<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1999
REGISTRATION NO. 333-73459
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DRKOOP.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7375 95-4697615
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8920 BUSINESS PARK DRIVE, SUITE 200
AUSTIN, TEXAS 78759
(512) 726-5110
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
C. EVERETT KOOP, M.D.
CHAIRMAN OF THE BOARD
DRKOOP.COM, INC.
8920 BUSINESS PARK DRIVE, SUITE 200
AUSTIN, TEXAS 78759
(512) 726-5110
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ANTHONY J. RICHMOND, ESQ. JEFFREY D. SAPER, ESQ.
HAROLD R. DEGRAFF, ESQ. PAUL R. TOBIAS, ESQ.
EILEEN M. FITZSIMMONS, ESQ. CAINE T. MOSS, ESQ.
LATHAM & WATKINS
135 COMMONWEALTH DRIVE WILSON SONSINI GOODRICH & ROSATI, P.C.
MENLO PARK, CALIFORNIA 94025 650 PAGE MILL ROAD
(650) 328-4600 PALO ALTO, CALIFORNIA 94304
---------------
(650) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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(c)
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $.001 par
value ................ $50,000,000 $13,900(3)
</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase solely
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the
registration fee.
(3) Previously paid.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 21, 1999
PROSPECTUS
SHARES
[LOGO OF DRKOOP APPEARS HERE]
DRKOOP.COM, INC.
COMMON STOCK
-------------
This is an initial public offering of shares of common stock of drkoop.com,
Inc. drkoop.com, Inc. is selling all of the shares of common stock offered
under this prospectus.
There is currently no public market for the shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the
symbol "KOOP." We anticipate that the initial public offering price will be
between $ and $ per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT RISKS THAT YOU SHOULD CONSIDER
CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price.............................................. $ $
Underwriting discounts and commissions............................. $ $
Proceeds, before expenses, to us................................... $ $
</TABLE>
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drkoop.com, Inc. has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock from us at the initial public offering
price less the underwriting discount. The underwriters expect to deliver the
shares against payment of the public offering price on , 1999.
-------------
BEAR, STEARNS & CO. INC.
WILLIAM BLAIR & COMPANY
WIT CAPITAL CORPORATION
as e-Manager(TM)
The date of this prospectus is , 1999
<PAGE>
Description of Artwork
Inside Front Cover Overleaf
Photograph of C. Everett Koop, M.D., with the following caption: "During my
tenure as U.S. Surgeon General, I saw first-hand the powerful impact a well-
informed public made on the nation's health. Now, the World Wide Web presents
exciting new opportunities to empower consumers to become active, informed
participants in managing their own healthcare. I firmly believe that the
Internet is the path to significantly improving the quality of healthcare for
years to come."
Inside Front Cover
Pictures of the drkoop.com logo and the logos of portals and other websites,
traditional media and healthcare organization affiliates.
Underneath the drkoop.com logo in the middle of the inside front cover is the
phrase "The Trusted Health Network" and a caption that reads as follows: "We
are an Internet-based consumer healthcare network that includes the interactive
website, www.drkoop.com. Our network provides users trusted healthcare content,
services and tools to better manage their health. Our network affiliates
include other Internet portals, websites, healthcare organizations and
traditional sources of health and medical news.
The following caption is under the logos of the new media affiliates: "We
distribute drkoop.com content to affiliated portals and other websites that
have established themselves as pathways for a broad variety of information. We
intend to affiliate with selected websites that have the potential to drive
traffic to our network and provide broad exposure to the drkoop.com brand."
The following caption is under the logos of the traditional media affiliates:
"Establishing affiliations with traditional media outlets allows for
collaboration in the delivery of quality healthcare content to a targeted
audience. Affiliates carry local, relevant information directly to a local
audience. Through this unique means of distribution, drkoop.com is building a
leading network of Internet-ready health content and editorial-based, breaking
health news."
The following caption is under the logos of the healthcare industry
affiliates: "We enroll hospitals and health systems as local affiliates through
our Community Partner Program. This enables healthcare organizations to
integrate the drkoop.com brand and content into their on-line initiatives.
Through this program, healthcare organizations can supply their patients with
on-line health resources and interactive capabilities that allow patients to
educate themselves and make informed decisions."
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail elsewhere
in this prospectus. In addition to this summary, we urge you to read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed under "Risk Factors," before you decide to buy our common stock.
drkoop.com
Our Business
Our company operates drkoop.com, an Internet-based consumer healthcare
network consisting of a consumer-focused interactive website and affiliate
relationships with Internet portals, certain other websites, healthcare
organizations and traditional media outlets. Our website, www.drkoop.com, is a
healthcare portal with the following components:
. dynamic healthcare content on a wide variety of subjects, including
information on acute ailments, chronic illnesses, nutrition, fitness and
wellness, and access to medical databases, publications, and real-time
medical news;
. interactive communities consisting of over 110 hosted chat support groups
and tools that permit users to personalize their on-line experience; and
. opportunities to purchase healthcare-related products and services on-
line.
We launched our website in July 1998 and by April 15, 1999 www.drkoop.com had
attracted over 4 million unique users and enrolled over 200,000 registered
users.
Our network affiliates provide easy access to the information and services we
offer on www.drkoop.com to their respective customers. We believe that we will
benefit from these affiliate relationships through:
. broader exposure of our brand;
. higher volumes of traffic being driven to www.drkoop.com; and
. a cost-effective method of acquiring and distributing local healthcare
content.
Our Market Opportunity
Healthcare is the largest segment of the U.S. economy, representing the
annual expenditure of roughly $1 trillion, and health and medical information
is one of the fastest growing areas of interest on the Internet. According to
Cyber Dialogue, an industry research firm, during the 12-month period ended
July 1998, approximately 17 million adults in the United States searched on-
line for health and medical information, and approximately 50% of these
individuals made off-line purchases after seeking information on the Internet.
Cyber Dialogue estimates that approximately 70% of the persons searching for
health and medical information on-line believe the Internet empowers them by
providing them with information before and after they go to a doctor's office.
Cyber Dialogue also estimates that the number of adults in the United States
searching for on-line health and medical information will grow to approximately
30 million in the year 2000, and they will spend approximately $150 billion for
all types of health-related products and services off-line.
Our Business Model
Our company's founders, including former U.S. Surgeon General Dr. C. Everett
Koop, created drkoop.com to empower consumers to better manage their personal
health with comprehensive, relevant and timely information. Our objective is to
establish the drkoop.com network as the most trusted and comprehensive source
of consumer healthcare information and services on the Internet. Our business
model is
3
<PAGE>
to earn advertising and subscription revenues from advertisers, merchants,
manufacturers and healthcare organizations who desire to reach a highly
targeted community of healthcare consumers on the Internet. We also earn
revenues by facilitating e-commerce transactions, such as sales of prescription
refills, vitamins and nutritional supplements, and insurance services offered
by outside parties.
OUR STRATEGY
Our business strategy incorporates the following key elements:
. establish the drkoop.com brand so that consumers associate the
trustworthiness and credibility of Dr. C. Everett Koop with our company;
. provide consumers with high quality healthcare content to attract users to
www.drkoop.com and promote their loyalty to our website;
. syndicate content through affiliates to promote traffic growth;
. develop and expand on-line healthcare communities to allow users with
similar health-related experiences to exchange information and gather
news and knowledge in a secure, anonymous environment;
. provide consumers with unique features and tools, such as one that
educates consumers on the interaction among various drugs and other
substances;
. deploy a comprehensive personal medical record which will allow users to
establish and maintain a lifelong record of their health and medical
information in a secure portion of our database;
. provide an attractive website that can deliver advertising in a highly
targeted manner, thereby commanding higher advertising rates; and
. facilitate e-commerce transactions offered by merchants, manufacturers
and service providers to a highly targeted community of health-conscious
consumers.
RECENT DEVELOPMENTS
On April 9, 1999 we entered into agreements with Infoseek Corporation and the
Buena Vista Internet Group, a unit of The Walt Disney Company, under which we
will be the exclusive provider of health and related content on three websites
of the Go Network, Go.com Health Center, ESPN.com Training Room and the
Family.com Health Channel. drkoop.com will also be the premier health content
provider for ABCnews.com. In addition, drkoop.com will be the exclusive
pharmacy and drugstore, health insurance and clinical trials partner in the
Go.com Health Center. In the event drkoop.com elects not to provide specific
content, it may be obtained from a third party. We believe that these
agreements will contribute substantially to our brand awareness and increase
traffic on our website. The term of these agreements is for three years,
although either party may elect to terminate the relationship after two years.
We will pay Infoseek and Buena Vista approximately $57.5 million in total
consideration.
----------------
Our principal executive offices are located at 8920 Business Park Drive,
Suite 200, Austin, Texas 78759, and our telephone number is (512) 726-5110.
4
<PAGE>
THE OFFERING
Common stock offered.... shares
Common stock
outstanding after this
offering ......... shares
Use of proceeds.........
We intend to use the net proceeds of this offering to
fund operating losses and for general corporate
purposes, including expansion of our network,
advertising, brand promotion, content development and
working capital. We may also use a portion of the
proceeds for strategic alliances and acquisitions and
to repay debt. See "Use of Proceeds."
Proposed Nasdaq
National
Market symbol.......... KOOP
- --------
The number of shares of common stock outstanding after this offering is based
on shares outstanding on March 31, 1999. This calculation excludes:
. 4,197,012 shares of common stock issuable upon exercise of options
outstanding under our Amended and Restated 1997 Stock Option Plan with a
weighted average exercise price of $1.33 per share (2,097,343 of these
options were exercisable as of March 31, 1999; the balance are subject
to future vesting requirements);
. 13,393 shares of common stock issuable upon exercise of warrants with an
exercise price of $11.95 per share;
. 310,000 shares of common stock issuable upon exercise of warrants with an
exercise price of $21.50 per share; and
. 127,500 shares of common stock issuable upon exercise of options to be
granted upon the closing of this offering with an exercise price equal to
the public offering price listed on the cover of this prospectus.
This calculation includes:
. 2,899,867 shares of common stock to be issued upon the conversion of all
outstanding shares of convertible preferred stock;
. 175,675 shares of common stock issuable assuming conversion of all
convertible notes outstanding at March 31, 1999 ($2.8 million aggregate
principal amount plus accrued interest); and
. 538,074 shares of common stock to be issued upon the closing of this
offering to satisfy in full a purchase option and related anti-dilution
adjustment rights.
Please see "Management--Stock Option Plans" and "Description of
Securities."
5
<PAGE>
Conventions Which Apply to this Prospectus
Unless we indicate otherwise, all information in this prospectus reflects the
following:
. a three-for-one stock split effected on March 5, 1999;
. no exercise by the underwriters of their overallotment option to purchase
up to additional shares of common stock;
. the conversion of all outstanding shares of our convertible preferred
stock into 2,899,867 shares of our common stock upon the closing of this
offering;
. the conversion of all convertible notes outstanding as of March 31, 1999
($2.8 million aggregate principal amount plus accrued interest) into
175,675 shares of common stock upon the closing of this offering; and
. the issuance of 538,074 shares of common stock to satisfy in full a
purchase option and related anti-dilution adjustment rights.
References in this prospectus to "drkoop.com," "we," "our" and "us" refer to
drkoop.com, Inc., a Delaware corporation. References to the offering refer to
the initial public offering of our common stock being made by this prospectus.
drkoop.com, Inc. was incorporated as a Texas corporation in July 1997 under the
name Personal Medical Records, Inc., changed its name to Empower Health
Corporation in April 1998 and reincorporated as drkoop.com, Inc., a Delaware
corporation, in March 1999. "drkoop.com," "Dr. Koop's Community" and "Dr.
Koop's Personal Medical Records" are trademarks of ours. Each trademark, trade
name or service mark of any other company appearing in this prospectus belongs
to its holder.
