is contained in any of the foregoing documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHEMDEX AND SUB
Chemdex and Sub jointly and severally represent and warrant to Target that,
except as disclosed in a filing with the Commission as of the date of this
Agreement, the statements contained in this Article IV are true and correct.
Section 4.1 Organization of Chemdex and Sub. Each of Chemdex and its
Subsidiaries, including Sub, is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power to own, lease and operate
its property and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Material Adverse Effect on Chemdex or Sub. The authorized capital stock of Sub
consists of 1,000 shares of Common Stock, all of which are issued and
outstanding, duly paid and nonassessable and are owned by Chemdex free and
clear of all liens, charges and encumbrances.
Section 4.2 Capitalization.
(a) The authorized capital stock of Chemdex consists of 175,000,000
shares of Common Stock, par value $0.00002 per share ("Chemdex Common
Stock"), and 2,500,000 shares of undesignated Preferred Stock, par value
$0.00002 per share ("Chemdex Preferred Stock"). As of December 10, 1999,
there were (i) 32,783,152 shares of Chemdex Common Stock issued and
outstanding, all of which are validly issued, fully paid and non-
assessable, (ii) no shares of Chemdex Preferred Stock issued or
outstanding; (iii) options ("Chemdex Options") to purchase up to 2,723,552
shares of Chemdex Common Stock; (iv) warrants ("Chemdex Warrants") to
purchase up to 179,999 shares of Chemdex Common Stock; (vi) [2,500,000]
shares of Chemdex Common Stock reserved for future issuance upon conversion
of the Chemdex Preferred Stock; and (vii) 1,190,678shares of Chemdex Common
Stock reserved for issuance upon exercise of options available to be
granted in the future under the Chemdex 1998 Stock Plan ("Chemdex Stock
Plan"). All shares of Chemdex Common Stock subject to issuance upon the
exercise of Chemdex Options, upon issuance on the terms and conditions
(including payment) specified in the instrument pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. All outstanding shares of Chemdex Common Stock, outstanding
Chemdex Options [and outstanding Chemdex Warrants] (collectively "Chemdex
Securities") were issued in compliance with applicable federal and state
securities laws. There are no obligations, contingent or otherwise, of
Chemdex to repurchase, redeem or otherwise acquire any shares of Chemdex
Common Stock or Chemdex Preferred Stock or make any investment (in the form
of a loan, capital contribution or otherwise) in any other entity.
(b) There are no equity securities of any class or series of Chemdex, or
any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. There are no options,
warrants, equity securities, calls, rights, commitments or agreements of
any character to which Chemdex is a party or by which it is bound
obligating Chemdex to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Chemdex or
obligating Chemdex to grant,
D-24
<PAGE>
extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement. Except as provided
in this Agreement and the other Transaction Documents, or any transaction
contemplated hereby or thereby, there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the shares
of capital stock of Chemdex.
(c) All Chemdex Options have been issued in accordance with the terms of
the Chemdex Stock Plan and pursuant to the standard forms of option
agreement.
(d) The shares of Chemdex's Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-
assessable and no person will have any preemptive right of subscription or
purchase in respect thereof.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of Chemdex and Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents
to which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The
execution and delivery of this Agreement and such Transaction Documents and
the consummation of the transactions contemplated by this Agreement and
such Transaction Documents have been duly authorized by all necessary
corporate action on the part of Chemdex and Sub. This Agreement has been
and such Transaction Documents have been or, to the extent not executed as
of the date hereof, will be duly executed and delivered by Chemdex and Sub.
This Agreement and each of the Transaction Documents to which Chemdex or
Sub is a party constitutes, and each of the Transaction Documents to which
Chemdex or Sub will become a party when executed and delivered by Chemdex
or Sub will constitute, a valid and binding obligation of Chemdex or Sub,
enforceable by Target against Chemdex or Sub, as the case may be, in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered.
(b) The execution and delivery by Chemdex or Sub of this Agreement and
the Transaction Documents to which it is or will become a party does not,
and consummation of the transactions contemplated by this Agreement or the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Chemdex or Sub, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse
of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material
benefit) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, contract or other agreement, instrument
or obligation to which Chemdex or Sub is a party or by which either of them
or any of their properties or assets may be bound, or (iii) conflict or
violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Chemdex
or Sub or any of their properties or assets, except in the case of (ii) and
(iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have a Material Adverse
Effect on Chemdex and its Subsidiaries, taken as a whole.
(c) Neither the execution and delivery of this Agreement by Chemdex or
Sub or the Transaction Documents to which Chemdex or Sub is or will become
a party or the consummation of the transactions contemplated hereby or
thereby will require any consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, except
for (i) the filing of the Certificate of Merger with the Delaware Secretary
of State, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country, and
(iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, could be expected to have a
Material Adverse Effect on Chemdex and its Subsidiaries, taken as a whole.
D-25
<PAGE>
Section 4.4 Commission Filings; Financial Statements.
(a) Chemdex has filed with the Commission and made available, and will
continue to make available, to Target or its representatives all forms,
reports and documents required to be filed by Chemdex with the Commission
since July 26, 1999 until the Closing (collectively, the "Chemdex
Commission Reports"). The Chemdex Commission Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, (the "Securities Act"), and the
Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated in
such Chemdex Commission Reports or necessary in order to make the
statements in such Chemdex Commission Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any
related notes) contained in the Chemdex Commission Reports, including any
Chemdex Commission Reports filed after the date of this Agreement until the
Closing, complied or will comply as to form in all material respects with
the applicable published rules and regulations of the Commission with
respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission) and fairly presented the consolidated financial
position of Chemdex and its Subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
Section 4.5 Compliance with Laws. Chemdex has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which would not have a Material Adverse
Effect on Chemdex and its Subsidiaries, taken as a whole.
Section 4.6 Interim Operations of Sub. Sub was formed by Chemdex solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement. Sub has no liabilities and, except for a
subscription agreement pursuant to which all of its authorized capital stock
was issued to Chemdex, is not a party to any agreement other than this
Agreement.
Section 4.7 Disclosure. No statements by Chemdex contained in this
Agreement, its exhibits and schedules, or any of the certificates or documents,
including any of the Transaction Documents, required to be delivered by Chemdex
or Sub to Target under this Agreement contain any untrue statement of material
fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
Section 4.8 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Chemdex or Sub for inclusion in the Registration
Statement shall not at the time the Registration Statement becomes effective
under the Securities Act contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The information supplied by Chemdex or Sub for
inclusion in the Proxy Statement/Prospectus shall not, on the date the Proxy
Statement/Prospectus is first mailed to Target's stockholders or at the time of
the Target Stockholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Stockholders' Meeting which has become false or
D-26
<PAGE>
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. If at any time prior to the Effective
Time any event relating to Chemdex, Sub or any of their affiliates, officers or
directors should be discovered by Chemdex or Sub which is required to be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement/Prospectus, Chemdex shall promptly inform Target.
Notwithstanding the foregoing, Chemdex makes no representation or warranty with
respect to any information supplied by Target that is contained in any of the
foregoing documents.
Section 4.9 No Brokers. None of Chemdex, Sub or, to Chemdex's knowledge, any
Chemdex stockholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of
this Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
Section 4.10 Chemdex Action. The Board of Directors of Chemdex, by unanimous
written consent or at a meeting duly called and held, has by the unanimous vote
of all directors (i) determined that the Merger is fair and in the best
interests of Chemdex and its stockholders, (ii) approved the Merger and this
Agreement in accordance with the provisions of Delaware Law, and (iii) directed
that this Agreement and the Merger be submitted to Chemdex stockholders for
their approval and resolved to recommend that Chemdex stockholders vote in
favor of the approval of this Agreement and the Merger.
Section 4.11 Offers. Chemdex has suspended or terminated, and has the legal
right to terminate or suspend, all negotiations and discussions of any Chemdex
Acquisition Transactions (as defined in Section 6.10) with parties other than
Target.
Section 4.12 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Chemdex,
threatened against Chemdex or any of its properties or any of its officers or
directors (in their capacities as such) that would be reasonably likely to
materially interfere or delay Chemdex's ability to consummate the transactions
contemplated by this Agreement.
Section 4.13 Absence of Certain Changes or Events. Since June 30, 1999,
Chemdex has not:
(a) suffered any circumstance that resulted, or is reasonably expected
to result in a Material Adverse Effect to Chemdex;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to
result, in a Material Adverse Effect on Chemdex;
(c) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Chemdex
or declared any direct or indirect redemption, retirement, purchase or
other acquisition by Chemdex of such shares, except pursuant to repurchase
provisions set forth in stock purchase agreements with employees and
consultants; or
(d) agreed to take any action described in this Section 4.13 or which
would constitute a breach of any of the representations of Chemdex
contained in this Agreement.
D-27
<PAGE>
ARTICLE V
PRECLOSING COVENANTS OF TARGET
Section 5.1 Advice of Changes. Target will promptly advise Chemdex in
writing of any event known to Target occurring subsequent to the date of this
Agreement which would render any representation or warranty of Target contained
in this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect.
Section 5.2 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, Target agrees (except to the extent that Chemdex shall
otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted,
to pay its debts and taxes when due, subject to good faith disputes over such
debts or taxes, to pay or perform other obligations when due, and, to the
extent consistent with such business, use all reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, to the end
that its goodwill and ongoing businesses would be unimpaired at the Effective
Time. Target shall promptly notify Chemdex of any event or occurrence not in
the ordinary course of business of Target. Except as expressly contemplated by
this Agreement or the Target Disclosure Schedule, Target shall not, without the
prior written consent of Chemdex:
(a) except as otherwise contemplated by Section 6.5(b), accelerate,
amend or change the period of exercisability or the vesting schedule of
Target Restricted Shares or Target Options granted under any employee stock
plan or agreements or authorize cash payments in exchange for any Target
Restricted Shares or Target Options granted under any of such plans except
as specifically required by the terms of such plans or any related
agreements or any such agreements in effect as of the date of this
Agreement and disclosed in the Target Disclosure Schedule;
(b) declare or pay any dividends on or make or agree to make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of such party, or
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service by such party;
(c) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than (i) the issuance of (A)
shares of Target Common Stock issuable upon exercise of Target Options, or
(B) shares of Target Common Stock issuable upon conversion of shares of
Target Preferred Stock; (ii) the repurchase of shares of Common Stock from
terminated employees pursuant to the terms of outstanding stock restriction
or similar agreements; or (iii) the grant of options or issuance of
restricted stock under the Target Stock Option Plan at fair market value in
the ordinary course of business in accordance with prior practice.
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets;
(e) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Target, except nonexclusive licenses of Target's products and
services in the ordinary course of business consistent with past practice;
D-28
<PAGE>
(f) other than in the ordinary course of business, (i) increase or agree
to increase the compensation payable or to become payable to its officers
or employees (except to non-officer employees in the ordinary course of
business consistent with past practice), (ii) grant any additional
severance or termination pay to, or enter into any employment or severance
agreements with, officers, employees or agents or (iii) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) enter into any collective bargaining agreement;
(h) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(i) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others;
(j) amend or propose to amend its Certificate of Incorporation or
Bylaws;
(k) incur or commit to incur any capital expenditures in excess of
$50,000 in the aggregate or in excess of $25,000 as to any individual
matter;
(l) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, Target Proprietary Right or other property associated
with the business of Target (including sales or transfers to Affiliates of
Target), except nonexclusive licenses of Target's products and services in
the ordinary course of business consistent with prior practice;
(m) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business
consistent with past practice;
(n) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the
date of this Agreement, subject only to ordinary wear and tear;
(o) change accounting methods;
(p) amend or terminate any material contract, agreement or license to
which it is a party;
(q) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(r) waive or release any material right or claim;
(s) make or change any Tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any amended
Return, enter into any closing agreement, settle any Tax claim or
assessment relating to Target, surrender any right to claim refund of
Taxes, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment relating to Target;
(t) take any action or fail to take any action that would cause there to
be a Material Adverse Effect to Target;
(u) enter into any agreement outside of the ordinary course of business
in which the obligation of Target exceeds $50,000 or shall not terminate or
be subject to termination for convenience within 180 days following
execution;
(v) enter into any agreement not in the ordinary course of business;
(w) allow any intellectual property deadline, registrations or
applications to lapse; or
(x) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (v) above, or any action which is
reasonably likely to make any of Target's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
D-29
<PAGE>
Section 5.3 Access to Information. Until the Closing, Target shall allow
Chemdex and its agents reasonable free access during normal business hours upon
reasonable notice to its files, books, records, and offices, including, without
limitation, any and all information relating to taxes, commitments, contracts,
leases, licenses, personnel, and personal property and financial condition and
such other information and data requested by Chemdex or its agents. Until the
Closing, Target shall cause its accountants to cooperate with Chemdex and its
agents in making available all financial information requested, including
without limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants. No information or
knowledge obtained in any investigation pursuant to this Section shall affect
or be deemed to modify any representation or warranty contained in this
Agreement or its exhibits and schedules. All such access shall be subject to
the terms of the Confidentiality Agreement (as defined in Section 7.1).
Section 5.4 Satisfaction of Conditions Precedent. Target will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Sections 8.1 and 8.2, and Target will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated by this Agreement, and
any and all consents necessary with respect to those Material Contracts listed
on Schedule 5.4 of the Target Disclosure Schedule required to consummate the
Merger (collectively, such authorizations, notices and consents are referred to
herein as the "Material Consents").
Section 5.5 Other Negotiations. Except with respect to Strategic Investors
who have been approved in advance by Chemdex, following the date hereof and
until termination of this Agreement pursuant to Section 9.1, Target will not
(and it will not permit any of its officers, directors, employees, agents and
Affiliates on its behalf to) take any action to solicit, initiate, seek,
encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than Chemdex) regarding any
acquisition of Target, any merger or consolidation with or involving Target, or
any acquisition of any material portion of the assets of Target, or any
acquisition of any capital stock of Target, or any material license of Target
Proprietary Rights (any of the foregoing being referred to in this Agreement as
an "Acquisition Transaction") or enter into an agreement concerning any
Acquisition Transaction with any party other than Chemdex. If between the date
of this Agreement and the termination of this Agreement pursuant to Section
9.1, Target receives from a third party any offer or indication of interest
regarding any Acquisition Transaction, or any request for information regarding
any Acquisition Transaction, Target shall (i) notify Chemdex immediately
(orally and in writing) of such offer, indication of interest or request,
including the identity of such party and the full terms of any proposal
therein, and (ii) notify such third party of Target's obligations under this
Agreement (without any reference to Chemdex). Notwithstanding the foregoing,
nothing in this Section 5.5 shall be construed to restrict the ability of the
Target Board of Directors to take such actions in connection with any proposed
Acquisition Transactions that such Board reasonably determines in good faith to
be required to permit it to discharge properly its fiduciary duties, provided
that Target shall give Chemdex prior notice of any such actions, and provided,
further, this qualification shall in no way affect the obligations of Target
and the Target Board of Directors pursuant to Section 7.1.
D-30
<PAGE>
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF CHEMDEX AND SUB
Section 6.1 Advice of Changes. Chemdex and Sub will promptly advise Target
in writing of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of Chemdex or Sub contained
in this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect.
Section 6.2 Reservation of Chemdex Common Stock. Chemdex shall prior to the
Effective Time reserve for issuance, out of its authorized but unissued capital
stock, the maximum number of shares of Chemdex Common Stock as may be issuable
upon consummation of the Merger.
Section 6.3 Satisfaction of Conditions Precedent. Chemdex and Sub will use
their best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.3, and Chemdex and Sub will
use their best efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions
contemplated hereby.
Section 6.4 Nasdaq National Market Listing. Chemdex shall prior to the
Effective Time cause the shares of Chemdex Common Stock issuable to the
stockholders of Target in the Merger to be authorized for listing on the Nasdaq
National Market.
Section 6.5 Stock Options.
(a) At the Effective Time, each outstanding Target Option under the
Target Option Plan, whether vested or unvested, shall be assumed by Chemdex
and deemed to constitute a Chemdex Option to acquire the same number of
shares of Chemdex Common Stock as the holder of such Target Option would
have been entitled to receive pursuant to the Merger had such option been
fully vested and had such holder exercised such option in full immediately
prior to the Effective Time (rounded down to the nearest whole number), at
a price per share (rounded up to the nearest whole cent) equal to (i) the
aggregate exercise price for the shares of Target Common Stock otherwise
purchasable pursuant to such Target Option divided by (ii) the number of
full shares of Chemdex Common Stock deemed purchasable pursuant to such
Chemdex Option in accordance with the foregoing; provided, however, that,
in the case of any Target Option to which Section 422 of the Code applies
("Incentive Stock Options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code. In connection with the assumption by Chemdex of the
Target Options pursuant to this Section 6.5(a), Target shall be deemed to
have assigned to Chemdex, effective at the Effective Time, Target's right
to repurchase unvested shares of Target Common Stock issuable upon the
exercise of the Target Options or previously issued upon the exercise of
options granted under the Target Option Plan, in accordance with the terms
of the Target Option Plan and the related stock option agreements and stock
purchase agreements entered into under the Target Option Plan or otherwise.
(b) As soon as practicable after the Effective Time, Chemdex shall
deliver to the participants in the Target Option Plan appropriate notice
setting forth such participants' rights pursuant thereto and the grants
pursuant to the Target Option Plan shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section
6.5 after giving effect to the Merger). Chemdex shall comply with the terms
of the Target Option Plan and the parties intend that, to the extent
required by, and subject to the provisions of, such Target Option Plan and
Sections 422 and 424(a) of the Code, that Target Options which qualified as
Incentive Stock Options prior the Effective Time continue to qualify as
Incentive Stock Options after the Effective Time, and this provision shall
be interpreted consistent with that intent.
D-31
<PAGE>
(c) Chemdex shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Chemdex Common Stock for delivery
upon exercise of Target Options assumed in accordance with this Section
6.5. As soon as practicable after the Effective Time and in any event no
later than 10 business days after the Closing Date, Chemdex shall file a
registration statement on Form S-8 (or any successor or other appropriate
forms) under the Securities Act or another appropriate form with respect to
the shares of Chemdex Common Stock subject to such options and shall use
its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of
the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(d) Each Series B Warrant, to the extent outstanding at the Effective
Time, whether or not exercisable and whether or not vested at the Effective
Time, shall remain outstanding at the Effective Time. At the Effective
Time, Series B Warrants shall, by virtue of the Merger and without any
further action on the part of Target or the holder of any of Series B
Warrants (unless further action may be required by the terms of any of
Series B Warrants), be assumed by Chemdex pursuant to such documentation as
is reasonably acceptable to Target and each Series B Warrant assumed by
Chemdex shall be exercisable upon the same terms and conditions as under
the applicable warrant agreements with respect to such Series B Warrants,
except that (A) each such Series B Warrant shall be exercisable for that
whole number of shares of Chemdex Common Stock (rounded down to the nearest
whole share) into which the number of shares of Series B Preferred Stock
subject to such Series B Warrant would be converted under Section 2.1(c),
and (B) the exercise price per share of Chemdex Common Stock shall be an
amount equal to the exercise price per share of Series B Preferred Stock
subject to such Series B Warrant in effect immediately prior to the
Effective Time divided by the applicable Exchange Ratio (the exercise price
per share, so determined, being rounded to the nearest full cent). From and
after the Effective Time, all references to Target in the warrant
agreements underlying Series B Warrants shall be deemed to refer to
Chemdex. Chemdex further agrees that, notwithstanding any other term of
this Section 6.5(d) to the contrary, if required under the terms of Series
B Warrants or if otherwise appropriate under the terms of Series B
Warrants, it will execute a supplemental agreement with the holders of
Series B Warrants to effectuate the foregoing. No payment shall be made for
fractional shares. Chemdex shall (i) on or prior to the Effective Time,
reserve for issuance the number of shares of Chemdex Common Stock that will
become subject to warrants to purchase Chemdex Common Stock pursuant to
this Section 6.5(d), (ii) from and after the Effective Time, upon exercise
of the Chemdex warrants in accordance with the terms thereof, make
available for issuance all shares of Chemdex Common Stock covered thereby
and (iii) as promptly as practicable following the Effective Time, issue to
each holder of an outstanding Series B Warrant a document evidencing the
foregoing assumption by Chemdex.
Section 6.6 Certain Employee Benefit Matters. From and after the Effective
Time, employees of Target at the Effective Time (each, an "Target Employee")
will be provided with employee benefits by the Surviving Corporation or Chemdex
which in the aggregate are no less favorable to such employees than those
provided from time to time by Chemdex to its similarly situated employees. If
any employee of Target becomes a participant in any employee benefit plan,
program, policy or arrangement of Chemdex, such employee shall be given credit
for all service prior to the Effective Time with Target to the extent
permissible under such plan, program, policy or arrangement.
Section 6.7 Contingent Financing. Upon the execution of this Agreement,
Chemdex shall provide Target a line of credit of $4,000,000, or such larger
amount as the parties agree pursuant to a secured loan agreement in the form
attached hereto as Exhibit F (the "Loan Agreement") which will call for
interest at 9.0% compounded annually. Pursuant to the Loan Agreement, Target
shall be entitled to draw up to $1,333,333 within 5 business days of the
execution of this Agreement, up to $1,333,333 on or after January 15, 2000 and
up to an additional $1,333,334 on or after February 15, 2000.
Section 6.8 D&O Indemnification. From and after the Effective Time, Chemdex
will cause the Surviving Corporation to fulfill and honor in all respects the
obligations of Target pursuant to any indemnification agreements between Target
and its directors and officers as of the date of this Agreement (the
"Indemnified Parties"). The Certificate of Incorporation and Bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Certificate of Incorporation and Bylaws of Target as in
effect on the date hereof, which provisions will not be amended, repealed or
otherwise modified for a period of six years
D-32
<PAGE>
from the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who
were directors, officer, employees or agents of Target, unless such
modification is required by law.
Section 6.9 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, except as expressly contemplated by this Agreement or
the Chemdex Disclosure Schedule, Chemdex shall not, without the prior written
consent of Target:
(a) declare or pay any dividends on or make or agree to make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock; or
(b) amend its Certificate of Incorporation.
Section 6.10 Other Negotiations. Following the date hereof and until
termination of this Agreement pursuant to Section 9.1, Chemdex will not (and it
will not permit any of its officers, directors, employees, agents and
Affiliates on its behalf to) take any action to solicit, initiate, seek,
encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than Target or Promedix.com
Inc.) regarding any acquisition of a direct ecommerce competitor of Target (a
"Target Competitor"), any merger or consolidation with or involving a Target
Competitor, or any acquisition of any material portion of the assets of a
Target Competitor, or any acquisition of any capital stock of a Target
Competitor, or any material license of a Target Competitor's Proprietary Rights
(any of the foregoing being referred to in this Agreement as a "Chemdex
Acquisition Transaction") or enter into an agreement concerning any Chemdex
Acquisition Transaction with any party other than Target. If between the date
of this Agreement and the termination of this Agreement pursuant to Section
9.1, Chemdex receives from a third party any offer or indication of interest
regarding any Chemdex Acquisition Transaction, or any request for information
regarding any Chemdex Acquisition Transaction, Chemdex shall (i) notify Target
immediately (orally and in writing) of such offer, indication of interest or
request, including the identity of such party and the full terms of any
proposal therein, and (ii) notify such third party of Chemdex's obligations
under this Agreement (without any reference to Target). Notwithstanding the
foregoing, nothing in this Section 6.10 shall be construed to restrict the
ability of the Chemdex Board of Directors to take such actions in connection
with any proposed Chemdex Acquisition Transactions that such Board reasonably
determines in good faith to be required to permit it to discharge properly its
fiduciary duties, provided that Chemdex shall give Target prior notice of any
such actions, and provided, further, that this qualification shall in no way
affect the obligations of Chemdex and the Chemdex Board of Directors pursuant
to Section 7.1.
ARTICLE VII
PRECLOSING COVENANTS OF TARGET AND
CHEMDEX AND OTHER AGREEMENTS
During the period from the date of this Agreement until the Effective Time,
the parties covenant and agree as follows:
Section 7.1 Proxy Statement/Prospectus.
(a) As soon as practicable after the execution of this Agreement, Target
and Chemdex shall mutually cooperate in jointly preparing and filing with
the Commission the Proxy Statement/Prospectus. The Proxy
Statement/Prospectus shall constitute a disclosure document for the offer
and issuance of the shares of Chemdex Common Stock to be received by the
holders of the capital stock of Target in the Merger and for the other
transactions contemplated by this Agreement. As promptly as practicable
after comments, if any, are received from the Commission with respect to
such Proxy Statement/Prospectus and after the furnishing by Target and
Chemdex of all information required to be contained therein, Target and
Chemdex shall prepare and file with the Commission the Registration
Statement, in which the Proxy Statement/Prospectus shall be included, in
connection with the registration under the Securities Act of the shares of
Chemdex Common Stock to be issued to the holders of the capital stock of
Target pursuant to
D-33
<PAGE>
the Merger. Chemdex and Target shall use all reasonable efforts to have or
cause the Registration Statement to become effective as promptly as
practicable, taking into account Chemdex's obligations with respect to
Promedix.com Inc. and Tenet Healthcare Corporation, and shall take all or
any action required under any applicable federal or state securities laws
in connection with the issuance of Chemdex Common Stock pursuant to the
Merger. As promptly as practicable after the Registration Statement shall
have become effective, Target shall mail or cause to be mailed the Proxy
Statement/Prospectus to its stockholders.
(b) Chemdex and Target shall each use its best efforts to cause the
Proxy Statement/Prospectus to comply with applicable federal and state
securities laws requirements. Each of Chemdex and Target agrees to provide
promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for
inclusion in the Proxy Statement/Prospectus, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate
with the other's counsel and auditors in the preparation of the Proxy
Statement/Prospectus. The information supplied by each of Chemdex and
Target for inclusion in the Proxy Statement/Prospectus and Registration
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement/Prospectus is first mailed to
the holders of capital stock of Target, (iii) the time of the Target
Stockholders' Meeting, and (iv) the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading. Target will promptly advise Chemdex, and Chemdex will promptly
advise Target, in writing if at any time prior to the Effective Time either
Target or Chemdex shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Proxy
Statement/Prospectus in order to make the statements contained or
incorporated by reference therein not misleading or to comply with
applicable law.
(c) The Proxy Statement/Prospectus shall contain the unanimous
recommendation of the Board of Directors of Target that the Target
stockholders approve the Merger and this Agreement and the conclusion of
the Board of Directors that the terms and conditions of the Merger are fair
and reasonable to the stockholders of Target. Anything to the contrary
contained herein notwithstanding, Target shall not include in the Proxy
Statement/Prospectus any information with respect to Chemdex or its
affiliates or associates, the form and content of which information shall
not have been approved by Chemdex prior to such inclusion. Anything to the
contrary contained herein notwithstanding, Chemdex shall not include in the
Proxy Statement/Prospectus any information with respect to Target or its
affiliates or associates, the form and content of which information shall
not have been approved by Target prior to such inclusion.
Section 7.2 Stockholder Meeting. Promptly after the date hereof, Target will
take all action necessary in accordance with the Delaware Law and its
Certificate of Incorporation and Bylaws to convene the Target Stockholders'
Meeting to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon
this Agreement and the Merger or the issuance of shares of Chemdex Common Stock
pursuant to the Merger, respectively. Target will use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger and will
take all other action necessary or advisable to secure the vote or consent of
its stockholders required by the rules of Delaware Law to obtain such
approvals. Notwithstanding anything to the contrary contained in this
Agreement, Target may adjourn or postpone Target Stockholders' Meeting to the
extent necessary to ensure that any necessary supplement or amendment to the
Proxy Statement/Prospectus is provided to Target's stockholders in advance of a
vote on the Merger and this Agreement or, if as of the time for which Target
Stockholders' Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Target capital stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Target's Stockholders' Meeting. Target shall ensure
that the Target Stockholders' Meeting is called, noticed, convened, held and
conducted and that all proxies solicited by the Target in connection with the
Target Stockholders' Meeting are solicited, in compliance with the Delaware
Law, its Certificate of Incorporation and Bylaws, and all other applicable
legal requirements. Target's obligation to call, give notice of, convene and
hold the Target Stockholders' Meeting in accordance with this
D-34
<PAGE>
Section 7.2(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or
submission to Target of any Acquisition Proposal, or by any withdrawal,
amendment or modification of the recommendation of the Board of Directors of
Target with respect to the Merger.
Section 7.3 Confidentiality. Each party acknowledges that Chemdex and Target
have executed a Mutual Non-Disclosure Agreement in November 1999 (the
"Confidentiality Agreement"), which agreement shall continue in full force and
effect in accordance with its terms.
Section 7.4 No Public Announcement. Each of Chemdex and Target agrees that
neither it nor any of their respective representatives, officers, directors,
agents, stockholder or affiliates shall make any public announcement with
respect to this Agreement or the transactions contemplated hereby, or disclose
the terms or existence of this Agreement to any third party prior to the public
announcement of the transactions contemplated hereby. All public announcements
with respect to this Agreement or the transactions contemplated hereby will be
made upon the mutual agreement of the parties and only after each party has had
the opportunity to review and comment on the proposed public announcement.
Section 7.5 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, Target and Chemdex shall use their
respective reasonable good faith efforts to (i) make all necessary filings with
respect to the Merger and this Agreement under the Exchange Act and applicable
blue sky or similar securities laws and obtain required approvals and
clearances with respect thereto and supply all additional information requested
in connection therewith; (ii) make merger notification or other appropriate
filings with federal, state or local governmental bodies or applicable foreign
governmental agencies and obtain required approvals and clearances with respect
thereto and supply all additional information requested in connection
therewith; (iii) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger; and (iv) take, or cause to
be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable.
Section 7.6 Further Assurances. Prior to and following the Closing, each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better
evidence and reflect the transactions described herein and contemplated hereby
and to carry into effect the intents and purposes of this Agreement.
Section 7.7 Escrow Agreements. On or before the Effective Time, Chemdex
shall, and the parties hereto shall exercise their reasonable good faith
efforts to cause the Escrow Agent (as defined in Section 10.2) and the
Stockholders' Agents (as defined in Section 10.8), to enter into the Lock-Up
Escrow Agreement and the Indemnity Escrow Agreement in substantially the form
attached hereto as Exhibits D-1 and D-2 including the distribution instructions
to be attached to the Lock-Up Escrow Agreement.