6
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from
Inception Three Months Ended
through Year Ended -----------------------------
December 31, 1997 December 31, 1998 March 31, 1998 March 31, 1999
----------------- ----------------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $ -- $ 43 $ -- $ 404
Loss from operations.. (622) (9,031) (709) (3,856)
Net loss.............. (622) (8,997) (709) (3,887)
Net loss attributable
to common
stockholders......... (622) (17,713) (709) (21,347)
Basic and diluted net
loss per common
share(1)............. $ (.23) $ (5.47) $ (.25) $ (6.23)
====== ======== ====== =======
Weighted average
shares outstanding
used in basic and
diluted net loss per
common share
calculation(1)....... 2,700 3,240 2,812 3,428
====== ======== ====== =======
Pro forma basic and
diluted net loss per
common share(1)(2)... $ (1.86) $ (.59)
======== =======
Weighted average
shares outstanding
used in pro forma
basic and diluted net
loss per common share
calculated(1)(2)..... 4,844 6,539
======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
--------------- -------------------------------------
Pro Forma
1997 1998 Actual Pro Forma(2) As Adjusted(3)
----- -------- -------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................ $ 8 $ -- $ 2,021 $ 2,021 $--
Working capital (defi-
cit)................. (649) (2,905) (3,038) (286) --
Total assets.......... 43 380 11,717 11,717 --
Convertible note pay-
able................. -- 451 2,741 -- --
Mandatorily redeemable
convertible
(Series B) preferred
stock................ -- 12,836 30,296 -- --
Total stockholders'
equity (deficit)..... (614) (15,423) (24,155) 8,893 --
</TABLE>
- --------
(1) Please see the financial statements and the notes to such statements
appearing elsewhere in this prospectus for the determination of shares used
in computing basic and diluted and pro forma basic and diluted net loss per
common share.
(2) Gives pro forma effect to the following:
. the conversion of all outstanding shares of our convertible preferred
stock into 2,899,867 shares of our common stock upon the closing of this
offering;
. the conversion of all convertible notes outstanding as of March 31, 1999
($2.8 million aggregate principal amount plus accrued interest) into
175,675 shares of common stock upon the closing of this offering; and
. the issuance of 538,074 shares of common stock to satisfy in full a
purchase option and related anti-dilution adjustment rights.
(3) As adjusted to give effect to the sale of shares of common stock offered by
us in this offering at an assumed initial public offering price of per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
7
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the other information contained in this prospectus, before you decide whether
to buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition would likely suffer. In
any such case, the market price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock.
Risks Related to Our Business
Our business is difficult to evaluate because we have an extremely limited
operating history.
We were incorporated in July 1997 and launched our Internet operations in
July 1998. Accordingly, we have an extremely limited operating history. An
investor in our common stock must consider the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets,
including the Internet market. These risks and difficulties include our ability
to:
. attract a larger audience of users to our Internet-based consumer
healthcare network;
. increase awareness of our brand;
. strengthen user loyalty and increase the number of registered users;
. offer compelling on-line content, services and e-commerce opportunities;
. maintain our current, and develop new, affiliate relationships;
. attract a large number of advertisers who desire to reach our users;
. respond effectively to the offerings of competitive providers of
healthcare information on the Internet;
. continue to develop and upgrade our technology; and
. attract, retain and motivate qualified personnel.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you
that our business strategy will be successful or that we will successfully
address these risks or difficulties. If we fail to address adequately any of
these risks or difficulties our business would likely suffer. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements for detailed information on our
extremely limited operating history.
We have a history of losses and negative cash flow and anticipate continued
losses.
Since our inception, we have incurred significant losses and negative cash
flow, and as of March 31, 1999, had an accumulated deficit of approximately
$21.7 million, which included $8.2 million for accretion to fair value of the
mandatory redeemable Series B convertible preferred stock. We have not achieved
profitability and expect to continue to incur operating losses for the
foreseeable future as we fund operating and capital expenditures in areas such
as expansion of our network, advertising, brand promotion, content development,
sales and marketing, and operating infrastructure. Our business model assumes
that consumers will be attracted to and use healthcare information and related
content available on our Internet-based consumer healthcare network which will,
in turn, allow us the opportunity to sell advertising designed to reach those
consumers. Our business model also assumes that those consumers will access
important healthcare needs through electronic commerce using our website and
that local healthcare organizations will affiliate with us. This business model
is not yet proven, and we cannot assure you that we will ever achieve or
sustain profitability or that our operating losses will not increase in the
future. We have received a report from our independent auditors for our fiscal
year ended December 31, 1998 containing an explanatory paragraph that describes
the uncertainty as to our ability to continue as a going concern due to our
historical negative cash flow and because, as of the date
8
<PAGE>
they rendered their opinion, we did not have access to sufficient committed
capital to meet our projected operating needs for at least the next twelve
months. Upon completion of this offering, we will have available that capital.
However, we cannot assure you that we will achieve profitable operations.
Please see "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
We must establish, maintain and strengthen our brand in order to attract users
to our network and generate advertising, sponsorship and e-commerce revenue.
In order to expand our audience of users and increase our on-line traffic, we
must establish, maintain and strengthen our brand. For us to be successful in
establishing our brand, healthcare consumers must perceive us as a trusted
source of healthcare information, and advertisers, merchants and manufacturers
must perceive us as an effective marketing and sales channel for their products
and services. We expect that we will need to increase substantially our
marketing budget in our efforts to establish brand recognition and brand
loyalty. Our business could be materially adversely affected if our marketing
efforts are not productive or if we cannot strengthen our brand.
In addition, a key element of our strategy to establish, maintain and
strengthen our brand is to encourage consumers to associate us with Dr. C.
Everett Koop. We believe that consumers consider Dr. C. Everett Koop to be a
trustworthy and credible leader in the healthcare field. We cannot assure you,
however, that Dr. C. Everett Koop will maintain this reputation, any damage to
which could materially adversely impact our business. In addition, if our
relationship with Dr. C. Everett Koop terminates for any reason, we would need
to change the name of our website and devote substantial resources towards
building a new marketing and brand strategy.
Key elements of our marketing and brand building strategies are dependent on
our relationship with Dr. C. Everett Koop.
A key element of our strategy is to associate our company with former U.S.
Surgeon General C. Everett Koop, Chairman of the Board of our company and a
person who we believe is viewed by consumers as a trustworthy and credible
leader in the healthcare field. We are a party to an agreement, dated January
5, 1999, as amended, with Dr. C. Everett Koop which permits us to use his
image, name and likeness in connection with healthcare-related services and
products. Under this agreement, our use of Dr. C. Everett Koop's name, image or
likeness is subject to his prior written approval of the resulting products,
which may not be unreasonably withheld. As consideration for the Koop
agreement, we are obligated to pay Dr. C. Everett Koop a royalty equal to 2% of
our revenues derived from sales of our current products and up to 4% of our
revenues derived from sales of new products during the term of the agreement,
including any rebranding period. The Koop agreement is exclusive and for a term
of five years, subject to automatic renewal for additional three-year terms
unless it is terminated by either party within 120 days of the end of each
term. If a voluntary termination is requested by Dr. C. Everett Koop and is not
the result of a breach or default by us, we will have the right on a non-
exclusive basis for three years following the end of the term to rebrand and
sell approved products bearing the name, image or likeness of Dr. C. Everett
Koop. If we default in our obligations and do not promptly cure the default,
Dr. C. Everett Koop may terminate the Koop agreement, no rebranding period will
apply and we would immediately lose all rights to use Dr. C. Everett Koop's
name and likeness. Dr. C. Everett Koop may also terminate the Koop agreement
upon a change in control of our company.
If our agreement with Dr. C. Everett Koop were terminated prior to the end of
its current term or not renewed at the end of its current term, we would need
to change the name of our website and devote substantial resources towards
building a new marketing and brand strategy. Without our ability to use
Dr. C. Everett Koop's name and likeness or Dr. C. Everett Koop's participation
in our business, we may not be able to continue to attract a significant amount
of user traffic and advertisers to our website. The potential also exists that
if Dr. C. Everett Koop ends his affiliation with our company, we could suffer a
significant loss of credibility and trust with healthcare consumers as a
result. Any development that would cause Dr. C. Everett
9
<PAGE>
Koop to exercise his right to terminate his relationship with our company or
which otherwise would cause us to lose the benefits of our affiliation with him
would have a material adverse effect on our business, results of operation and
financial condition. We do not maintain "key person" life insurance for Dr. C.
Everett Koop or any of our personnel. Please see "Management--Agreements with
Dr. C. Everett Koop."
In order to execute our growth plan we must attract, retain and motivate highly
skilled employees, and we face significant competition from other Internet and
new media companies in doing so.
Our ability to execute our growth plan and be successful also depends on our
continuing ability to attract, retain and motivate highly skilled employees. In
addition to Dr. C. Everett Koop, Chairman of the Board, we depend on the
continued services of key board members, our senior management and other
personnel, particularly Donald W. Hackett, Chief Executive Officer. As we
continue to grow, we will need to hire additional personnel in all operational
areas. Competition for personnel throughout the Internet and related new-media
industry is intense. We may be unable to retain our key employees or attract,
assimilate or retain other highly qualified employees in the future. We have
from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. If we do not succeed in attracting
new personnel or retaining and motivating our current personnel, our business
will be adversely affected. Please see "Management" for detailed information on
our key personnel.
We have committed significant financial and marketing resources to expand our
network.
In order to expand our network, we have entered into a number of strategic
partnerships which involve the payment of significant funds for prominent or
exclusive carriage of our healthcare information and services. For example, on
April 9, 1999 we entered into agreements with Infoseek Corporation and the
Buena Vista Internet Group, a unit of The Walt Disney Company, under which we
will be the exclusive provider of health and related content on three websites
of the Go Network. drkoop.com will also be the premier health content provider
for ABCnews.com. The term of these agreements is for three years for total
consideration of approximately $57.5 million. These transactions are premised
on the assumption that the traffic we obtain from these arrangements will
permit us to earn revenues in excess of the payments made to partners. This
assumption is not yet proven.
In order to attract and retain our audience of users, we must provide
healthcare content, tools and other features which meet the
changing demands of those users.
One of our fundamental business objectives is for drkoop.com to be a trusted
source for healthcare information and services. As with any form of consumer-
oriented media, we have to provide editorial content, interactive tools and
other features that consumers demand in order to continue to attract and retain
our audience of users. We expect that competitive factors will create a
continuing need for us to retain, improve and add to our editorial content,
interactive tools and other features. We will not only have to expend
significant funds and other resources to continue to improve our network, but
we must also properly anticipate and respond to consumer preferences and
demands. Competition for content will likely increase the fees charged by high
quality content providers. The addition of new features will also require that
we continue to improve the technology underlying our website. These
requirements are significant, and we may fail to execute on them quickly and
efficiently. If we fail to expand the breadth of our offerings quickly, or
these offerings fail to achieve market acceptance, our business will suffer
significantly.
Our business model relies on Internet advertising and sponsorship activities
which may not be effective or profitable marketing media.
Our future is highly dependent on increased use of the Internet as an
advertising medium. We expect to derive a substantial amount of our revenues
from advertising and sponsorships. The Internet advertising market is new and
rapidly evolving, and we cannot yet predict its effectiveness as compared to
traditional media
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advertising. As a result, demand and market acceptance for Internet advertising
solutions are uncertain. Most of our current or potential advertising customers
have little or no experience advertising over the Internet and have allocated
only a limited portion of their advertising budgets to Internet advertising.
The adoption of Internet advertising, particularly by those entities that have
historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Such customers may find Internet advertising
to be less effective for promoting their products and services relative to
traditional advertising media. We cannot assure you that the market for
Internet advertising will continue to emerge or become sustainable. If the
market for Internet advertising fails to develop or develops more slowly than
we expect, then our ability to generate advertising revenue would be materially
adversely affected.
Various pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenues. Our advertising revenues could be adversely affected if we are unable
to adapt to new forms of Internet advertising. Moreover, "filter" software
programs are available that limit or prevent advertising from being delivered
to an Internet user's computer. Widespread adoption of this software could
adversely affect the commercial viability of Internet advertising.
We have a very limited operating history and our business is changing rapidly,
which could cause our quarterly operating results to vary and our stock price
to fluctuate.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. If we
have a shortfall in revenue in relation to our expenses, or if our expenses
precede increased revenues, then our business would be materially adversely
affected. This would likely affect the market price of our common stock in a
manner which may be unrelated to our long-term operating performance.
Important factors which could cause our results to fluctuate materially
include:
. our ability to attract and retain users;
. our ability to attract and retain advertisers and sponsors and maintain
advertiser and sponsor satisfaction;
. traffic levels on our Internet site;
. our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce offerings;
. new Internet sites, services or products introduced by us or our
competitors;
. the level of Internet and other on-line services usage;
. our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
. our ability to successfully integrate operations and technologies from
any acquisitions, joint ventures or other business combinations or
investments; and
. technical difficulties or system downtime affecting the operation of our
website.
Our revenues for the foreseeable future will remain dependent on user traffic
levels, advertising and e-commerce activity on drkoop.com and the level of
affiliate subscriptions. Such future revenues are difficult to forecast. In
addition, we plan to increase our sales and marketing operations, expand and
develop content and upgrade and enhance our technology and infrastructure
development in order to support our growth. Many of the expenses associated
with these activities--for example, personnel costs and technology and
infrastructure costs--are relatively fixed in the short-term. We may be unable
to adjust spending quickly enough to offset any unexpected revenue shortfall,
in which case our results of operations would suffer.
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We believe that advertising sales in traditional media, such as television
and radio, generally are lower in the first and third calendar quarters of each
year. If our market makes the transition from an emerging to a more developed
market, seasonal and cyclical patterns may develop in our industry. Seasonal
and cyclical patterns in Internet advertising affect our revenues. Given the
early stage of the development of the Internet and our company, however, we
cannot predict to what extent, if at all, our operations will prove to be
seasonal.
Due to the factors noted above and the other risks discussed in this section,
you should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance. It is possible that in some
future periods our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock may
underperform or fall. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We depend on third-party relationships, many of which are short-term or
terminable, to generate advertising and provide us with content.
We depend, and will continue to depend, on a number of third-party
relationships to increase traffic on drkoop.com and thereby generate
advertising and other revenues. Outside parties on which we depend include
unrelated website operators that provide links to drkoop.com, providers of
healthcare content and the on-line property representation company which
provides us with advertising sales services. Many of our arrangements with
third-party Internet sites and other third-party service providers are not
exclusive and are short-term or may be terminated at the convenience of either
party. We cannot assure you that third parties regard our relationship with
them as important to their own respective businesses and operations. They may
reassess their commitment to us at any time in the future and may develop their
own competitive services or products.
We intend to produce only a portion of the healthcare content that will be
found on the drkoop.com network. We will rely on third-party organizations that
have the appropriate expertise, technical capability, name recognition,
reputation for integrity, and willingness to syndicate product content for
branding and distribution by others. As health-related content grows on the
Internet, we believe that there will be increasing competition for the best
product suppliers, which may result in a competitor acquiring a key supplier on
an exclusive basis, or in significantly higher content prices. Such an outcome
could make the drkoop.com network less attractive or useful for an end user
which could reduce our advertising and e-commerce revenues.
We cannot assure you that we will be able to maintain relationships with
third parties that supply us with content, software or related products or
services that are crucial to our success, or that such content, software,
products or services will be able to sustain any third-party claims or rights
against their use. Also, we cannot assure you that the content, software,
products or services of those companies that provide access or links to our
website will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful product or service offerings or the
generation of significant revenues for us.
We must efficiently manage the growth of our business.
We have experienced and are currently experiencing a period of significant
growth. This growth has placed, and the future growth we anticipate in our
operations will continue to place, a significant strain on our resources. As
part of this growth, we will have to implement new operational and financial
systems and procedures and controls, expand, train and manage our employee
base, and maintain close coordination among our technical, accounting, finance,
marketing, sales and editorial staffs. If we are unable to manage our growth
effectively, our business, results of operations and financial condition could
be adversely affected.
Several members of our senior management joined us in 1998 or early 1999,
including Dennis J. Upah, Chief Operating Officer, and Susan M. Georgen-Saad,
Chief Financial Officer. These individuals are currently becoming integrated
with the other members of our management team. We cannot assure you that our
management team will be able to work together effectively or successfully
manage our growth. We believe that
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the successful integration of our management team is critical to our ability to
effectively manage our operations and support our anticipated future growth.
We face risks associated with potential acquisitions, investments or other
ventures we may undertake.
We may acquire or make investments in complementary businesses, technologies,
services or products if appropriate opportunities arise. From time to time we
have had discussions and negotiations with companies regarding our acquiring or
investing in such companies' businesses, products, services or technologies,
and we regularly engage in such discussions and negotiations in the ordinary
course of our business. Some of those discussions also contemplate the other
party making an investment in our company. To date we have entered into such
relationships with Superior Consultant Holdings Corporation and HealthMagic,
Inc. We cannot assure you that we will be able to identify future suitable
acquisition or investment candidates, or if we do identify suitable candidates,
that we will be able to make such acquisitions or investments on commercially
acceptable terms or at all. If we acquire or invest in another company, we
could have difficulty in assimilating that company's personnel, operations,
technology and software. In addition, the key personnel of the acquired company
may decide not to work for us. If we make other types of acquisitions, we could
have difficulty in integrating the acquired products, services or technologies
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations. Furthermore, we may incur indebtedness or
issue equity securities to pay for any future acquisitions. The issuance of
equity securities would be dilutive to our existing stockholders. As of the
date of this prospectus, we have no agreement to enter into any material
investment or acquisition transaction.
Our platform infrastructure and its scalability are not proven.
Presently, a relatively limited number of consumers use our website. We must
continue to expand and adapt our network infrastructure to accommodate
additional users, increase transaction volumes and changing consumer and
customer requirements. We may not be able to accurately project the rate or
timing of increases, if any, in the use of our website or to expand and upgrade
our systems and infrastructure to accommodate such increases. Our systems may
not accommodate increased use while maintaining acceptable overall performance.
Service lapses could cause our users to instead use the on-line services of our
competitors.
Many of our service agreements, such as those with our Community Partners,
contain performance standards. If we fail to meet these standards, our
customers could terminate their agreements with us or require that we refund
part or all of the license fees. The loss of any of our service agreements
and/or associated revenue would directly and significantly impact our business.
We may be unable to expand or adapt our network infrastructure to meet
additional demand or our customers' changing needs on a timely basis, at a
commercially reasonable cost, or at all.
We may have liability for information we provide on our website or which is
accessed from our website.
Because users of our website access health content and services relating to a
condition they may have or may distribute our content to others, third parties
may sue us for defamation, negligence, copyright or trademark infringement,
personal injury or other matters. We could also become liable if confidential
information is disclosed inappropriately. These types of claims have been
brought, sometimes successfully, against on-line services in the past. Others
could also sue us for the content and services that are accessible from our
website through links to other websites or through content and materials that
may be posted by our users in chat rooms or bulletin boards. While our
agreements, including those with content providers, in some cases provide that
we will be indemnified against such liabilities, such indemnification, if
available, may not be adequate. Our insurance may not adequately protect us
against these types of claims. Further, our business is based on establishing
the drkoop.com network as a trustworthy and dependable provider of healthcare
information and services. Allegations of impropriety, even if unfounded, could
therefore have a material adverse effect on our reputation and our business.
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Any failure or inability to protect our intellectual property rights could
adversely affect our ability to establish our brand.
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
Federal registrations are pending for the trademark "drkoop.com," as well as
other service and trademarks which incorporate the Dr. Koop name. Our right to
use the Dr. Koop name is granted to us under an agreement with Dr. C. Everett
Koop. If we lose our right to use the Dr. Koop name, we would be forced to
change our corporate name and adopt a new domain name. These changes could
confuse current and potential customers and would adversely impact our
business.
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
some foreign countries do not protect proprietary rights as well as the laws of
the United States, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation could be time-consuming and costly.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our
website overlaps with competitive offerings. Defending against these claims,
even if not meritorious, could be expensive and divert our attention from
operating our company. If we become liable to third parties for infringing
their intellectual property rights, we could be required to pay a substantial
damage award and forced to develop noninfringing technology, obtain a license
or cease selling the applications that contain the infringing technology. We
may be unable to develop noninfringing technology or obtain a license on
commercially reasonable terms, or at all.
We also rely on a variety of technologies that are licensed from third
parties, including our database and Internet server software, which is used in
the drkoop.com website to perform key functions. These third-party licenses may
not be available to us on commercially reasonable terms in the future. The loss
of or inability to maintain any of these licenses could delay the introduction
of software enhancements, interactive tools and other features until equivalent
technology could be licensed or developed. Any delay could materially adversely
affect our ability to attract and retain users.
We face possible Year 2000 risks.
Because our business depends on computer software, we have begun to assess
the Year 2000 readiness of our systems. We are also in the process of
contacting certain third-party vendors, licensors and providers of hardware,
software and services regarding their Year 2000 readiness. Following our Year
2000 assessment and after contacting these third parties, we will be able to
make an evaluation of our state of readiness, potential risks and costs, and to
determine to what extent a contingency plan is necessary. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000."
We do not expect to pay dividends.
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future. Investors should not purchase our common stock with the expectation of
receiving cash dividends.
Anti-takeover provisions in our charter, Delaware law and contracts to which we
are a party could make a third-party acquisition difficult.
Certain provisions of our certificate of incorporation, our bylaws, Delaware
law and contracts to which we are party could make it more difficult for a
third party to acquire us, even if doing so might be beneficial to our
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stockholders. Please see "Management--Agreements with Dr. C. Everett Koop" and
"Description of Securities."
Our business may face additional risks and uncertainties not presently known to
us.
In addition to the risks specifically identified in this Risk Factors section
or elsewhere in this prospectus, we may face additional risks and uncertainties
not presently known to us or that we currently deem immaterial which ultimately
impair our business, results of operations and financial condition.
Risks Related to Our Industry
Consumers and the healthcare industry must accept the Internet as a source of
healthcare content and services for our business model to be successful.
To be successful, we must attract to our network a significant number of
consumers as well as other participants in the healthcare industry. To date,
consumers have generally looked to healthcare professionals as their principal
source for health and wellness information. Our business model assumes that
consumers will be attracted to and use healthcare information and related
content available on our Internet-based consumer healthcare network which will,
in turn, allow us the opportunity to sell advertising designed to reach those
consumers. Our business model also assumes that those users will access
important healthcare needs, such as pharmacy sales, insurance purchases and
other goods and services, through electronic commerce using our website, and
that local healthcare organizations will affiliate with us. This business model
is not yet proven, and we cannot assure you that it will be successful or, if
so, that we will be able to successfully implement this business model in this
market.
The Internet industry is highly competitive and changing rapidly, and we may
not have the resources to compete adequately.
The number of Internet websites offering users healthcare content, products
and services is vast and increasing at a rapid rate. These companies compete
with us for users, advertisers, e-commerce transactions and other sources of
on-line revenue. In addition, traditional media and healthcare providers
compete for consumers' attention both through traditional means as well as
through new Internet initiatives. We believe that competition for healthcare
consumers will continue to increase as the Internet develops as a communication
and commercial medium.
We compete directly for users, advertisers, e-commerce merchants, syndication
partners and other affiliates with numerous Internet and non-Internet
businesses, including:
. health-related on-line services or websites targeted at consumers, such
as accesshealth.com, ahn.com, betterhealth.com, drweil.com,
healthcentral.com, healthgate.com, intelihealth.com, mayohealth.org;
mediconsult.com, onhealth.com, thriveonline.com and webmd.com;
. on-line and Internet portal companies, such as America Online, Inc.;
Microsoft Network; Yahoo! Inc.; Excite, Inc.; Lycos Corporation and
Infoseek Corporation;
. electronic merchants and conventional retailers that provide healthcare
goods and services competitive to those available from links on our
website;
. hospitals, HMOs, managed care organizations, insurance companies and
other healthcare providers and payors which offer healthcare information
through the Internet; and
. other consumer affinity groups, such as the American Association of
Retired Persons, SeniorNet and ThirdAge Media, Inc. which offer
healthcare-related content to specific demographic groups.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to our company, including:
. the ability to offer a wider array of on-line products and services;
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. larger production and technical staffs;
. greater name recognition and larger marketing budgets and resources;
. larger customer and user bases; and
. substantially greater financial, technical and other resources.
To be competitive, we must respond promptly and effectively to the challenges
of technological change, evolving standards and our competitors' innovations by
continuing to enhance our products and services, as well as our sales and
marketing channels. Increased competition could result in a loss of our market
share or a reduction in our prices or margins. Competition is likely to
increase significantly as new companies enter the market and current
competitors expand their services. Please see "Business--Competition."
Since we operate an Internet-based network, our business is subject to
government regulation relating to the Internet.
Because of the increasing use of the Internet as a communication and
commercial medium, the government has adopted and may adopt additional laws and
regulations with respect to the Internet covering such areas as user privacy,
pricing, content, taxation, copyright protection, distribution and
characteristics and quality of production and services. For a description of
risks associated with governmental regulation relating to the Internet, please
see "Business--Governmental Regulation."
Since we operate a healthcare network over the Internet, our business is
subject to government regulation specifically relating to medical devices, the
practice of medicine and pharmacology, healthcare regulation, insurance and
other matters unique to the healthcare area.
Laws and regulations have been or may be adopted with respect to the
provision of healthcare-related products and services on-line, covering areas
such as:
. the regulation of medical devices;
. the practice of medicine and pharmacology and the sale of controlled
products such as pharmaceuticals on-line;
.the regulation of government and third-party cost reimbursement; and
.the regulation of insurance sales.