Section 7.8 FIRPTA. Target shall, prior to the Closing Date, provide Chemdex
with a properly executed FIRPTA Notification Letter which states that shares of
capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Chemdex's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such FIRPTA Notification Letter,
Target shall provide to Chemdex, as agent for Target, a form of notice to the
Internal Revenue Service in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2), along with written authorization for Chemdex
to deliver such notice form to the Internal Revenue Service on behalf of Target
upon the Closing of the Merger.
Section 7.9 Other Filings. As promptly as practicable after the date of this
Agreement, Target and Chemdex will prepare and file any other filings required
under the Exchange Act, the Securities Act or any other Federal, foreign or
state securities or blue sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). The Other Filings will
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs which
is required to be set forth in an amendment or supplement to the Other Filings,
Target or
D-35
<PAGE>
Chemdex, as the case may be, will promptly inform the other of such occurrence
and cooperate in making any appropriate amendment or supplement, and/or mailing
to stockholders of Target, such amendment or supplement.
Section 7.10 Tax Matters.
(a) Neither Chemdex nor Sub (nor any of their respective affiliates) (i)
has through the date of this Agreement taken or agreed to take any action
that could reasonably be expected to prevent the Merger from qualifying as
a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code, and (b) shall take any action after the date
hereof that could reasonably be expected to cause the Merger not to qualify
as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code. Each of Chemdex and Target shall not take a
position on any Tax Return inconsistent with such treatment. Chemdex and
Target each shall give the other prompt notice of any challenges or
investigations undertaken by any Tax agency in connection with such
reporting and shall keep the other fully informed of all aspects of any
such ongoing challenge or investigation.
(b) Each of Target and Chemdex shall cooperate with each other in
obtaining the opinion of Wilson Sonsini Goodrich & Rosati, to be rendered
to Target, dated as of the Closing Date, to the effect that the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code. In connection therewith, if counsel shall so request, each of
Chemdex, Sub and Target shall deliver to Wilson Sonsini Goodrich & Rosati
customary representation letters (such representation letters collectively
referred to as the "Tax Certificates"), to the extent that they are able to
make such customary representations.
Section 7.11 Transition Planning. Target and Chemdex shall work together to
coordinate all aspects of transition planning and implementation relating to
the Merger and the other transactions contemplated hereby. During the period
between the date hereof and the Effective Time, Target and Chemdex shall
jointly examine various alternatives regarding the manner in which to best
organize and manage the business of Target and Chemdex after the Effective
Time.
ARTICLE VIII
CONDITIONS TO MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The stockholders of Target entitled to vote on
or consent to this Agreement and the Merger in accordance with Delaware Law
and Target's Certificate of Incorporation, shall have approved this
Agreement and the Merger.
(b) Approvals. Other than the filing provided for by Section 1.2, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity shall have been filed, occurred or been obtained.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting the conduct or operation of the business of Target by Chemdex
after the Merger shall have been issued, nor shall any proceeding brought
by a domestic administrative agency or commission or other domestic
Governmental Entity or other third party, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal.
(d) Nasdaq. The shares of Chemdex Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq Stock Market.
D-36
<PAGE>
(e) Effectiveness of Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the Commission
with respect to the Registration Statement.
(f) Tax Opinion. Target shall have received the opinion dated the
Closing Date of Wilson Sonsini Goodrich & Rosati, to the effect that the
Merger, for federal income tax purposes, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code. In rendering such
opinion, counsel shall be entitled to rely upon, among other things,
reasonable assumptions as well as representations of Chemdex, Sub and
Target.
(g) Blue Sky Laws. Chemdex shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of
Chemdex Common Stock pursuant to the Merger.
Section 8.2 Additional Conditions to Obligations of Chemdex and Sub. The
obligations of Chemdex and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Chemdex and Sub:
(a) Representations and Warranties. The representations and warranties
of Target set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except
for changes contemplated by this Agreement; and Chemdex shall have received
a certificate signed on behalf of Target by the chief executive officer and
the chief financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date; and Chemdex shall have
received a certificate signed on behalf of Target by the chief executive
officer of Target to such effect.
(c) Dissenting Stockholders. Holders of Target's issued and outstanding
capital stock as of the Closing representing no more than 5% of the
outstanding shares of Target capital stock shall have elected to, or
continue to have contingent rights to, exercise appraisal rights under
Delaware Law as to such shares.
(d) Escrow Agreements. The Escrow Agent and Stockholders' Agents shall
have executed and delivered to Chemdex the Lock-Up Escrow Agreement and the
Indemnity Escrow Agreement and such agreements shall remain in full force
and effect.
(e) Ancillary Agreements. Each of the Voting Agreements, Employment
Agreements, and the Stock Restriction Agreements executed and delivered
concurrently with the execution of this Agreement shall remain in full
force and effect.
(f) Opinion of Target's Counsel. Chemdex shall have received an opinion
dated the Closing Date of Wilson Sonsini Goodrich & Rosati, counsel to
Target, as to the matters set forth on Exhibit I.
(g) Approvals. All Material Consents shall have been obtained.
(h) Board Resignations. Target shall have received written letters of
resignation from the Target Board of Directors from each of the current
members of such Board, in each case effective at the Effective Time.
Section 8.3 Additional Conditions to Obligations of Target. The obligation
of Target to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
Target:
(a) Representations and Warranties. The representations and warranties
of Chemdex and Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Target shall have
received a certificate signed on behalf of Chemdex by the chief financial
officer of Chemdex to such effect.
D-37
<PAGE>
(b) Performance of Obligations of Chemdex and Sub. Chemdex and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Target shall have received a certificate signed on behalf of Chemdex by the
chief financial officer of Chemdex to such effect.
(c) Opinion of Chemdex's Counsel. Target shall have received an opinion
dated the Closing Date of Venture Law Group, counsel to Chemdex, as to the
matters set forth on Exhibit I.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual written consent of Chemdex and Target;
(b) by either Chemdex or Target, by giving written notice to the other
party, if a court of competent jurisdiction or other Governmental Entity
shall have issued a nonappealable final order, decree or ruling or taken
any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, except, if such
party relying on such order, decree or ruling or other action shall not
have complied with its respective obligations under Sections 5.5 or 6.3 of
this Agreement, as the case may be;
(c) by Chemdex or Target, by giving written notice to the other party,
if the other party is in material breach of any representation, warranty,
or covenant of such other party contained in this Agreement, which breach
shall not have been cured, if subject to cure, within 10 business days
following receipt by the breaching party of written notice of such breach
by the other party;
(d) by Chemdex, by giving written notice to Target, if the Closing shall
not have occurred on or before March 31, 2000 by reason of the failure of
any condition precedent under Section 8.1 or 8.2 (unless the failure
results primarily from a breach by Chemdex of any representation, warranty,
or covenant of Chemdex contained in this Agreement or Chemdex's failure to
fulfill a condition precedent to closing or other default);
(e) by Target, by giving written notice to Chemdex, if the Closing shall
not have occurred on or before March 31, 2000 by reason of the failure of
any condition precedent under Section 8.1 or 8.3 (unless the failure
results primarily from a breach by Target of any representation, warranty,
or covenant of Target contained in this Agreement or Target's failure to
fulfill a condition precedent to closing or other default);
(f) by Chemdex, by giving written notice to Target, if (i) the Board of
Directors of Target shall have recommended an alternative transaction in
which a third party (other than a Strategic Investor) would receive from
Target 20% or more of the outstanding capital stock or assets of Target,
(ii) the Board of Directors of Target shall have recommended that
stockholders of Target tender their shares in a tender offer from a third
party for more than 20% of the Target outstanding capital stock, or (iii)
the required approvals of the stockholders of Target contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain
the required consents or votes upon a vote taken by written consent or at a
meeting of stockholders, duly convened therefor or at any adjournment
thereof; or
(g) by Target, by giving written notice to Chemdex, if the Board of
Directors of Chemdex shall have recommended an alternative transaction in
which it will acquire 50% or more of a Target Competitor.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Chemdex,
Target, Sub or their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 9.3 and further except to the
extent that such termination results from the willful breach by any such party
of any of its representations, warranties or covenants set forth in this
Agreement, and provided, further, that the Confidentiality Agreement referred
to in Section 7.3 shall remain in effect in accordance with its terms.
D-38
<PAGE>
Section 9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated. Target has submitted a budget to
Chemdex for completion of the Merger. Target shall use its best efforts to
consummate the Merger within such budget and shall not enter into any
agreement inconsistent with such budget.
(b) If the Merger is consummated, all expenses incurred by Target shall
be assumed by Chemdex.
(c) In the event that this Agreement shall be terminated by Target (i)
pursuant to Section 9.1(c) and the breach or series of breaches giving rise
to such termination right shall have been intentional or willful on the
part of Chemdex, or (ii) pursuant to Section 9.1(g), then within two
business days of such termination Chemdex shall pay Target by wire transfer
a fee equal to $1,500,000.
(d) In the event that this Agreement shall be terminated by Chemdex (i)
pursuant to Section 9.1(c) and the breach or series of breaches giving rise
to such termination right shall have been intentional or willful on the
part of Target, or (ii) pursuant to Section 9.1(f), then within two
business days of such termination Target shall pay Chemdex by wire transfer
a fee equal to $1,500,000.
(e) Payment of the fee by either party as set forth in Section 9.3(c) or
(d) above shall not be in lieu of, but shall be in addition to, any other
legal or equitable remedies available to the other party for breach of this
Agreement.
(f) Each party agrees that if it fails to pay the entire fee within two
business days of termination, then any unpaid amounts shall accrue interest
at a rate of 9% per annum until paid.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification. From and after the Effective Time and subject
to the limitations contained in Section 10.2, the Former Target Stockholders
will, severally and pro rata, in accordance with their Pro Rata Portion,
indemnify and hold Chemdex harmless against any loss, expense, liability or
other damage, including attorneys' fees, to the extent of the amount of such
loss, expense, liability or other damage (collectively "Damages") that Chemdex
has incurred by reason of the breach by Target of any representation,
warranty, covenant or agreement of Target contained in this Agreement that
occurs or becomes known to Chemdex during the Escrow Period (as defined in
Section 10.3 below). Chemdex, Target and Sub acknowledge and agree, and the
Former Target Stockholders, by their approval of this Agreement and their
execution of the Voting Agreements, agree that notwithstanding anything to the
contrary contained in this Agreement or any other Transaction Document, such
indemnification under this Article X shall be the sole and exclusive remedy
for any such claim of breach by Target, except for Damages based upon a claim
of fraud.
Section 10.2 Indemnity Escrow Fund. As security and sole remedy for the
indemnities in Section 10.1, as soon as practicable after the Effective Time,
the Escrow Shares shall be deposited with U.S. Bank Trust, National
Association (or such other institution selected by Chemdex with the reasonable
consent of Target) as escrow agent (the "Escrow Agent"), such deposit to
constitute the Escrow Fund (the "Escrow Fund") and to be governed by the terms
set forth in this Article X and in the Indemnity Escrow Agreement.
Section 10.3 Escrow Periods. The Escrow Fund shall terminate upon the
earlier of March 31, 2001 or the first anniversary date of the Closing Date
(the period from the Closing Date to such date referred to as the "Escrow
Period"), provided, however, that the number of Escrow Shares, which, in the
reasonable judgment of Chemdex, subject to the objection of the Stockholders'
Agents and the subsequent resolution of the matter in the manner provided in
Section 10.7, are necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate theretofore delivered to the Escrow Agent and the
Stockholders' Agents prior to termination of the Escrow Period with respect to
Damages incurred or litigation pending prior to expiration of the Escrow
Period, shall remain in the Escrow Fund until such claims have been finally
resolved.
D-39
<PAGE>
Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Chemdex (an "Officer's Certificate"):
(i) Stating the aggregate amount of Chemdex's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid
or properly accrued or arose, and the nature of the misrepresentation,
breach or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of Sections 10.3 and 10.7 hereof and of the
Indemnity Escrow Agreement, deliver to Chemdex out of the Escrow Fund, as
promptly as practicable, Escrow Shares having a value equal to such Damages
all in accordance with the Indemnity Escrow Agreement and Section 10.5
below. Amounts paid or distributed from the Indemnity Escrow Fund shall be
paid or distributed pro rata among the Holders (as defined in the Indemnity
Escrow Agreement) based upon their respective percentage interests therein
at the time.
Section 10.5 Valuation. For the purpose of compensating Chemdex for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Chemdex in respect of a claim for Damages shall be
the Average Stock Price (as appropriately adjusted for stock splits,
recapitalizations and the like).
Section 10.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agents (as defined in Section 10.8
below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 10.3 unless
the Escrow Agent shall have received written authorization from the
Stockholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.3, provided that no such delivery
may be made if the Stockholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Chemdex prior to the expiration of such
thirty (30) day period.
Section 10.7 Resolution of Conflicts.
(a) In case the Stockholders' Agents shall so object in writing to any
claim or claims by Chemdex made in any Officer's Certificate, Chemdex shall
have thirty (30) days to respond in a written statement to the objection of
the Stockholders' Agents. If after such thirty (30) day period there
remains a dispute as to any claims, the Stockholders' Agents and Chemdex
shall attempt in good faith for thirty (30) days to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholders' Agents and Chemdex should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Escrow Shares from the
Escrow Fund in accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Chemdex or the Stockholders' Agents may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15)
days after such written notice is sent, Chemdex (on the one hand) and the
Stockholders' Agents (on the other hand) shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator. The
decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties
to this Agreement, and notwithstanding anything in Section 10.3, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance with such decision.
D-40
<PAGE>
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the commercial rules then in effect of
the American Arbitration Association. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the
expenses, including, without limitation, the reasonable attorneys' fees and
costs, incurred by the prevailing party to the arbitration.
Section 10.8 Stockholders' Agents.
(a) Ashfaq Munshi and Joseph L. Meresman shall be constituted and
appointed as agents (the "Stockholders' Agents") for and on behalf of the
Former Target Stockholders to give and receive notices and communications,
to authorize delivery to Chemdex of the Escrow Shares or other property
from the Escrow Fund in satisfaction of claims by Chemdex, to object to
such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agents for
the accomplishment of the foregoing. All actions of the Stockholders'
Agents shall be taken jointly, not individually. Such agency may be changed
by the holders of a majority in interest of the Escrow Shares from time to
time upon not less than ten (10) days' prior written notice to Chemdex. No
bond shall be required of the Stockholders' Agents, and the Stockholders'
Agents shall receive no compensation for services. Notices or
communications to or from the Stockholders' Agents shall constitute notice
to or from each of the Former Target Stockholders.
(b) The Stockholders' Agents shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and
any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Former Target Stockholders
shall severally and pro rata, in accordance with their Pro Rata Portion,
indemnify the Stockholders' Agents and hold them harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the
part of the Stockholders' Agents and arising out of or in connection with
the acceptance or administration of their duties hereunder under this
Agreement or the Indemnity Escrow Agreement.
(c) The Stockholders' Agents shall have reasonable access to information
about Target and Chemdex and the reasonable assistance of Target's and
Chemdex's officers and employees for purposes of performing their duties
and exercising their rights under this Article X, provided that the
Stockholders' Agents shall treat confidentially and not disclose any
nonpublic information from or about Target or Chemdex to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
Section 10.9 Actions of the Stockholders' Agents. A decision, act, consent
or instruction of the Stockholders' Agents shall constitute a decision of all
of the Former Target Stockholders for whom shares of Chemdex Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Stockholder, and the Escrow
Agent and Chemdex may rely upon any decision, act, consent or instruction of
the Stockholders' Agents as being the decision, act, consent or instruction of
each and every such Former Target Stockholder. The Escrow Agent and Chemdex are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agents.
Section 10.10 Claims. In the event Chemdex becomes aware of a third-party
claim which Chemdex believes may result in a demand against the Escrow Fund,
Chemdex shall promptly notify the Stockholders' Agents of such claim, and the
Stockholders' Agents and the Former Target Stockholders for whom shares of
Chemdex Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Chemdex shall have the right in its sole discretion to settle any such
claim; provided, however, that Chemdex may not effect the settlement of any
such claim without the consent of the Stockholders' Agents, which consent shall
not be unreasonably withheld. In the event that the Stockholders' Agents have
consented to any such settlement, the Stockholders' Agents shall have no power
or authority to object to the amount of any claim by Chemdex against the Escrow
Fund for indemnity with respect to such settlement in the amount agreed to.
D-41
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1 Survival of Representations and Covenants. All representations
and warranties of Target contained in this Agreement shall survive the Closing
and any investigation at any time made by or on behalf of Chemdex until the end
of the Escrow Period. If Escrow Shares or other assets are retained in the
Escrow Fund beyond expiration of the period specified in the Indemnity Escrow
Agreement, then (notwithstanding the expiration of such time period) the
representation, warranty, covenant or agreement applicable to such claim shall
survive until, but only for purposes of, the resolution of the claim to which
such retained Escrow Shares or other assets relate. All representations and
warranties of Chemdex contained in this Agreement shall terminate as of the
Effective Time. All covenants and other agreements of Target and Chemdex
contained in this Agreement shall survive the Closing until fulfilled or
waived.
Section 11.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or two business days after being mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Chemdex or Sub:
Chemdex Corporation
1500 Plymouth Street
Mountain View, CA 94043
Fax: (650) 567-8950
Main: (650) 567-8900
with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
(b) if to Target, to:
SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Attention:
Fax No: (650) 213-4101
Telephone No: (650) 213-4100
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: J. Casey McGlynn
Fax No: (650) 493-6811
Telephone No: (650) 493-9300
Section 11.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or
D-42
<PAGE>
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" is used in this Agreement they shall be deemed to be followed by
the words "without limitation." Whenever the words "to the knowledge of Target"
or "known to Target" or similar phrases are used in this Agreement, they mean
to the actual knowledge, after reasonable inquiry, of Ashfaq Munshi and Joseph
L. Meresman and all other executive officers of Target.
Section 11.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties
hereto (including without limitation any Target employees) any rights or
remedies hereunder.
Section 11.6 Governing Law; Jurisdiction. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware without
regard to any applicable conflicts of law. Any action or proceeding initiated
under this Agreement or in connection with the subject matter hereof shall be
maintained in the County of Santa Clara, State of California, United States of
America, and each party hereby submits to the jurisdiction of the courts of the
State of California and the court of the United States of America for the
Northern District of the State of California for the purposes of any such
action or proceeding. Each party irrevocably waives to the fullest extent such
party may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding and agrees that any process or any
paper to be served in connection therewith shall, if delivered or sent in
accordance with Section 11.2 of this Agreement, constitutes good, proper and
sufficient service thereof. Each party further irrevocably waives any trial by
jury.
Section 11.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 11.8 Amendment. This Agreement may be amended by the parties hereto,
at any time before or after approval of matters presented in connection with
the Merger by the stockholders of Target, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
Section 11.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Signature Page Follows]
D-43
<PAGE>
IN WITNESS WHEREOF, Chemdex, Sub and Target have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
CHEMDEX CORPORATION
/s/ David P. Perry
By: _________________________________
David P. Perry
Name: _______________________________
CEO
Title: ______________________________
SPINACH ACQUISITIONS CORP.
/s/ David P. Perry
By: _________________________________
David P. Perry
Name: _______________________________
CEO
Title: ______________________________
SPECIALTYMD.COM CORPORATION
/s/ Ashfaq Munshi
By: _________________________________
Ashfaq Munshi
Name: _______________________________
CEO
Title: ______________________________
D-44
<PAGE>
EXHIBIT A
VOTING AGREEMENT
D-45
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
December 10, 1999, between Chemdex Corporation ("Chemdex"), a Delaware
corporation, and the undersigned stockholder (the "Stockholder") of
SpecialtyMD.com Corporation, a Delaware corporation ("Target").
RECITALS
A. Concurrently with the execution of this Agreement, Chemdex, Target and
Spinach Acquisitions Corp., a Delaware corporation and wholly-owned subsidiary
of Chemdex ("Merger Sub"), have entered into an Agreement and Plan of Merger
(the "Merger Agreement"), which provides for the merger (the "Merger") of
Merger Sub with and into Target and the conversion of each outstanding share of
Target's capital stock into shares of Chemdex Common Stock.
B. As a condition to its willingness to enter into the Merger Agreement,
Chemdex has requested that the Stockholder agree to certain matters regarding
the retention and voting of the Shares (as defined below) in connection with
the Merger.
AGREEMENT
The parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer, sell, exchange, pledge or otherwise dispose of or encumber
(in each case, other than as a result of death) any shares of capital
stock of Target owned or beneficially held by him (the "Shares") or New
Shares, as defined in Section 1.2 below, or to make any offer or
agreement relating thereto, at any time prior to the Expiration Date.
As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement, or
(ii) the date on which the Merger Agreement shall be terminated in
accordance with Section 9.1 thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares of
capital stock of Target that such Stockholder shall purchase or with
respect to which such Stockholder shall otherwise acquire beneficial
ownership after the execution of this Agreement and prior to the
Expiration Date (the "New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted
Shares.
2. Agreement to Vote Shares and Grant Proxy. At every meeting of the
stockholders of Target called with respect to any of the following, and on
every action or approval by written consent of the stockholders of Target
with respect to any of the following, the Stockholder agrees to vote the
Shares and any New Shares in favor of approval of the Merger Agreement and
the Merger and any matter that could reasonably be expected to facilitate
the Merger, including the manner in which the Escrow Fund under the Merger
Agreement is to be established as contemplated by Section 2.2 and Article X
of the Merger Agreement. The Stockholder further agrees not, directly or
indirectly, to solicit or encourage any offer from any party concerning the
possible disposition of all or any substantial portion of Target's
business, assets or capital stock. In the event Target's board of directors
does not call a meeting to approve the Merger, the Stockholder agrees to
take all action necessary to call a meeting to approve the Merger or to
approve the Merger by written consent. In order to effectuate the
foregoing, the Stockholder does hereby constitute and appoint Chemdex, or
any nominee of Chemdex, with full power of substitution, from the
date hereof to the Expiration Date, as its true and lawful proxy, for and
in its name, place and stead,
D-46
<PAGE>
including the right to sign its name (as stockholder) to any consent,
certificate or other document relating to Target, for the sole purpose of
causing the Shares and any New Shares to be voted in the manner
contemplated by this Section 2. The parties acknowledge that the proxy
provided for here is irrevocable until the Expiration Date and coupled with
an interest.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder represents, warrants and covenants to Chemdex as follows:
3.1 Ownership of Shares. The Stockholder (together with such
Stockholder's spouse, if applicable) is the sole beneficial and record
owner and holder of the Shares, which at the date hereof and at all
times up until the Expiration Date, will be free and clear of any
liens, claims, options, charges, security interests, equities, options,
warrants, rights to purchase (including, without limitation,
restrictions on rights of disposition other than those imposed by
applicable securities laws), third party rights of any nature or other
encumbrances; and (ii) does not own any shares of capital stock of
Target other than the Shares.
3.2 Authority; Due Execution. The Stockholder has full power and
authority to make, enter into and carry out the terms of this
Agreement. The Stockholder has duly executed and delivered this
Agreement and (assuming the due authorization, execution and delivery
of this Agreement by Chemdex) this Agreement constitutes a valid and
binding obligation of the Stockholder.
4. Representations, Warranties and Covenants of Chemdex. Chemdex
represents, warrants and covenants to the Stockholder as follows:
4.1 Due Authorization. This Agreement has been authorized by all
necessary corporate action on the part of Chemdex and has been duly
executed by a duly authorized officer of Chemdex.
4.2 Validity; No Conflict. This Agreement constitutes the legal,
valid and binding obligation of Chemdex. Neither the execution of this
Agreement by Chemdex nor the consummation of the transactions
contemplated hereby will result in a breach or violation of the terms
of any agreement by which Chemdex is bound or by any decree, judgment,
order, law or regulation now in effect of any court or other
governmental body applicable to Chemdex.
5. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
6.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
parties hereto may be assigned by either of the parties without the
prior written consent of the other.
6.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery
of a written agreement executed by the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Chemdex will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in
D-47
<PAGE>
addition to any other remedies that may be available to Chemdex upon
any such violation, Chemdex shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or
by any other means available to Chemdex at law or in equity.
6.5 Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with, the internal laws of the State of
Delaware as such laws are applied to contracts entered into and to be
performed entirely within Delaware.
6.6 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof,
and supersedes all prior negotiations and understandings between the
parties with respect to such subject matter.
6.7 Notices. Any notice or other communication required or permitted
to be delivered under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by
facsimile confirmation) to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other
address or facsimile telephone number as such party shall have
specified in a written notice given to the other party):
If to Chemdex: Chemdex
1500 Plymouth Street
Mountain View, CA 94304
Attention: Chief Executive Officer
Telephone No.: (650) 567-8900
Telecopy No.: (650) 567-8950
with a copy at the same address to the attention of the General Counsel and
Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Telephone No.: (650) 854-4488
Telecopy No.: (650) 233-8386
If to Stockholder:
at the address or facsimile phone number set forth below Stockholder's
signature on the signature page hereof.
With a copy to:Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: J. Casey McGlynn
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
D-48
<PAGE>
6.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
6.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or
interpretation of this Agreement.
6.10 No Limitation on Actions of the Stockholder as Director. In the
event the Stockholder is a director of Target, notwithstanding anything
to the contrary in this Agreement, nothing in this Agreement is
intended or shall be construed to require the Stockholder to take or in
any way limit any action that the Stockholder may take to discharge the
Stockholder's fiduciary duties as a director of Target.
[Signature Page Follows]
D-49
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the day and year first written above.
CHEMDEX CORPORATION
By: _________________________________
David P. Perry
Name: _______________________________
CEO
Title: ______________________________
STOCKHOLDER
_____________________________________
Name: _______________________________
D-50
<PAGE>
EXHIBIT B
FORM OF EMPLOYMENT AGREEMENT
CHEMDEX CORPORATION
1500 Plymouth Street
Mountain View, CA 94043
December 10, 1999
<Employee>
c/o SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Dear <Employee>:
In connection with the proposed acquisition of SpecialtyMD.com Corporation
("Target") pursuant to that Agreement and Plan of Merger dated as of December
10, 1999 (the "Merger Agreement"), Chemdex Corporation (the "Company") is
pleased to offer you employment on the following terms:
Position. You will serve in a full-time capacity as of the
Target subsidiary of the Company. You will report to the Chief Executive
Officer of the Company. Your role at the present time includes responsibility
for the Target subsidiary.
Cash Compensation. You will be paid a monthly salary of not less than
$ which is equivalent to $ on an annual basis, payable in
semi-monthly installments in accordance with the Company's standard payroll
practices for salaried employees.
Proprietary Information and Inventions Agreement. Like all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Employee Confidentiality and Inventions
Agreement, a copy of which is attached hereto as Schedule 1.
Change of Control Agreement. You will be entitled to enter into the standard
Change of Control Agreement for the Company's officers in the form attached
hereto as Schedule 2.
Noncompetition Agreement. As a condition to the Company's entrance into the
Merger Agreement and the consummation of the transactions contemplated in the
Merger Agreement, you will be required to execute the Noncompetition Agreement
in the form attached hereto as Schedule 3.
Stock Restriction Agreement. As a condition to the Company's entrance into
the Merger Agreement and the consummation of the transactions contemplated in
the Merger Agreement, you will be required to execute the Stock Restriction
Agreement in the form attached hereto as Schedule 4.
Period of Employment. Your employment with the Company will commence
immediately after the consummation of the transactions contemplated by the
Merger Agreement. Your employment with the Company will be "at will," meaning
that either you or the Company will be entitled to terminate your employment at
any time and for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
This is the full and complete agreement between you and the Company on this
term. Although your job duties, title, compensation and benefits, as well as
the Company's personnel policies and procedures, may change from time to time,
the "at will" nature of your employment may only be changed in an express
written agreement signed by you and a duly authorized officer of the Company.
D-51
<PAGE>
Severance. In the event your employment with the Company is either
terminated by the Company without Cause or as a result of a Constructive
Termination during the first year following the closing of the transactions
contemplated by the Merger Agreement, your Company stock and options will
immediately vest in full. After the initial one-year period, if your employment
with the Company is either terminated by the Company without Cause or as a
result of a Constructive Termination, your Company stock and options shall
become vested on the effective date of such termination as if you had been
employed by the Company for an additional twelve months following such
termination. In addition, in the event your employment with the Company is
either terminated by the Company without Cause or as a result of a Constructive
Termination at any time, you will be paid an amount equal to the greater of (i)
one (1) year of your then-current salary, or (ii) $100,000, in each case
payable in twenty-four (24) equal semi-monthly installments in accordance with
the Company's standard payroll practices for salaried employees. In return for
these severance benefits, you agree that you will: (a) sign an agreement
releasing the Company and its officers, directors, stockholders and employees
from any and all employment-related claims with standard provisions for
agreements of this type; (b) reaffirm that you are bound by the provisions of
your Employee Confidentiality Agreement and other agreements between you and
the Company, including any Noncompetition Agreement; (c) not make any
disparaging remarks about the Company or its officers, directors, employees,
products or business practices.
"Cause" means (a) willful and repeated failure to comply with the lawful,
express directions of the Board communicated to you in writing, (b) gross
negligence or willful misconduct in the performance of your duties to the
Company, (c) commission of any act of fraud against, or the misappropriation of
material property belonging to the Company or (d) conviction of a crime that is
materially injurious to the business or reputation of the Company, in each case
as determined in good faith by the Board.
"Constructive Termination" means your voluntary termination, upon 30 days
prior written notice to the Company, following (a) a material reduction or
change in your job duties, responsibilities and requirements inconsistent with
your position with the Company and your prior duties, responsibilities and
requirements; (b) any reduction of greater than 5% in your base compensation
(including salary, benefits, incentive payments and bonuses), other than in
connection with a general decrease in base salaries for most officers of the
Company and any successor corporation; or (d) your refusal to relocate to a
facility or location more than 40 miles from the current location of the Target
subsidiary.
Proof of Right to Work. For purposes of federal immigration law, you will be
required to provide to the Company documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated and, in such event, you
would not be entitled to the severance payment set forth in the preceding
paragraph.
Withholding Taxes. All forms of compensation referred to in this letter are
subject to reduction to reflect applicable withholding and payroll taxes.
Entire Agreement. This letter and the Exhibits attached hereto contain all
of the terms of your employment with the Company and supersede any prior
understandings or agreements, whether oral or written, between you and the
Company. In case of conflict between the provisions of this letter in the
paragraphs under the heading "Severance" and any other agreement between you
and the Companydated on or prior to December 10, 1999, such provisions of this
letter shall control, unless expressly waived.
Amendment and Governing Law. This letter agreement may not be amended or
modified except by an express written agreement signed by you and a duly
authorized officer of the Company. The terms of this letter agreement and the
resolution of any disputes will be governed by California law, except as
provided in the Noncompetition Agreement.