FDA Regulation of Medical Devices. Some computer applications and software
are considered medical devices and are subject to regulation by the United
States Food and Drug Administration. We do not believe that our current
applications or services will be regulated by the FDA; however, our
applications and services may become subject to FDA regulation. Additionally,
we may expand our application and service offerings into areas that subject us
to FDA regulation. We have no experience in complying with FDA regulations. We
believe that complying with FDA regulations would be time consuming, burdensome
and expensive and could delay or prevent our introduction of new applications
or services.
Regulation of the Practice of Medicine and Pharmacology. The practice of
medicine and pharmacology requires licensing under applicable state law. We
have endeavored to structure our website and affiliate relationships to avoid
violation of state licensing requirements, but a state regulatory authority may
at some point allege that some portion of our business violates these statutes.
Any such allegation could result in a material adverse effect on our business.
Further, any liability based on a determination that we engaged in the practice
of medicine without a license may be excluded from coverage under the terms of
our current general liability insurance policy.
Federal and State Healthcare Regulation. We earn a service fee when users on
our website purchase prescription pharmacy products from certain of our e-
commerce partners. The fee is not based on the value of the sales transaction.
Federal and state "anti-kickback" laws prohibit granting or receiving referral
fees in connection with sales of pharmacy products that are reimbursable under
federal Medicare and Medicaid
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programs and other reimbursement programs. Although there is uncertainty
regarding the applicability of these regulations to our e-commerce revenue
strategy, we believe that the service fees we receive from our e-commerce
partners are for the primary purpose of marketing and do not constitute
payments that would violate federal or state "anti-kickback" laws. However, if
our program were deemed to be inconsistent with federal or state law, we could
face criminal or civil penalties. Further, we would be required either not to
accept any transactions which are subject to reimbursement under federal or
state healthcare programs or to restructure our compensation to comply with any
applicable anti-kickback laws or regulations. In addition, similar laws in
several states apply not only to government reimbursement but also to
reimbursement by private insurers. If our activities were deemed to violate any
of these laws or regulations, it could cause a material adverse affect on our
business, results of operations and financial condition.
State Insurance Regulation. In addition, we market insurance on-line, offered
by unrelated third parties, and receive referral fees from those providers in
connection with this activity. The use of the Internet in the marketing of
insurance products is a relatively new practice. It is not clear whether or to
what extent state insurance licensing laws apply to our activities. If we were
required to comply with such licensing laws, compliance could be costly or not
possible. This could have a material adverse effect on our business. Please see
"Business--Government Regulation."
There is no established market for the consumer healthcare e-commerce
transactions we facilitate.
We plan to develop relationships with retailers, manufacturers and other
providers to offer healthcare products and services through direct links from
our website to their website. Such a strategy involves numerous risks and
uncertainties. There is no established business model for the sale of
healthcare products or services over the Internet. Accordingly, we have limited
experience in the sale of products and services on-line and the development of
relationships with retailers, manufacturers or other providers of such products
and services, and we cannot predict the rate at which consumers will elect to
engage in this form of commerce or the compensation that we will receive for
enabling these transactions.
Consumers may sue us if any of the products or services that are sold through
our website are defective, fail to perform properly or injure the user, even if
such goods and services are provided by unrelated third parties. Some of our
agreements with manufacturers, retailers and other providers contain provisions
intended to limit our exposure to liability claims. These limitations may not
however prevent all potential claims, and our insurance may not adequately
protect us from these types of claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages.
As a result, any such claims, whether or not successful, could seriously damage
our reputation and our business.
Internet capacity constraints may impair the ability of consumers to access our
website.
Our success will depend, in large part, upon a robust communications industry
and infrastructure for providing Internet access and carrying Internet traffic.
The Internet may not prove to be a viable commercial medium because of:
. inadequate development of the necessary infrastructure such as a reliable
network backbone;
. timely development of complementary products such as high speed modems;
. delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity; or
. increased government regulation.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it.
Our business is dependent on the continuous, reliable and secure operation of
our website and related tools and functions we provide.
We rely on the Internet and, accordingly, depend upon the continuous,
reliable and secure operation of Internet servers and related hardware and
software. Recently, several large Internet commerce companies have
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suffered highly publicized system failures which resulted in adverse reactions
to their stock prices, significant negative publicity and, in certain
instances, litigation. We have also suffered service outages from time to time,
although to date none of these interruptions has materially adversely effected
our business operations or financial condition. To the extent that our service
is interrupted, our users will be inconvenienced, our commercial customers will
suffer from a loss in advertising or transaction delivery and our reputation
may be diminished. Some of these outcomes could directly result in a reduction
in our stock price, significant negative publicity and litigation. Our computer
and communications hardware are protected through physical and software
safeguards. However, they are still vulnerable to fire, storm, flood, power
loss, telecommunications failures, physical or software break-ins and similar
events. We do not have full redundancy for all of our computer and
telecommunications facilities and do not maintain a back-up data facility. Our
business interruption insurance may be inadequate to protect us in the event of
a catastrophe. We also depend upon third parties to provide potential users
with web browsers and Internet and on-line services necessary for access to our
website. In the past, our users have occasionally experienced difficulties with
Internet and other on-line services due to system failures, including failures
unrelated to our systems. Any sustained disruption in Internet access provided
by third parties could adversely impact our business.
We retain confidential customer information in our database. Therefore, it is
critical that our facilities and infrastructure remain secure and are perceived
by consumers to be secure. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors or similar disruptive problems. A material security breach
could damage our reputation or result in liability to us.
Risks Related to This Offering
Investors will be relying on our management's judgment regarding the use of
proceeds from this offering.
Our management will have broad discretion with respect to the use of the net
proceeds from this offering, and investors will be relying on the judgment of
our management regarding the application of these proceeds. Presently,
anticipated uses include the funding of operating losses and for general
corporate purposes, including expansion of our network, advertising, brand
promotion, content development and working capital. We may also use a portion
of the proceeds for strategic alliances and acquisitions and to repay debt. We
have not yet determined the amount of net proceeds to be used specifically for
each of the foregoing purposes. Please see "Use of Proceeds."
The liquidity of our common stock is uncertain since it has not been publicly
traded.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. Please see "Underwriting."
Our need for additional financing is uncertain as is our ability to raise
further financing if required.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may need to raise additional funds,
however, to respond to business contingencies which may include the need to:
. fund more rapid expansion;
. fund additional marketing expenditures;
. develop new or enhance existing editorial content, features or services;
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. enhance our operating infrastructure;
. respond to competitive pressures; or
. acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
and these newly-issued securities may have rights, preferences or privileges
senior to those of existing stockholders, including those acquiring shares in
this offering. We cannot assure you that additional financing will be available
on terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our operations, take
advantage of unanticipated opportunities, develop or enhance editorial content,
features or services, or otherwise respond to competitive pressures would be
significantly limited. Please see "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Market prices of emerging Internet companies have been highly volatile, and the
market for our stock may exhibit volatility as well.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been extremely volatile. Recent initial public
offerings by Internet companies have been accompanied by exceptional share
price and trading volume changes in the first days and weeks after the
securities were released for public trading. Investors may not be able to
resell their shares at or above the initial public offering price. Please see
"Underwriting." In the past, following periods of volatility in the market
price of a public company's securities, securities class action litigation has
often been instituted against that company. Such litigation could result in
substantial costs and a diversion of management's attention and resources.
We have negative net book value for accounting purposes, and new investors will
suffer immediate and substantial dilution in the tangible net book value of
their shares.
Investors who purchase common stock in this offering will suffer immediate
and significant dilution in the tangible net book value of their investment.
That is, after this offering the excess of the tangible assets of drkoop.com
over its liabilities calculated on a per share basis will be less than the
purchase price paid for those shares by investors in this offering. Please see
"Dilution" for a summary of this dilution.
There will be a significant number of shares eligible for future sale and sales
of these shares, or expectations of the trading market regarding the sale of
these shares, could depress share prices.
The market price of our common stock could decline as a result of sales of a
large number of shares of common stock in the market after this offering, or
the perception that such sales could occur. Such sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. After this offering, we will have outstanding
shares of common stock. Of these shares, the shares being offered hereby
will be freely tradeable. Subject to compliance with the lock-up agreements
described in "Underwriting," this leaves shares eligible for sale in the
public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<C> <S>
After the date of this prospectus
Upon the filing of a registration statement to register for
resale shares of common stock issuable upon the exercise of
options granted under our stock option plan
At various times after 90 days from the date of this
prospectus (Rule 144)
After 180 days from the date of this prospectus (subject, in
some cases, to volume limitations)
At various times after 180 days from the date of this
prospectus (Rule 144)
</TABLE>
19
<PAGE>
Many corporate actions will be controlled by officers, directors and affiliated
entities regardless of the opposition of other investors or the desire of other
investors to pursue an alternative cause of action.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this offering. These stockholders will, if they act together, be able
to exercise control over most matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of our company, which could have a
material adverse effect on our stock price. These actions may be taken even if
they are opposed by the other investors, including those who purchase shares in
this offering. Please see "Management" and "Principal Stockholders."
Forward-looking statements contained in this prospectus may not be realized.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risks faced
by us described above and elsewhere in this prospectus. We undertake no
obligation after the date of this prospectus to update publicly any forward-
looking statements for any reason, even if new information becomes available or
other events occur in the future.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to our company from the sale of the shares offered hereby
(after deducting underwriting discounts and estimated offering expenses) are
estimated to be approximately $ ($ if the underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of $
per share.
We intend to use the net proceeds of this offering to fund operating losses
and for general corporate purposes, including expansion of our network,
advertising, brand promotion, content development and working capital. We may
also use a portion of the proceeds for strategic alliances and acquisitions and
to repay debt.
As of March 31, 1999, we had outstanding $2.8 million in principal amount of
convertible notes and held binding commitments which would permit us to issue
up to $3.5 million in additional convertible notes. Upon the completion of this
offering, $2.0 million principal amount of the notes that have been issued are,
at the option of each holder, convertible into common stock at a conversion
price of $18.57 per share or redeemable for the principal amount plus accrued
and unpaid interest at the rate of 7.0% per annum. For purposes of this
prospectus, we have assumed that all outstanding notes are converted into
common stock and thus do not require repayment in cash. To the extent any
holder elects to receive cash, this will represent a use of the proceeds of
this offering.
We have not yet determined the amount of net proceeds to be used specifically
for each of the foregoing purposes. Accordingly, management will have
significant flexibility in applying the net proceeds of this offering. Pending
any such use, as described above, we intend to invest the net proceeds in high
quality, interest-bearing instruments. See "Risk Factors--We face risks
associated with potential acquisitions, investments or other ventures" and "--
Investors will be relying on our management's judgment regarding the use of
proceeds from this offering."
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
inception and do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business. Investors should not purchase our common stock with
the expectation of receiving cash dividends.
21
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1999, the capitalization of
our company
. on an actual basis;
. on a pro forma basis to reflect automatic conversion of all outstanding
convertible preferred stock and convertible notes into shares of common
stock upon the closing of this offering, and other issuances of common
stock related to the termination of a purchase option; and
. on a pro forma as adjusted basis to give effect to the sale of the
shares offered hereby at an assumed initial public offering price of $
per share, after deducting underwriting discounts and the estimated
offering expenses.
This information should be read in conjunction with our financial statements
and the notes relating to such statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
-------- ------------ --------------
(dollars in thousands)
<S> <C> <C> <C>
-------- -------- ----
Convertible notes payable................ $ 2,741 $ -- $--
-------- -------- ----
Accrued interest, convertible notes...... 11 -- --
--------
Mandatorily redeemable Series B
convertible preferred stock............. 30,296 -- --
-------- -------- ----
Series A convertible preferred stock,
$.001 par value; 300,000 shares
designated; 247,641 shares issued and
outstanding actual; no shares issued and
outstanding pro forma or pro forma as
adjusted................................ -- -- --
Series C convertible preferred stock,
$.001 par value; 1,200,000 shares
designated; 1,046,271 shares issued and
outstanding actual; no shares issued and
outstanding pro forma or pro forma as
adjusted................................ 1 -- --
Common stock, $.001 par value, 25,000,000
shares authorized; 3,642,221 shares
issued and outstanding actual; 7,255,838
shares issued and outstanding pro forma;
and shares issued and outstanding
pro forma as adjusted................... 4 7
Additional paid-in capital............... -- 33,106
Deferred stock compensation.............. (2,475) (2,475)
Accumulated deficit...................... (21,685) (21,745)
-------- -------- ----
Total stockholders' (deficit) equity... (24,155) 8,893
-------- -------- ----
Total capitalization.................. $ 8,893 $ 8,893 $
======== ======== ====
</TABLE>
- --------
(1) Gives pro forma effect to the following:
. the conversion of all outstanding shares our convertible preferred stock
into 2,899,867 shares of our common stock upon the closing of this
offering;
. the conversion of all convertible notes outstanding as of March 31, 1999
($2.8 million aggregate principal amount plus accrued interest) into
175,675 shares of common stock upon the closing of this offering; and
. the issuance of 538,074 shares of common stock to satisfy in full a
purchase option and related anti-dilution adjustment rights.
(2) As adjusted to give effect to the sale of shares of common stock offered by
us in this offering at an assumed initial public offering price of per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expense payable by us.
22
<PAGE>
DILUTION
The pro forma net tangible book value of our company as of March 31, 1999 was
$5,115,580, or $0.71 per share of common stock. Pro forma net tangible book
value per share is equal to the amount of our company's total tangible assets
(total assets less intangible assets) less total liabilities, divided by the
pro forma number of shares of common stock outstanding as of March 31, 1999.
Assuming the sale by us of the shares offered by this prospectus at an assumed
initial public offering price of $ per share and after deducting underwriting
discounts and the estimated offering expenses payable, the pro forma net
tangible book value of our company as of March 31, 1999 would have been $ , or
$ per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per share to new
investors. That is, after this offering the excess of the tangible assets of
drkoop.com over its liabilities calculated on a per share basis will be less
than the purchase price paid for those shares by investors in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of March 31, 1999.. $0.71
Pro forma increase in net tangible book value attributable to new
investors........................................................
-----
Pro forma net tangible book value per share after this offering...
----
Pro forma dilution per share to new investors..................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- ------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 7,255,838 % $33,113,084 % $4.56
New investors...............
--------- --- ----------- --- -----
Total..................... 100% $ 100% $
========= === =========== === =====
</TABLE>
The foregoing tables and calculations are based on shares outstanding on
March 31, 1999 and exclude:
. 4,197,012 shares of common stock issuable upon exercise of options
outstanding under our Amended and Restated 1997 Stock Option Plan with a
weighted average exercise price of $1.33 per share (2,097,343 of these
options were exercisable on March 31, 1999; the balance are subject to
future vesting requirements);
. 13,393 shares of common stock issuable upon exercise of warrants with an
exercise price of $11.95 per share;
. 310,000 shares of common stock issuable upon exercise of warrants with an
exercise price of $21.50 per share; and
. 127,500 shares of common stock issuable upon exercise of options to be
granted upon the closing of this offering with an exercise price equal to
the public offering price listed on the cover of this prospectus.
The tables and calculations include:
. 2,899,867 shares of common stock to be issued upon the conversion of all
outstanding shares of convertible preferred stock;
. 175,675 shares of common stock issuable upon conversion of all
convertible notes outstanding at March 31, 1999 ($2.8 million aggregate
principal amount plus accrued interest); and
. 538,074 shares of common stock to be issued upon the closing of this
offering to satisfy in full a purchase option and related anti-dilution
rights.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from July 17, 1997 (inception) through December 31, 1997 and for the
year ended December 31, 1998, and the balance sheet data at December 31, 1997
and 1998, are derived from our audited financial statements included elsewhere
in this prospectus. Interim results for the periods ended March 31, 1998 and
1999 are derived from our unaudited financial statements which, in the opinion
of management, reflect all adjustments necessary for a fair presentation of
that data. Historical results are not indicative of the results to be expected
in the future.
<TABLE>
<CAPTION>
Three Months Ended
Period From Year Ended -------------------
Inception through December 31, March 31, March 31,
December 31, 1997 1998 1998 1999
----------------- ------------ --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ -- $ 43 $ -- $ 404
----- -------- ------ --------
Operating expenses:
Production, content and
product development...... 461 4,448 284 1,035
Sales and marketing....... -- 2,008 166 2,048
General and
administrative........... 161 2,617 259 1,177
----- -------- ------ --------
Total operating expenses... 622 9,073 709 4,260
----- -------- ------ --------
Loss from operations....... (622) (9,030) (709) (3,856)
Other income (expense),
net....................... -- 33 -- (31)
----- -------- ------ --------
Net loss................... (622) (8,997) 709 (3,887)
Accretion of redeemable
securities to fair value.. (8,716) -- (17,460)
----- -------- ------ --------
Loss attributable to common
stockholders.............. $(622) $(17,713) $ 709 $(21,347)
===== ======== ====== ========
Basic and diluted net loss
per common share(1)....... $(.23) $ (5.47) $(0.25) $ (6.23)
===== ======== ====== ========
Weighted average shares
outstanding used in basic
and diluted net loss per
common share
calculation(1)............ 2,700 3,240 2,812 3,428
===== ======== ====== ========
Pro forma basic and diluted
net loss per common
shares(1)(2).............. $ (1.86) $ (.59)
======== ========
Weighted average shares
used in computing pro
forma basic and diluted
net loss per common share
calculation(1)(2)......... 4,844 6,539
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
December 31, December 31, ----------------------
1997 1998 Actual Pro Forma(2)
------------ ------------ -------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 8 $ -- $ 2,021 $2,021
Working capital deficiency... (649) (2,905) (3,038) (286)
Total assets................. 43 380 11,717 11,717
Convertible notes payable to
stockholder................. -- 451 2,741 --
Mandatorily redeemable
convertible (Series B)
preferred stock............. -- 12,836 30,296 --
Stockholders' equity
(deficit)................... (614) (15,423) (24,155) 8,893
</TABLE>
- --------
(1) Please see the financial statements and the notes to such statements
appearing elsewhere in this prospectus for the determination of shares used
in computing basic and diluted and pro forma basic and diluted net loss per
common share.
(2) Gives pro forma effect to all the following:
. the conversion of all outstanding shares of our convertible preferred
stock into 2,899,867 shares of our common stock upon the closing of this
offering;
. the conversion of all convertible notes outstanding as of March 31, 1999
($2.8 million aggregate principal amount plus accrued interest) into
175,675 shares of common stock upon the closing of this offering; and
. the issuance of 538,074 shares of common stock to satisfy in full a
purchase option and related anti-dilution adjustment rights.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of our company should be read in conjunction with the financial statements and
the notes to those statements included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Please see "Risk Factors."
Overview
Our company operates drkoop.com, an Internet-based consumer healthcare
network. Our network consists of a consumer-focused interactive website which
provides users with comprehensive healthcare information and services, as well
as affiliate relationships with portals, other websites, healthcare
organizations and traditional media outlets. Our website, www.drkoop.com, is a
healthcare portal which integrates dynamic healthcare content on a wide variety
of subjects, interactive communities and tools as well as opportunities to
purchase healthcare-related products and services on-line.
Our company was founded in July 1997 as Personal Medical Records, Inc. From
July to December 1997 our primary operating activities related to the
development of software for Dr. Koop's Personal Medical Record SystemTM. A
personal medical record is a software application designed for consumers to
establish and maintain lifelong control of personal health and medical
information and related expense records. We originally contemplated the PMR as
a free-standing product. As we developed it, however, we concluded that the PMR
was best suited as one component of an Internet-based network including
healthcare information, interactive tools and other useful features.
Accordingly, in early 1998 we changed our primary emphasis to the development
of the software and hardware infrastructure for the drkoop.com website,
licensing and creating content, negotiating relationships with strategic
partners, recruiting personnel and raising capital. We launched the drkoop.com
website in late July 1998. After the launch of the website and for the
remainder of 1998, we focused on broadening the functionality of the website
and attracting an audience to the drkoop.com network. We presently expect to
add a personal medical record feature to our website in the first half of 1999
as an element of our technology relationship with HealthMagic, Inc.
For 1998 and the quarter ended March 31, 1999, our revenues were derived
primarily from recurring revenues from content subscriptions and software
licensing through our Community Partner Program, and to a lesser extent from
the sale of advertising. Content subscription and software licensing revenue
accounted for $27,000 or 63% of revenues for the year ended December 31, 1998
and $216,000, or 53% of revenues for the quarter ended March 31, 1999.
In October 1998, we officially launched our first local affiliate
subscription offering, the Dr. Koop Community Partner Program. Subscriptions to
our Community Partner Program run from one to three years. Under this program,
we develop co-branded Internet pages for local healthcare organizations, such
as hospitals and payor organizations. Advance billings and collections relating
to future services are recorded as deferred revenue and recognized when revenue
is earned. Sales of software licensed to CPP affiliates is recognized as
revenue upon shipment of the software, provided that the portion of the
contract allocated to the software license is based upon vendor specific
objective evidence of fair value, and collectibility is probable. Content
subscription revenue is recognized ratably over the term of the CPP contract,
generally ranging from twelve to thirty-six months.
In November 1998, we sold our first advertising contract and in December
began running advertising banners on the website. Advertising revenues are
derived principally from short-term advertising contracts in which we typically
guarantee a minimum number of user "impressions" to be delivered over a
specified period of time for a fixed fee. Impressions are the times that an
advertisement is viewed by users of our website. To the extent that minimum
guaranteed page deliveries are not met, we defer recognition of the
corresponding
25
<PAGE>
revenues until the guaranteed page deliveries are achieved. Historically we
have utilized third party firms to sell and insert advertisements on
drkoop.com. Advertising rates, measured on a cost per thousand impressions
basis, are dependent on whether the impressions are for general rotation
throughout drkoop.com or for targeted audiences and properties within specific
areas of the website. Advertising revenue is recognized in the period in which
the advertisement is displayed. Advertising revenue accounted for $15,000, or
35%, of revenues for the year ended December 31, 1998 and $188,000, or 47%, of
revenues for the quarter ended March 31, 1999.
Sponsorship revenues are derived principally from contracts ranging from one
to twelve months in which we commit to provide sponsors enhanced promotional
opportunities that go beyond traditional banner advertising. Sponsorships are
designed to support broad marketing objectives, including branding, awareness,
product introductions, research and transactions, frequently on an exclusive
basis. Sponsorship agreements typically include the delivery of a guaranteed
minimum number of impressions and the design and development of customized
websites that enhance the promotional objectives of the sponsor. Sponsorship
revenues related to the delivery of impressions are recognized ratably in the
period in which the advertisement is displayed provided that no significant
obligations remain. To the extent that minimum guaranteed page deliveries are
not met, we defer recognition of the corresponding revenues until the
guaranteed page deliveries are achieved.
In December 1998, we began to generate electronic commerce revenues through
alliances with certain retailers of pharmaceuticals and related products and to
provide insurance companies with the opportunity to sell products and services
to our audience. We do not provide any of the goods or services offered. We
receive compensation in the form of transaction fees from third parties who
have entered into preferred provider arrangements with us. Revenues from our
share of the proceeds from the commerce partner's transactions are recognized
by us upon notification from the commerce partner of sales attributable to
users from the drkoop.com website. E-commerce revenues were nominal for the
year ended December 31, 1998 and the quarter ended March 31, 1999.
On January 29, 1999, we received $3.5 million in cash and acquired 10% of the
outstanding stock of HealthMagic, Inc., a subsidiary of Adventist Health System
Sunbelt Healthcare Corporation, in exchange for 1,046,271 shares of our Series
C Convertible Preferred Stock, which will be converted into an equivalent
number of shares of common stock upon the closing of this offering. We also
established a technology relationship with HealthMagic, a supplier of
applications to Internet companies, whereby we contributed to them our PMR
product and received from them a license to use a broad range of Internet
technologies, including a web-enabled personal medical record, personalization
tools, and security and authentication features. HealthMagic will develop,
implement and support these technologies for us. Currently, we expect to deploy
these features in the first half of 1999. We have capitalized the fair value of
the licenses acquired based upon an analysis of the cost required to build the
technology versus purchasing it from HealthMagic. In addition, on January 29,
1999 we entered into a content subscription and software licensing agreement
with Adventist for $500,000.
Contract research organizations offer comprehensive clinical trial services
which are the basis for obtaining regulatory approval for drugs and medical
devices. The identification and enrollment of qualified individuals into these
studies is usually a time-consuming and expensive process. In December 1998 we
implemented the drkoop.com Clinical Research Center, a portion of our website
designed to educate consumers about clinical trials, including how to find and
enroll in an appropriate trial if the individual and their physician believe
that it is a viable therapy option. We expect to receive transaction fee
revenues for assisting contract research organizations in the identification
and enrollment of qualified individuals into studies.