D-52
<PAGE>
We hope that you find the foregoing terms acceptable. You may indicate your
agreement with these terms and accept this offer by signing and dating the
enclosed duplicate original of this letter and the enclosed Exhibits and
returning them to me.
Very truly yours,
CHEMDEX CORPORATION
David Perry
Chief Executive Officer
I have read and accept this
employment offer:
_____________________________________
Signature of <Employee>.
Dated , 1999
D-53
<PAGE>
SCHEDULE 1
D-54
<PAGE>
Employee Confidentiality and Inventions Agreement
In consideration of my employment with Chemdex Corporation or its
subsidiaries (together, "the Company"), I agree as follows:
1. Nondisclosure and Nonuse of Confidential Information. Except as
required by the nature of my duties or with the prior written approval of
an authorized officer of the Company, I will never, during my employment or
thereafter, use or disclose any confidential information of the Company or
any of its customers, including without limitation customer lists, market
research, strategic plans or other information or discoveries, inventions,
improvements, know-how, methods or other trade secrets, whether developed
by me or others. I will comply with the Company's policies and procedures
for the protection of confidential information.
2. Use and Return of Documents. I will not disclose any documents,
records, tapes and other media that contain confidential information and
will not copy any such material or remove it from the Company's premises,
except as required by the nature of my duties or as approved by an
authorized officer of the Company. Upon termination of my employment, I
will return to the Company all copies of documents, records, tapes, and
other media that contain confidential information.
3. Assignments of Rights. I will promptly disclose to the Company all
inventions, discoveries, methods, processes, works, and concepts (whether
or not patentable or copyrightable or constituting trade secrets)
conceived, created, developed or reduced to practice by me (whether alone
or with others, and whether or not during normal business hours or on or
off the Company premises) during my employment that relate to any present
or proposed activity of the Company ("Property"). I assign to the Company
my full right, title and interest to all Property. I agree to execute such
documents and take such action reasonably requested by the Company in
connection with the Property. I will not charge the Company for my time
spent in complying with this obligation. All copyrightable works that I
create shall be considered "works made for hire."
4. This Agreement does not apply to Property which qualifies fully as a
nonassignable invention under the provisions of Section 2870 of the
California Labor Code as follows: "THIS IS TO NOTIFY you in accordance with
Section 2872 of the California Labor Code that the foregoing Agreement
between you and the Company does not require you to assign or offer to
assign to the Company any invention that you developed entirely on your own
time without using the Company's equipment, supplies, facilities or trade
secret information except for those inventions that either: (1) relate at
the time of conception or reduction to practice of the invention to the
Company's business, or actual or demonstrably anticipated research or
development of the Company; or (2) result from any work performed by you
for the Company. To the extent a provision in the foregoing Agreement
purports to require you to assign an invention otherwise excluded from the
preceding paragraph, the provision is against the public policy of this
state and is unenforceable. This limited exclusion does not apply to any
patent or invention covered by a contract between the Company and the
United States or any of its agencies requiring full title to such patent or
invention to be in the United States.
5. Non-Recruitment. For a period of one year after termination of my
employment, I will not hire or assist in hiring any employees of the
Company or encourage any employee of the Company to become employed in any
business competitive with the Company's business, nor encourage any
consultant or supplier of the Company to discontinue its relationship with
the Company.
6. Restricted Activities. I agree that some restrictions on my
activities during and after my employment are necessary to protect the
goodwill, confidential information and other legitimate interests of the
Company. While employed, I will not undertake any planning for any outside
business competitive with the Company. During my employment and for one
year after my employment terminates, I will not engage in any business in
the United States, whether as an employee, consultant, or otherwise, that
is competitive with the business of the Company conducted or under
consideration during my employment and will not accept employment or a
consulting position with any business that is, or at any time within
D-55
<PAGE>
one year prior to my termination was, a customer of the Company. I may,
however, own 5% or less of the securities of any publicly traded company.
7. Employment. Except as provided otherwise in any other agreement
between me and the Company, my employment is "at will" and either the
Company or I may terminate my employment at any time with or without cause.
My employment and my execution and performance of this Agreement do not
conflict with any obligations of mine to third parties. I will not disclose
to the Company any proprietary information of any third party without its
consent.
8. Remedies. I understand that if I violate this Agreement the harm to
the Company could be irreparable. I agree that, in addition to any other
remedies provided by law, the Company will be entitled to obtain injunctive
relief against any such violations without having to post a bond.
9. Consent to Jurisdiction. I consent to the jurisdiction of the federal
and state courts in California in respect of any matter relating to this
Agreement and agree that any dispute relating to this Agreement shall be
litigated exclusively in such courts.
10. General. This Agreement shall inure to the benefit of the Company
and any successor of the Company by reorganization, merger, consolidation
or liquidation and any assignee of all or substantially all of the business
or assets of the Company or of any division or line of business of the
Company with which I am at any time associated. This Agreement will take
effect as a sealed instrument, will continue in effect after termination of
my employment for any reason, and will be governed by California law. If
any part of this Agreement is held invalid or unenforceable, the remainder
of this Agreement will be still enforceable.
Date: _______________________________ Name: _______________________________
ACCEPTED:
CHEMDEX CORPORATION
By: _________________________________
Title: ______________________________
D-56
<PAGE>
SCHEDULE 2
D-57
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into
effective as of December 10, 1999, by and between <Employee> (the "Employee")
and Chemdex Corporation, a Delaware corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time to time
consider the possibility of acquiring the Company or that a change in control
may otherwise occur, with or without the approval of the Company's Board of
Directors (the "Board"). The Board recognizes that such consideration can be a
distraction to the Employee and can cause the Employee to consider alternative
employment opportunities. The Board has determined that it is in the best
interests of the Company and its stockholders to assure that the Company will
have the continued dedication and objectivity of the Employee, notwithstanding
the possibility, threat or occurrence of a Corporate Transaction (as defined
below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his or
her employment with the Company.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon termination of the Employee's employment in connection
with a Corporate Transaction, which benefits are intended to provide the
Employee with financial security and provide sufficient encouragement to the
Employee to remain with the Company notwithstanding the possibility of a
Corporate Transaction.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in Section 3
below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Corporate
Transaction, the Employee shall not be entitled to any payments or
benefits, other than as provided by this Agreement, or as may otherwise be
available in accordance with the terms of Employee's offer letter from the
Company to which this agreement is attached (the "Offer Letter") and the
Company's established employee plans and written policies at the time of
termination. The terms of this Agreement shall terminate upon the earlier
of (i) the date on which Employee ceases for any reason to be employed by
the Company prior to the occurrence of a Corporate Transaction, (ii) the
date that all obligations of the parties hereunder have been satisfied, or
(iii) twelve months after the closing of any Corporate Transaction. A
termination of the terms of this Agreement pursuant to the preceding
sentence shall be effective for all purposes, except that such termination
shall not affect the payment or provision of compensation or benefits on
account of a termination of employment occurring prior to the termination
of the terms of this Agreement.
2. Stock Options and Restricted Stock. Subject to Sections 4 and 5
below, in the event of a Corporate Transaction, if either Employee's
employment with the Company is terminated by the surviving entity without
Cause or by Employee as the result of a Constructive Termination by the
surviving entity within twelve months of the closing of the Corporate
Transaction, Employee, at his election, will be entitled to either (a) the
benefits provided in the Offer Letter under the heading "Severance" or (b)
to have each unvested stock option granted for the Company's securities
held by Employee and any shares of
D-58
<PAGE>
the Company's Common Stock that are subject to a right of repurchase by the
Company pursuant to the terms of a Restricted Stock Purchase Agreement
("Restricted Stock") held by the Employee become vested on the effective
date of the termination or Constructive Termination as if Employee had been
employed by the surviving entity for an additional six months following
such termination. Each stock option shall otherwise vest in accordance with
the provisions of the Stock Option Agreement and the Company's 1998 Stock
Option Plan pursuant to which such option was granted and each Share of
Restricted Stock shall be freely transferable to the extent so vested in
accordance with the provisions of the Restricted Stock Purchase Agreement
pursuant to which such stock was purchased by Employee.
3. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Corporate Transaction. "Corporate Transaction" shall mean the
occurrence of either of the following events to which the Company is a
party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
(b) Cause. "Cause" means:
(i) willful and repeated failure to comply with the lawful,
express directions of the Board communicated to you in writing,
(ii) gross negligence or willful misconduct in the performance
of your duties to the Company,
(iii) commission of any act of fraud against, or the
misappropriation of material property belonging to the Company, or
(iv) conviction of a crime that is materially injurious to the
business or reputation of the Company, in each case as determined in
good faith by the Board. Cause shall not include poor performance in
the achievement of the Employee's job objectives or the death or
physical disability of the Employee.
(c) Constructive Termination. "Constructive Termination" shall mean
the Employee's voluntary termination, upon 30 days prior written notice
to the Company, following:
(i) a material reduction or change in the Employee's job duties,
responsibilities and requirements inconsistent with the Employee's
position with the Company and the Employee's prior duties,
responsibilities and requirements;
(ii) any reduction of greater than 5% in the Employee's base
compensation (including salary, benefits, incentive payments and
bonuses), other than in connection with a general decrease in base
salaries for most officers of the Company and any successor
corporation; or
(iii) the Employee's refusal to relocate to a facility or
location more than 40 miles from the Company's current location.
D-59
<PAGE>
4. Limitation on Payments. In the event that the benefits provided for
in this Agreement to the Employee (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section, would be subject to the
excise tax imposed by Section 4999 of the Code, then the Employee's
benefits under Section 2 shall be payable either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of
such severance benefits being subject to excise tax under Section 4999
of the Code, whichever of the foregoing amounts, taking into account
the applicable federal, state and local income taxes and the excise tax
imposed by Section 4999, results in the receipt by the Employee on an
after-tax basis, of the greatest amount of benefits under Section 2
notwithstanding that all or some portion of such severance benefits may
be taxable under Section 4999 of the Code. Unless the Company and the
Employee otherwise agree in writing, any determination required under
this Section 4 shall be made in writing by the Company's independent
public accountants (the "Accountants"), whose determination shall be
conclusive and binding upon the Employee and the Company for all
purposes. For purposes of making the calculations required by this
Section 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application of Section 280G
and 4999 of the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section.
The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 4.
5. Certain Business Combinations. In the event it is determined by the
Board, upon consultation with Company management and the Company's
independent auditors, that the enforcement of any Section of this
Agreement, including, but not limited to, Section 2 hereof, which allows
for the acceleration of vesting of stock options and Restricted Stock
granted for the Company's securities upon the effective date of a Corporate
Transaction would preclude accounting for any proposed business combination
of the Company involving a Corporate Transaction as a pooling of interests,
and the Board otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any
such Section of this Agreement shall be null and void. For purposes of this
Section 5, the Board's determination shall require the unanimous approval
of the non-employee Board members.
6. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. The terms of this
Agreement and all of the Employee's rights hereunder shall inure to the
benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. Mailed notices to the
Employee shall be addressed to the Employee at the home address which the
Employee most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
8. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any benefit contemplated by this Agreement
(whether by seeking new employment or in any other
D-60
<PAGE>
manner), nor, except as otherwise provided in this Agreement, shall any
such benefit be reduced by any earnings that the Employee may receive
from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized
officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a
waiver of any other condition or provision or of the same condition or
provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
This Agreement supersedes any agreement of the same title and
concerning similar subject matter dated prior to the date of this
Agreement, and by execution of this Agreement both parties agree that
any such predecessor agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and
to any extent, be invalid or unenforceable, such term or provision
shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering
unenforceable the remaining terms and provisions of this Agreement or
the application of such terms and provisions to circumstances other
than those as to which it is held invalid or unenforceable, and a
suitable and equitable term or provision shall be substituted therefor
to carry out, insofar as may be valid and enforceable, the intent and
purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either
party by binding arbitration in the County of San Mateo, California, in
accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this
Agreement.
(h) No Assignment of Benefits. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this subsection (h) shall be void.
(i) Employment Taxes. Any payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment
taxes.
(j) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the
Company; provided, however, that no assignment shall be made if the net
worth of the assignee is less than the net worth of the Company at the
time of assignment. In the case of any such assignment, the term
"Company" when used in a section of this Agreement shall mean the
corporation that actually employs the Employee.
(k) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together
will constitute one and the same instrument.
[Signature Page Follows]
D-61
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year
first above written.
CHEMDEX CORPORATION (EMPLOYEE)
By: _______________________________ _________________________________
Title: ____________________________
D-62
<PAGE>
SCHEDULE 3
D-63
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
December 10, 1999, by and between Chemdex Corporation., a Delaware corporation
("Chemdex") and <Employee> ("Individual"), an employee of SpecialtyMD.com
Corporation ("Target").
RECITALS
A. Target is engaged in the business of providing on-line clinical content
for specialty physicians.
B. Individual is a stockholder and an employee of Target and has
confidential and proprietary information relating to the business and operation
of Target.
C. Individual's covenant not to compete with Chemdex, as reflected in this
Agreement, is an essential part of the transactions described in that certain
Agreement and Plan of Merger dated as of December 10, 1999 (the "Merger
Agreement"), among Chemdex, Spinach Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Chemdex ("Sub"), and Target, whereby Sub will
be merged with and into Target (the transactions contemplated by the Merger
Agreement are referred to hereinafter as the "Merger").
D. As a condition to its willingness to enter into the Merger Agreement,
Chemdex has required that Individual agree, and Individual has agreed, to the
noncompetition and nonsolicitation covenants and the confidentiality agreements
provided in this Agreement.
E. References to Chemdex hereinafter shall include all subsidiaries of
Chemdex and shall include Target which is the surviving corporation in the
Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and to induce Chemdex to
consummate the transactions contemplated by the Merger Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Individual hereby covenants and agrees as follows:
1. Noncompetition.
(a) Individual and Chemdex agree that due to the nature of
Individual's employment with Target, Individual has confidential and
proprietary information relating to the business and operations of
Target. Individual acknowledges that such information is of importance
to the "Business" (as defined below) and will continue to be so after
the Merger and that disclosure of such confidential information to
others or the unauthorized use of such information by others would
cause substantial loss and harm to Target and, following the Merger,
Chemdex.
(b) During the period which shall commence at the Effective Time
and shall terminate on the earlier of the third anniversary of the
Closing Date and the first anniversary of the termination of
Individual's employment with the Company (such period, the "Restricted
Period"), Individual shall not directly or indirectly (including
without limitation, through any Affiliate (as defined below) of
Individual), own, manage, operate, control or otherwise engage or
participate in, or be connected as an owner, partner, principal,
creditor, salesman, guarantor, advisor, member of the board of
directors of, employee of or consultant in any entity or business where
such entity or business (i) devotes 20% or more of its resources to a
division, group, or other subset of such entity or business, that is
engaging in or is developing a business competitive with the Business
or (ii) generates 20% or more of its gross revenues or earnings from a
business competitive with the Business.
(c) Notwithstanding the foregoing provisions of Section 1(b) and
the restrictions set forth therein, Individual may own securities in
any publicly held corporation that is covered by the
D-64
<PAGE>
restrictions set forth in Section 1(b), but only to the extent that
Individual does not own, of record or beneficially, more than 1% of the
outstanding beneficial ownership of such corporation.
(d) The restrictions set forth in Section 1(b) shall apply to the
United States (the "Business Area").
(e) "Affiliate" as used herein, means, with respect to any person
or entity, any person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such
other person or entity.
(f) "Business" as used herein means the operation of a business
primarily engaged in providing clinical content for specialty
physicians over the internet.
2. Nonsolicitation of Chemdex Employees. During the Restricted Period,
Individual shall not, without the prior written consent of Chemdex,
directly or indirectly (including without limitation, through any Affiliate
of Individual), solicit, request, cause or induce any person who is at the
time an employee of Chemdex or a consultant with an exclusive relationship
with Chemdex to leave the employ of Chemdex.
3. Nonsolicitation of Customers. During the Restricted Period,
Individual shall not, directly or indirectly (including without limitation,
through any Affiliate of Individual) (i) solicit, induce or attempt to
induce any customer of Chemdex, including but not limited to any customer
of Target that was a customer of Chemdex or Target while the Individual was
an employee of Chemdex or Target, as the case may be, or during the
Restricted Period, to cease doing business in whole or in part with Chemdex
with respect to the Business, if such customer constitutes a trade secret;
or (ii) make materially false statements, or take intentional actions,
which are intended to disparage the business reputation of Chemdex (or its
management team) or take any intentional actions which are intended to
result in material harm to Chemdex's goodwill with its customers, content
providers, bandwidth or other network infrastructure providers, vendors,
employees, the media or the public.
4. Confidentiality. Prior to the Effective Time, Individual will execute
Chemdex's standard employee proprietary information and invention
assignment agreement.
5. Stay of Time. In the event that either party shall request a court of
competent jurisdiction (collectively a "Court") or other entity or person
mutually selected by the parties to determine whether the Individual has
violated the provisions of this Agreement, the running of the time period
of such provisions so violated shall be automatically suspended as of the
date of such violation and shall resume on the date of the final order or
remedy that the Court or other entity or person rules or determines that
such violation occurred.
6. Injunctive Relief. The remedy at law for any breach of this Agreement
is and will be inadequate, and in the event of a breach or threatened
breach by Individual of the provisions of Sections 1, 2 or 3 of this
Agreement, Target and Chemdex shall be entitled to seek an injunction
restraining Individual from the conduct which would constitute a breach of
this Agreement. Nothing herein contained shall be construed as prohibiting
Target or Chemdex from pursuing any other remedies available to it or them
for such breach or threatened breach, including, without limitation, the
recovery of damages from Individual.
7. Separate Covenants. This Agreement shall be deemed to consist of a
series of separate covenants, one for each line of business carried on by
the Business and each county, state, country or other region included
within the Business Area. The parties expressly agree that the character,
duration and geographical scope of this Agreement are reasonable in light
of the circumstances as they exist on the date upon which this Agreement
has been executed. However, should a determination nonetheless be made by a
court of competent jurisdiction at a later date that the character,
duration or geographical scope of this Agreement is unreasonable in light
of the circumstances as they then exist, then it is the intention and the
agreement of Individual that this Agreement shall be construed by the court
in such a manner as to impose only those restrictions on the conduct of
Individual that are reasonable in light of the circumstances as they then
exist and as are necessary to assure Target. and Chemdex of the intended
benefit of this
D-65
<PAGE>
Agreement. If, in any judicial proceeding, a court shall refuse to enforce
all of the separate covenants deemed included herein because, taken
together, they are more extensive than necessary to assure Chemdex of the
intended benefit of this Agreement, it is expressly understood and agreed
among the parties hereto that those of such covenants that, if eliminated,
would permit the remaining separate covenants to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated
from the provisions hereof.
8. Severability. If any of the provisions of this Agreement shall
otherwise contravene or be invalid under the laws of any state, country or
other jurisdiction where this Agreement is applicable but for such
contravention or invalidity, such contravention or invalidity shall not
invalidate all of the provisions of this Agreement but rather it shall be
construed, insofar as the laws of that state, country or jurisdiction are
concerned, as not containing the provision or provisions contravening or
invalid under the laws of that state or jurisdiction, and the rights and
obligations created hereby shall be construed and enforced accordingly.
9. Construction. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Utah, without
regard to principles of conflicts or choice of laws; provided, however,
that with respect to activities occurring in a particular jurisdiction, the
law of such jurisdiction shall apply solely to the extent it results in the
greatest enforcement of the terms of this Agreement.
10. Amendments and Waivers. This Agreement may be modified only by a
written instrument duly executed by each party hereto. No breach of any
covenant, agreement, warranty or representation shall be deemed waived
unless expressly waived in writing by the party who might assert such
breach. No waiver of any right hereunder shall operate as a waiver of any
other right or of the same or a similar right on another occasion.
11. Entire Agreement. This Agreement, together with the Merger
Agreement, the offer letter to which this is attached and Chemdex's
employee confidentiality and investors agreement, and the ancillary
documents executed in connection therewith, contains the entire
understanding of the parties relating to the subject matter hereof,
supersedes all prior and contemporaneous agreements and understandings
relating to the subject matter hereof and shall not be amended except by a
written instrument signed by each of the parties hereto.
12. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which, when so executed and delivered, shall
be an original, but all of which, when taken as a whole, shall constitute
one and the same instrument.
13. Section Headings. The headings of each Section, subsection or other
subdivision of this Agreement are for reference only and shall not limit or
control the meaning thereof.
14. Assignment. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof nor any of
the documents executed in connection herewith may be assigned by any party
without the consent of the other parties; provided, however, that Chemdex
and Target may assign their rights hereunder, without the consent of
Individual, to any entity that acquires or succeeds to the Business.
15. Further Assurances. From time to time, at Chemdex's request and
without further consideration, Individual shall execute and deliver such
additional documents and take all such further action as reasonably
requested by Target or Chemdex to be necessary or desirable to make
effective, in the most expeditious manner possible, the terms of this
Agreement.
D-66
<PAGE>
16. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or two
business days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Chemdex:
Chemdex Corporation
1500 Plymouth Street
Mountain View, CA 94043
Attention: Chief Executive Officer
with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, CA 94025
Attention: Jeffrey Y. Suto
(b) if to Individual:
to the address set forth below the name of Individual on the
signature page hereof.
17. Effectiveness. Notwithstanding any other provision of this
Agreement, this Agreement shall become effective only upon the Effective
Time, and if such Effective Time shall not occur prior to the termination
of the Merger Agreement this Agreement shall be deemed void ab initio and
have no further force or effect upon such termination of the Merger
Agreement.
19. Defined Terms. Capitalized terms not otherwise defined herein shall
have the meanings given to them in the Merger Agreement.
********
D-67
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first above written.
CHEMDEX CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
INDIVIDUAL:
_____________________________________
(Name)
Address c/o SpecialtyMD.com
Corporation
1510 Page Mill Road
Palo Alto, CA 94304
D-68
<PAGE>
EXHIBIT C
FORM OF STOCK RESTRICTION AGREEMENT
D-69
<PAGE>
FORM OF STOCK RESTRICTION AGREEMENT
THIS STOCK RESTRICTION AGREEMENT (the "Agreement") is made as of December
10, 1999 by and between Chemdex Corporation, a Delaware corporation (the
"Company"), and <Employee> (the "Stockholder").
RECITALS
The Company is a party to an Agreement and Plan of Merger (the "Merger
Agreement") with SpecialtyMD.com Corporation ("Target") and Spinach
Acquisitions Corp. dated December 10, 1999.
Stockholder owns of the Common Stock of Target (the "Target Shares")
originally purchased at an average purchase price of $ per Target
Share (the "Target Purchase Price") pursuant to a Stock Purchase Agreement
dated , 199 ,. Stockholder will receive a number of shares of
the Common Stock of the Company (the "Shares") upon completion of the merger in
accordance with the Merger Agreement. The Company and the Stockholder recognize
that, in order to provide the proper incentives for working with the Company,
it is necessary and appropriate for the Stockholder to agree to subject
shares of the Common Stock of the Company (the amount for which shares of
the Common Stock of Target will be exchanged, the "Shares") to a repurchase
option in favor of the Company in the event of the voluntary or involuntary
termination of the employment or consulting relationship of the Stockholder
with the Company and to certain other restrictions on the transfer of the
Shares.
AGREEMENT
In consideration of the foregoing, the parties hereto agree as follows:
1. Limitations on Transfer. The Stockholder shall not assign, encumber or
dispose of any interest in the Shares while the Shares are subject to the
Repurchase Option (as defined below). After any Shares have been released from
the Repurchase Option, the Stockholder shall not assign, encumber or dispose of
any interest in such Shares except in compliance with the provisions below and
applicable securities laws.
(a) Repurchase Option.
(i) In the event of the voluntary or involuntary termination of
Stockholder's employment or consulting relationship with the Company
for any reason (including death or disability), with or without cause,
subject to the severance provisions of that certain letter agreement
between the Company and Stockholder dated December 10, 1999 and the
Change of Control Agreement between the Company and Stockholder dated
December 10, 1999, the Company shall upon the date of such termination
(the "Termination Date") have an irrevocable, exclusive option (the
"Repurchase Option") for a period of 90 days from such date to
repurchase all or any portion of the Shares held by Stockholder as of
the Termination Date which have not yet been released from the
Company's Repurchase Option at the "Repurchase Price" (as defined
below).
(ii) Unless the Company notifies Stockholder within 90 days from the
date of termination of Stockholder's employment or consulting
relationship that it does not intend to exercise its Repurchase Option
with respect to some or all of the Shares, the Repurchase Option shall
be deemed automatically exercised by the Company as of the 90th day
following such termination, provided that the Company may notify
Stockholder that it is exercising its Repurchase Option as of a date
prior to such 90th day. Unless Stockholder is otherwise notified by the
Company pursuant to the preceding sentence that the Company does not
intend to exercise its Repurchase Option as to some or all of the
Shares to which it applies at the time of termination, execution of
this Agreement by Stockholder constitutes written notice to Stockholder
of the Company's intention to exercise its Repurchase Option with
respect to all Shares to which such Repurchase Option applies. The
Company, at its choice, may satisfy its payment obligation to
Stockholder with respect to exercise of the Repurchase
D-70
<PAGE>
Option by either (A) delivering a check to Stockholder in the amount of
the purchase price for the Shares being repurchased, or (B) in the
event Stockholder is indebted to the Company, canceling an amount of
such indebtedness equal to the purchase price for the Shares being
repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase
price, provided that the Company shall use good faith efforts to
satisfy its payment obligation to Stockholder within such 90 days, and
that if such check is not delivered or such cancellation is not
effective within 90 days from the date of termination, the amount of
the Company's unsatisfied payment obligation shall bear interest at a
rate of nine percent (9%) per annum until the Company has satisfied its
payment obligation under this paragraph (ii). In the event of any
deemed automatic exercise of the Repurchase Option pursuant to this
Section 3(a)(ii) in which Stockholder is indebted to the Company, such
indebtedness equal to the purchase price of the Shares being
repurchased shall be deemed automatically canceled as of the 90th day
following termination of Stockholder's employment or consulting
relationship unless the Company otherwise satisfies its payment
obligations. As a result of any repurchase of Shares pursuant to this
Section 3(a), the Company shall become the legal and beneficial owner
of the Shares being repurchased and shall have all rights and interest
therein or related thereto, and the Company shall have the right to
transfer to its own name the number of Shares being repurchased by the
Company, without further action by Stockholder.
(iii) The Shares shall be subject to the Repurchase Option as of the
closing of the transaction contemplated by the Merger Agreement. 1/15th
of the Shares shall be released from the Repurchase Option at the end
of each month following the Vesting Commencement Date (as set forth on
the signature page to this Agreement), until all Shares are released
from the Repurchase Option at the end of such 15 month period (provided
in each case that the Stockholder's employment or consulting
relationship with the Company has not been terminated prior to the date
of any such release). Fractional shares shall be rounded to the nearest
whole share.
(iv) The Repurchase Price shall be $ per share (adjusted for any
stock splits, stock dividends and the like), unless Stockholder's
employment or consulting relationship with the Company is terminated as
a result of death or disability, in which case the Repurchase Price
shall be the fair market value of the Company's Common Stock as of the
date of termination.
(v) For purposes of this Section 1, the fair market value of one
share of Common Stock on the date of termination shall mean:
(A) If the Common Stock is traded on a securities exchange or The
Nasdaq National Market, the fair market value shall be deemed to be
the average of the closing prices of the securities on such exchange
over the five-day trading period ending one day prior to
termination;
(B) If the Common Stock is actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale
prices (whichever is applicable) over the five-day period ending one
day prior to termination.
(C) If the Common Stock is not traded on a securities exchange,
the Nasdaq National Market or over-the-counter, the fair market
value shall be at the highest price per share which the Company
could obtain on the date of calculation from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good
faith by the Board of Directors.
(b) Assignment. The right of the Company to purchase any part of the
Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a
100% owned subsidiary of the Company, must pay the Company, upon assignment
of such right, cash equal to the difference between the repurchase price
and fair market value, if the repurchase price is less than the fair market
value of the Shares subject to the assignment.
D-71
<PAGE>
(c) Restrictions Binding on Transferees. All transferees of Shares or
any interest therein will receive and hold such Shares or interest subject
to the provisions of this Agreement. Any sale or transfer of the Company's
Shares shall be void unless the provisions of this Agreement are satisfied.
(d) Tax Indemnification.
(i) The imposition of vesting on the Options and the Repurchase
Option are intended to protect the value of the assets of the Company
and Target, including their workforce and intangible property. The
Options and the Shares are intended to constitute a part of the
consideration for the transactions contemplated by the Merger
Agreement, and not to constitute compensation for services rendered.
The Company and Stockholder each agrees to treat the Options and the
Shares consistent with the preceding sentence for all federal, state
and local tax purposes, and to take no position on any tax return
inconsistent therewith, except to the extent required by law.
(ii) The Company will indemnify and hold harmless Stockholder, on an
after-tax basis, from and against any federal, state or local tax
liability (including, without limitation, franchise, income, or
employment taxes) that arises from treatment by any taxing authority of
(A) the receipt of the Shares by Stockholder upon the Merger or upon
the exercise of the Options or (B) the vesting of such Shares, as
compensation for services rendered by Stockholder. For purposes of the
preceding sentence, it shall be assumed that such compensation was
taxed at the highest combined effective marginal federal, state and
local income tax rates applicable to compensation of individuals
residing in California at the times the income was recognized.
(iii) The Company's indemnification obligation with respect to the
compensation income recognized with respect to receipt of the Options
and the Shares pursuant to subsection 1(d)(ii) shall be reduced by the
federal, state or local income or franchise taxes paid by the
Stockholder with respect to sales of the Shares prior to the date that
such obligation is payable, provided that the number of shares of the
Company taken into account pursuant to this sentence shall not exceed
the number of Shares received by Stockholder and the per-share amount
realized upon each such sale shall not exceed the per-share value of
the Shares at the Effective Time of the Merger. For purposes of the
preceding sentence, it shall be assumed that all sales of Shares taken
into account were taxed at the highest combined effective marginal
federal, state and local income tax rates applicable to sales of
capital assets by individuals residing in California at the times the
sales occur and Stockholder's tax basis in the Shares sold equaled the
basis of the Target Shares exchanged for the Shares in the Merger (or
the Option Price, if the shares were received upon exercise of an
Option) rather than the fair market value of the Shares on the date(s)
such compensation income was recognized. Sales of Shares by Stockholder
subsequent to the Effective Time shall be taken into account pursuant
to the foregoing provisions in the order in which such sales occur.