On April 9, 1999 we entered into agreements with Infoseek Corporation and the
Buena Vista Internet Group, a unit of The Walt Disney Company, under which we
will be the exclusive provider of health and related content on three websites
of the Go Network, Go.com Health Center, ESPN.com Training Room and the
Family.com Health Channel. drkoop.com will also be the premier health content
provider for ABCnews.com. In addition, drkoop.com will be the exclusive
pharmacy and drugstore, health insurance and
26
<PAGE>
clinical trials patron in the Go Health Center. In the event drkoop.com elects
not to provide specific content, it may be obtained from a third party. We
believe that these agreements will contribute substantially to our brand
awareness and increase traffic on our website. The term of these agreements is
for three years, although either party may elect to terminate the relationship
after two years. We will pay Infoseek and Buena Vista approximately $57.5
million in total consideration consisting of cash and warrants to purchase up
to 310,000 shares of common stock for $21.50 per share assuming the agreements
run for the full three years. The cash portion of this obligation is payable as
approximately $15.8 million in the first year of the agreements, $18.2 million
in the second year of the agreements and $21.3 million in the third year.
We recorded deferred stock compensation of $272,000 and $2.3 million during
the year ended December 31, 1998 and the quarter ended March 31, 1999,
respectively, for the difference between the exercise price and the deemed fair
value of certain stock options granted by us to our employees, of which $20,000
and $73,000 was recorded as compensation expense in 1998 and the quarter ended
March 31, 1999. This accounting treatment will generate non-cash amortization
expense of $513,000 in 1999, $633,000 in 2000, $602,000 in 2001, $584,000 in
2002 and $145,000 in 2003.
Since inception, we have incurred significant losses and negative cash flow,
and as of March 31, 1999 we had an accumulated deficit of $21.7 million
including $8.2 million for accretion to fair value of the mandatorily
redeemable (Series B) convertible preferred stock. We have not achieved
profitability and expect to continue to incur operating losses for the
foreseeable future as we fund operating and capital expenditures in the areas
of expansion of our network, advertising, brand promotion, content development,
sales and marketing, and operating infrastructure. Our business model assumes
that consumers will be attracted to and use healthcare information and related
content available on our on-line network which will, in turn, allow us the
opportunity to sell advertising designed to reach those consumers. Our business
model also assumes that those users will access important healthcare needs
through electronic commerce and that local healthcare participants will
affiliate with us. This business model is not yet proven and we cannot assure
you that we will ever achieve or sustain profitability or that our operating
losses will not increase in the future. Please see "Risk Factors--Our business
is difficult to evaluate because we have an extremely limited operating
history" and "--We have a history of losses and anticipate continued losses."
We have a very limited operating history on which to base an evaluation of
our business and prospects. Our prospects must be considered in light of the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as the Internet market. In view of the
rapidly evolving nature of our business and our limited operating history, we
believe that period-to-period comparisons of revenues and operating results are
not necessarily meaningful and should not be relied upon as indications of
future performance.
Results of Operations
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998
Revenues. Our website, www.drkoop.com, was launched in July 1998. Revenues
increased to $404,000 for the three months ended March 31, 1999 as compared to
no revenues recorded for the three months ended March 31, 1998. Revenues for
the quarter ended March 31, 1999 consisted of content subscription and software
licenses of $216,000 or 53% of total revenues, including barter revenues of
$32,000, and advertising and sponsorship revenue of $188,000 or 47% of total
revenues including barter revenues of $20,000. The increase in content
subscription and software license revenue was attributable to delivery of
software licenses and content from six new contracts in the quarter ended March
31, 1999 under the Community Partner Program which ranged in value from $50,000
to $500,000 and had terms of one to three years. The increase in advertising
and sponsorship revenues was attributable to an increase in the traffic to our
website as well as an increase in the number of advertising arrangements
entered into during late 1998 and the first quarter of 1999.
Production, content and product development. Production, content and product
development expenses consist primarily of salaries and benefits, consulting
fees and other costs related to content acquisition and
27
<PAGE>
licensing, software development, application development and website operations
expense. Production, content and product development expenses increased by
$751,000 or 265%, to $1.0 million for the quarter ended March 31, 1999, as
compared to $284,000 for the quarter ended March 31, 1998. The primary reason
for the increase was the addition of personnel which resulted in higher
salaries, benefits, facilities and travel costs. We believe that additional
significant investments in content development and operating infrastructure are
required to remain competitive and therefore expect that production, content
and product development expenses will continue to increase in absolute dollars
for the foreseeable future.
Sales and marketing expenses. Sales and marketing expenses consist primarily
of salaries and related costs, web-based advertising, commissions, general
advertising and other related expenses. Sales and marketing expenses increased
from $100,000 to $2.0 million during the quarter ended March 31, 1999 as
compared to $166,000 during the quarter ended March 31, 1998. The primary
reasons for the increase were costs related to web-based advertising and
promotion of the drkoop.com website and a significant increase in the number of
sales and marketing personnel resulting in higher salaries, benefits,
facilities and travel costs. We expect that sales and marketing expenses will
continue to grow in absolute dollars for the foreseeable future as we hire
additional sales and marketing personnel and increase expenditures for
advertising, brand promotion, public relations and other marketing activities.
General and administrative expenses. General and administrative expenses
consist primarily of salaries and related costs for general corporate
functions, including executive, finance, accounting, human resources,
facilities and fees for professional services. General and administrative
expenses increased by $918,000, or 354%, to $1.2 million for the quarter ended
March 31, 1999 as compared to $259,000 for the quarter ended March 31, 1999.
The primary reasons for the increase were the addition of personnel and the
resultant increase in salaries, benefits, non cash compensation facilities and
travel costs. We expect that we will incur additional general and
administrative expenses as we continue to hire personnel and incur incremental
costs related to the growth of the business and compliance with public company
obligations, including directors' and officers' liability insurance, investor
relations programs and fees for professional services. Accordingly, we
anticipate that general and administrative expenses will continue to increase
in absolute dollars in future periods, although at a slower rate than other
major expense categories such as sales and marketing expense.
Interest income (expense). Interest expense was $31,000 for the quarter ended
March 31, 1999 as compared to no expense for the quarter ended March 31, 1998.
Interest expense relates to outstanding convertible notes.
Income Taxes. We have incurred net losses to date. As of March 31, 1999 we
had a net operating loss carryforward of $13.0 million for financial reporting
purposes. We have recorded a valuation reserve equal to the amount of the
carryforward due to the uncertain realization of these tax benefits.
Comparison of the year ended December 31, 1998 to the period from July 17,
1997 (inception) through December 31, 1997
Revenues. For the year ended December 31, 1998, we recorded revenues of
$43,000, with $27,000, or 63% of revenues, attributable to content subscription
and software licenses and $16,000, or 37% of revenues, attributable to
advertising; no revenues were recognized for the period from July 1997
(inception) to December 31, 1997.
Production, Content and Product Development Expense. Production, content and
product development expenses consist primarily of salaries and benefits,
consulting fees and other costs related to content acquisition and licensing,
software development, application development and website operations expense.
Production, content and product development expense increased by $4.0 million,
or 866%, to $4.4 million for the year ended December 31, 1998 as compared to
$461,000 for the period ended December 31, 1997. This increase was primarily
attributable to increases in personnel and related costs to provide the
infrastructure necessary to launch the drkoop.com website in July 1998, as well
as costs for product development work on the PMR. We
28
<PAGE>
believe that additional significant investments in content development and
operating infrastructure are required to remain competitive and therefore
expect that production, content and product development expense will continue
to increase in absolute dollars for the foreseeable future.
Sales and Marketing Expense. Sales and marketing expenses consist primarily
of salaries and related costs, web-based advertising, commissions, general
advertising and other related expenses. We did not have any sales and marketing
expense during the period ended December 31, 1997. During the year ended
December 31, 1998, we incurred costs of $2.0 million as we built a direct sales
organization comprised of 11 sales professionals. During 1998 we also
implemented a variety of approaches to promote the drkoop.com brand to attract
new users, including advertising on the Internet, public relations campaigns
and event marketing. We expect that sales and marketing expenses will continue
to increase in absolute dollars for the foreseeable future as we hire
additional sales and marketing personnel and increased expenditures for
advertising, brand promotion, public relations and other marketing activities.
General and Administrative Expense. General and administrative expenses
consist primarily of salaries and related costs for general corporate
functions, including executive, finance, accounting, human resources,
facilities and fees for professional services. General and administrative
expenses increased by $2.5 million to $2.6 million for the year ended December
31, 1998 as compared to $161,000 for the period ended December 31, 1997. The
increase in general and administrative expenses was primarily attributable to
salaries and related expenses associated with hiring personnel and increased
professional fees and facility-related expenses to support the growth of our
operations. Administrative personnel headcount, including executive management,
went from one person at December 31, 1997 to nine people at December 31, 1998.
We expect that we will incur additional general and administrative expenses as
we hire additional personnel and incur incremental costs related to the growth
of the business and compliance with public company obligations, including
directors and officers liability insurance, investor relations programs and
fees for professional services. Accordingly, we anticipate that general and
administrative expenses will continue to increase in absolute dollars in future
periods, although at a slower rate than other major expense categories such as
sales and marketing expense.
Interest and Other Income. Interest income includes interest income from the
investment of cash and cash equivalents.
Income Taxes. We have incurred net losses to date. As of December 31, 1998,
we had a net operating loss carryforward of $9.2 million for financial
reporting purposes. We have recorded a valuation reserve equal to the amount of
the carryforward due to the uncertain realization of these tax benefits.
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Quarterly Results of Operations Data
The following table sets forth certain unaudited quarterly statement of
operations data for the period from inception to December 31, 1997 and each of
the five quarters ended March 31, 1999. In the opinion of management, this data
has been prepared substantially on the same basis as the audited financial
statements appearing elsewhere in this prospectus, including all necessary
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of such data. The quarterly data should be read in
conjunction with the financial statements and the notes to such statements
appearing elsewhere in this prospectus. In view of the rapidly evolving nature
of our business and our limited operating history, we believe that period-to-
period comparisons of revenues and operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
<TABLE>
<CAPTION>
Period From Three Months Ended
Inception to Year Ended --------------------------------------------------------
December 31, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1998 1998 1998 1998 1998 1999
------------ ------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ -- $ 43 $ -- $ -- $ -- $ 43 $ 404
----- ------- ----- ------- ------- ------- -------
Operating expenses
Production, content and
product development... 461 4,448 284 672 1,847 1,645 1,035
Sales and marketing.... -- 2,008 166 181 646 1,015 2,048
General and
administrative........ 161 2,617 259 562 870 926 1,177
----- ------- ----- ------- ------- ------- -------
Total operating
expenses............. 622 9,073 709 1,415 3,363 3,586 4,260
----- ------- ----- ------- ------- ------- -------
Loss from operations..... (622) (9,030) (709) (1,415) (3,363) (3,543) (3,856)
Interest income
(expense)............... -- 33 -- 14 13 6 (31)
----- ------- ----- ------- ------- ------- -------
Net loss................. $(622) $(8,997) $(709) $(1,401) $(3,350) $(3,537) $(3,887)
===== ======= ===== ======= ======= ======= =======
</TABLE>
Revenues. Our initial revenues were recorded in the quarter ended December
31, 1998. Revenues to date have consisted of revenue attributable to content
subscription, software licenses and advertising arrangements.
Production, content and product. Production, content and product expenses
have fluctuated in the brief operating history of drkoop.com. Production,
content and product costs increased significantly in the third quarter of 1998
due primarily to development work on the personal medical record technology.
Production, content and product expenses decreased in the quarters ended
December 31, 1998 and March 31, 1999 as compared to the previous quarters due
to the reduction in outsourced development on the personal medical record
technology.
Sales and marketing. Sales and marketing expenses have increased every
quarter. Sales and marketing expenses increased significantly in the third
quarter of 1998 as compared to the prior quarter due to significant increases
in advertising costs related to the launch of the drkoop.com website and the
hiring of additional marketing personnel to market the website and the initial
hiring of sales personnel. The following quarterly increases in sales and
marketing expenses resulted primarily from building our sales and marketing
organization. The addition of sales and marketing personnel resulted in higher
salaries, benefits and travel costs. We have also increased the amount expended
on advertising each quarter.
General and administrative. General and administrative costs have increased
every quarter as we have hired our executive team and built our administrative
infrastructure.
As a result of our extremely limited operating history, we do not have
historical financial data for a significant number of periods on which to base
planned operating expenses. Quarterly revenues and operating results depend
substantially on the advertising, sponsorship, subscription and e-commerce
revenues received
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within the quarter, which are difficult to forecast accurately. Accordingly,
the cancellation of a Community Partner Program subscription or the
cancellation or deferral of a small number of advertising contracts or
sponsorships could have a material adverse effect on our business, results of
operations and financial condition. We may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall, and any
significant shortfall in revenue in relation to our expectations would have an
immediate adverse effect on our business, results of operation and financial
condition. Due to the foregoing factors, it is possible that in some future
periods our operating results may be below the expectations of public market
analysts and investors. In this event, the price of our common stock may
underperform or fall.
Seasonality
We believe that advertising sales in traditional media, such as television
and radio, generally are lower in the first and third calendar quarters of each
year. If our market makes the transition from an emerging to a more developed
market, seasonal and cyclical patterns may develop in our industry and in the
usage of our website. Seasonal and cyclical patterns in Internet advertising
would affect our revenues. Those patterns may also develop on our website.
Given the early stage of the development of the Internet and our company,
however, we cannot predict to what extent, if at all, our operations will prove
to be seasonal.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
equity and debt financings. During the years ended December 31, 1997 and 1998,
we received net proceeds from the sale of stock and issuance of convertible
note payable to stockholder of $6,000 and $7.1 million, respectively. During
the three months ended March 31, 1999 we received net proceeds of $5.8 million
from the sale of stock and issuance of convertible notes payable.
Cash used in operating activities for the quarter ended March 31, 1998 of
$502,000 was due primarily to net operating losses offset by increases in
accounts payable and accrued expenses. Cash used in operating activities for
the quarter ended March 31, 1999 of $3.7 million resulted primarily from net
operating losses, a decrease in related party payable and an increase in
accounts receivable, partly offset by an increase in accrued expenses and
deferred revenue. Net cash used in operating activities was $6.8 million for
the year ended December 31, 1998 primarily attributable to net operating losses
offset by increases in accounts payable, accrued expenses and related party
payable. Net cash provided by operating activities for the period from
inception to December 31, 1997 of $44,000 was provided primarily through
increases in accounts payable, accrued expenses and related party payable
offset by a net operating loss.
Cash used in investing activities was $29,000 and $120,000 for the three
months ended March 31, 1998 and March 31, 1999, respectively, and was $42,000
and $335,000 for the period from inception through December 31, 1997 and the
year ended December 31, 1998. Net cash used in investing activities for these
periods consisted primarily of capital expenditures for computer equipment.
Cash provided by financing activities was $519,000 and $5.8 million for the
three months ended March 31, 1998 and March 31, 1999, respectively, and $6,000
and $7.1 million for the period from inception through December 31, 1997 and
the year ended December 31, 1998, respectively. Cash provided by financing
activities has been provided primarily from the sale of convertible preferred
stock and issuance of convertible notes payable. Our financing activities to
date are described in detail below.
From March 1, 1998 through April 6, 1998, we issued 247,641 shares of Series
A 8% Convertible Preferred Stock to accredited investors for an aggregate
purchase price of $743,000. These shares will be converted into 268,691 shares
of common stock upon the closing of this offering.
On April 28, 1998, we issued 1,540,239 shares of Series B Non-voting
Preferred Stock to Superior Consultant Holdings Corporation for a purchase
price of $6.0 million. These shares will be converted into
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<PAGE>
1,584,906 shares of common stock upon the closing of this offering. In
connection with this transaction, we also gave Superior the right to require us
to repurchase their shares prior to our initial public offering and the right
to purchase an additional 1,540,239 shares of either Series B Non-voting
Preferred Stock or common stock at a per share exercise price equal to 70% of
the fair market value of the common stock on the date of exercise. The Superior
purchase option will be terminated at the closing of this offering in
consideration for the issuance of 484,266 shares of common stock, including
shares to be issued as an anti-dilution adjustment. In addition, 53,808 shares
will be issued to satisfy an anti-dilution adjustment right held by the Series
C preferred stockholder. These anti-dilution adjustments were specific to the
Superior purchase option.
On December 24, 1998, we issued a convertible note payable to stockholder in
the original principal amount of $800,000, $500,000 of which was received in
1998, bearing interest at 6% per annum due December 24, 1999, along with five
year warrants to purchase 13,393 shares of Series C Preferred Stock for an
exercise price of $11.95 per share, which will become the right to purchase
13,393 shares of common stock for $11.95 per share upon the closing of this
offering. Interest on the note is payable at maturity. At any time prior to
maturity any unpaid principal and interest may be converted into Series C
Preferred Stock at a conversion price of $11.95 per share.
On January 29, 1999, we received $3.5 million in cash and acquired 10% of the
outstanding stock of HealthMagic, Inc., a subsidiary of Adventist Health System
Sunbelt Healthcare Corporation, in exchange for 1,046,271 shares of our Series
C Convertible Preferred Stock, which will be converted into an equivalent
number of shares of common stock upon the closing of this offering. We also
established a technology relationship with HealthMagic, a supplier of
applications to Internet companies, whereby we contributed to them our PMR
product and received from them a license to use a broad range of Internet
technologies, including a web-enabled personal medical record, personalization
tools, and security and authentication features. HealthMagic will develop,
implement and support these technologies for us.
On or prior to March 5, 1999, we entered into loan agreements pursuant to
which the investors are irrevocably obligated to loan to us the aggregate
principal amount of up to $5.5 million at an interest rate of 7% per annum.
Upon the closing of this offering, the principal amount borrowed under these
agreements and all accrued interest will, solely at the option of each
investor, either be due and payable or convert into common stock at a
conversion price of $18.57 per share. We currently anticipate borrowing under
these agreements prior to the closing of this offering. As of March 31, 1999,
we had borrowed $2.0 million. We also have outstanding $800,000 in convertible
notes issued in December 1998 and January 1999 and which may be converted into
common stock at a conversion price of $11.95 per share.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. These requirements are expected to include
the funding of operating losses, working capital requirements and other general
corporate purposes, including expansion of our network, advertising, brand
promotion and content development. We may also elect to repay debt and pursue
one or more strategic alliances or acquisition transactions, although, as of
the date of this prospectus, we have no agreement to enter into any material
investment or acquisition transaction. We may need to raise additional funds,
however, to respond to business contingencies which may include the need to:
. fund more rapid expansion;
. fund additional marketing expenditures;
. develop new or enhance existing editorial content, features or services;
. enhance our operating infrastructure;
. respond to competitive pressures; or
. acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced
and these newly-issued securities may have rights, preferences
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<PAGE>
or privileges senior to those of existing stockholders, including those
acquiring shares in this offering. We cannot assure you that additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or are not available on acceptable terms, our ability
to fund our operations, take advantage of unanticipated opportunities, develop
or enhance editorial content, features or services, or otherwise respond to
competitive pressures would be significantly limited. Our business, results of
operations and financial condition could be materially adversely affected by
any such limitation.
We have received a report from our independent auditors containing an
explanatory paragraph that describes the uncertainty as to our ability to
continue as a going concern due to our historical negative cash flow and
because, as of the date they rendered their opinion, we did not have access to
sufficient committed capital to meet our projected operating needs for at least
the next twelve months. Upon completion of this offering, we will have
available that capital. If capital requirements vary materially from those
currently planned, we may require additional financing sooner than anticipated.
If this offering is not successful and positive operating results are not
achieved rapidly, we intend to reduce expenditures so as to minimize our
requirements for additional financial resources, if such resources are not
available on terms acceptable to us.
Impact of the Year 2000
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with such Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness
Costs. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the operating costs associated with
time spent by employees in the evaluation process and Year 2000 compliance
matters generally. We do not presently anticipate that such expenditures will
be material.
Risks. We have made a preliminary assessment of the Year 2000 readiness of
our operating and administrative systems and the third-party software, hardware
and services used to host the drkoop.com website. Our assessment plan consists
of:
. contacting third-party vendors of material software, hardware and
services that are both directly and indirectly related to the delivery of
drkoop.com services to our users;
. assessing and implementing repair or replacement of such components as
required; and
. creating contingency plans in the event of Year 2000 failures.
We plan to perform a Year 2000 simulation on our systems, including the
drkoop.com website, during the second quarter of 1999 to test Year 2000 system
readiness. Many of our vendors of material software, hardware and services have
indicated that the products used by us are currently Year 2000 compliant. We
are not currently aware of any internal Year 2000 compliance problems that
could reasonably be expected to have a material adverse effect on our business,
results of operations and financial condition, without taking into account the
Company's efforts to avoid or fix such problems. However, there can be no
assurance that we will not discover Year 2000 compliance problems in our
computer infrastructure that will require substantial revisions or
replacements. In addition, we cannot assure you that third-party software,
hardware or services incorporated into our material systems or other systems
upon which we are reliant will not need to be revised or replaced, which could
be time consuming and expensive.
In addition, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond
our control, such as a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering
33
<PAGE>
drkoop.com, decrease the use of the Internet or prevent users from accessing
drkoop.com, any of which would have a material adverse effect on our business,
results of operations and financial condition.
Contingency Plan.
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have developed preliminary contingency plans. The results of our analyses and
the responses received from third-party vendors and service providers will be
taken into account to revise our contingency plans as necessary. It is our goal
to finalize our contingency plans by the end of the third quarter of 1999.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. We currently do not engage or plan to engage in derivative
instruments or hedging activities.
34
<PAGE>
BUSINESS
Background
Our company operates drkoop.com, an Internet-based consumer healthcare
network. Our network consists of a consumer-focused interactive website which
provides users with comprehensive healthcare information and services, as well
as affiliate relationships with Internet portals, other websites, healthcare
organizations and traditional media outlets. Our website, www.drkoop.com, is a
healthcare portal which integrates dynamic healthcare content on a wide variety
of subjects, interactive communities and tools, as well as opportunities to
purchase healthcare-related products and services on-line. Our company's
founders, including former U.S. Surgeon General Dr. C. Everett Koop, created
drkoop.com to empower consumers to better manage their personal health with
comprehensive, relevant and timely information. Our objective is to establish
the drkoop.com network as the most trusted and comprehensive source of consumer
healthcare information and services on the Internet.
We launched our website in July 1998. By April 15, 1999, www.drkoop.com had
attracted over 4 million unique users and enrolled over 200,000 registered
users. Our network is designed to provide consumers with a variety of
healthcare content, including information on acute ailments, chronic illnesses,
nutrition, fitness and wellness, and access to medical databases, publications,
and real-time medical news. In addition, we offer eight interactive communities
consisting of over 110 hosted chat support groups. Our support groups allow
users to share experiences with others who face, or have faced, similar health
conditions, leveraging the aggregate community to benefit each member. We also
provide interactive tools that permit users to personalize their drkoop.com
experience and are developing additional features to expand the functionality
of our website.
Currently, our affiliates consist of Internet portals and other websites,
healthcare organizations and traditional media outlets. Each affiliate provides
to its customers easy access to the information and services offered on
drkoop.com. Through these relationships, we believe that we will gain broad
exposure of our brand, drive high volumes of traffic to the drkoop.com website,
and acquire and distribute relevant local content. We intend to expand our
network by continuing to establish relationships with affiliates that have the
ability to direct additional users to our website.
Our belief is that health-concerned consumers are highly motivated in their
need to find accurate information and to act on it. Our strategy is to create a
trusted brand that consumers will rely on for that information and for related
e-commerce opportunities. Our business model is primarily to earn advertising,
subscription and e-commerce transaction revenues from advertisers, merchants,
manufacturers and healthcare organizations who desire to reach a highly
targeted community of healthcare consumers on the Internet. For example,
advertisers can target very specific audiences such as persons interested in a
particular disease or individuals who desire to address a particular health
condition. We also earn revenues by facilitating e-commerce transactions, such
as sales of prescription refills, vitamins and nutritional supplements, and
health insurance services, offered by outside parties.
Industry Overview
The Internet has become an important alternative to traditional media,
enabling millions of consumers to seek information, communicate with one
another and execute commercial transactions electronically. According to an
industry research firm, the number of worldwide web users is expected to grow
from approximately 100 million in 1998 to approximately 320 million by 2002.
The Internet is distinct from traditional media in that it offers real-time
access to dynamic and interactive content and instantaneous communication among
users. These characteristics, combined with the fast growth of Internet users
and usage, have created a powerful, rapidly expanding direct marketing and
sales channel. Advertisers can target very specific demographic groups, measure
the effectiveness of advertising campaigns and revise them in response to real-
time feedback. Similarly, the Internet offers on-line merchants the ability to
reach a vast audience and operate with lower costs and greater scale economies,
while offering consumers greater selections, lower prices and heightened
convenience, compared to conventional retailing. We believe that all
participants in the healthcare industry will
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benefit from the Internet because of its unique attributes as an open, low-cost
and flexible technology for the exchange of information and execution of
electronic transactions.