2. Escrow. For purposes of facilitating the enforcement of the provisions of
Section 1(a) above, the Stockholder agrees to deliver the certificate(s) for
the Shares, together with an Assignment Separate from Certificate in the form
attached to this Agreement as Attachment A executed by the Stockholder and by
the Stockholder's spouse (if required for transfer), in blank, to the Secretary
of the Company, or the Secretary's designee, to hold such certificate(s) and
Assignment Separate from Certificate in escrow and to take all such actions and
to effectuate all such transfers and/or releases as are required in accordance
with the terms of this Agreement. The Stockholder hereby acknowledges that the
Secretary of the Company, or the Secretary's designee, is so appointed as the
escrow holder with the foregoing authorities as a material inducement to make
this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. The Stockholder agrees that said escrow holder shall
not be liable to any party hereof (or to any other party). The escrow holder
may rely upon any letter, notice or other document executed by any signature
purported to be genuine and may resign at any time. The Stockholder agrees that
if the Secretary of the Company, or the Secretary's designee, resigns as escrow
holder for any or no reason, the Board of Directors of the Company shall have
the power to appoint a successor to serve as escrow holder pursuant to the
terms of this Agreement. Upon release of any Shares from the repurchase option
pursuant to this agreement, the escrow holder shall
D-72
<PAGE>
deliver (a) ninety percent (90%) of such released shares (i) if such release
occurs prior to July 1, 2000, to the Escrow Agent holding shares pursuant to
the Lock-Up Escrow Agreement to be executed among Company, Target, Escrow
Agent, and Stockholders' Agents to be held or distributed in accordance with
the terms thereof, and (ii) if such release occurs after June 30, 2000, to the
Stockholder; and (b) ten percent(10%) of such released shares (i) if such
release occurs prior to the release of escrowed shares under section 2(d) of
the Indemnity Escrow Agreement to be executed among Company, Target, Escrow
Agent, and Stockholders' Agents to be held or distributed in accordance with
the terms thereof, and (ii) if such release occurs after such date, to the
Stockholder.
3. Legends. The certificate or certificates representing the Shares shall be
endorsed with the following legend (as well as any legends required by
applicable state and federal corporate and securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
When the Option has fully vested and the Repurchase Option has expired or
exercised in full, the Shares then held by the Stockholder will no longer be
subject to the foregoing legend. After such time, and upon the Stockholder's
request, a new certificate or certificates representing the outstanding Shares
not repurchased shall be issued without the legend set forth above and
delivered to the Stockholder.
4. No Employment Rights. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate the Stockholder's employment, for any reason, with
or without cause.
5. Miscellaneous.
(a) Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the
State of California, without giving effect to principles of conflicts of
law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets forth
the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any
rights under this Agreement, shall be effective unless in writing signed by
the parties to this Agreement. The failure by either party to enforce any
rights under this Agreement shall not be construed as a waiver of any
rights of such party.
(c) Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i)
such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded
and (iii) the balance of the Agreement shall be enforceable in accordance
with its terms.
(d) Construction. This Agreement is the result of negotiations between
and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the
product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or 48 hours
after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.
D-73
<PAGE>
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of the Stockholder under
this Agreement may only be assigned with the prior written consent of the
Company.
[Signature Page Follows]
D-74
<PAGE>
The parties hereto have executed this Agreement as of the day and year first
set forth above.
CHEMDEX CORPORATION
By: _________________________________
David P. Perry
President
Address:
1500 Plymouth Street
Mountain View, CA 94043
THE STOCKHOLDER ACKNOWLEDGES AND AGREES THAT THE VESTING OF OPTIONS OR
SHARES PURSUANT TO SECTION 1 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN
EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY. THE STOCKHOLDER FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON THE
STOCKHOLDER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR
CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY
WITH THE STOCKHOLDER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE
STOCKHOLDER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR
WITHOUT CAUSE.
THE STOCKHOLDER:
_____________________________________
c/o SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Vesting Commencement Date: the "Closing" as defined in the Agreement and Plan
of Merger.
D-75
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Restriction Agreement
between the undersigned (the "Stockholder") and Chemdex Corporation (the
"Company") dated December 10, 1999 (the "Agreement"), the Stockholder hereby
sells, assigns and transfers unto the Company shares of the
Company's Common Stock standing in the Stockholder's name on the books of said
corporation represented by Certificate No. herewith and does hereby
irrevocably constitute and appoint to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE ATTACHMENTS THERETO.
Dated: , .
Signature:
_____________________________________
_____________________________________
Spouse of (Name)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of the Stockholder.
D-76
<PAGE>
ATTACHMENT B
CONSENT OF SPOUSE
I, , spouse of , have read and hereby approve the
foregoing Stock Restriction Agreement (the "Agreement"). In consideration of
the Company's enhanced potential to raise additional capital for the benefit of
all stockholders, including my spouse, provided by the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other interest I may have in the Shares shall be subject
to the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment to or exercise of any rights I may have under the
Agreement.
_____________________________________
Spouse of
D-77
<PAGE>
EXHIBIT D-1
LOCK-UP ESCROW AGREEMENT
D-78
<PAGE>
LOCK-UP ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of
, 2000, by and among Chemdex Corporation, a Delaware corporation
("Chemdex"), SpecialtyMD.com Corporation, a Delaware corporation ("Target"),
U.S. Bank Trust, National Association, as Escrow Agent ("Escrow Agent"), and
Ashfaq Munshi and Joseph L. Meresman, as Stockholders' Agents ("Stockholders'
Agents") with respect to the shares of Chemdex capital stock to be issued to
the former Target Stockholders (collectively, the "Holders") in the Merger (as
defined below).
RECITALS
A. Chemdex, Target, and Spinach Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Chemdex ("Sub"), have entered into a Agreement
and Plan of Merger dated as of December 10, 1999 (the "Merger Agreement"),
pursuant to which Sub will merge with and into Target (the "Merger"), with
Target surviving the Merger as the surviving corporation. Capitalized terms
used in this Agreement and not otherwise defined in this Agreement shall have
the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the Effective Time,
or such later time as determined in accordance with Section 2.3(b) of the
Merger Agreement with respect to Dissenting Shares for which dissenters' rights
shall have been withdrawn or lost, Chemdex will deposit in escrow (such deposit
constituting the "Escrow Fund") certificates representing ninety percent (90%)
of the shares of Chemdex Common Stock issuable to the Holders in the Merger
(the "Locked Up Shares") on a pro rata basis, in accordance with each Holder's
percentage ownership of Chemdex Common Stock issuable pursuant to the Merger to
be held until July 1, 2000.
C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Locked Up Shares will be deposited, held in,
and disbursed from the Escrow Fund.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the
Locked Up Shares; and (b) hold such Locked Up Shares in escrow as part of
the Escrow Fund, all subject to the terms and conditions of this Agreement
and Section 2.2 of the Merger Agreement (which Section 2.2 is attached to
this Agreement as Appendix I and incorporated by reference into this
Agreement) (collectively, the "Escrow Provisions"). The Locked Up Shares
will include "Additional Locked Up Shares" as that term is defined in
Section 2(c) of this Agreement.
2. Deposit of Locked Up Shares: Release from Escrow.
(a) Delivery of Locked Up Shares. As soon as practicable after the
Effective Time, the Locked Up Shares will be delivered by Chemdex on
behalf of the Holders to the Escrow Agent. Such shares shall be issued
in the name of the Escrow Agent. In the event Chemdex issues any
Additional Locked Up Shares, such Additional Locked Up Shares will be
issued in the name of the Escrow Agent and delivered to the Escrow
Agent in the same manner as the Locked Up Shares.
(b) Holders' Accounts. The Escrow Agent will maintain for each
Holder an accounting record (each Holder's "Account") specifying the
Locked Up Shares held for the record of each Holder pursuant to the
Escrow Provisions. All Locked Up Shares received under Section 2(a)
will be allocated to each Holder's Account in accordance with such
Holder's percentage interest in the Escrow Fund as set forth on
Appendix II.
D-79
<PAGE>
(c) Dividends, Voting and Rights of Ownership. Except for tax-free
dividends paid in stock declared with respect to the Locked Up Shares
pursuant to Section 305(a) of the Internal Revenue Code of 1986, as
amended (the "Code") ("Additional Locked Up Shares"), there will be
distributed promptly to the Holders any cash dividends or dividends
payable in securities or other distributions of any kind made in
respect of the Locked Up Shares. Each Holder will have voting rights
with respect to the Locked Up Shares deposited in the Escrow Fund with
respect to such Holder so long as such Locked Up Shares are held in
escrow, and Chemdex will take all reasonable steps necessary to allow
the exercise of such rights. While the Locked Up Shares remain in the
Escrow Agent's possession pursuant to this Agreement and the Merger
Agreement, the Holders will retain and will be able to exercise all
other incidents of ownership of said Locked Up Shares which are not
inconsistent with the terms and conditions of this Agreement and the
Merger Agreement.
(d) Release. The Locked Up Shares will be held by the Escrow Agent
until July 1, 2000. Within five (5) business days after such date, the
Escrow Agent will deliver to each Holder the Locked Up Shares to be
released on such date as identified by Chemdex and the Stockholders'
Agents to the Escrow Agent in writing, provided, however, that in the
absence of additional written instructions signed by both Chemdex and
the Stockholders' Agents, the Escrow Agent shall deliver the Locked Up
Shares to the Holders as set forth on Schedule II. Locked Up Shares
will be in the form of stock certificate(s) issued in the name of each
such Holder. Chemdex and the Stockholders' Agents will undertake to
deliver a notice to the Escrow Agent identifying the number of Locked
Up Shares to be released with respect to each Holder within such five-
day period. Locked Up Shares will be released to the respective Holders
in accordance with their respective Accounts. Chemdex will take such
action as may be necessary to cause such certificates to be issued in
the names of the appropriate Holders. Cash will be paid in lieu of
fractions of Locked Up Shares in an amount equal to the product
determined by multiplying such fraction by the Average Stock Price, as
defined in the Merger Agreement (the "Per Share Value"). Within five
(5) business days after written request from the Stockholders' Agents,
Chemdex will deposit with the Escrow Agent sufficient funds to pay such
cash amounts for fractional shares.
(e) No Encumbrance. Except as provided in this Agreement and as may
be set forth in the Target Disclosure Schedule, no Locked Up Shares or
any beneficial interest in the Locked Up Shares may be pledged, sold,
assigned or transferred, including by operation of law, by a Holder or
be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of a Holder, prior to the delivery to
such Holder of the Locked Up Shares by the Escrow Agent.
(f) Power to Transfer Locked Up Shares. The Escrow Agent is granted
the power to effect any transfer of Locked Up Shares contemplated by
the Escrow Provisions. Chemdex will cooperate with the Escrow Agent in
promptly issuing stock certificates to effect such transfers.
(g) Reporting. Each Holder will provide the Escrow Agent with
his/her/its Taxpayer Identification Number at or prior to Closing. On
or before January 31, 2001, the Escrow Agent will prepare and mail to
each Holder, other than Holders who demonstrate their status as non-
resident aliens in accordance with the United States Treasury
Regulations, a Form 1099-B reporting any payments, in accordance with
such Treasury Regulations. The Escrow Agent will also prepare and file
copies of such Forms 1099-B by magnetic tape with the IRS, in
accordance with Treasury Regulations. If the Escrow Agent has not
received notice from a Holder of such Holder's certified Taxpayer
Identification Number, the Escrow Agent shall deduct and withhold
backup withholding tax from any payment made pursuant to the Internal
Revenue Code and applicable regulations thereunder. Should any issue
arise regarding federal income tax reporting or withholding, the Escrow
Agent shall act in accordance with the written instructions of the
Stockholders' Agents and Chemdex.
D-80
<PAGE>
3. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other document believed by it to be
genuine and duly authorized, nor for any other action or inaction,
except its own willful misconduct, bad faith or gross negligence. The
Escrow Agent will not be responsible for the validity or sufficiency of
the Escrow Provisions. In all questions arising under the Escrow
Provisions, the Escrow Agent may rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent
based on such advice, the Escrow Agent will not be liable to anyone.
The Escrow Agent will not be required to take any action under the
Escrow Provisions involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served
upon the Escrow Agent with respect to the Escrow Fund, the Escrow Agent
will have the absolute right, at the Escrow Agent's election, to do
either or both of the following: resign so a successor can be appointed
pursuant to Section 5 or file a suit in interpleader and obtain an
order from a court of competent jurisdiction requiring the parties to
interplead and litigate in such court their several claims and rights
among themselves. In the event such interpleader suit is brought, the
Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under the Escrow Provisions, and
Chemdex will pay the Escrow Agent (subject to reimbursement from the
Holders pursuant to Section 4) all costs, expenses and reasonable
attorney's fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 3 (such
costs, fees and expenses will be treated as extraordinary fees and
expenses for the purposes of Section 4).
4. Expenses.
(a) Escrow Agent. All fees and expenses of the Escrow Agent incurred
in the ordinary course of performing its responsibilities hereunder
will be paid by Chemdex upon receipt of a written invoice by the Escrow
Agent. Any extraordinary fees and expenses, including without
limitation any fees or expenses incurred by the Escrow Agent in
connection with a dispute over the distribution of Locked Up Shares or
the validity of a claim or claims by Chemdex made in an Officer's
Certificate, will be paid 50% by Chemdex and 50% by the Holders. The
Holders' liability for the extraordinary fees and expenses of the
Escrow Agent may be paid by Chemdex and recovered as a claim hereunder
out of the Escrow Fund. If Chemdex has paid the Holders' portion of
such fees and expenses as permitted under this Section 4(a), then the
Escrow Agent will, upon demand by Chemdex, transfer to Chemdex a number
of Locked Up Shares having an aggregate Per Share Value equal to such
portion of fees and expenses.
In the event the balance in the Escrow Fund is not sufficient to pay
the extraordinary fees and expenses of the Escrow Agent, as described
in the prior paragraph, or in the event the Escrow Agent incurs any
liability to any person, firm or corporation by reason of its
acceptance or administration of this Escrow Agreement, the other
parties hereto, jointly and severally, agree to indemnify the Escrow
Agent for its extraordinary fees and expenses or costs and expenses,
including, without limitation, counsel fees and expenses, as the case
may be. Notwithstanding the foregoing, no indemnity need be paid in the
event of the Escrow Agent's gross negligence, bad faith or willful
misconduct.
(b) Stockholders' Agents. The Stockholders' Agents will not be
entitled to receive any compensation from Chemdex or the Holders in
connection with this Agreement. Any fees and expenses incurred by the
Stockholders' Agents in connection with actions taken pursuant to the
terms of the Escrow Provisions will be paid by the Holders.
5. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity as such, the Escrow
Agent may resign and be discharged from its duties or obligations hereunder
by giving resignation to the parties to this Agreement, specifying not less
than
D-81
<PAGE>
thirty (30) days' prior written notice of such a date when such resignation
will take effect. Chemdex will designate a successor Escrow Agent prior to
the expiration of such 30-day period by giving written notice to the Escrow
Agent and the Stockholders' Agents. Chemdex may appoint a successor Escrow
Agent with the consent of the Stockholders' Agents, which will not be
unreasonably withheld. The Escrow Agent will promptly transfer the Locked
Up Shares to such designated successor. In the event no successor Escrow
Agent is appointed as described in this Section 5, the Escrow Agent may
apply to a court of competent jurisdiction for the appointment of a
successor Escrow Agent.
6. Limitation of Responsibility. The Escrow Agent's duties are limited
to those set forth in the Escrow Provisions and the Escrow Agent may rely
upon the written notices delivered to the Escrow Agent under the Escrow
Provisions.
7. Incorporation by Reference of Section 2.2. The parties agree that the
terms of Section 2.2 of the Merger Agreement shall be deemed to be
incorporated by reference in this Agreement as if such Section had been set
forth in its entirety herein. The parties acknowledge that the
administration of the Escrow Fund by the Escrow Agent may require reference
to both the terms of this Agreement as well as the terms of such Section
2.2.
8. Notices. Any notice provided for or permitted under the Escrow
Provisions will be treated as having been given when (i) delivered
personally, (ii) sent by confirmed telex or Fax, (iii) sent by commercial
overnight courier with written verification of receipt, or (iv) mailed
postage prepaid by certified or registered mail, return receipt requested,
to the party to be notified, at the address set forth below, or at such
other place of which the other party has been notified in accordance with
the provisions of this Section 8.
Escrow Agent: U.S. Bank Trust, National Association
One California Street, 4th Floor
San Francisco, California 94111
Attention: Ann Gadsby
Fax No: (415) 273-4593
Telephone No: (415) 273-4532
Stockholders' Agents:
SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Attention: Ashfaq Munshi
Joeseph L. Meresman
Fax No: (650) 213-4101
Telephone No: (650) 213-4100
With copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: J. Casey McGlynn
Fax No: (650) 493-6811
Telephone No: (650) 493-9300
Chemdex: Chemdex Corporation
1500 Plymouth Street
Mountain View, CA 94043
Attention: Chief Executive Officer
Fax No: (650) 567-8950
Telephone No: (650) 567-8900
D-82
<PAGE>
With copy to: Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
Such notice will be treated as having been received upon actual receipt.
9. General.
(a) Governing Laws. It is the intention of the parties hereto that
the internal laws of the State of Delaware (irrespective of its choice
of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of
the rights and duties of the parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the permitted successors,
executors, heirs, representatives, administrators and assigns of the
parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party
whose signature appears on such counterpart and all of which together
shall constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts of this Agreement,
individually or taken together, shall bear the signatures of all of the
parties reflected in this Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Merger Agreement,
this Agreement, the documents referenced in this Agreement and the
exhibits to such documents, constitute the entire understanding and
agreement of the parties to this Agreement with respect to the subject
matter of this Agreement and of such documents and exhibits and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between
the parties with respect to this Agreement. The express terms of this
Agreement control and supersede any course of performance or usage of
the trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any
condition or of any breach of any provision of this Agreement will be
effective unless in writing. No waiver by any party of any such
condition or breach, in any one instance, will be deemed to be a
further or continuing waiver of any such condition or breach or a
waiver of any other condition or breach of any other provision
contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written
consent of Chemdex, the Escrow Agent and the Stockholders' Agents;
provided, however, that if the Escrow Agent does not agree to an
amendment agreed upon by Chemdex and the Stockholders' Agents, a
successor Escrow Agent will be appointed in accordance with Section 5.
[Signature Page Follows]
D-83
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Lock-Up Escrow
Agreement as of the day and year first written above and will be effective as
to all the Holders when executed by Chemdex, the Escrow Agent and the
Stockholders' Agents.
CHEMDEX CORPORATION
By: _________________________________
Its: ________________________________
SPECIALTYMD.COM CORPORATION
By: _________________________________
Its: ________________________________
ESCROW AGENT:
U.S. BANK TRUST, NATIONAL
ASSOCIATION
By: _________________________________
Its: ________________________________
STOCKHOLDERS' AGENTS:
_____________________________________
Ashfaq Munshi
_____________________________________
Joseph L. Meresman
D-84
<PAGE>
EXHIBIT D-2
INDEMNITY ESCROW AGREEMENT
D-85
<PAGE>
INDEMNITY ESCROW AGREEMENT
THIS INDEMNITY ESCROW AGREEMENT (this "Agreement") is entered into as of
, 2000, by and among Chemdex Corporation, a Delaware corporation
("Chemdex"), SpecialtyMD.com Corporation, a Delaware corporation ("Target"),
U.S. Bank Trust, National Association, as Escrow Agent ("Escrow Agent"), and
Ashfaq Munshi and Joseph L. Meresman, as Stockholders' Agents ("Stockholders'
Agents") with respect to the shares of Chemdex capital stock to be issued to
the former Target Stockholders (collectively, the "Holders") in the Merger (as
defined below).
RECITALS
A. Chemdex, Target, and Spinach Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Chemdex ("Sub"), have entered into a Agreement
and Plan of Merger dated as of December 10, 1999 (the "Merger Agreement"),
pursuant to which Sub will merge with and into Target (the "Merger"), with
Target surviving the Merger as the surviving corporation. Capitalized terms
used in this Agreement and not otherwise defined in this Agreement shall have
the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the Effective Time,
or such later time as determined in accordance with Section 2.3(b) of the
Merger Agreement with respect to Dissenting Shares for which dissenters' rights
shall have been withdrawn or lost, Chemdex will deposit in escrow (such deposit
constituting the "Escrow Fund") certificates representing ten percent (10%) of
the shares of Chemdex Common Stock issuable to the Holders in the Merger (the
"Escrow Shares"), on a pro rata basis, in accordance with each Holder's
percentage ownership of Chemdex Common Stock issuable pursuant to the Merger to
be held as security for Target's indemnification obligations under Article X of
the Merger Agreement after July 1, 2000.
C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Escrow Shares will be deposited, held in, and
disbursed from the Escrow Fund.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the
Escrow Shares; and (b) hold such Escrow Sharesin escrow as part of the Escrow
Fund, all subject to the terms and conditions of this Agreement and Section 2.2
and Article X of the Merger Agreement (which Section 2.2 and Article X are
attached to this Agreement as Appendix I and incorporated by reference into
this Agreement) (collectively, the "Escrow Provisions"). The Escrow Shares will
include "Additional Escrow Shares" as that term is defined in Section 2(c) of
this Agreement.
2. Deposit of Escrow Shares: Release from Escrow.
(a) Delivery of Escrow Shares. As soon as practicable after the Effective
Time, the Escrow Shares will be delivered by Chemdex on behalf of the Holders
to the Escrow Agent. Such shares shall be issued in the name of the Escrow
Agent. In the event Chemdex issues any Additional Escrow Shares, such
Additional Escrow Shares will be issued in the name of the Escrow Agent and
delivered to the Escrow Agent in the same manner as the Escrow Shares.
(b) Holders' Accounts. The Escrow Agent will maintain for each Holder an
accounting record (each Holder's "Account") specifying the Escrow Shares held
for the record of each Holder pursuant to the Escrow Provisions. All Escrow
Shares received under Section 2(a) will be allocated to each Holder's Account
in accordance with such Holder's percentage interest in the Escrow Fund as set
forth on Appendix II.
D-86
<PAGE>
(c) Dividends, Voting and Rights of Ownership. Except for tax-free dividends
paid in stock declared with respect to the Escrow Shares pursuant to Section
305(a) of the Internal Revenue Code of 1986, as amended (the "Code")
("Additional Escrow Shares"), there will be distributed promptly to the Holders
any cash dividends or dividends payable in securities or other distributions of
any kind made in respect of the Escrow Shares. Each Holder will have voting
rights with respect to the Escrow Shares deposited in the Escrow Fund with
respect to such Holder so long as such Escrow Shares are held in escrow, and
Chemdex will take all reasonable steps necessary to allow the exercise of such
rights. While the Escrow Shares remain in the Escrow Agent's possession
pursuant to this Agreement and the Merger Agreement, the Holders will retain
and will be able to exercise all other incidents of ownership of said Escrow
Shares which are not inconsistent with the terms and conditions of this
Agreement and the Merger Agreement.
(d) Release. The Escrow Shares will be held by the Escrow Agent until
required to be released to the Holders pursuant to Section 10.3 of the Merger
Agreement, unless previously delivered to Chemdex pursuant to Section 10.4 of
the Merger Agreement. Within five (5) business days after the applicable
release condition is met, the Escrow Agent will deliver to each Holder the
Escrow Shares to be released on such date as identified by Chemdex and the
Stockholders' Agents to the Escrow Agent in writing. Escrow Shares will be in
the form of stock certificate(s) issued in the name of such Holder. Chemdex and
the Stockholders' Agents will undertake to deliver a notice to the Escrow Agent
identifying the number of Escrow Shares to be released with respect to each
Holder within such five-day period. Escrow Shares will be released to the
respective Holders in accordance with their respective Accounts. Chemdex will
take such action as may be necessary to cause such certificates to be issued in
the names of the appropriate Holders. Cash will be paid in lieu of fractions of
Escrow Shares in an amount equal to the product determined by multiplying such
fraction by the Average Stock Price, as defined in the Merger Agreement (the
"Per Share Value"). Within five (5) business days after written request from
the Stockholders' Agents, Chemdex will deposit with the Escrow Agent sufficient
funds to pay such cash amounts for fractional shares.
(e) No Encumbrance. Except as provided in this Agreement and as may be set
forth in the Target Disclosure Schedule, no Escrow Shares or any beneficial
interest in the Escrow Shares may be pledged, sold, assigned or transferred,
including by operation of law, by a Holder or be taken or reached by any legal
or equitable process in satisfaction of any debt or other liability of a
Holder, prior to the delivery to such Holder of the Escrow Shares by the Escrow
Agent.
(f) Power to Transfer Escrow Shares. The Escrow Agent is granted the power
to effect any transfer of Escrow Shares contemplated by the Escrow Provisions.
Chemdex will cooperate with the Escrow Agent in promptly issuing stock
certificates to effect such transfers.
(g) Reporting. Each Holder will provide the Escrow Agent with his/her/its
Taxpayer Identification Number at or prior to Closing. On or before January 31
of each year under this Agreement, the Escrow Agent will prepare and mail to
each Holder, other than Holders who demonstrate their status as non-resident
aliens in accordance with the United States Treasury Regulations, a Form 1099-B
reporting any payments, in accordance with such Treasury Regulations. The
Escrow Agent will also prepare and file copies of such Forms 1099-B by magnetic
tape with the IRS, in accordance with Treasury Regulations. If the Escrow Agent
has not received notice from a Holder of such Holder's certified Taxpayer
Identification Number, the Escrow Agent shall deduct and withhold backup
withholding tax from any payment made pursuant to the Internal Revenue Code and
applicable regulations thereunder. Should any issue arise regarding federal
income tax reporting or withholding, the Escrow Agent shall act in accordance
with the written instructions of the Stockholders' Agents and Chemdex.
3. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to any action
taken or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other document believed by it to be genuine and duly
authorized, nor for any other action or inaction, except its own willful
misconduct, bad faith or gross negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of the Escrow Provisions.
D-87
<PAGE>
In all questions arising under the Escrow Provisions, the Escrow Agent may rely
on the advice of counsel, and for anything done, omitted or suffered in good
faith by the Escrow Agent based on such advice, the Escrow Agent will not be
liable to anyone. The Escrow Agent will not be required to take any action
under the Escrow Provisions involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served upon the
Escrow Agent with respect to the Escrow Fund, the Escrow Agent will have the
absolute right, at the Escrow Agent's election, to do either or both of the
following: resign so a successor can be appointed pursuant to Section 5 or file
a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under the Escrow
Provisions, and Chemdex will pay the Escrow Agent (subject to reimbursement
from the Holders pursuant to Section 4) all costs, expenses and reasonable
attorney's fees expended or incurred by the Escrow Agent pursuant to the
exercise of the Escrow Agent's rights under this Section 3 (such costs, fees
and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 4).
4. Expenses.
(a) Escrow Agent. All fees and expenses of the Escrow Agent incurred in the
ordinary course of performing its responsibilities hereunder will be paid by
Chemdex upon receipt of a written invoice by the Escrow Agent. Any
extraordinary fees and expenses, including without limitation any fees or
expenses incurred by the Escrow Agent in connection with a dispute over the
distribution of Escrow Shares or the validity of a claim or claims by Chemdex
made in an Officer's Certificate, will be paid 50% by Chemdex and 50% by the
Holders. The Holders' liability for the extraordinary fees and expenses of the
Escrow Agent may be paid by Chemdex and recovered as a claim hereunder out of
the Escrow Fund. If Chemdex has paid the Holders' portion of such fees and
expenses as permitted under this Section 4(a), then the Escrow Agent will, upon
demand by Chemdex, transfer to Chemdex a number of Escrow Shares having an
aggregate Per Share Value equal to such portion of fees and expenses.
In the event the balance in the Escrow Fund is not sufficient to pay the
extraordinary fees and expenses of the Escrow Agent, as described in the prior
paragraph, or in the event the Escrow Agent incurs any liability to any person,
firm or corporation by reason of its acceptance or administration of this
Escrow Agreement, the other parties hereto, jointly and severally, agree to
indemnify the Escrow Agent for its extraordinary fees and expenses or costs and
expenses, including, without limitation, counsel fees and expenses, as the case
may be. Notwithstanding the foregoing, no indemnity need be paid in the event
of the Escrow Agent's gross negligence, bad faith or willful misconduct.
(b) Stockholders' Agents. The Stockholders' Agents will not be entitled to
receive any compensation from Chemdex or the Holders in connection with this
Agreement. Any fees and expenses incurred by the Stockholders' Agents in
connection with actions taken pursuant to the terms of the Escrow Provisions
will be paid by the Holders.
5. Successor Escrow Agent. In the event the Escrow Agent becomes unavailable
or unwilling to continue in its capacity as such, the Escrow Agent may resign
and be discharged from its duties or obligations hereunder by giving
resignation to the parties to this Agreement, specifying not less than thirty
(30) days' prior written notice of such a date when such resignation will take
effect. Chemdex will designate a successor Escrow Agent prior to the expiration
of such 30-day period by giving written notice to the Escrow Agent and the
Stockholders' Agents. Chemdex may appoint a successor Escrow Agent with the
consent of the Stockholders' Agents, which will not be unreasonably withheld.
The Escrow Agent will promptly transfer the Escrow Shares to such designated
successor. In the event no successor Escrow Agent is appointed as described in
this Section 5, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent.
D-88
<PAGE>
6. Limitation of Responsibility. The Escrow Agent's duties are limited to
those set forth in the Escrow Provisions and the Escrow Agent may rely upon the
written notices delivered to the Escrow Agent under the Escrow Provisions.
7. Incorporation by Reference of Article X. The parties agree that the terms
of Section 2.2 and Article X of the Merger Agreement shall be deemed to be
incorporated by reference in this Agreement as if such Article had been set
forth in its entirety herein. To the extent there is any conflict between this
attachment and the merger agreement, then the attachment shall apply. The
parties acknowledge that the administration of the Escrow Fund by the Escrow
Agent will require reference to both the terms of this Agreement as well as the
terms of such Article X.
8. Notices. Any notice provided for or permitted under the Escrow Provisions
will be treated as having been given when (i) delivered personally, (ii) sent
by confirmed telex or Fax, (iii) sent by commercial overnight courier with
written verification of receipt, or (iv) mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 8.
Escrow Agent:U.S. Bank Trust, National Association
One California Street, 4th Floor
San Francisco, California 94111
Attention: Ann Gadsby
Fax No: (415) 273-4593
Telephone No: (415) 273-4532
Stockholders' Agents: SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Attention: Ashfaq Munshi
Joseph L. Meresman
Fax No: (650) 213-4101
Telephone No: (650) 213-4100
With copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304- 1050
Attention: J. Casey McGlynn
Fax No: (650) 493-6811
Telephone No: (650) 493-9300
Chemdex: Chemdex Corporation
1500 Plymouth Street
Mountain View, CA 94043
Attention: Chief Executive Officer
Fax No: (650) 567-8950
Telephone No: (650) 567-8900
With copy to: Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
Such notice will be treated as having been received upon actual receipt.
D-89
<PAGE>
9. General.
(a) Governing Laws. It is the intention of the parties hereto that the
internal laws of the State of Delaware (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of
its terms, and the interpretation and enforcement of the rights and duties of
the parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained in this Agreement shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts of this Agreement, individually or taken
together, shall bear the signatures of all of the parties reflected in this
Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Merger Agreement, this
Agreement, the documents referenced in this Agreement and the exhibits to such
documents, constitute the entire understanding and agreement of the parties to
this Agreement with respect to the subject matter of this Agreement and of such
documents and exhibits and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect to this Agreement. The express terms of
this Agreement control and supersede any course of performance or usage of the
trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any condition or of
any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written consent of
Chemdex, the Escrow Agent and the Stockholders' Agents; provided, however, that
if the Escrow Agent does not agree to an amendment agreed upon by Chemdex and
the Stockholders' Agents, a successor Escrow Agent will be appointed in
accordance with Section 5.
[Signature Page Follows]
D-90
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first written above and will be effective as to all the
Holders when executed by Chemdex, the Escrow Agent and the Stockholders'
Agents.
CHEMDEX CORPORATION
By:__________________________________
Its:
__________________________________
SPECIALTYMD.COM CORPORATION
By:__________________________________
Its:
__________________________________
ESCROW AGENT:
U.S. BANK TRUST, NATIONAL
ASSOCIATION
By:__________________________________
Its:
__________________________________
STOCKHOLDERS' AGENTS:
_____________________________________
Ashfaq Munshi
_____________________________________
Joseph L. Meresman
D-91
<PAGE>
APPENDIX I
Section 2.2 and Article X of Merger Agreement
D-92
<PAGE>
APPENDIX I
Section 2.2 and Article X of Merger Agreement
Section 2.2 Escrow Agreements. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), Chemdex will, on behalf of the
Former Target Stockholders, deposit in escrow stock certificates or Chemdex
Options, as appropriate, representing the percentage of the Total Consideration
Shares set forth below allocable to Target Common Stock and Target Series A and
Series B Preferred Stock in the Merger. Such shares or options shall be held in
escrow on behalf Former Target Stockholders, in accordance with the portion of
Total Consideration Shares allocable to each such Former Target Stockholder in
the manner contemplated by Section 2.1 ("Pro Rata Portion"). If the Closing
shall occur prior to July 1, 2000, then ninety percent (90%) of such shares and
options (collectively, the "Locked Up Shares") shall be placed in escrow and
applied pursuant to the provisions of the Lock-Up Escrow Agreement attached
hereto as Exhibit D-1 (the "Lock-Up Escrow Agreement") on behalf of the Former
Target Stockholders until July 1, 2000, after which the certificates
representing such shares or options will be distributed to the Former Target
Stockholders in accordance with the provisions of the Lock-Up Escrow Agreement.
In addition, regardless of whether the Closing shall occur before July 1, 2000,
ten percent (10%) of such shares and options (collectively, the "Escrow
Shares") shall be held in escrow and applied pursuant to the provisions of the
Indemnity Escrow Agreement attached hereto as Exhibit D-2 (the "Indemnity
Escrow Agreement"). All calculations to determine the number of Locked Up
Shares and Escrow Shares to be delivered by each stockholder of Target into
escrow as aforesaid shall be rounded down to the nearest whole share.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification. From and after the Effective Time and subject
to the limitations contained in Section 10.2, the Former Target Stockholders
will, severally and pro rata, in accordance with their Pro Rata Portion,
indemnify and hold Chemdex harmless against any loss, expense, liability or
other damage, including attorneys' fees, to the extent of the amount of such
loss, expense, liability or other damage (collectively "Damages") that Chemdex
has incurred by reason of the breach by Target of any representation, warranty,
covenant or agreement of Target contained in this Agreement that occurs or
becomes known to Chemdex during the Escrow Period (as defined in Section 10.3
below). Chemdex, Target and Sub acknowledge and agree, and the Former Target
Stockholders, by their approval of this Agreement and their execution of the
Voting Agreements, agree that notwithstanding anything to the contrary
contained in this Agreement or any other Transaction Document, such
indemnification under this Article X shall be the sole and exclusive remedy for
any such claim of breach by Target, except for Damages based upon a claim of
fraud.
Section 10.2 Indemnity Escrow Fund. As security and sole remedy for the
indemnities in Section 10.1, as soon as practicable after the Effective Time,
the Escrow Shares shall be deposited with U.S. Bank Trust, National Association
(or such other institution selected by Chemdex with the reasonable consent of
Target) as escrow agent (the "Escrow Agent"), such deposit to constitute the
Escrow Fund (the "Escrow Fund") and to be governed by the terms set forth in
this Article X and in the Indemnity Escrow Agreement.
Section 10.3 Escrow Periods. The Escrow Fund shall terminate upon the first
anniversary date of the Closing Date (the period from the Closing Date to such
date referred to as the "Escrow Period"), provided, however, that the number of
Escrow Shares, which, in the reasonable judgment of Chemdex, subject to the
objection of the Stockholders' Agents and the subsequent resolution of the
matter in the manner provided in Section 10.7, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Stockholders' Agents prior to termination of the
Escrow Period with respect to Damages incurred or litigation pending prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been finally resolved.
D-93
<PAGE>
Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Chemdex (an "Officer's Certificate"):
(i) Stating the aggregate amount of Chemdex's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid
or properly accrued or arose, and the nature of the misrepresentation,
breach or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of Sections 10.3 and 10.7 hereof and of the
Indemnity Escrow Agreement, deliver to Chemdex out of the Escrow Fund, as
promptly as practicable, Escrow Shares having a value equal to such Damages
all in accordance with the Indemnity Escrow Agreement and Section 10.5
below. Amounts paid or distributed from the Indemnity Escrow Fund shall be
paid or distributed pro rata among the Holders (as defined in the Indemnity
Escrow Agreement) based upon their respective percentage interests therein
at the time.
Section 10.5 Valuation. For the purpose of compensating Chemdex for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Chemdex in respect of a claim for Damages shall be
the Average Stock Price (as appropriately adjusted for stock splits,
recapitalizations and the like).
Section 10.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agents (as defined in Section 10.8
below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 10.3 unless
the Escrow Agent shall have received written authorization from the
Stockholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.3, provided that no such delivery
may be made if the Stockholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Chemdex prior to the expiration of such
thirty (30) day period.
Section 10.7 Resolution of Conflicts.
(a) In case the Stockholders' Agents shall so object in writing to any
claim or claims by Chemdex made in any Officer's Certificate, Chemdex shall
have thirty (30) days to respond in a written statement to the objection of
the Stockholders' Agents. If after such thirty (30) day period there
remains a dispute as to any claims, the Stockholders' Agents and Chemdex
shall attempt in good faith for thirty (30) days to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholders' Agents and Chemdex should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Escrow Shares from the
Escrow Fund in accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Chemdex or the Stockholders' Agents may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15)
days after such written notice is sent, Chemdex (on the one hand) and the
Stockholders' Agents (on the other hand) shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator. The
decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties
to this Agreement, and notwithstanding anything in Section 10.3, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance with such decision.
D-94
<PAGE>
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the commercial rules then in effect of
the American Arbitration Association. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the
expenses, including, without limitation, the reasonable attorneys' fees and
costs, incurred by the prevailing party to the arbitration.
Section 10.8 Stockholders' Agents.
(a) Ashfaq Munshi and Joseph L. Meresman shall be constituted and
appointed as agents (the "Stockholders' Agents") for and on behalf of the
Former Target Stockholders to give and receive notices and communications,
to authorize delivery to Chemdex of the Escrow Shares or other property
from the Escrow Fund in satisfaction of claims by Chemdex, to object to
such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agents for
the accomplishment of the foregoing. All actions of the Stockholders'
Agents shall be taken jointly, not individually. Such agency may be changed
by the holders of a majority in interest of the Escrow Shares from time to
time upon not less than ten (10) days' prior written notice to Chemdex. No
bond shall be required of the Stockholders' Agents, and the Stockholders'
Agents shall receive no compensation for services. Notices or
communications to or from the Stockholders' Agents shall constitute notice
to or from each of the Former Target Stockholders.
(b) The Stockholders' Agents shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and
any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Former Target Stockholders
shall severally and pro rata, in accordance with their Pro Rata Portion,
indemnify the Stockholders' Agents and hold them harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the
part of the Stockholders' Agents and arising out of or in connection with
the acceptance or administration of their duties hereunder under this
Agreement or the Indemnity Escrow Agreement.
(c) The Stockholders' Agents shall have reasonable access to information
about Target and Chemdex and the reasonable assistance of Target's and
Chemdex's officers and employees for purposes of performing their duties
and exercising their rights under this Article X, provided that the
Stockholders' Agents shall treat confidentially and not disclose any
nonpublic information from or about Target or Chemdex to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
Section 10.9 Actions of the Stockholders' Agents. A decision, act, consent
or instruction of the Stockholders' Agents shall constitute a decision of all
of the Former Target Stockholders for whom shares of Chemdex Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Stockholder, and the Escrow
Agent and Chemdex may rely upon any decision, act, consent or instruction of
the Stockholders' Agents as being the decision, act, consent or instruction of
each and every such Former Target Stockholder. The Escrow Agent and Chemdex are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agents.
Section 10.10 Claims. In the event Chemdex becomes aware of a third-party
claim which Chemdex believes may result in a demand against the Escrow Fund,
Chemdex shall promptly notify the Stockholders' Agents of such claim, and the
Stockholders' Agents and the Former Target Stockholders for whom shares of
Chemdex Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Chemdex shall have the right in its sole discretion to settle any such
claim; provided, however, that Chemdex may not effect the settlement of any
such claim without the consent of the Stockholders' Agents, which consent shall
not be unreasonably withheld. In the event that the Stockholders' Agents have
consented to any such settlement, the Stockholders' Agents shall have no power
or authority to object to the amount of any claim by Chemdex against the Escrow
Fund for indemnity with respect to such settlement in the amount agreed to.
D-95
<PAGE>
APPENDIX II
HOLDERS' INTEREST IN ESCROW FUND
<TABLE>
<CAPTION>
Chemdex Percentage
Shares To Of Escrow
Stockholder Escrow Shares
----------- --------- ----------
<S> <C> <C>
--- ------
Totals: 100.00%
=== ======
</TABLE>
D-96
<PAGE>
EXHIBIT E
SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
D-97
<PAGE>
SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
All capitalized terms used herein and not otherwise defined have the
meanings given them in the Agreement and Plan of Merger dated as of December
10, 1999 (the "Merger Agreement"), by and among Chemdex Corporation, a Delaware
corporation ("Acquiror"), Spinach Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Target ("Sub"), and SpecialtyMD.com Corporation,
a Delaware corporation ("Target").
(1) Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite
corporate power to own, lease and operate its property and to carry on its
business as now being conducted.
(2) The shares of Target's Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-
assessable and no person will have any preemptive right of subscription or
purchase in respect thereof.
(3) Target has all requisite corporate power and authority to enter into
the Merger Agreement and the Certificate of Merger, and to consummate the
transactions contemplated thereby. The Secured Loan Agreement, the Security
Agreement, the Patent and Trademark Security Agreement, the Merger
Agreement and the Certificate of Merger are collectively referred to herein
as the "Opinion Documents." The execution and delivery of the Opinion
Documents and the consummation of the transactions contemplated thereby
have been duly authorized by all necessary corporate action on the part of
Target. The Opinion Documents have been duly and validly executed and
delivered by Target and, assuming due execution and delivery by the other
parties thereto, constitute the valid and binding obligations of Target,
enforceable against Target in accordance with their respective terms.
(4) The execution and delivery by Target of the Opinion Documents and
the consummation of the transactions contemplated thereby will not, (i)
result in any violation or breach of any provision of the Certificate of
Incorporation, or any Certificate of Designation thereunder, or Bylaws of
Target, or (ii) to our knowledge, violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Target or any of its properties or assets.
(5) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required on the part
of Target in connection with the execution and delivery of the Opinion
Documents or the consummation of the transactions contemplated thereby,
except for (i) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws and the laws of any
foreign country, and (iii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, could not be
expected to have a Material Adverse Effect on Target.
D-98
<PAGE>
EXHIBIT F
SECURED AND PROMISSORY NOTE AND AGREEMENT
D-99
<PAGE>
SECURED PROMISSORY NOTE AND AGREEMENT
("Note and Agreement")
$4,000,000.00 Palo Alto, California
December , 1999
FOR VALUE RECEIVED, SpecialtyMD.com Corporation, a Delaware corporation
("Borrower"), hereby promises to pay to the order of Chemdex Corporation, a
Delaware corporation ("Lender"), the principal sum of FOUR MILLION DOLLARS
($4,000,000.00) or such lesser amount as shall equal the outstanding principal
amount of all sums advanced to Borrower hereunder and to pay interest on the
outstanding balance of said sum at a rate per annum equal to nine percent
(9.0%), compounded annually. Capitalized terms used herein and not otherwise
defined shall have the meaning provided in the Agreement and Plan of Merger,
dated as of December 10, 1999 among Borrower, Lender and Spinach Acquisitions
Corp. (the "Merger Agreement"). Borrower shall be entitled to draw up to
$1,333,333 within five (5) business days following the execution of this
Agreement, up to $1,333,333 on or after January 15, 2000, and up to $1,333,334
on or after February 15, 2000. All then outstanding principal and accrued
interest hereunder shall be due and payable in full on December 31, 2000 (the
"Maturity Date").
In the event that Borrower receives any debt or equity financing at any time
(and from time to time) prior to the Maturity Date, Borrower agrees that fifty
percent (50%) of any amounts so raised (or such lesser amount as is outstanding
hereunder) shall be used by Borrower immediately to repay amounts that may be
outstanding hereunder, whether or not such amounts may be due under the
immediately preceding paragraph.
Borrower shall make all payments hereunder for the account of Lender at 1500
Plymouth Street, Mountain View, California 94943, or to such other address as
Lender shall notify Borrower, in lawful money of the United States and in same
day or immediately available funds not later than 12:00 noon on the date due,
or as otherwise agreed to by Lender. Any and all amounts owing under this Note
and Agreement may be prepaid at any time and from time to time by Borrower
without penalty.
All computations of interest under this Note and Agreement shall be based on
a year of 365 or 366 days, as applicable, for actual days elapsed. In the event
that, Borrower pays interest under this Note and Agreement and it is determined
that such interest rate was in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal then due under this Note and Agreement.
Merger Agreement
This Note and Agreement is being entered into in connection with the Merger
Agreement (as the same may be amended, restated, supplemented or otherwise
modified pursuant to the terms thereof). However, the effectiveness of this
Note and Agreement is not dependant upon the existence of the Merger Agreement.
Security Agreement
This Note and Agreement is secured by certain collateral (the "Collateral")
more specifically described in (i) the Security Agreement of even date herewith
between Borrower and Lender and attached hereto as Attachment I, and (ii) the
Patent and Trademark Security Agreement of even date herewith between Borrower
and Lender and attached hereto as Attachment II (such two agreements together,
the "Security Agreement").
Conditions to Advances; Use of Proceeds; Covenants
Amounts shall be advanced to Borrower under this Note and Agreement solely
in accordance with the terms and conditions set forth in this Note and
Agreement, including Schedule A attached hereto and incorporated herein by
reference. Borrower shall use the proceeds of any amount advanced under this
Note and
D-100
<PAGE>
Agreement solely for general corporate purposes, including normal working
capital in the ordinary course of business as presently conducted and as
presently proposed to be conducted. Until the termination of this Note and
Agreement and payment in full by Borrower of all amounts outstanding under this
Note and Agreement, Borrower agrees that it shall comply with and duly perform
all of its covenants, obligations and agreements set forth in the Merger
Agreement, which are hereby incorporated herein by reference as if fully set
forth herein.
Representations and Warranties
Borrower represents and warrants to Lender that:
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the law of the State of Delaware and has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Note and Agreement.
(b) The execution, delivery and performance by Borrower of this Note and
Agreement have been duly authorized by all necessary corporate action of
Borrower, and this Note and Agreement constitutes the legal, valid and
binding obligation of Borrower, enforceable against Borrower in accordance
with its terms.
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or
approval or consent of any other person or entity, is required for the due
execution, delivery or performance by Borrower of this Note and Agreement.
Events of Default
The occurrence of any one or more of the following events shall constitute
an "Event of Default" hereunder:
(d) Borrower shall fail to pay any then outstanding principal when due
or any interest or other amount payable under this Note and Agreement
within five (10) business days of when due; or
(e) Borrower shall fail in any material respect to perform any of its
other covenants, obligations or agreements contained in this Note and
Agreement or the Merger Agreement and such failure shall continue for ten
(10) business days after written notice thereof by Lender; or
(f) Any representation, warranty, certificate, or other statement
(financial or otherwise) made or furnished by or on behalf of Borrower in
writing to Lender in connection with this Note and Agreement or the Merger
Agreement, or as an inducement to Lender to advance the sums under this
Note and Agreement or to enter into the Merger Agreement, shall have been
false or incorrect, in any material respect when made or shall become false
or incorrect in any material respect following the date hereof; or
(g) Borrower (i) shall fail to make any payment when due under the terms
of any bond, debenture, note or other evidence of indebtedness, if any,
individually in excess of $500,000 to be paid by Borrower, and such failure
shall continue beyond any period of grace provided with respect thereto, or
(ii) shall default in the observance or performance of any other agreement,
term or condition contained in any such bond, debenture, note or other
evidence of indebtedness providing for principal payments in excess of
$100,000, and in the case of either clause (i) or (ii) the effect of such
failure or default is to cause the holder or holders thereof to accelerate
the indebtedness to become due prior to its stated date of maturity; or
(h) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or any part
of its property; (ii) admit in writing its inability, to pay its debts
generally as they mature; (iii) make a general assignment for the benefit
of its or any of its creditors; (iv) be dissolved or liquidated in full or
in part; (v) become insolvent (as such term may be defined or interpreted
under any applicable statute); (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy,
D-101
<PAGE>
insolvency or other similar law now or hereafter in effect or consent to
any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding
commenced against it; or (vii) take any action for the purpose of affecting
any of the foregoing; or
(i) Proceedings for the appointment of a receiver, trustee, liquidator
or custodian of Borrower or of all or any material part of its property, or
an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to Borrower or the debts
thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect, shall be commenced and an order for relief entered or
such proceeding shall not be dismissed or discharged within sixty (60) days
of commencement; or
(j) A final judgment or final judgments for the payment of money, which
individually or in the aggregate, exceed $100,000 in excess of the amount
covered by insurance, shall be rendered against Borrower and the same shall
remain undischarged for a period of thirty (30) days during which execution
shall not be effectively stayed; or any judgment, writ, assessment, warrant
of attachment, execution, levy or similar process shall be issued or levied
against any material part of the property of Borrower and such judgment,
writ, assessment, warrant of attachment, execution, levy or similar process
shall not be released, stayed, vacated or otherwise dismissed within ten
(10) days after issue or levy; or
(k) This Note and Agreement shall cease to be, or be asserted by
Borrower not to be, a legal, valid and binding obligation of Borrower,
enforceable in accordance with its terms; or
(l) An "Event of Default" (as defined in the Security Agreement) shall
have occurred.
Upon the occurrence or existence of any Event of Default, Lender may (a) at
any time terminate any obligation to make loans or advance sums to Borrower
under this Note and Agreement; (b) at any time declare all unpaid amounts owing
or payable under this Note and Agreement to be immediately due and payable
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by Borrower; and/or (c) exercise all rights
and remedies available to Lender under this Note and Agreement, the Security
Agreement or applicable law; provided, however, that upon the occurrence or
existence of any Event of Default described in clause (h) or (i) above,
immediately and without notice, (i) any obligation to make loans or advance
sums to Borrower under this Note and Agreement shall automatically terminate
and (ii) all unpaid amounts owing or payable under this Note and Agreement
shall automatically become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by Borrower.
Borrower agrees to pay on demand all reasonable costs and expenses of
Lender, and the reasonable fees and disbursements of counsel, in connection
with the enforcement or attempted enforcement of, and preservation of any
rights or interests under, this Note and Agreement, including in any out-of-
court workout or other refinancing or restructuring or in any bankruptcy case.
Any amounts payable to Lender pursuant to this paragraph if not paid upon
demand shall bear interest from the date of such demand until paid in full, at
the rate of interest set forth herein in respect of principal outstanding
hereunder.
If at any time any provision of this Note and Agreement is or becomes
illegal, invalid or unenforceable in any respect, neither the legality,
validity nor enforceability of the remaining provisions shall in any way be
affected or impaired thereby.
Any term, covenant, agreement or condition of this Note and Agreement may be
amended or waived if such amendment or waiver is in writing and is signed by
Borrower and Lender. No failure or delay by Lender in exercising any right or
remedy hereunder shall operate as a waiver thereof or of any other right or
remedy nor shall any single or partial exercise of any such right or remedy
preclude any other further exercise thereof or of any other right or remedy.
The acceptance at any time by Lender of any past-due amount hereunder shall not
be deemed to be a waiver of the right to require prompt payment when due of any
other amounts then or
D-102
<PAGE>
thereafter due and payable. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
This Note and Agreement shall be binding upon and inure to the benefit of
Borrower, Lender, and their respective successors and permitted assigns, except
that Borrower may not assign or transfer any of its rights or obligations under
this Note and Agreement without the prior written consent of Lender. Prior to
the occurrence of any Note Termination Event, Lender may at any time sell,
assign, or otherwise transfer only to any of its affiliates or subsidiaries all
or part of the obligations of Borrower and Lender under this Note and
Agreement. After the occurrence of any Note Termination Event, Lender may at
any time sell, assign, or otherwise transfer to any other person or entity all
or part of the obligations of Borrower and Lender under this Note and
Agreement.
Nothing expressed in or to be implied from this Note and Agreement is
intended to give, or shall be construed to give, any person or entity, other
than the parties hereto and their permitted successors and assigns hereunder,
any benefit or legal or equitable right, remedy or claim under or by virtue of
this Note and Agreement or under or by virtue of any provision herein.
The words "hereof," "herein," "hereunder" and similar words refer to this
Note and Agreement as a whole (including the Schedules attached hereto) and not
to any particular provision of this Note and Agreement.
Borrower hereby waives presentment, demand, protest, notice of dishonor and
all other notices, except as expressly provided herein, any release or
discharge arising from any extension of time, discharge of a prior party, or
other cause of release or discharge other than actual payment in full hereof.
This Note and Agreement shall be construed in accordance with and governed
by the laws of the State of California, excluding conflict of laws principles.
All notices and other communications hereunder shall be given as provided in
Section 11.2 of the Merger Agreement.
IN WITNESS WHEREOF, the undersigned duly authorized officer of Borrower has
executed this Note and Agreement as of the date first set forth above.
SPECIALTYMD.COM CORPORATION
By:__________________________________
Name:
Title:
D-103
<PAGE>
Schedule A
CONDITIONS TO ANY ADVANCE
Subject to the terms and conditions set forth herein and in the Note and
Agreement, Lender agrees to advance to Borrower from time to time on the
"Advance Dates" set forth below, such loans as Borrower may request hereunder
(each such loan an "Advance" and collectively, the "Advances"); provided,
however, that the aggregate principal amount of all Advances hereunder shall
not exceed Four Million Dollars ($4,000,000); provided, further, that the
aggregate principal amount of each Advance on any Advance Date shall not exceed
the amount of One Million Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Four Dollars ($1,333,334). Borrower agrees and acknowledges that upon
the occurrence of any Note Termination Event, Lender's obligation to advance
any unadvanced amounts hereunder shall automatically terminate and be of no
further force and effect and all then outstanding principal and accrued
interest hereunder shall be immediately due and payable in full.
a. Advance Dates. Upon the request of the Borrower as provided in paragraph
b. below, subject to the other terms and conditions set forth herein, Lender
shall make Advances hereunder on each of (1) the fifth business day after the
execution of the Merger Agreement, (2) on or after January 15, 2000, and (3) on
or after February 15, 2000 (each such date, and any other date on which Lender
makes an Advance, an "Advance Date", and collectively, the "Advance Dates").
b. Borrowing Request. Borrower shall request each Advance by delivering to
Lender an irrevocable written notice (the "Borrowing Request") which shall
specify (i) the principal amount of the requested Advance, (ii) the applicable
Advance Date, (iii) the account or accounts to which Lender shall disburse the
proceeds of the requested Advance, and (iv) that all conditions set forth in
paragraph c. below have been satisfied in respect of such Advance. Each
Borrowing Request shall be in writing and shall be given to Lender at least
five (5) business days before the applicable Advance Date (other than an
advance date within five days of the execution of the Merger Agreement) by
delivery of such notice to Lender to the address and in the manner set forth in
Section 11.2 of the Merger Agreement. Disbursements of any Advance shall be
made by wire transfer to the account(s) of Borrower specified in the Borrowing
Request before the close of business on the applicable Advance Date; provided,
however, that Lender shall not be deemed to be in default hereunder if it fails
to make such Advance provided that it cures such failure within five (5)
business days after written notice thereof by Borrower.
c. Conditions Precedent to Each Advance. The obligation of Lender to make
any Advance is subject to the satisfaction of the following conditions, each in
form and substance reasonably satisfactory to Lender:
(i) The representations and warranties of Borrower set forth in the Note
and Agreement and in the Merger Agreement shall be true and correct in all
material respects on each Advance Date as if made on such date and shall
remain true and correct in all material respects;
(ii) No Event of Default or event which with the giving of notice or
lapse of time, or both, would constitute an Event of Default shall have
occurred or be continuing;
(iii) The Collateral shall be subject to no mortgages, liens, security
interests, pledges, charges or encumbrances of any kind or character,
except (A) liens in favor of Lender, (B) nonconsensual liens arising in the
ordinary course of business which alone or in the aggregate are not
substantial in amount and which do not materially detract from the value of
the property subject thereto or interfere with the ordinary conduct of the
business of the Borrower or otherwise impair Lender's rights with respect
thereto and (C) Permitted Liens (as defined in the Security Agreement); and
(iv) The Merger Agreement shall not have terminated.
The submission by Borrower of each Borrowing Request shall be deemed to be a
representation and warranty by Borrower as of the date thereof and as of the
applicable Advance Date that the conditions in this paragraph c. are satisfied.
D-104
<PAGE>
EXHIBIT G
SUBJECT MATTER OF OPINION OF COUNSEL TO CHEMDEX
D-105
<PAGE>
SUBJECT MATTER OF OPINION OF COUNSEL TO CHEMDEX
All capitalized terms used herein and not otherwise defined have the
meanings given them in the Agreement and Plan of Merger dated as of December
10, 1999 (the "Merger Agreement"), by and among Chemdex Corporation, a Delaware
corporation ("Acquiror"), Spinach Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Acquiror ("Sub"), and SpecialtyMD.com
Corporation, a Delaware corporation ("Target").
(1) Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power to own, lease and operate its property and to carry on its
business as now being conducted.
(2) The shares of Acquiror's Common Stock to be issued pursuant to the
Merger are be duly authorized, validly issued, fully paid, and non-
assessable and no person will have any preemptive right of subscription or
purchase in respect thereof.
D-106
<PAGE>
ATTACHMENT I
SECURITY AGREEMENT
D-107
<PAGE>
ATTACHMENT I
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of December 10, 1999,
is made by and between SpecialtyMD.com Corporation, a Delaware corporation
("Debtor"), and Chemdex Corporation, a Delaware corporation ("Secured Party").
Debtor and Secured Party hereby agree as follows:
Section 1 Definitions; Interpretation.
(a) As used in this Agreement, the following terms shall have the following
meanings:
"Collateral" has the meaning set forth in Section 2.
"Documents" means this Agreement, the Note, the Merger Agreement and all
other certificates, documents, agreements and instruments delivered to
Secured Party under the Note or in connection with the Obligations.
"Event of Default" has the meaning set forth in Section 8.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge or encumbrance, lien, or other type
of preferential arrangement.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
December 10, 1999 among Debtor, Secured Party and a wholly owned subsidiary
of Secured Party.
"Note" means that certain Secured Promissory Note and Agreement of even
date herewith made by Debtor in favor of Secured Party, as amended,
modified, renewed, extended or replaced from time to time.
"Obligations" means the indebtedness, liabilities and other obligations
of Debtor to Secured Party under or in connection with this Agreement and
the Note, including, without limitation, all unpaid principal of the Note,
all interest accrued thereon, all fees and all other amounts payable by
Debtor to Secured Party thereunder or in connection therewith, whether now
existing or hereafter arising, and whether due or to become due, absolute
or contingent, liquidated or unliquidated, determined or undetermined.
"Permitted Lien" means (i) any Lien in favor of Secured Party, (ii)
nonconsensual Liens which arise in the ordinary course of business and do
not materially impair Debtor's ownership or use of the Collateral or the
value thereof, (iii) purchase money security interests and liens in
connection with capital leases incurred in the ordinary course of business,
(iv) liens existing on property as of the date of this Agreement, (v) liens
existing on property at the time of its acquisition by the Debtor, (vi)
liens securing the performance of bids, trade contracts, leases, surety
bonds and the like, and (vii) liens in connection with judgments that do
not constitute an Event of Default under the Note.
"Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization, governmental agency or authority, or
any other entity of whatever nature.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean
the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions related to such provisions.
D-108
<PAGE>
(b) Where applicable and except as otherwise defined herein, terms used in
this Agreement shall have the meanings assigned to them in the UCC.
(c) In this Agreement, (i) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; and (ii)
the captions and headings are for convenience of reference only and shall not
affect the construction of this Agreement.
Section 2 Security Interest.
(a) As security for the payment and performance of the Obligations,
Debtor hereby grants to Secured Party a security interest in, all of
Debtor's right, title and interest in, to and under the following property,
wherever located and whether now existing or owned or hereafter acquired or
arising (collectively, the "Collateral"):
(i) all accounts, accounts receivable, contract rights, rights to
payment, chattel paper, letters of credit, documents, securities, money
and instruments, and investment property, whether held directly or
through a securities intermediary, and other obligations of any kind
owed to Debtor, however evidenced;
(ii) all deposits and deposit accounts with any bank, savings and
loan association, credit union or like organization, and all funds and
amounts therein, and whether or not held in trust, or in custody or
safekeeping, or otherwise restricted or designated for a particular
purpose;
(iii) all inventory, including, without limitation, all materials,
raw materials, parts, components, work in progress, finished goods,
merchandise, supplies, and all other goods which are held for sale,
lease or other disposition or furnished under contracts of service or
consumed in Debtor's business, including, without limitation, those
held for display or demonstration or out on lease or consignment;
(iv) all owned equipment, including, without limitation, all
machinery, furniture, furnishings, fixtures, trade fixtures, tools,
parts and supplies, automobiles, trucks and other vehicles, appliances,
computer and other electronic data processing equipment and other
office equipment, computer programs and related data processing
software, and all additions, substitutions, replacements, parts,
accessories, and accessions to and for the foregoing;
(v) all general intangibles and other personal property of Debtor,
including, without limitation, (A) all tax and other refunds, rebates
or credits of every kind and nature to which Debtor is now or hereafter
may become entitled; (B) all intellectual property and all rights
therein of any type or description, including, without limitation, all
inventions and discoveries, patents and patent applications, copyrights
and applications for copyright (together with the underlying works of
authorship) whether or not registered, together with any renewals and
extensions thereof, trademarks, service marks and trade names, and
applications for registration of such trademarks, service marks and
trade names, trade secrets, trade dress, trade styles, logos, other
source of business identifiers, mask-works, mask-work registrations,
mask-work applications, software, confidential and proprietary
information, customer lists, other license rights, advertising
materials, operating manuals, methods, processes, know-how, algorithms,
formulae, databases, quality control procedures, product, service and
technical specifications, operating, production and quality control
manuals, sales literature, drawings, specifications, blue prints,
descriptions, inventions, name plates and catalogs, and the entire
goodwill of or associated with the businesses now or hereafter
conducted by Debtor connected with and symbolized by any of the
aforementioned properties and assets, and all licenses relating to any
of the foregoing, all reissuance, continuations and continuations-in-
part of the foregoing, all other rights derived from or associated with
the foregoing, including the right to sue and recover for past
infringement, and all income and royalties with respect thereto; (C)
all goodwill, chooses in action and causes of action; (D) all interests
in limited and general partnerships and limited liability companies;
and (E) all indemnity agreements, guaranties, insurance policies,
insurance claims, and other contractual, equitable and legal rights of
whatever kind or nature;
D-109
<PAGE>
(vi) all books, records and other written, electronic or other
documentation in whatever form maintained by or for Debtor in connection
with the ownership of its assets or the conduct of its business or
evidencing or containing information relating to the Collateral; and
(vii) all products and proceeds, including insurance proceeds, of any
and all of the foregoing.
(b) Anything herein to the contrary notwithstanding, (i) Debtor shall
remain liable under any contracts, agreements and other documents included
in the Collateral, to the extent set forth therein, to perform all of its
duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (ii) the exercise by Secured Party of any of the
rights hereunder shall not release Debtor from any of its duties or
obligations under such contracts, agreements and other documents included
in the Collateral, and (iii) Secured Party shall not have any obligation or
liability under any contracts, agreements and other documents included in
the Collateral by reason of this Agreement, nor shall Secured Party be
obligated to perform any of the obligations or duties of Debtor thereunder
or to take any action to collect or enforce any such contract, agreement or
other document included in the Collateral hereunder.
(c) Notwithstanding the foregoing provisions of this Section 2, the
grant of a security interest as provided herein shall not extend to, and
the term "Collateral" shall not include, any general intangibles of Debtor
(whether owned or held as licensee or lessee, or otherwise), to the extent
that (i) such general intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of the license, lease or
other agreement applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law), without the consent
of the licensor or lessor thereof or other applicable party thereto and
(ii) such consent has not been obtained; provided, however, that the
foregoing grant of security interest shall extend to, and the term
"Collateral" shall include, (A) any general intangible which is an account
receivable or a proceed of, or otherwise related to the enforcement or
collection of, any account receivable, or goods which are the subject of
any account receivable, (B) any and all proceeds of any general intangibles
which are otherwise excluded to the extent that the assignment or
encumbrance of such proceeds is not so restricted, and (C) upon obtaining
the consent of any such licensor, lessor or other applicable party's
consent with respect to any such otherwise excluded general intangibles,
(but without obligating Debtor to obtain such consent) such general
intangibles as well as any and all proceeds thereof that might have
theretofore have been excluded from such grant of a security interest and
the term "Collateral."
(d) This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 19 hereof.
Section 3 Financing Statements, Etc. Debtor shall execute and deliver to
Secured Party concurrently with the execution of this Agreement, and at any
time and from time to time thereafter, all financing statements, assignments,
continuation financing statements, termination statements, account control
agreements, and other documents and instruments, in form reasonably
satisfactory to Secured Party, and take all other action, as Secured Party may
reasonably request, to perfect and continue perfected, maintain the priority
of or provide notice of the security interest of Secured Party in the
Collateral and to accomplish the purposes of this Agreement.
Section 4 Representations and Warranties. Debtor represents and warrants to
Secured Party as of the date of this Agreement that:
(a) Debtor is a corporation duly organized, validly existing and in good
standing under the law of the jurisdiction of its incorporation and has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(b) The execution, delivery and performance by Debtor of this Agreement
have been duly authorized by all necessary corporate action of Debtor, and
this Agreement constitutes the legal, valid and binding obligation of
Debtor, enforceable against Debtor in accordance with its terms.
D-110
<PAGE>
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by Debtor of this Agreement.
(d) Debtor's chief executive office and principal place of business is
located at the address set forth in Schedule 1; all other locations where
Debtor conducts business or Collateral is kept are set forth in Schedule 1;
and all trade names and fictitious names under which Debtor at any time in
the past has conducted or presently conducts its business operations are
set forth in Schedule 1 or Schedule 2.
(e) Debtor is the sole and complete owner of the Collateral, free from
any Lien other than Permitted Liens.
(f) All of Debtor's U.S. and foreign patents and patent applications,
copyrights (whether or not registered), applications for copyright,
trademarks, service marks and trade names (whether registered or
unregistered), and applications for registration of such trademarks,
service marks and trade names, are set forth in Schedule 2.
Section 5 Covenants. So long as any of the Obligations remain unsatisfied,
or until this Security Agreement has terminated pursuant to Section 19 hereof,
Debtor agrees that Debtor shall not do, cause, or permit any of the following
without the prior consent of Secured Party:
(a) Debtor shall appear in and defend any action, suit or proceeding
which may affect to a material extent its title to, or right or interest
in, or Secured Party's right or interest in any material portion of the
Collateral, and shall do and perform all reasonable acts that may be
necessary and appropriate to maintain, preserve and protect the Collateral
in all material respects.
(b) Debtor shall give prompt written notice to Secured Party (and in any
event not later than 30 days following any change described below in this
subsection) of: (i) any change in the location of Debtor's chief executive
office or principal place of business, (ii) any change in the locations set
forth in Schedule 1; (iii) any change in its name, (iv) any changes in,
additions to or other modifications of its trade names and trade styles set
forth in Schedule 1 or Schedule 2, and (v) any changes in its identity or
structure in any manner which might make any financing statement filed
hereunder incorrect or misleading.
(c) Debtor shall carry and maintain in full force and effect, at its own
expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in the same or similar businesses of similar size and owning
similar properties in the localities where Debtor operates.
(d) All insurance policies shall provide that Secured Party shall be a
loan payee. During the continuance of an Event of Default and so long as
the Obligations have been accelerated, in its sole discretion, Secured
Party may apply all or any portion of such insurance proceeds to the
payment of Obligations or may release all or any portion thereof to Debtor.
(e) Debtor shall keep accurate and complete books and records in
accordance with generally accepted accounting principles.
(f) Debtor shall not surrender or lose possession of (other than to
Secured Party), sell, lease, rent, or otherwise dispose of or transfer any
of the Collateral or any right or interest therein, except in the ordinary
course of business and except to the extent obsolete or no longer useful to
its business; provided that no such disposition or transfer of Collateral
consisting of investment property or instruments shall be permitted while
any Event of Default exists.
(g) Debtor shall keep the Collateral free of all Liens except Permitted
Liens.
D-111
<PAGE>
(h) Debtor shall pay and discharge all material taxes, fees, assessments
and governmental charges or levies imposed upon it with respect to the
Collateral prior to the date on which penalties attach thereto, except to
the extent such taxes, fees, assessments or governmental charges or levies
are being contested in good faith by appropriate proceedings.
(i) Debtor shall maintain and preserve its corporate existence, its
rights to transact business and all other rights, franchises and privileges
necessary or desirable in the normal course of its business and operations
and the ownership of the Collateral, except in connection with any
transactions expressly permitted by the Note or any other Document.
(j) Upon the request of Secured Party after the occurrence of an Event
of Default, Debtor shall (i) immediately deliver to Secured Party, or an
agent designated by it, appropriately endorsed or accompanied by
appropriate instruments of transfer or assignment, all documents and
instruments, all certificated securities with respect to any investment
property, all letters of credit and all accounts and other rights to
payment at any time evidenced by promissory notes, trade acceptances or
other instruments, (ii) cause any securities intermediaries to show on
their books that Secured Party is the entitlement holder with respect to
any investment property, and/or obtain account control agreements in favor
of Secured Party from such securities intermediaries, in form and substance
satisfactory to Secured Party, with respect to any investment property, as
requested by Secured Party, (iii) mark all documents and chattel paper with
such legends as Secured Party shall reasonably specify, and (iv) obtain
consents from any letter of credit issuers with respect to the assignment
to Secured Party of any letter of credit proceeds.
(k) Debtor shall (i) notify Secured Party of any material claim made or
asserted against the Collateral by any Person or other event which could
reasonably be expected to materially adversely affect the value of the
Collateral or Secured Party's Lien thereon; (ii) furnish to Secured Party
such statements and schedules further identifying and describing the
Collateral and such other reports and other information in connection with
the Collateral as Secured Party may reasonably request, all in reasonable
detail; and (iii) upon reasonable request of Secured Party make such
demands and requests for information and reports as Debtor is entitled to
make in respect of the Collateral.
(l) If and when Debtor shall obtain rights to any new patents,
trademarks, service marks, trade names or copyrights, or otherwise acquire
or become entitled to the benefit of, or apply for registration of, any of
the foregoing, Debtor (i) shall promptly notify Secured Party thereof and
(ii) hereby authorizes Secured Party to modify, amend, or supplement
Schedule 2 and from time to time to include any of the foregoing and make
all necessary or appropriate filings with respect thereto.
(m) Debtor shall not enter into any material agreement (including any
license or royalty agreement) pertaining to any of its patents, copyrights,
trademarks, service marks and trade names, except for non-exclusive
licenses in the ordinary course of business.
(n) Debtor shall give Secured Party immediate notice of the
establishment of any new deposit account and any new securities account
with respect to any investment property.
Section 6 Collection of Accounts. Until Secured Party exercises its rights
hereunder to collect the accounts and other rights to payment, Debtor shall
endeavor in the first instance diligently to collect all amounts due or to
become due on or with respect to the accounts and other rights to payment. At
the request of Secured Party, upon the occurrence and during the continuance of
any Event of Default, all remittances received by Debtor shall be held in trust
for Secured Party and, in accordance with Secured Party's instructions,
remitted to Secured Party or deposited to an account of Secured Party in the
form received (with any necessary endorsements or instruments of assignment or
transfer). At the request of Secured Party, upon and after the occurrence of
any Event of Default, Secured Party shall be entitled to receive all
distributions and payments of any nature with respect to any investment
property or instruments, and all such distributions or payments received by the
Debtor shall be held in trust for Secured Party and, in accordance with Secured
Party's
D-112
<PAGE>
instructions, remitted to Secured Party or deposited to an account with Secured
Party in the form received (with any necessary endorsements or instruments of
assignment or transfer). Following the occurrence of an Event of Default any
such distributions and payments with respect to any investment property held in
any securities account shall be held and retained in such securities account,
in each case as part of the Collateral hereunder. Additionally, Secured Party
shall have the right, upon the occurrence of an Event of Default, following
prior written notice to the Debtor, to vote and to give consents, ratifications
and waivers with respect to any investment property and instruments, and to
exercise all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining thereto, as if Secured Party were the absolute
owner thereof; provided that Secured Party shall have no duty to exercise any
of the foregoing rights afforded to it and shall not be responsible to the
Debtor or any other Person for any failure to do so or delay in doing so.
Section 7 Authorization; Secured Party Appointed Attorney-in-Fact. Secured
Party shall have the right to, in the name of Debtor, or in the name of Secured
Party or otherwise, upon notice to but without the requirement of assent by
Debtor, and Debtor hereby constitutes and appoints Secured Party (and any of
Secured Party's officers, employees or agents designated by Secured Party) as
Debtor's true and lawful attorney-in-fact, with full power and authority to:
(i) sign any of the financing statements and other documents and instruments
which must be executed or filed to perfect or continue perfected, maintain the
priority of or provide notice of Secured Party's security interest in the
Collateral (including any notices to or agreements with any securities
intermediary); (ii) assert, adjust, sue for, compromise or release any claims
under any policies of insurance; and (iii) execute any and all such other
documents and instruments, and do any and all acts and things for and on behalf
of Debtor, which Secured Party may deem reasonably necessary or advisable to
maintain, protect, realize upon and preserve the Collateral and Secured Party's
security interest therein and to accomplish the purposes of this Agreement.
Secured Party agrees that, except upon and during the continuance of an Event
of Default, it shall not exercise the power of attorney, or any rights granted
to Secured Party, pursuant to clauses (ii) and (iii). The foregoing power of
attorney is coupled with an interest and irrevocable so long as the Obligations
have not been paid and performed in full. Debtor hereby ratifies, to the extent
permitted by law, all that Secured Party shall lawfully and in good faith do or
cause to be done by virtue of and in compliance with this Section 7.
Section 8 Events of Default. Any of the following events which shall occur
and be continuing shall constitute an "Event of Default":
(a) Any "Event of Default" as defined in the Note shall have occurred.
(b) Any representation or warranty by Debtor under or in connection with
this Agreement, shall prove to have been incorrect in any material respect
when made or shall become incorrect in any material respect following the
date hereof.
(c) Debtor shall fail to perform or observe in any material respect any
other material term, covenant or agreement contained in this Agreement, on
its part to be performed or observed and any such failure shall remain
unremedied for a period of 10 business days after written notice thereof by
Secured Party.
(d) Any loss, theft or substantial damage to, or destruction of, any
material portion of the Collateral (unless within 10 business days after
the occurrence of any such event, Debtor furnishes to Secured Party
evidence satisfactory to Secured Party that the amount of any such loss,
theft, damage to or destruction of the Collateral is adequately insured
under policies naming Secured Party as an additional named insured or loss
payee).
Section 9 Remedies.
(a) Prior to termination of this Security Agreement, and upon the
occurrence and continuance of an Event of Default, Secured Party may
declare any of the Obligations to be immediately due and payable and shall
have, in addition to all other rights and remedies granted to it in this
Agreement or the Note, all rights and remedies of a secured party under the
UCC and other applicable laws. Without limiting the
D-113
<PAGE>
generality of the foregoing, Secured Party may sell, resell, lease, use,
assign, license, sublicense, transfer or otherwise dispose of any or all of
the Collateral in its then condition or following any commercially
reasonable preparation or processing (utilizing in connection therewith any
of Debtor's assets, without charge or liability to Secured Party therefor)
at public or private sale, by one or more contracts, in one or more
parcels, at the same or different times, for cash or credit, or for future
delivery without assumption of any credit risk, all as Secured Party deems
advisable; provided, however, that Debtor shall be credited with the net
proceeds of sale only when such proceeds are finally collected by Secured
Party. Secured Party shall have the right upon any such public sale, and,
to the extent permitted by law, upon any such private sale, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption, which right or equity of redemption Debtor hereby releases, to
the extent permitted by law. Debtor hereby agrees that the sending of
notice by ordinary mail, postage prepaid, to the address of Debtor set
forth herein, of the place and time of any public sale or of the time after
which any private sale or other intended disposition is to be made, shall
be deemed reasonable notice thereof if such notice is sent ten days prior
to the date of such sale or other disposition or the date on or after which
such sale or other disposition may occur.
(b) For the purpose of enabling Secured Party to exercise its rights and
remedies under this Section 9 or otherwise in connection with this
Agreement, Debtor hereby grants to Secured Party an irrevocable, non-
exclusive and assignable license (exercisable without payment or royalty or
other compensation to Debtor) to use, license or sublicense any
intellectual property Collateral.
(c) The cash proceeds actually received from the sale or other disposition
or collection of Collateral, and any other amounts received in respect of
the Collateral the application of which is not otherwise provided for
herein, shall be applied first, to the payment of the reasonable costs and
expenses of Secured Party in exercising or enforcing its rights hereunder
and in collecting or attempting to collect any of the Collateral, and to
the payment of all other amounts payable to Secured Party pursuant to
Section 13 hereof; and second, to the payment of the Obligations. Any
surplus thereof which exists after payment and performance in full of the
Obligations shall be promptly paid over to Debtor or otherwise disposed of
in accordance with the UCC or other applicable law. Debtor shall remain
liable to Secured Party for any deficiency which exists after any sale or
other disposition or collection of Collateral.
Section 10 Certain Waivers. Debtor waives, to the fullest extent permitted
by law, (i) any right of redemption with respect to the Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling of the
Collateral or other collateral or security for the Obligations; (ii) any right
to require Secured Party (A) to proceed against any Person, (B) to exhaust any
other collateral or security for any of the Obligations, (C) to pursue any
remedy in Secured Party's power, or (D) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(iii) all claims, damages, and demands against Secured Party arising out of the
repossession, retention, sale or application of the proceeds of any sale of the
Collateral
Section 11 Notices. All notices and other communications hereunder shall be
given as provided in Section 11.2 of the Merger Agreement.
Section 12 No Waiver; Cumulative Remedies. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.
Section 13 Costs and Expenses. Debtor agrees to pay on demand: all
reasonable costs and expenses of Secured Party, and the reasonable fees and
disbursements of counsel, in connection with the enforcement or attempted
enforcement of, and preservation of any rights or interests under, this
Agreement and the Note,
D-114
<PAGE>
including in any out-of-court workout or other refinancing or restructuring or
in any bankruptcy case, and the protection, sale or collection of, or other
realization upon, any of the Collateral, including all expenses of taking,
collecting, holding, sorting, handling, preparing for sale, selling, or the
like, and other such expenses of sales and collections of Collateral. Any
amounts payable to Secured Party under this Section 13 or otherwise under this
Agreement if not paid when due shall bear interest from the date such payment
is due until paid in full, at the rate of interest set forth in the Note.
Section 14 Binding Effect. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by Debtor, Secured Party and their respective
successors and assigns.
Section 15 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of California, except as required by
mandatory provisions of law and to the extent the validity or perfection of the
security interests hereunder, or the remedies hereunder, in respect of any
Collateral are governed by the law of a jurisdiction other than California.
Section 16 Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and shall
not be amended except by the written agreement of the parties.
Section 17 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such
provision in any other jurisdiction.
Section 18 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
Section 19 Termination. Upon indefeasible payment and performance in full of
all Obligations, this Agreement shall terminate and Secured Party shall
promptly execute and deliver to Debtor such documents and instruments
reasonably requested by Debtor as shall be necessary to evidence termination of
all security interests given by Debtor to Secured Party hereunder; provided,
however, that the obligations of Debtor under Section 13 hereof shall survive
such termination.
[Signature page follows.]
D-115
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as
of the date first above written.
SPECIALTYMD.COM CORPORATION
By: _________________________________
Name:
Title:
CHEMDEX CORPORATION
By: _________________________________
Name:
Title:
D-116
<PAGE>
SCHEDULE 1
to the Security Agreement
1. Locations of Chief Executive Office and Other Locations, Including of
Collateral
a. Chief Executive Office and Principal Place of Business:
1510 Page Mill Road
Palo Alto, CA 94304
b. Other locations where Debtor conducts business or Collateral is kept:
Collateral in the form of cash and cash equivalents is kept at:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
2. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
Etc.
SpecialtyMD.com has applied for a registered trade mark
SpecialtyMD.com also does business as Healthcare Transaction Systems,
Inc.
Domain names that SpecialtyMD.com has registered:
htsi.net
specialtymd.com
atecommerce.com
ate-comm.com
specialty.md
specialtymd.md
specialtymd.net
ate-commerce.com
doctorsareus.com
D-117
<PAGE>
SCHEDULE 2
TO THE SECURITY AGREEMENT
1. Patents and Patent Applications.
NA
2. Copyrights (Registered) and Copyright Applications.
NA
3. Trademarks, Service Marks and Trade Names and Trademark, Service Mark and
Trade Name Applications.
SpecialtyMD.com has applied for a registered trade mark
D-118
<PAGE>
ATTACHMENT II
PATENT AND TRADEMARK SECURITY AGREEMENT
D-119
<PAGE>
ATTACHMENT II
PATENT AND TRADEMARK SECURITY AGREEMENT
THIS PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of
December 10, 1999, is made by and between SpecialtyMD.com Corporation, a
Delaware corporation ("Debtor") and Chemdex Corporation, a Delaware corporation
("Secured Party").
Debtor and Secured Party are parties to a Security Agreement of even date
herewith (as amended, modified, renewed or extended from time to time, the
"Security Agreement"), which Security Agreement provides, among other things,
for the grant by Debtor to Secured Party of a security interest in certain of
Debtor's property and assets, including, without limitation, its patents and
patent applications, its trademarks, service marks and trade names, and its
applications for registration of such trademarks, service marks and trade
names. Pursuant to the Security Agreement, Debtor has agreed to execute and
deliver this Agreement to Secured Party for filing with the United States
Patent and Trademark Office (the "PTO") (and any other relevant recording
systems in any domestic or foreign jurisdiction), and as further evidence of
and to effectuate such grant of a security interest in such patents and patent
applications, trademarks, service marks and trade names, and applications for
registration of such trademarks, service marks and trade names, and the other
general intangibles described herein. Accordingly, Debtor and Secured Party
hereby agree as follows:
SECTION 1 Definitions; Interpretation.
(a) All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Security
Agreement.
(b) In this Agreement, (i) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; and
(ii) the captions and headings are for convenience of reference only and
shall not affect the construction of this Agreement.
SECTION 2 Security Interest.
(a) As security for the payment and performance of the Obligations (as
defined in the Security Agreement), Debtor hereby grants a security
interest in and mortgage to Secured Party, for security purposes, all of
Debtor's right, title and interest in, to and under the following property,
whether now existing or owned or hereafter acquired, developed or arising
(collectively, the "Intellectual Property Collateral"):
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties
with respect to any licenses (including, without limitation, such
patents and patent applications as described in Schedule A hereto), all
rights to sue for past, present or future infringement thereof, all
rights arising therefrom and pertaining thereto and all reissues,
divisions, continuations, renewals, extensions and continuations-in-
part thereof;
(ii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for
registration of such trademarks, service marks and trade names, all
licenses relating to any of the foregoing and all income and royalties
with respect to any licenses (including, without limitation, such
marks, names and applications as described in Schedule B hereto),
whether registered or unregistered and wherever registered, all rights
to sue for past, present or future infringement or unconsented use
thereof, all rights arising therefrom and pertaining thereto and all
reissues, extensions and renewals thereof;
(iii) the entire goodwill of or associated with the businesses now
or hereafter conducted by Debtor connected with and symbolized by any
of the aforementioned properties and assets;
(iv) all general intangibles (as defined in the UCC) and all
intangible intellectual or other similar property of the Debtor of any
kind or nature, associated with or arising out of any of the
aforementioned properties and assets and not otherwise described above;
and
(v) all products and proceeds of any and all of the foregoing.
D-120
<PAGE>
(b) This Agreement shall create a continuing security interest in the
Intellectual Property Collateral which shall remain in effect until
terminated in accordance with Section 17 hereof.
(c) Notwithstanding the foregoing provisions of this Section 2, the
grant of a security interest as provided herein shall not extend to, and
the term "Collateral" shall not include, any general intangibles of Debtor
(whether owned or held as licensee or lessee, or otherwise), to the extent
that (i) such general intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of the license, lease or
other agreement applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law), without the consent
of the licensor or lessor thereof or other applicable party thereto and
(ii) such consent has not been obtained; provided, however, that the
foregoing grant of security interest shall extend to, and the term
"Collateral" shall include, (A) any general intangible which is an account
receivable or a proceed of, or otherwise related to the enforcement or
collection of, any account receivable, or goods which are the subject of
any account receivable, (B) any and all proceeds of any general intangibles
which are otherwise excluded to the extent that the assignment or
encumbrance of such proceeds is not so restricted, and (C) upon obtaining
the consent of any such licensor, lessor or other applicable party's
consent with respect to any such otherwise excluded general intangibles,
(but without obligating Debtor to obtain such consent) such general
intangibles as well as any and all proceeds thereof that might have
theretofore have been excluded from such grant of a security interest and
the term "Collateral."
SECTION 3 Further Assurances; Appointment of Secured Party as Attorney-in-
Fact. Debtor at its expense shall execute and deliver, or cause to be executed
and delivered, to Secured Party any and all documents and instruments, in form
and substance satisfactory to Secured Party, and take any and all action, which
Secured Party may reasonably request from time to time, to perfect and continue
perfected, maintain the priority of or provide notice of Secured Party's
security interest in the Intellectual Property Collateral and to accomplish the
purposes of this Agreement. Secured Party shall have the right to, in the name
of the Debtor, or in the name of Secured Party or otherwise, without notice to
or assent by the Debtor, and the Debtor hereby irrevocably constitutes and
appoints Secured Party (and any of Secured Party's officers or employees or
agents designated by Secured Party) as the Debtor's true and lawful attorney-
in-fact with full power and authority, (i) to sign the name of the Debtor on
all or any of such documents or instruments and perform all other acts that
Secured Party deems necessary or advisable in order to perfect or continue
perfected, maintain the priority or enforceability of or provide notice of
Secured Party's security interest in, the Intellectual Property Collateral, and
(ii) to execute any and all other documents and instruments, and to perform any
and all acts and things for and on behalf of the Debtor, which Secured Party
may deem necessary or advisable to maintain, preserve and protect the
Intellectual Property Collateral and to accomplish the purposes of this
Agreement, including (A) to defend, settle, adjust or (after the occurrence of
any Event of Default) institute any action, suit or proceeding with respect to
the Intellectual Property Collateral, and, after the occurrence of any Event of
Default, (B) to assert or retain any rights under any license agreement for any
of the Intellectual Property Collateral, including without limitation any
rights of the Debtor arising under Section 365(n) of the Bankruptcy Code, and
(C) after the occurrence of any Event of Default, to execute any and all
applications, documents, papers and instruments for Secured Party to use the
Intellectual Property Collateral, to grant or issue any exclusive or non-
exclusive license or sub-license with respect to any Intellectual Property
Collateral, and to assign, convey or otherwise transfer title in or dispose of
the Intellectual Property Collateral; provided, however, that in no event shall
Secured Party have the unilateral power, prior to the occurrence and
continuation of an Event of Default, to assign any of the Intellectual Property
Collateral to any Person, including itself, without the Debtor's written
consent. The foregoing shall in no way limit Secured Party's rights and
remedies upon or after the occurrence of an Event of Default. The power of
attorney set forth in this Section 3, being coupled with an interest, is
irrevocable so long as this Agreement shall not have terminated in accordance
with Section 17.
SECTION 4 Future Rights. Except as otherwise expressly agreed to in writing
by Secured Party, if and when the Debtor shall obtain rights to any new
patentable inventions or any new trademarks, or become entitled to the benefit
of any of the foregoing, or obtain rights or benefits with respect to any
reissue, division,
D-121
<PAGE>
continuation, renewal, extension or continuation-in-part of any patents or
trademarks, or any improvement of any patent, the provisions of Section 2 shall
automatically apply thereto and the Debtor shall give to Secured Party prompt
notice thereof. Debtor shall do all things deemed necessary or advisable by
Secured Party to ensure the validity, perfection, priority and enforceability
of the security interests of Secured Party in such future acquired Intellectual
Property Collateral; provided, however, that Debtor shall not be required to
register any patents or trademarks with the PTO except to the extent consistent
with Debtor's past practices. Debtor hereby authorizes Secured Party to modify,
amend, or supplement the Schedules hereto and to reexecute this Agreement from
time to time on Debtor's behalf and as its attorney-in-fact to include any such
future Intellectual Property Collateral and to cause such reexecuted Agreement
or such modified, amended or supplemented Schedules to be filed with PTO.
SECTION 5 Secured Party's Duties. Notwithstanding any provision contained in
this Agreement, Secured Party shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to the Debtor
or any other Person for any failure to do so or delay in doing so. Except for
the accounting for moneys actually received by Secured Party hereunder or in
connection herewith, Secured Party shall have no duty or liability to exercise
or preserve any rights, privileges or powers pertaining to the Intellectual
Property Collateral.
SECTION 6 Representations and Warranties. Debtor represents and warrants to
Secured Party as of the date of this Agreement that:
(a) A true and correct list of all of the existing Intellectual Property
Collateral consisting of U.S. patents and patent applications and/or
registrations owned by the Debtor, in whole or in part, is set forth in
Schedule A.
(b) A true and correct list of all of the existing Intellectual Property
Collateral consisting of U.S. trademarks, trademark registrations and/or
applications owned by the Debtor, in whole or in part, is set forth in
Schedule B.
(c) All patents, trademarks, service marks and trade names of Debtor are
subsisting and have not been adjudged invalid or unenforceable in whole or
in part.
(d) All maintenance fees required to be paid on account of any patents
or trademarks of Debtor have been timely paid for maintaining such patents
and trademarks in force, and, to Debtor's knowledge, each of the patents
and trademarks constituting part of the Intellectual Property Collateral is
valid and enforceable.
(e) To Debtor's knowledge, no material infringement or unauthorized use
presently is being made of any Intellectual Property Collateral by any
Person.
(f) To Debtor's knowledge, Debtor is the sole and exclusive owner of the
Intellectual Property Collateral and the past, present and contemplated
future use of such Intellectual Property Collateral by Debtor has not, does
not and will not infringe or violate any right, privilege or license
agreement of or with any other Person.
SECTION 7 Covenants. So long as any of the Obligations remain unsatisfied or
until this Agreement has terminated pursuant to Section 17 hereof, Debtor
agrees that Debtor shall not do, cause or permit any of the following without
the prior consent of Secured Party:
(a) Debtor will appear in and defend any action, suit or proceeding
which may affect to a material extent its title to, or Secured Party's
rights or interest in, the Intellectual Property Collateral.
(b) To the extent deemed reasonably necessary or appropriate by Secured
Party, Debtor will not allow or suffer any Intellectual Property Collateral
to become abandoned, nor any registration thereof to be terminated,
forfeited, expired or dedicated to the public.
D-122
<PAGE>
(c) To the extent deemed reasonably necessary or appropriate by Secured
Party, Debtor will diligently prosecute all applications for patents and
trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for
certificate of correction and like matters as shall be reasonable and
appropriate in accordance with prudent business practice, and promptly pay
any and all maintenance, license, registration and other fees, taxes and
expenses incurred in connection with any Intellectual Property Collateral.
SECTION 8 Secured Party's Rights and Remedies.
(a) Secured Party shall have all rights and remedies available to it
under the Security Agreement, the Note and applicable law with respect to
the security interests in any of the Intellectual Property Collateral or
any other collateral. Debtor agrees that such rights and remedies include,
but are not limited to, the right of Secured Party as a secured party to
sell or otherwise dispose of its collateral after default pursuant to the
UCC. Debtor agrees that Secured Party shall at all times have such royalty
free licenses, to the extent permitted by law, for any Intellectual
Property Collateral that shall be reasonably necessary to permit the
exercise of any of Secured Party's rights or remedies upon or after the
occurrence of an Event of Default and shall additionally have the right to
license and/or sublicense any Intellectual Property Collateral, whether
general, special or otherwise, and whether on an exclusive or a
nonexclusive basis, any of the Intellectual Property Collateral, throughout
the world for such term or terms, on such conditions, and in such manner,
as Secured Party in its sole discretion shall determine in connection with
the exercise of any of such rights or remedies. In addition to and without
limiting any of the foregoing, upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right but
shall in no way be obligated to bring suit, or to take such other action as
Secured Party deems necessary or advisable, in the name of the Debtor or
Secured Party, to enforce or protect any of the Intellectual Property
Collateral, in which event the Debtor shall, at the request of Secured
Party, do any and all lawful acts and execute any and all documents
required by Secured Party in aid of such enforcement. To the extent that
Secured Party shall elect not to bring suit to enforce such Intellectual
Property Collateral, Debtor agrees to use all reasonable measures and its
diligent efforts, whether by action, suit, proceeding or otherwise, to
prevent the infringement, misappropriation or violations thereof by others
and for that purpose agrees diligently to maintain any action, suit or
proceeding against any Person necessary to prevent such infringement,
misappropriation or violation.
(b) The cash proceeds actually received from the sale or other
disposition or collection of Intellectual Property Collateral, and any
other amounts received in respect of the Intellectual Property Collateral
the application of which is not otherwise provided for herein, shall be
applied as provided in the Security Agreement.
SECTION 9 Notices. All notices and other communications hereunder shall be
given as provided in Section 11.2 of the Merger Agreement.
SECTION 10 No Waiver; Cumulative Remedies. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.
SECTION 11 Costs and Expenses; Indemnity.
(a) Debtor agrees to pay on demand all of Secured Party's reasonable
costs and expenses, including reasonable attorneys' fees, in connection
with the enforcement or attempted enforcement of, and preservation of any
rights or interests under, this Agreement, and the assignment, sale or
other disposal of any of the Intellectual Property Collateral.
(b) Debtor hereby agrees to indemnify Secured Party, any affiliate
thereof, and their respective directors, officers, employees, agents,
counsel and other advisors (each an "Indemnified Person")
D-123
<PAGE>
against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever,
including, without limitation, reasonable attorneys' fees and attorneys'
fees incurred pursuant to 11 U.S.C., which may be imposed on, incurred by,
or asserted against any Indemnified Person, relating to or arising out of
this Agreement, including in connection with any infringement or alleged
infringement with respect to any Intellectual Property Collateral, or any
action taken or omitted to be taken by it hereunder (the "Indemnified
Liabilities"); provided that Debtor shall not be liable to any Indemnified
Person for any portion of such Indemnified Liabilities to the extent they
are found by a final decision of a court of competent jurisdiction to have
resulted from such Indemnified Person's gross negligence or willful
misconduct. If and to the extent that the foregoing indemnification is for
any reason held unenforceable, Debtor agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(c) Any amounts payable to Secured Party under this Section 11 or
otherwise under this Agreement if not paid upon demand shall bear interest
from the date of such demand until paid in full, at the rate of interest
set forth in the Note.
SECTION 12 Binding Effect. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by Debtor, Secured Party and their respective
successors and assigns.
SECTION 13 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of California, except to the extent
that the validity or perfection of the security interests hereunder in respect
of any Intellectual Property Collateral are governed by federal law and except
to the extent that Secured Party shall have greater rights or remedies under
federal law, in which case such choice of California law shall not be deemed to
deprive Secured Party of such rights and remedies as may be available under
federal law.
SECTION 14 Amendment. This Agreement shall not be amended except by the
written agreement of the parties.
SECTION 15 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such
provision in any other jurisdiction.
SECTION 16 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 17 Termination. Upon payment and performance in full of all
Obligations, this Agreement shall terminate and Secured Party shall promptly
execute and deliver to Debtor such documents and instruments reasonably
requested by Debtor as shall be necessary to evidence termination of all
security interests given by Debtor to Secured Party hereunder, including
cancellation of this Agreement by written notice from Secured Party to the PTO;
provided, however, that the obligations of Debtor under Section 11 hereof shall
survive such termination.
SECTION 18 Security Agreement. Debtor acknowledges that the rights and
remedies of Secured Party with respect to the security interests in the
Intellectual Property Collateral granted hereby are more fully set forth in the
Security Agreement and all such rights and remedies are cumulative.
D-124
<PAGE>
SECTION 19 No Inconsistent Requirements. Debtor acknowledges that this
Agreement and the Security Agreement may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and the
Debtor agrees that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
SECTION 20 Conflicts. In the event of any conflict or inconsistency between
this Agreement and the Security Agreement, the terms of this Agreement shall
control.
[Signature page follows.]
D-125
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as
of the date first above written.
SPECIALTYMD.COM CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
CHEMDEX CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
D-126
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF )
On , before me, , Notary Public, personally appeared
, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_____________________________________
Signature
[SEAL]
D-127
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF )
On , before me, , Notary Public, personally appeared
, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_____________________________________
Signature
[SEAL]
D-128
<PAGE>
SCHEDULE A
Issued U.S. Patents of Debtor
<TABLE>
<CAPTION>
Patent No. Issue Date Inventor Title
- ---------- ---------- -------- -----
<S> <C> <C> <C>
Pending U.S. Patent Applications of Debtor
<CAPTION>
Serial No. Filing Date Inventor Title
- ---------- ----------- -------- -----
<S> <C> <C> <C>
</TABLE>
D-129
<PAGE>
SCHEDULE B
U.S. Trademarks of Debtor
<TABLE>
<CAPTION>
Registration No. Registration Date Filing Date Registered Owner Mark
- ---------------- ----------------- ----------- ---------------- ----
<S> <C> <C> <C> <C>
</TABLE>
Pending U.S. Trademark Applications of Debtor
<TABLE>
<CAPTION>
Application No. Filing Date Applicant Mark
- --------------- ----------- --------- ----
<S> <C> <C> <C>
</TABLE>
D-130
<PAGE>
ANNEX E
DELAWARE DISSENTERS' RIGHTS PROVISIONS
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S) 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depositary receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
E-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of /1/ such stockholder's shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of /1/ such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of /1/ such stockholder's shares. A
proxy or vote against the merger or consolidation shall not constitute such
a demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitle to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identify of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall
- --------
/1/Ch. 339, L. "98, eff. 7-1-98, add matter in italic and deleted /1/"his" and
/2/"he".
E-2
<PAGE>
be such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business on
the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw/1/ such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after /1/ such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is alter.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so,
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have compile with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trail upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted /1/ such stockholder's certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that /2/ such stockholder is
not entitled to appraisal rights under this section.
- --------
/1/Ch. 339, L. "98, eff. 7-1-98, add matter in italic and deleted /1/"his" and
/2/"he".
E-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded /1/appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of /1/
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 339, L.
"98, eff. 7-1-98)
- --------
/1/Ch. 339, L. "98, eff. 7-1-98, add matter in italic and deleted /1/"his" and
/2/"he".
E-4
<PAGE>
ANNEX F
INDEMNITY ESCROW AGREEMENT
THIS INDEMNITY ESCROW AGREEMENT (this "Agreement") is entered into as of
, 2000, by and among Chemdex Corporation, a Delaware corporation
("Chemdex"), SpecialtyMD.com Corporation, a Delaware corporation ("Target"),
U.S. Bank Trust, National Association, as Escrow Agent ("Escrow Agent"), and
Ashfaq Munshi and Joseph L. Meresman, as Stockholders' Agents ("Stockholders'
Agents") with respect to the shares of Chemdex capital stock to be issued to
the former Target Stockholders (collectively, the "Holders") in the Merger (as
defined below).
RECITALS
A. Chemdex, Target, and Spinach Acquisitions Corp., a Delaware corporation
and wholly-owned subsidiary of Chemdex ("Sub"), have entered into a Agreement
and Plan of Merger dated as of December 10, 1999 (the "Merger Agreement"),
pursuant to which Sub will merge with and into Target (the "Merger"), with
Target surviving the Merger as the surviving corporation. Capitalized terms
used in this Agreement and not otherwise defined in this Agreement shall have
the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the Effective Time,
or such later time as determined in accordance with Section 2.3(b) of the
Merger Agreement with respect to Dissenting Shares for which dissenters' rights
shall have been withdrawn or lost, Chemdex will deposit in escrow (such deposit
constituting the "Escrow Fund") certificates representing ten percent (10%) of
the shares of Chemdex Common Stock issuable to the Holders in the Merger (the
"Escrow Shares"), on a pro rata basis, in accordance with each Holder's
percentage ownership of Chemdex Common Stock issuable pursuant to the Merger to
be held as security for Target's indemnification obligations under Article X of
the Merger Agreement after July 1, 2000. The parties to this Agreement desire
to establish the terms and conditions pursuant to which the Escrow Shareswill
be deposited, held in, and disbursed from the Escrow Fund.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the
Escrow Shares; and (b) hold such Escrow Sharesin escrow as part of the Escrow
Fund, all subject to the terms and conditions of this Agreement and Section 2.2
and Article X of the Merger Agreement (which Section 2.2 and Article X are
attached to this Agreement as Appendix I and incorporated by reference into
this Agreement) (collectively, the "Escrow Provisions"). The Escrow Shares will
include "Additional Escrow Shares" as that term is defined in Section 2(c) of
this Agreement.
2. Deposit of Escrow Shares: Release from Escrow.
(a) Delivery of Escrow Shares. As soon as practicable after the Effective
Time, the Escrow Shares will be delivered by Chemdex on behalf of the Holders
to the Escrow Agent. Such shares shall be issued in the name of the Escrow
Agent. In the event Chemdex issues any Additional Escrow Shares, such
Additional Escrow Shares will be issued in the name of the Escrow Agent and
delivered to the Escrow Agent in the same manner as the Escrow Shares.
(b) Holders' Accounts. The Escrow Agent will maintain for each Holder an
accounting record (each Holder's "Account") specifying the Escrow Shares held
for the record of each Holder pursuant to the Escrow Provisions. All Escrow
Shares received under Section 2(a) will be allocated to each Holder's Account
in accordance with such Holder's percentage interest in the Escrow Fund as set
forth on Appendix II.
F-1
<PAGE>
(c) Dividends, Voting and Rights of Ownership. Except for tax-free dividends
paid in stock declared with respect to the Escrow Shares pursuant to Section
305(a) of the Internal Revenue Code of 1986, as amended (the "Code")
("Additional Escrow Shares"), there will be distributed promptly to the Holders
any cash dividends or dividends payable in securities or other distributions of
any kind made in respect of the Escrow Shares. Each Holder will have voting
rights with respect to the Escrow Shares deposited in the Escrow Fund with
respect to such Holder so long as such Escrow Shares are held in escrow, and
Chemdex will take all reasonable steps necessary to allow the exercise of such
rights. While the Escrow Shares remain in the Escrow Agent's possession
pursuant to this Agreement and the Merger Agreement, the Holders will retain
and will be able to exercise all other incidents of ownership of said Escrow
Shares which are not inconsistent with the terms and conditions of this
Agreement and the Merger Agreement.
(d) Release. The Escrow Shares will be held by the Escrow Agent until
required to be released to the Holders pursuant to Section 10.3 of the Merger
Agreement, unless previously delivered to Chemdex pursuant to Section 10.4 of
the Merger Agreement. Within five (5) business days after the applicable
release condition is met, the Escrow Agent will deliver to each Holder the
Escrow Shares to be released on such date as identified by Chemdex and the
Stockholders' Agents to the Escrow Agent in writing. Escrow Shares will be in
the form of stock certificate(s) issued in the name of such Holder. Chemdex and
the Stockholders' Agents will undertake to deliver a notice to the Escrow Agent
identifying the number of Escrow Shares to be released with respect to each
Holder within such five-day period. Escrow Shares will be released to the
respective Holders in accordance with their respective Accounts. Chemdex will
take such action as may be necessary to cause such certificates to be issued in
the names of the appropriate Holders. Cash will be paid in lieu of fractions of
Escrow Shares in an amount equal to the product determined by multiplying such
fraction by the Average Stock Price, as defined in the Merger Agreement (the
"Per Share Value"). Within five (5) business days after written request from
the Stockholders' Agents, Chemdex will deposit with the Escrow Agent sufficient
funds to pay such cash amounts for fractional shares.
(e) No Encumbrance. Except as provided in this Agreement and as may be set
forth in the Target Disclosure Schedule, no Escrow Shares or any beneficial
interest in the Escrow Shares may be pledged, sold, assigned or transferred,
including by operation of law, by a Holder or be taken or reached by any legal
or equitable process in satisfaction of any debt or other liability of a
Holder, prior to the delivery to such Holder of the Escrow Shares by the Escrow
Agent.
(f) Power to Transfer Escrow Shares. The Escrow Agent is granted the power
to effect any transfer of Escrow Shares contemplated by the Escrow Provisions.
Chemdex will cooperate with the Escrow Agent in promptly issuing stock
certificates to effect such transfers.
(g) Reporting. Each Holder will provide the Escrow Agent with his/her/its
Taxpayer Identification Number at or prior to Closing. On or before January 31
of each year under this Agreement, the Escrow Agent will prepare and mail to
each Holder, other than Holders who demonstrate their status as non-resident
aliens in accordance with the United States Treasury Regulations, a Form 1099-B
reporting any payments, in accordance with such Treasury Regulations. The
Escrow Agent will also prepare and file copies of such Forms 1099-B by magnetic
tape with the IRS, in accordance with Treasury Regulations. If the Escrow Agent
has not received notice from a Holder of such Holder's certified Taxpayer
Identification Number, the Escrow Agent shall deduct and withhold backup
withholding tax from any payment made pursuant to the Internal Revenue Code and
applicable regulations thereunder. Should any issue arise regarding federal
income tax reporting or withholding, the Escrow Agent shall act in accordance
with the written instructions of the Stockholders' Agents and Chemdex.
3. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to any action
taken or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other document believed by it to be genuine and duly
authorized, nor for any other action or inaction, except its own willful
misconduct, bad faith or gross negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of the Escrow Provisions.
F-2
<PAGE>
In all questions arising under the Escrow Provisions, the Escrow Agent may rely
on the advice of counsel, and for anything done, omitted or suffered in good
faith by the Escrow Agent based on such advice, the Escrow Agent will not be
liable to anyone. The Escrow Agent will not be required to take any action
under the Escrow Provisions involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served upon the
Escrow Agent with respect to the Escrow Fund, the Escrow Agent will have the
absolute right, at the Escrow Agent's election, to do either or both of the
following: resign so a successor can be appointed pursuant to Section 5 or file
a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under the Escrow
Provisions, and Chemdex will pay the Escrow Agent (subject to reimbursement
from the Holders pursuant to Section 4) all costs, expenses and reasonable
attorney's fees expended or incurred by the Escrow Agent pursuant to the
exercise of the Escrow Agent's rights under this Section 3 (such costs, fees
and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 4).
4. Expenses.
(a) Escrow Agent. All fees and expenses of the Escrow Agent incurred in the
ordinary course of performing its responsibilities hereunder will be paid by
Chemdex upon receipt of a written invoice by the Escrow Agent. Any
extraordinary fees and expenses, including without limitation any fees or
expenses incurred by the Escrow Agent in connection with a dispute over the
distribution of Escrow Shares or the validity of a claim or claims by Chemdex
made in an Officer's Certificate, will be paid 50% by Chemdex and 50% by the
Holders. The Holders' liability for the extraordinary fees and expenses of the
Escrow Agent may be paid by Chemdex and recovered as a claim hereunder out of
the Escrow Fund. If Chemdex has paid the Holders' portion of such fees and
expenses as permitted under this Section 4(a), then the Escrow Agent will, upon
demand by Chemdex, transfer to Chemdex a number of Escrow Shares having an
aggregate Per Share Value equal to such portion of fees and expenses.
In the event the balance in the Escrow Fund is not sufficient to pay the
extraordinary fees and expenses of the Escrow Agent, as described in the prior
paragraph, or in the event the Escrow Agent incurs any liability to any person,
firm or corporation by reason of its acceptance or administration of this
Escrow Agreement, the other parties hereto, jointly and severally, agree to
indemnify the Escrow Agent for its extraordinary fees and expenses or costs and
expenses, including, without limitation, counsel fees and expenses, as the case
may be. Notwithstanding the foregoing, no indemnity need be paid in the event
of the Escrow Agent's gross negligence, bad faith or willful misconduct.
(b) Stockholders' Agents. The Stockholders' Agents will not be entitled to
receive any compensation from Chemdex or the Holders in connection with this
Agreement. Any fees and expenses incurred by the Stockholders' Agents in
connection with actions taken pursuant to the terms of the Escrow Provisions
will be paid by the Holders.
5. Successor Escrow Agent. In the event the Escrow Agent becomes unavailable
or unwilling to continue in its capacity as such, the Escrow Agent may resign
and be discharged from its duties or obligations hereunder by giving
resignation to the parties to this Agreement, specifying not less than thirty
(30) days' prior written notice of such a date when such resignation will take
effect. Chemdex will designate a successor Escrow Agent prior to the expiration
of such 30-day period by giving written notice to the Escrow Agent and the
Stockholders' Agents. Chemdex may appoint a successor Escrow Agent with the
consent of the Stockholders' Agents, which will not be unreasonably withheld.
The Escrow Agent will promptly transfer the Escrow Shares to such designated
successor. In the event no successor Escrow Agent is appointed as described in
this Section 5, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent.
F-3
<PAGE>
6. Limitation of Responsibility. The Escrow Agent's duties are limited to
those set forth in the Escrow Provisions and the Escrow Agent may rely upon the
written notices delivered to the Escrow Agent under the Escrow Provisions.
7. Incorporation by Reference of Article X. The parties agree that the terms
of Section 2.2 and Article X of the Merger Agreement shall be deemed to be
incorporated by reference in this Agreement as if such Article had been set
forth in its entirety herein. To the extent there is any conflict between this
attachment and the merger agreement, then the attachment shall apply. The
parties acknowledge that the administration of the Escrow Fund by the Escrow
Agent will require reference to both the terms of this Agreement as well as the
terms of such Article X.
8. Notices. Any notice provided for or permitted under the Escrow Provisions
will be treated as having been given when (i) delivered personally, (ii) sent
by confirmed telex or Fax, (iii) sent by commercial overnight courier with
written verification of receipt, or (iv) mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 8.
Escrow Agent:U.S. Bank Trust, National Association
One California Street, 4th Floor
San Francisco, California 94111
Attention: Ann Gadsby
Fax No: (415) 273-4593
Telephone No: (415) 273-4532
Stockholders' Agents: SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Attention: Ashfaq Munshi
Joseph L. Meresman
Fax No: (650) 213-4101
Telephone No: (650) 213-4100
With copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304- 1050
Attention: J. Casey McGlynn
Fax No: (650) 493-6811
Telephone No: (650) 493-9300
Chemdex: Chemdex Corporation
1500 Plymouth Street
Mountain View, CA 94043
Attention: Chief Executive Officer
Fax No: (650) 567-8950
Telephone No: (650) 567-8900
With copy to: Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Jeffrey Y. Suto
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
Such notice will be treated as having been received upon actual receipt.
F-4
<PAGE>
9. General.
(a) Governing Laws. It is the intention of the parties hereto that the
internal laws of the State of Delaware (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of
its terms, and the interpretation and enforcement of the rights and duties of
the parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained in this Agreement shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts of this Agreement, individually or taken
together, shall bear the signatures of all of the parties reflected in this
Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Merger Agreement, this
Agreement, the documents referenced in this Agreement and the exhibits to such
documents, constitute the entire understanding and agreement of the parties to
this Agreement with respect to the subject matter of this Agreement and of such
documents and exhibits and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect to this Agreement. The express terms of
this Agreement control and supersede any course of performance or usage of the
trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any condition or of
any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written consent of
Chemdex, the Escrow Agent and the Stockholders' Agents; provided, however, that
if the Escrow Agent does not agree to an amendment agreed upon by Chemdex and
the Stockholders' Agents, a successor Escrow Agent will be appointed in
accordance with Section 5.
[Signature Page Follows]
F-5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first written above and will be effective as to all the
Holders when executed by Chemdex, the Escrow Agent and the Stockholders'
Agents.
CHEMDEX CORPORATION
By:__________________________________
Its:
__________________________________
SPECIALTYMD.COM CORPORATION
By:__________________________________
Its:
__________________________________
ESCROW AGENT:
U.S. BANK TRUST, NATIONAL
ASSOCIATION
By:__________________________________
Its:
__________________________________
STOCKHOLDERS' AGENTS:
_____________________________________
Ashfaq Munshi
_____________________________________
Joseph L. Meresman
F-6
<PAGE>
APPENDIX I
Section 2.2 and Article X of Merger Agreement
F-7
<PAGE>
APPENDIX I
Section 2.2 and Article X of Merger Agreement
Section 2.2 Escrow Agreements. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), Chemdex will, on behalf of the
Former Target Stockholders, deposit in escrow stock certificates or Chemdex
Options, as appropriate, representing the percentage of the Total Consideration
Shares set forth below allocable to Target Common Stock and Target Series A and
Series B Preferred Stock in the Merger. Such shares or options shall be held in
escrow on behalf Former Target Stockholders, in accordance with the portion of
Total Consideration Shares allocable to each such Former Target Stockholder in
the manner contemplated by Section 2.1 ("Pro Rata Portion"). If the Closing
shall occur prior to July 1, 2000, then ninety percent (90%) of such shares and
options (collectively, the "Locked Up Shares") shall be placed in escrow and
applied pursuant to the provisions of the Lock-Up Escrow Agreement attached
hereto as Exhibit D-1 (the "Lock-Up Escrow Agreement") on behalf of the Former
Target Stockholders until July 1, 2000, after which the certificates
representing such shares or options will be distributed to the Former Target
Stockholders in accordance with the provisions of the Lock-Up Escrow Agreement.
In addition, regardless of whether the Closing shall occur before July 1, 2000,
ten percent (10%) of such shares and options (collectively, the "Escrow
Shares") shall be held in escrow and applied pursuant to the provisions of the
Indemnity Escrow Agreement attached hereto as Exhibit D-2 (the "Indemnity
Escrow Agreement"). All calculations to determine the number of Locked Up
Shares and Escrow Shares to be delivered by each stockholder of Target into
escrow as aforesaid shall be rounded down to the nearest whole share.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification. From and after the Effective Time and subject
to the limitations contained in Section 10.2, the Former Target Stockholders
will, severally and pro rata, in accordance with their Pro Rata Portion,
indemnify and hold Chemdex harmless against any loss, expense, liability or
other damage, including attorneys' fees, to the extent of the amount of such
loss, expense, liability or other damage (collectively "Damages") that Chemdex
has incurred by reason of the breach by Target of any representation, warranty,
covenant or agreement of Target contained in this Agreement that occurs or
becomes known to Chemdex during the Escrow Period (as defined in Section 10.3
below). Chemdex, Target and Sub acknowledge and agree, and the Former Target
Stockholders, by their approval of this Agreement and their execution of the
Voting Agreements, agree that notwithstanding anything to the contrary
contained in this Agreement or any other Transaction Document, such
indemnification under this Article X shall be the sole and exclusive remedy for
any such claim of breach by Target, except for Damages based upon a claim of
fraud.
Section 10.2 Indemnity Escrow Fund. As security and sole remedy for the
indemnities in Section 10.1, as soon as practicable after the Effective Time,
the Escrow Shares shall be deposited with U.S. Bank Trust, National Association
(or such other institution selected by Chemdex with the reasonable consent of
Target) as escrow agent (the "Escrow Agent"), such deposit to constitute the
Escrow Fund (the "Escrow Fund") and to be governed by the terms set forth in
this Article X and in the Indemnity Escrow Agreement.
Section 10.3 Escrow Periods. The Escrow Fund shall terminate upon the first
anniversary date of the Closing Date (the period from the Closing Date to such
date referred to as the "Escrow Period"), provided, however, that the number of
Escrow Shares, which, in the reasonable judgment of Chemdex, subject to the
objection of the Stockholders' Agents and the subsequent resolution of the
matter in the manner provided in Section 10.7, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Stockholders' Agents prior to termination of the
Escrow Period with respect to Damages incurred or litigation pending prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been finally resolved.
F-8
<PAGE>
Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Chemdex (an "Officer's Certificate"):
(i) Stating the aggregate amount of Chemdex's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid
or properly accrued or arose, and the nature of the misrepresentation,
breach or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of Sections 10.3 and 10.7 hereof and of the
Indemnity Escrow Agreement, deliver to Chemdex out of the Escrow Fund, as
promptly as practicable, Escrow Shares having a value equal to such Damages
all in accordance with the Indemnity Escrow Agreement and Section 10.5
below. Amounts paid or distributed from the Indemnity Escrow Fund shall be
paid or distributed pro rata among the Holders (as defined in the Indemnity
Escrow Agreement) based upon their respective percentage interests therein
at the time.
Section 10.5 Valuation. For the purpose of compensating Chemdex for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Chemdex in respect of a claim for Damages shall be
the Average Stock Price (as appropriately adjusted for stock splits,
recapitalizations and the like).
Section 10.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agents (as defined in Section 10.8
below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 10.3 unless
the Escrow Agent shall have received written authorization from the
Stockholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.3, provided that no such delivery
may be made if the Stockholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Chemdex prior to the expiration of such
thirty (30) day period.
Section 10.7 Resolution of Conflicts.
(a) In case the Stockholders' Agents shall so object in writing to any
claim or claims by Chemdex made in any Officer's Certificate, Chemdex shall
have thirty (30) days to respond in a written statement to the objection of
the Stockholders' Agents. If after such thirty (30) day period there
remains a dispute as to any claims, the Stockholders' Agents and Chemdex
shall attempt in good faith for thirty (30) days to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholders' Agents and Chemdex should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Escrow Shares from the
Escrow Fund in accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Chemdex or the Stockholders' Agents may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15)
days after such written notice is sent, Chemdex (on the one hand) and the
Stockholders' Agents (on the other hand) shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator. The
decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties
to this Agreement, and notwithstanding anything in Section 10.3, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance with such decision.
F-9
<PAGE>
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the commercial rules then in effect of
the American Arbitration Association. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the
expenses, including, without limitation, the reasonable attorneys' fees and
costs, incurred by the prevailing party to the arbitration.
Section 10.8 Stockholders' Agents.
(a) Ashfaq Munshi and Joseph L. Meresman shall be constituted and
appointed as agents (the "Stockholders' Agents") for and on behalf of the
Former Target Stockholders to give and receive notices and communications,
to authorize delivery to Chemdex of the Escrow Shares or other property
from the Escrow Fund in satisfaction of claims by Chemdex, to object to
such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agents for
the accomplishment of the foregoing. All actions of the Stockholders'
Agents shall be taken jointly, not individually. Such agency may be changed
by the holders of a majority in interest of the Escrow Shares from time to
time upon not less than ten (10) days' prior written notice to Chemdex. No
bond shall be required of the Stockholders' Agents, and the Stockholders'
Agents shall receive no compensation for services. Notices or
communications to or from the Stockholders' Agents shall constitute notice
to or from each of the Former Target Stockholders.
(b) The Stockholders' Agents shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and
any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Former Target Stockholders
shall severally and pro rata, in accordance with their Pro Rata Portion,
indemnify the Stockholders' Agents and hold them harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the
part of the Stockholders' Agents and arising out of or in connection with
the acceptance or administration of their duties hereunder under this
Agreement or the Indemnity Escrow Agreement.
(c) The Stockholders' Agents shall have reasonable access to information
about Target and Chemdex and the reasonable assistance of Target's and
Chemdex's officers and employees for purposes of performing their duties
and exercising their rights under this Article X, provided that the
Stockholders' Agents shall treat confidentially and not disclose any
nonpublic information from or about Target or Chemdex to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
Section 10.9 Actions of the Stockholders' Agents. A decision, act, consent
or instruction of the Stockholders' Agents shall constitute a decision of all
of the Former Target Stockholders for whom shares of Chemdex Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Stockholder, and the Escrow
Agent and Chemdex may rely upon any decision, act, consent or instruction of
the Stockholders' Agents as being the decision, act, consent or instruction of
each and every such Former Target Stockholder. The Escrow Agent and Chemdex are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agents.
Section 10.10 Claims. In the event Chemdex becomes aware of a third-party
claim which Chemdex believes may result in a demand against the Escrow Fund,
Chemdex shall promptly notify the Stockholders' Agents of such claim, and the
Stockholders' Agents and the Former Target Stockholders for whom shares of
Chemdex Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Chemdex shall have the right in its sole discretion to settle any such
claim; provided, however, that Chemdex may not effect the settlement of any
such claim without the consent of the Stockholders' Agents, which consent shall
not be unreasonably withheld. In the event that the Stockholders' Agents have
consented to any such settlement, the Stockholders' Agents shall have no power
or authority to object to the amount of any claim by Chemdex against the Escrow
Fund for indemnity with respect to such settlement in the amount agreed to.
F-10
<PAGE>
APPENDIX II
HOLDERS' INTEREST IN ESCROW FUND
<TABLE>
<CAPTION>
Chemdex Percentage
Shares To Of Escrow
Stockholder Escrow Shares
- ----------- --------- ---------- ---
<S> <C> <C> <C>
--- ------ ---
Totals: 100.00%
=== ====== ===
</TABLE>
F-11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Registrant's bylaws provide for the mandatory indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by
Delaware law, and the Registrant has entered into agreement with its officers,
directors and certain key employees implementing such indemnification.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1* Agreement and Plan of Merger dated September 21, 1999 by and among
Chemdex Corporation, Popcorn Acquisitions Corp. and Promedix.com, Inc.
(included as Annex A to the Joint Proxy Statement/Prospectus included
as part of this Registration Statement)
2.2* Form of Certificate of Merger between Popcorn Acquisitions Corp. and
Promedix.com, Inc.
2.3* Escrow Agreement for Chemdex/Promedix (included as Annex B to the
Joint Proxy Statement/Prospectus included as part of this Registration
Statement)
2.4* Agreement and Plan of Merger dated December 10, 1999 by and among
Chemdex Corporation, Spinach Acquisitions Corp. and SpecialtyMD.com
Corporation (included as Annex D to the Joint Proxy
Statement/Prospectus included as part of this Registration Statement)
2.5* Form of Certificate of Merger between Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation
2.6* First Amendment to Agreement and Plan of Merger dated as of December
21, 1999 by and among Chemdex Corporation, Popcorn Acquisitions Corp.
and Promedix.com, Inc. (included as Annex A to the Joint Proxy
Statement/Prospectus included as part of this Registration Statement)
2.7* Escrow Agreement for Chemdex/SpecialtyMD (included as Annex F to the
Joint Proxy Statement/Prospectus included as part of this Registration
Statement)
3.1* Amended and Restated Certificate of Incorporation of Chemdex (1)
3.2* Amended and Restated Bylaws of Chemdex (1)
4.1* Specimen of Chemdex Common Stock Certificate (1)
4.2* Third Amended and Restated Investors' Rights Agreement dated March 24,
1999 (1)
4.3* Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement (1)
5.1 Opinion of Venture Law Group, A Professional Corporation, as to the
legality of the Registrant's common stock being registered hereby
8.1 Tax opinion of Venture Law Group, A Professional Corporation
8.2 Tax opinion of Orrick, Herrington & Sutcliffe LLP
8.3 Tax opinion of Wilson, Sonsini, Goodrich & Rosati, A Professional
Corporation
10.1* Form of Indemnification Agreement between Chemdex and each of its
officers and directors (1)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2* Form of Change of Control Agreement between Chemdex, each of its
officers and certain employees (1)
10.3* Change of Control Agreement between Chemdex and Robert A. Swanson (1)
10.4* Change of Control Agreement between Chemdex and Charles R. Burke (1)
10.5* 1998 Stock Plan, as amended, and form of option agreement
10.6* 1999 Employee Stock Purchase Plan and form of subscription agreement
10.7* 1999 Directors' Stock Plan (1)
10.8* Standard Office Lease dated June 11, 1998 between Chemdex and Fabian
Partners II, a California General Partnership, as amended (1)
10.9* Master Lease Agreement dated January 20, 1999, as amended, between
Chemdex and Comdisco, Inc. (1)
10.10* Starter Kit Loan and Security Agreement dated February 18, 1998
between Chemdex and Imperial Bank (1)
10.11* Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc. (1)
10.12* Warrant to Purchase Shares of Common Stock of Chemdex dated March 24,
1999 between Chemdex and Galen Partners III, L.P. (1)
10.13* Warrant to Purchase Shares of Common Stock of Chemdex dated March 24,
1999 between Chemdex and Galen Partners International III, L.P. (1)
10.14* Warrant to Purchase Shares of Common Stock of Chemdex dated March 24,
1999 between Chemdex and Galen Employee Fund III, L.P. (1)
10.15* Electronic Commerce Agreement dated January 5, 1998 between Chemdex
and Genentech, Inc. (1)
10.16* Standstill Agreement dated April 23, 1999 between Chemdex and VWR
Scientific Products Corporation (1)
10.17* Strategic Relationship Agreement dated April 30, 1999 between Chemdex
and VWR Scientific Products Corporation (1)
10.18* Joint Marketing Agreement dated May 11, 1999 between Chemdex and
Biotechnology Industry Organization (1)
10.19* Payment Plan Agreement dated February 22, 1999 and related agreements
between Chemdex and Oracle Credit Corporation (1)
10.20* Warrant Purchase Agreement dated July 27, 1999 between Chemdex and
Alza Corporation (2)
10.21* Office Lease dated August 13, 1999 between Chemdex and Alza
Corporation for space located at 1000 Joaquin Road, Mountain View,
California.
10.22* Office Lease dated August 13, 1999 between Chemdex and Alza
Corporation for space located at 1500 and 15550 Plymouth Street,
Mountain View, California.
10.23* Voting Agreement dated September 21, 1999 between Chemdex and certain
stockholders of Promedix.com, Inc.
10.24* Employment Agreement dated September 21, 1999 between Chemdex and
William Klintworth
10.25* Change of Control Agreement dated September 21, 1999 between Chemdex
and William Klintworth
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.26* Affiliates Agreement dated September 21, 1999 between Chemdex and
certain directors of Promedix.com, Inc.
10.27* Secured Promissory Note and Agreement dated October 1, 1999 from
Promedix.com, Inc. to Chemdex and related Security Agreement.
10.28* Noncompetition Agreement dated September 21, 1999 between Chemdex and
William Klintworth
10.29* Employment Agreement dated December 10, 1999 between Chemdex and
Ashfaq Munshi
10.30* Employee Confidentiality and Inventions Agreement dated December 10,
1999 between Chemdex and Ashfaq Munshi
10.31* Change of Control Agreement dated December 10, 1999 between Chemdex
and Ashfaq Munshi
10.32* Noncompetition Agreement dated December 10, 1999 between Chemdex and
Ashfaq Munshi
10.33* Stock Restriction Agreement dated December 10, 1999 between Chemdex
and Ashfaq Munshi
10.34* Joint Venture Agreement dated as of December 10, 1999 by and between
Tenet Health System Medical, Inc. and Chemdex Corporation (3)
10.35* Form of Tenet/Newco Agreement by and among Tenet Health System
Medical, Inc., Tendex, Inc., Promedix.com, Inc. and Chemdex
Corporation (3)
10.36* Form of Chemdex License and Services Agreement by and among Chemdex
Corporation, Promedix.com, Inc., Tendex, Inc. and Tenet Health System
Medical, Inc. (3)
21.1* Subsidiaries of Chemdex
23.1 Consent of Venture Law Group, A Professional Corporation, with respect
to the legality of securities being registered (contained in Exhibit
5.1)
23.2 Consent of Venture Law Group, A Professional Corporation, with respect
to certain tax matters (contained in Exhibit 8.1)
23.3 Consent of Orrick, Herrington & Sutcliffe, with respect to certain tax
matters (contained in Exhibit 8.2)
23.4* Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Chemdex
23.5* Consent of Ernst & Young, Independent Auditors, with respect to the
financial statements of Promedix
23.6* Consent of Jones, Jensen & Company, Independent Auditors, with respect
to financial statements of Pro Med Co.
23.7* Consent of Morgan Stanley & Co. Incorporated
23.8* Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of SpecialtyMD
23.9 Consent of Wilson Sonsini Goodrich & Rosati, A Professional
Corporation with respect to certain tax matters (contained in Exhibit
8.3)
24.1* Power of Attorney (included on page II-5)
99.1* Form of Proxy Card for Special Meeting of Chemdex Stockholders
99.2* Form of Proxy Card for Special Meeting of Promedix Stockholders
99.3* Form of Proxy Card for Special Meeting of SpecialtyMD Stockholders
</TABLE>
- --------
* Previously Provided.
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
II-3
<PAGE>
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August
16, 1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K dated December 10, 1999, as filed with
the Commission on January 4, 2000.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
Schedule
Number Description
-------- -----------
<C> <S>
2.1 Chemdex Valuation and Qualifying Accounts
2.2 Promedix Valuation and Qualifying Accounts
2.3 Pro Med Co. Valuation and Qualifying Accounts
</TABLE>
Item 22. Undertakings
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
C. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (B) immediately proceeding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
E. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-4
<PAGE>
F. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on January 4, 2000.
Chemdex Corporation
/s/ David P. Perry
By: _________________________________
David P. Perry
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints David P. Perry and James G. Stewart each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement and to file the same with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David P. Perry President, Chief Executive January 4, 2000
______________________________________ Officer and Director
David P. Perry (Principal Executive
Officer)
/s/ James G. Stewart Chief Financial Officer January 4, 2000
______________________________________ and Assistant Secretary
James G. Stewart (Principal Financial
Officer)
* Director January 4, 2000
____________________________________
Charles R. Burke
* Director January 4, 2000
____________________________________
Brook H. Byers
* Director January 4, 2000
____________________________________
Jonathan D. Callaghan
* Director January 4, 2000
____________________________________
Paul J. Nowak
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director January 4, 2000
______________________________________
John A. Pritzker
* Director January 4, 2000
______________________________________
Naomi O. Seligman
* Director January 4, 2000
______________________________________
L. John Wilkerson
/s/ David P. Perry*
*By: _________________________________
David P. Perry
Attorney-in-fact
</TABLE>
II-7
<PAGE>
Item 21 (b)
Schedule 2.1
CHEMDEX CORPORATION
SCHEDULE 2.1--VALUATION AND QUALIFYING ACCOUNTS
December 31, 1997 and December 31, 1998
<TABLE>
<CAPTION>
Amounts
Charged to
Balance Revenue, Write-offs Balance
Beginning Costs or and at End
Description of Year Expenses Recoveries of Year
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts....... $-- $ -- $-- $ --
1998
Allowance for Doubtful Accounts....... $-- $2,000 $-- $2,000
</TABLE>
<PAGE>
Item 21 (b)
Schedule 2.2
PROMEDIX.COM, INC.
SCHEDULE 2.2--VALUATION AND QUALIFYING ACCOUNTS
December 31, 1997 and December 31, 1998
<TABLE>
<CAPTION>
Amounts
Charged to
Balance Revenue, Write-offs Balance
Beginning Costs or and at End
Description of Year Expenses Recoveries of Year
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts....... $ -- $2,710 $ -- $2,710
1998
Allowance for Doubtful Accounts....... $2,710 $ -- $(2,710) $ --
</TABLE>
<PAGE>
Item 21 (b)
Schedule 2.3
PRO MED CO., INC.
SCHEDULE 2.3--VALUATION AND QUALIFYING ACCOUNTS
December 31, 19997 and December 31, 1998
<TABLE>
<CAPTION>
Amounts
Charged to
Balance Revenue, Write-offs Balance
Beginning Costs or and at End
Description of Year Expenses Recoveries of Year
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts....... $43,052 $ -- $ -- $43,052
1998
Allowance for Doubtful Accounts....... $43,052 $ -- $ -- $43,052
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1* Agreement and Plan of Merger dated September 21, 1999 by and among
Chemdex Corporation, Popcorn Acquisitions Corp. and Promedix.com, Inc.
(included as Annex A to the Joint Proxy Statement/Prospectus included
as part of this Registration Statement)
2.2* Form of Certificate of Merger between Popcorn Acquisitions Corp. and
Promedix.com, Inc.
2.3* Escrow Agreement for Chemdex/Promedix (included as Annex B to the
Joint Proxy Statement/Prospectus included as part of this Registration
Statement)
2.4* Agreement and Plan of Merger dated December 10, 1999 by and among
Chemdex Corporation, Spinach Acquisitions Corp. and SpecialtyMD.com
Corporation (included as Annex D to the Joint Proxy
Statement/Prospectus included as part of this Registration Statement)
2.5* Form of Certificate of Merger between Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation
2.6* First Amendment to Agreement and Plan of Merger dated as of December
21, 1999 by and among Chemdex Corporation, Popcorn Acquisitions Corp.
and Promedix.com, Inc. (included as Annex A to the Joint Proxy
Statement/Prospectus included as part of this Registration Statement)
2.7* Escrow Agreement for Chemdex/SpecialtyMD (included as Annex F to the
Joint Proxy Statement/Prospectus included as part of this Registration
Statement)
3.1* Amended and Restated Certificate of Incorporation of Chemdex (1)
3.2* Amended and Restated Bylaws of Chemdex (1)
4.1* Specimen of Chemdex Common Stock Certificate (1)
4.2* Third Amended and Restated Investors' Rights Agreement dated March 24,
1999 (1)
4.3* Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement (1)
5.1 Opinion of Venture Law Group, A Professional Corporation, as to the
legality of the Registrant's common stock being registered hereby
8.1 Tax opinion of Venture Law Group, A Professional Corporation
8.2 Tax opinion of Orrick, Herrington & Sutcliffe LLP
8.3 Tax opinion of Wilson, Sonsini, Goodrich & Rosati, A Professional
Corporation
10.1* Form of Indemnification Agreement between Chemdex and each of its
officers and directors (1)
10.2* Form of Change of Control Agreement between Chemdex, each of its
officers and certain employees (1)
10.3* Change of Control Agreement between Chemdex and Robert A. Swanson (1)
10.4* Change of Control Agreement between Chemdex and Charles R. Burke (1)
10.5* 1998 Stock Plan, as amended, and form of option agreement
10.6* 1999 Employee Stock Purchase Plan and form of subscription agreement
10.7* 1999 Directors' Stock Plan (1)
10.8* Standard Office Lease dated June 11, 1998 between Chemdex and Fabian
Partners II, a California General Partnership, as amended (1)
10.9* Master Lease Agreement dated January 20, 1999, as amended, between
Chemdex and Comdisco, Inc. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.10* Starter Kit Loan and Security Agreement dated February 18, 1998
between Chemdex and Imperial Bank (1)
10.11* Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc. (1)
10.12* Warrant to Purchase Shares of Common Stock of Chemdex dated March 24,
1999 between Chemdex and Galen Partners III, L.P. (1)
10.13* Warrant to Purchase Shares of Common Stock of Chemdex dated March 24,
1999 between Chemdex and Galen Partners International III, L.P. (1)
10.14* Warrant to Purchase Shares of Common Stock of Chemdex dated March 24,
1999 between Chemdex and Galen Employee Fund III, L.P. (1)
10.15* Electronic Commerce Agreement dated January 5, 1998 between Chemdex
and Genentech, Inc. (1)
10.16* Standstill Agreement dated April 23, 1999 between Chemdex and VWR
Scientific Products Corporation (1)
10.17* Strategic Relationship Agreement dated April 30, 1999 between Chemdex
and VWR Scientific Products Corporation (1)
10.18* Joint Marketing Agreement dated May 11, 1999 between Chemdex and
Biotechnology Industry Organization (1)
10.19* Payment Plan Agreement dated February 22, 1999 and related agreements
between Chemdex and Oracle Credit Corporation (1)
10.20* Warrant Purchase Agreement dated July 27, 1999 between Chemdex and
Alza Corporation (2)
10.21* Office Lease dated August 13, 1999 between Chemdex and Alza
Corporation for space located at 1000 Joaquin Road, Mountain View,
California.
10.22* Office Lease dated August 13, 1999 between Chemdex and Alza
Corporation for space located at 1500 and 15550 Plymouth Street,
Mountain View, California.
10.23* Voting Agreement dated September 21, 1999 between Chemdex and certain
stockholders of Promedix.com, Inc.
10.24* Employment Agreement dated September 21, 1999 between Chemdex and
William Klintworth
10.25* Change of Control Agreement dated September 21, 1999 between Chemdex
and William Klintworth
10.26* Affiliates Agreement dated September 21, 1999 between Chemdex and
certain directors of Promedix.com, Inc.
10.27* Secured Promissory Note and Agreement dated October 1, 1999 from
Promedix.com, Inc. to Chemdex and related Security Agreement.
10.28* Noncompetition Agreement dated September 21, 1999 between Chemdex and
William Klintworth
10.29* Employment Agreement dated December 10, 1999 between Chemdex and
Ashfaq Munshi
10.30* Employee Confidentiality and Inventions Agreement dated December 10,
1999 between Chemdex and Ashfaq Munshi
10.31* Change of Control Agreement dated December 10, 1999 between Chemdex
and Ashfaq Munshi
10.32* Noncompetition Agreement dated December 10, 1999 between Chemdex and
Ashfaq Munshi
10.33* Stock Restriction Agreement dated December 10, 1999 between Chemdex
and Ashfaq Munshi
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.34* Joint Venture Agreement dated as of December 10, 1999 by and between
Tenet Health System Medical, Inc. and Chemdex Corporation (3)
10.35* Form of Tenet/Newco Agreement by and among Tenet Health System
Medical, Inc., Tendex, Inc., Promedix.com, Inc. and Chemdex
Corporation (3)
10.36* Form of Chemdex License and Services Agreement by and among Chemdex
Corporation, Promedix.com, Inc., Tendex, Inc. and Tenet Health System
Medical, Inc. (3)
21.1* Subsidiaries of Chemdex
23.1 Consent of Venture Law Group, A Professional Corporation, with respect
to the legality of securities being registered (contained in Exhibit
5.1)
23.2 Consent of Venture Law Group, A Professional Corporation, with respect
to certain tax matters (contained in Exhibit 8.1)
23.3 Consent of Orrick, Herrington & Sutcliffe, with respect to certain tax
matters (contained in Exhibit 8.2)
23.4* Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Chemdex
23.5* Consent of Ernst & Young, Independent Auditors, with respect to the
financial statements of Promedix
23.6* Consent of Jones, Jensen & Company, Independent Auditors, with respect
to financial statements of Pro Med Co.
23.7* Consent of Morgan Stanley & Co. Incorporated
23.8* Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of SpecialtyMD
23.9 Consent of Wilson Sonsini Goodrich & Rosati, A Professional
Corporation with respect to certain tax matters (contained in Exhibit
8.3)
24.1* Power of Attorney (included on page II-5)
99.1* Form of Proxy Card for Special Meeting of Chemdex Stockholders
99.2* Form of Proxy Card for Special Meeting of Promedix Stockholders
99.3* Form of Proxy Card for Special Meeting of SpecialtyMD Stockholders
</TABLE>
- --------
* Previously Provided.
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August
16, 1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K dated December 10, 1999, as filed with
the Commission on January 4, 2000.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF VENTURE LAW GROUP]
January 4, 2000
Chemdex Corporation
1500 Plymouth Street
Mountain View, CA 94043
Registration Statement on Form S-4 (File No. 333-90727)
-------------------------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 (File No. 333-
90727) (the "Registration Statement") to be filed by you with the Securities and
----------------------
Exchange Commission on or about November 10, 1999, in connection with the
registration under the Securities Act of 1933 of shares of your Common Stock
(the "Shares"). As your legal counsel in connection with this transaction, we
------
have examined the proceedings taken and we are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that the Shares, when issued and sold in the manner
described in the Registration Statement, will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement and in any amendment to it.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/S/ VENTURE LAW GROUP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF VENTURE LAW GROUP]
January 4, 2000
Chemdex Corporation
1500 Plymouth Street
Mountain View, California 94043
Ladies and Gentlemen:
We have acted as counsel to Chemdex Corporation, a Delaware corporation
("Chemdex"), in connection with the preparation and execution of the Agreement
and Plan of Merger (the "Agreement") dated as of September 21, 1999, by and
---------
among Chemdex, Popcorn Acquisitions Corp., a Delaware corporation and a wholly-
owned subsidiary of Chemdex ("Sub"), and Promedix.com Inc., a Delaware
---
corporation ("Promedix"). Pursuant to the Agreement, Sub will merge with and
into Promedix (the "Merger"), and Promedix will become a wholly-owned subsidiary
------
of Chemdex. Unless otherwise defined, capitalized terms referred to herein have
the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
- -----
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon (without any independent investigation) the facts,
statements, descriptions and representations set forth in the Agreement
(including Exhibits), the registration statement on Form S-4 filed by Chemdex
with the Securities and Exchange Commission (which includes a proxy statement-
prospectus relating to the Merger) (the "Registration Statement"), and such
----------------------
other documents pertaining to the Merger as we have deemed necessary or
appropriate. We have also relied upon (without any independent investigation)
certificates of officers of Chemdex, Sub and Promedix, respectively (the
"Officers' Certificates").
- -----------------------
In connection with rendering this opinion, we have assumed (without any
independent investigation) that:
1. At all relevant times prior to and including the Effective Time,
(i) no outstanding indebtedness of Chemdex, Promedix, or Sub has or will
represent equity for tax purposes; (ii) no outstanding equity of Chemdex,
Promedix, or Sub has represented or will represent indebtedness for tax
purposes; (iii) no outstanding security, instrument, agreement or arrangement
that provides for, contains, or represents either a right to acquire Promedix's
capital
<PAGE>
Chemdex Corporation
January 4, 2000
Page 2
stock (or to share in the appreciation thereof) constitutes or will constitute
"stock" for purposes of Section 368(c) of the Code.
2. All corporations involved in the Merger are validly formed, and
legally obligated to perform under the Agreement and to make all required
filings with governmental agencies.
3. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof.
4. Any representation or statement referred to above made "to the
knowledge of," "to the best of the knowledge" or otherwise similarly qualified
is correct without such qualification. As to all matters in which a person or
entity making a representation referred to above has represented that such
person or entity either is not a party to, does not have, or is not aware of,
any plan, intention, understanding or agreement, there is in fact no such plan,
intention, understanding or agreement.
5. All statements, descriptions and representations contained in any
of the documents referred to herein or otherwise made to us are true and correct
in all material respects and will continue to be true and correct in all
material respects as of the Effective Time and all other relevant times, and no
actions have been (or will be) taken which are inconsistent with such
representations.
6. Each of Promedix and Chemdex will comply with all reporting
obligations with respect to the Merger required by the Code and the Treasury
Regulations thereunder and will report the Merger on their respective federal
income tax returns in a manner consistent with the opinion set forth below.
7. An opinion of counsel, substantially identical in substance to
this opinion, has been delivered to Promedix by Orrick, Herrington & Sutcliffe
LLP, and will not be withdrawn prior to the Effective Time.
8. The Agreement and all other documents and instruments referred to
in the Registration Statement are valid and binding in accordance with their
terms.
-2-
<PAGE>
Chemdex Corporation
January 4, 2000
Page 3
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein and in
the Registration Statement, the opinion ascribed to us in the Registration
Statement under the caption "The Chemdex/Promedix Merger - Certain Material U.S.
Federal Income Tax Consequences", except as otherwise indicated, represents our
opinion as to the principal U.S. federal income tax consequences of the Merger
under applicable law.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion concerning certain of the U.S. federal tax consequences
of the Merger is limited to the specific U.S. federal tax consequences presented
above, and does not address any other federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction (including
any transaction undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material provision thereof or if all of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at all
relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion is
incorrect, our opinion might be adversely affected and may not be relied upon.
We consent to the use of this opinion as an exhibit to the
Registration Statement, to references to this opinion in the Registration
Statement and to the use of our name in the Registration Statement under the
heading "Federal Income Tax Considerations" therein. In
-3-
<PAGE>
Chemdex Corporation
January 4, 2000
Page 4
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules or regulations promulgated thereunder. The filing of this
opinion as an exhibit to the Registration Statement and the references to the
opinion and our firm therein are not intended to create liability under
applicable state law to any person other than Chemdex, our client.
Very truly yours,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
-4-
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF ORRICK, HERRINGTON & SUTCLIFFE LLP]
January 4, 2000
Promedix.com, Inc.
448 East Winchester Avenue, Suite 200
Salt Lake City, UT 84107
Ladies and Gentlemen:
We have acted as your counsel in connection with the contemplated
merger (the "Merger") of Popcorn Acquisitions Corp. ("Merger Sub"), a Delaware
corporation and wholly-owned subsidiary of Chemdex Corporation ("Chemdex"), a
Delaware corporation, with and into Promedix.com, Inc. ("Promedix"), a Delaware
corporation, pursuant to an Agreement and Plan of Merger dated as of September
21, 1999, as amended (the "Merger Agreement") among Chemdex, Merger Sub and
Promedix. All capitalized terms used herein, unless otherwise specified, have
the meanings assigned to them in the Merger Agreement. This opinion is being
delivered to you in connection with the filing of a registration statement on
Form S-4 in the form filed with the Securities and Exchange Commission (the
"Registration Statement"), which includes the Proxy Statement and Prospectus
relating to the Merger.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in the Registration Statement, the Merger Agreement
and such other documents and corporate records as we have deemed necessary or
appropriate for purposes of this opinion. In addition, we have relied upon
certain statements, representations and agreements made by Promedix and Chemdex,
including representations set forth in the Officer's Certificates of Promedix
and Chemdex that were provided to us (the "Officers' Certificates"). Our
opinion is conditioned on, among other things, the initial and continuing
accuracy of the facts, information, covenants and representations set forth in
the documents referred to above and the statements, representations and
agreements made by Promedix, Chemdex and others, including those set forth in
the Officers' Certificates. We have no reason to believe that such facts,
information, covenants and representations are not true, but have not attempted
to verify them independently and expressly disclaim an opinion as to their
validity and accuracy.
In our examination, we have assumed (without any independent
investigation) that:
1. At all relevant times prior to and including the Effective Time,
(i) no outstanding indebtedness of Chemdex, Promedix, or Merger Sub has
represented or will represent equity for tax purposes; (ii) no outstanding
equity of Chemdex, Promedix, or Merger Sub has represented or will represent
indebtedness for tax purposes; (iii) no outstanding security, instrument,
agreement or arrangement that provides for, contains, or represents a right
either to acquire Promedix's capital stock or to share in the appreciation
thereof constitutes or will constitute "stock" for purposes of Section 368(c) of
the Code.
2. Original documents (including signatures thereto) are authentic,
documents submitted to us as certified or photostatic copies conform to the
original documents, and there has been (or will be by the Effective Time) due
execution and delivery of all documents where due execution and delivery are
prerequisites to the effectiveness thereof.
<PAGE>
Promedix.com, Inc.
January 4, 2000
Page 2
3. The transactions related to the Merger or contemplated by the Merger
Agreement will be consummated in accordance with such agreements and all
covenants contained in the Merger Agreement (including exhibits thereto) and the
Officers' Certificates will be performed without waiver or breach of any
material provision thereof.
4. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
5. The Merger qualifies as a statutory merger under the laws of the
State of Delaware.
6. The Merger Agreement and all other documents and instruments
referred to in the Registration Statement are valid and binding in accordance
with their terms.
The opinion expressed in this letter is based on the provisions of the
Internal Revenue Code of 1986, as amended, Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as in
effect as of the date hereof. All of the foregoing are subject to change,
perhaps with retroactive effect; any such change may require modification of the
opinion rendered herein. No ruling from the Internal Revenue Service (the
"IRS") has been or will be sought on any aspect of the Merger, and there can be
no assurance that the IRS will not take a contrary view. Although our opinion
expressed in this letter represents our best judgment as to such matter, our
opinion has no binding effect on the IRS or the courts.
Based upon and subject to the foregoing, and subject to the
qualifications set forth herein, we hereby confirm that the opinion ascribed to
us in the Registration Statement under the caption "The Chemdex/Promedix Merger
- -- Certain Material U.S. Federal Income Tax Consequences," except as otherwise
indicated, represents our opinion as to the principal U.S. federal income tax
consequences of the Merger under applicable law.
We express no opinions as to matters of law other than the matters of
federal income tax law specifically addressed hereby. We are furnishing this
opinion to you solely for the purpose of its inclusion as an exhibit to the
Registration Statement. It may not be relied upon for any other purpose or by
any other person or entity, and may not be made available to any other person or
entity without our prior written consent. The delivery of this opinion is not
intended to satisfy the condition to the closing of the Merger set forth in
Section 8.1(f) of the Merger Agreement.
We hereby consent to the use of our name wherever appearing in the
Registration Statement with respect to the discussion of the material federal
income tax consequences of the Merger and to the filing of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are
<PAGE>
Promedix.com, Inc.
January 4, 2000
Page 3
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder. We disclaim any obligation to update this opinion letter for events,
including changes of law, that occur or come to our attention after the date
hereof.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
EXHIBIT 8.3
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
January 4, 2000
SpecialtyMD.com Corporation
1510 Page Mill Road
Palo Alto, CA 94304
Ladies and Gentlemen:
We have acted as counsel to SpecialtyMD.com corporation, a Delaware
corporation (the "Company") in connection with the proposed merger (the
"Merger") among Chemdex Corporation, a Delaware corporation ("Parent"), Spinach
Acquisitions Corp., a Delaware corporation and wholly-owned transitory merger
subsidiary of Parent ("Merger Sub"), and the Company pursuant to an Agreement
and Plan of Merger dated as of December 10, 1999, (the "Merger Agreement"). The
Merger and certain proposed transactions incident thereto are described in the
Registration Statement on Form S-4 (the "Registration Statement") of Parent
which includes the Proxy Statement/Prospectus of the Company (the "Proxy
Statement/Prospectus"). This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended. Unless otherwise indicated, any capitalized terms used herein and not
otherwise defined have the meaning ascribed to them in the Proxy
Statement/Prospectus.
In connection with this opinion, we have examined and are familiar with the
Merger Agreement, the Registration Statement, and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
for purposes of our opinion. In addition, we have assumed (i) that the Merger
will be consummated in the manner contemplated by the Proxy Statement/Prospectus
and in accordance with the provisions of the Merger Agreement, (ii) the truth
and accuracy of the representations and warranties made by Parent, Merger Sub
and the Company in the Merger Agreement, and (iii) the truth and accuracy of the
certificates of representations to be provided to us by Parent, Merger Sub and
the Company and (iv) that none of the Company's debt will be considered to be
equity for tax purposes.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the Registration Statement under the caption "The
Chemdex/SpecialtyMD Merger --Certain Material United States Federal Income Tax
Consequences," subject to the limitations and qualifications described therein,
sets forth the material United States
<PAGE>
SpecialtyMD.com Corporation
January 4, 2000
Page 2
Federal income tax considerations generally applicable to the Merger. Because
this opinion is being delivered prior to the Effective Time of the Merger, it
must be considered prospective and dependent on future events. There can be no
assurance that changes in the law will not take place which could affect the
United States Federal income tax consequences of the Merger or that contrary
positions may not be taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as
Exhibit 8.3 to the Registration Statement. We also consent to the reference to
our firm name wherever appearing in the Registration Statement with respect to
the discussion of the material federal income tax consequences of the Merger,
including the Proxy Statement/Prospectus constituting a part thereof, and any
amendment thereto. In giving this consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