Portals, such as AOL, Excite, the Go Network, Lycos, MSN and Yahoo!, have
established themselves as leading pathways for a broad variety of information.
Users are augmenting these portals with subject-specific vertical portals,
which are becoming one of the fastest growing segments of the Internet. These
vertical portals are using brand awareness driven by high quality topical
content and significant market resources to establish themselves as
destinations for highly concentrated groups of users.
In addition, on-line communities have emerged that allow users with similar
interests to engage in interactive activities. Until recently, use of the
Internet consisted mainly of users seeking one-way, static information on
topics of interest to them. Technologies have recently been developed which
allow users greater flexibility to create and personalize content, communicate
with users having similar interests and engage in other interactive activities.
We believe that on-line communities are particularly relevant to users
interested in healthcare issues, since medical information is often complex and
users value communication with peers who face, or have faced, the same health
conditions, leveraging the aggregated community to benefit each member.
Healthcare is the largest segment of the U.S. economy, representing the
annual expenditure of roughly $1 trillion, and health and medical information
is one of the fastest growing areas of interest on the Internet. According to
Cyber Dialogue, an industry research firm, during the 12-month period ended
July 1998, approximately 17 million adults in the United States searched on-
line for health and medical information, and approximately 50% of these
individuals made off-line purchases after seeking information on the Internet.
Cyber Dialogue estimates that approximately 70% of the persons searching for
health and medical information on-line believe the Internet empowers them by
providing them with information before and after they go to a doctor's office.
Cyber Dialogue also estimates that the number of adults in the United States
searching for on-line health and medical information will grow to approximately
30 million in the year 2000, and they will spend approximately $150 billion for
all types of health-related products and services off-line. Accordingly, we
believe that companies that establish a clear brand identity as a trusted
source of on-line consumer healthcare information and services will have a
significant opportunity to capitalize on multiple revenue sources, including
direct-to-consumer advertising and e-commerce.
Business Strategy
Our objective is to establish the drkoop.com network as the most trusted and
comprehensive source of consumer healthcare information and services on the
Internet. Our business strategy incorporates the following key elements:
Establish the drkoop.com Brand. Our strategy is to create a strong brand with
which consumers associate the trustworthiness and credibility of Dr. C. Everett
Koop and which will enable us to implement his vision of empowering individuals
to better manage their personal health. We also intend to enhance our brand
through association with other notable leaders in the consumer healthcare
field, such as ABC News Medical Correspondent Dr. Nancy Snyderman, a director
of our company. Our company is currently engaged in a major campaign to
increase awareness of the drkoop.com brand among consumers, healthcare
organizations, Internet portals and other websites. We intend to allocate
significant resources to further develop and build brand recognition through
on-line advertising, general advertising, strategic alliances and other
marketing initiatives.
Provide Consumers with Healthcare Content of High Quality. We currently
provide our users with high quality healthcare content, including information
on acute ailments, chronic illnesses, nutrition, fitness and wellness, and
access to medical databases, publications, and real-time medical news. This
information is provided by established sources such as Dartmouth Medical
School, Reuters, the National Institute of Health, Multum Interactive Services,
Inc., and the American Cancer Society. We also offer a directory which compares
and rates over 1,100 other health-oriented websites. Our strategy is to
integrate dynamic healthcare information on a wide variety of subjects with
relevant interactive communities and tools, and opportunities to purchase
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healthcare-related products and services on-line. We believe that the quality
of our health information is a competitive advantage that will enable us to
attract users to our website, promote user loyalty and increase page views per
visit.
Syndicate Content Through Affiliates to Promote Traffic Growth. We have
entered into relationships with portals and other websites which position
drkoop.com as their primary source for consumer healthcare content. In
addition, we have entered into relationships with local hospitals, payor
entities and local media outlets such as television stations. These
relationships include the creation of co-branded websites and the distribution
of branded healthcare information to affiliated entities. We intend to expand
our network by continuing to establish relationships with affiliates that have
the ability to direct additional users to our website.
Develop and Expand On-line Healthcare Communities. We currently offer our
registered users free access to eight on-line communities consisting of over
110 hosted chat support groups. Our eight communities are organized by the
following general health topics: Addiction & Recovery, Aging Healthy, General
Health, Men's Health, Mental Health, Parenting & Children's Health, Physical
Conditions and Women's Health. Our support groups cover topics including
hepatitis C, child development, stress management and relaxation skills and
anxiety disorders. Our communities and support groups allow users with similar
health-related experiences to exchange information and gather news and
knowledge in a secure, anonymous, on-line environment. Communities and support
groups are hosted by selected moderators with experience both in the relevant
topic and on-line forum moderating. We believe that our communities and support
groups are an effective way to attract users to our website and strengthen
their loyalty to the drkoop.com network. In addition, by aggregating users
interested in a particular health topic, we believe we can sell advertising in
a highly targeted manner, thereby commanding higher advertising rates.
Similarly, we offer merchants and others who engage in e-commerce the ability
to market products and services to our community members.
Provide Consumers with Unique Features and Tools. Our website is designed to
provide easy access to innovative features and tools. Currently, our most
popular tool educates consumers on the interaction among various drugs and
other substances. In addition, we recently acquired the right to deploy a
comprehensive personal medical record which will allow users to establish and
maintain a lifelong record of their health and medical information in a secure
portion of our database. We intend to continue to add useful tools to enable
our users to personalize their on-line experience. We believe that our tools
and features will continue to encourage users to visit our website frequently
and increase the likelihood of users selecting drkoop.com as their preferred
website for health-related issues.
Provide an Attractive Advertising Site. We believe our ability to target
specific users, the interactive nature of our website and the demographic
characteristics of our users will be attractive to pharmaceutical, healthcare
and other companies that advertise on the Internet. By identifying users
interested in a particular health-related topic or who desire to address a
particular health condition, we believe we can deliver advertising in a highly
targeted manner, thereby commanding higher advertising rates.
Enable High Value E-commerce Offerings. We enable e-commerce transactions
offered by third parties. Our strategy involves permitting merchants,
manufacturers and service providers access to a highly targeted community of
health conscious consumers through our website and the health channels of our
portal affiliates. We presently enable sales of prescription refills, vitamins
and nutritional supplements and insurance services. Although we do not provide
these products or services, we do provide links to the websites of third
parties that provide these products or services. Some of these third parties
have entered into preferred provider arrangements with us and pay us either a
transaction fee for sales attributable to users from our website or an anchor
tenant rental fee. Anchor tenant fees are annual fees paid by on-line merchants
in exchange for a prominent link to their on-line stores. We believe that
contextual merchandising of e-commerce transactions will attract users to our
website and promote user loyalty.
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The drkoop.com Network
Our network consists of a consumer-focused interactive website which provides
users with comprehensive healthcare information and services, as well as
affiliate relationships with portals, other websites, local healthcare
organizations and traditional media outlets. The website is a healthcare portal
which integrates dynamic healthcare information on a wide variety of subjects,
interactive communities and tools that enable our users to personalize their
drkoop.com experience and opportunities to purchase healthcare-related products
and services on-line. Our affiliate relationships, we believe, allow us to gain
broad exposure of our brand, drive high volumes of traffic to the drkoop.com
website, and acquire and distribute relevant content at the local level.
Affiliates may use our content on television or radio, in print, radio or on-
line, provided they credit drkoop.com as the provider of the content and, where
appropriate, pay a license fee. We believe that displaying logos and credits on
every web page, program and publication where drkoop.com content is displayed
will help us build brand awareness and attract users to our website.
Website
Healthcare Information. Our goal is to provide consumer-focused information
for the health-conscious public, individuals with a health condition, and
individuals who have recovered from illness or injury, all at a level the
average consumer can understand. We currently provide a variety of healthcare
content, including information on acute ailments, chronic illnesses, mental
health and behavioral issues, nutrition, fitness and wellness, and access to
medical databases, other publications, and real-time medical news. To encourage
interactivity, we provide links to relevant communities and other features from
each content page. Examples of healthcare information that we currently provide
include:
<TABLE>
<CAPTION>
Information Sources
----------- -------
<S> <C>
. Physician-authored articles on common Dartmouth Medical School,
medical conditions Nancy Snyderman, M.D.,
drkoop.com
. Updated health-related news and Reuters
editorials on topics of current
interest
. General medical information and National Institute of Health,
statistics American Cancer Society
. Information regarding the interaction Multum Interactive Services, Inc.
among various drugs and other
substances
. Directory of over 1,100 health-related drkoop.com
websites including ratings and reviews
. Information on pharmaceuticals and Graedon Enterprises, Inc.
over-the-counter drugs
. Clinical trials study information Quintiles, Inc.
</TABLE>
We expect that competitive factors will create a continuing need for us to
improve and add to our healthcare content. Accordingly, we intend to seek
additional sources of healthcare information and expand the breadth of our
content offerings.
Interactive Communities. We currently offer eight interactive communities
consisting of over 110 hosted chat support groups. These communities were
developed to provide users with a mechanism to interact with others
experiencing, or who have experienced, similar health conditions. We believe
the communities and their support groups enable users to gain valuable insight,
practical knowledge and support with regard to their health concerns which
supplement their interaction with their physicians. Our eight communities are
organized by the following general health topics: Addiction & Recovery, Aging
Healthy, General Health, Men's Health, Mental Health, Parenting & Children's
Health, Physical Conditions and Women's Health.
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The drkoop.com support groups differ from other Internet chat rooms and
forums in that drkoop.com selects hosts to be involved in each support group.
Although most of our support groups are led by peer monitors, many of whom have
faced similar health concerns, some are led by healthcare professionals with
expertise in the specific area of health on which the support group is focused.
User demand has driven the expansion in the number of drkoop.com support
groups. Our support topics are typically proposed by a user. Accordingly, our
support groups are dynamic and evolve as user interests change. We believe our
support groups are distinct from other support rooms because drkoop.com offers
access to information and news relevant to the support topic on the
corresponding web page. We believe that a user's participation in a focused
chat will stimulate the user's interests in related support groups,
contributing to more frequent usage and longer visits at our website. Examples
of the interactive support groups that we currently offer include:
Addiction & Recovery Parenting & Children's Health
Living with Sobriety Attachment Parenting
Child Development
Aging Healthy Depression and Your Child
Unique Exercise Ideas Parenting an Only Child
General Health Physical Conditions
Angel Power Beating the Pain
Turning Back the Clock Crohn's Colitis Support
Joint Replacement Chat
Men's Health Hepatitis Central
Beyond the Locker Room
Women's Health
Mental Health Balancing Work & Family
Anxiety Disorders Biological Clock Watchers
Mood Disorders Menopause Management
OCD Matters
Tools. We currently provide interactive tools and other features that allow
registered users to personalize their drkoop.com experience and better manage
the healthcare information available on our network. We believe our tools and
features enable us to obtain and retain registered users. To enhance the
experience of our current and future registered users, we intend to develop
additional tools and features. Examples of tools that we have already developed
or intend to develop include:
Existing Tools
Drug Checker. Our drug interaction tool, Drug Checker, allows users to
quickly and easily search for information on a particular product and then
check for interactions between it and other prescription and over-the-
counter drugs. The tool enables the user to search for drugs by complete or
partial name matching and returns a list of drugs for selection. Selection
of more than one drug into the interaction list then permits the user to
test for interaction among the selected drugs. The tool also provides drug-
food interaction data when available. Drug Checker uses the Multum database
which we have modified with an easy to use interface.
Health Search. This tool allows users to search the entire drkoop.com
website and related healthcare websites for specific health and medical
information. We also provide easy access to Medline, a large database of
medical information provided by the National Library of Medicine and
CancerLit, the National Cancer Institute's bibliographic database.
Health Site Reviews. We have created a directory of third party health-
related websites using an industry standard rating scheme from the
Healthcare Information Technology Institute. Our rating methodology
produces an overall website score based on several criteria including
credibility, accuracy, disclosure, links, design and interactivity. This
tool enables a user to search for the highest rated healthcare websites
categorized by various healthcare conditions.
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Health Risk Assessments. Our first health risk assessment tool, Tobacco
Risk Profiler, enables users to understand their reliance on tobacco and
assess a variety of treatment methods. This tool is integrated with content
and interactive community features to provide an educational and supportive
experience for users suffering from nicotine addiction. We expect to
introduce a variety of health risk assessments allowing users a quick and
easy way to assess their health and find corrective measures they can take
to reduce any health-related risks.
Health Polls. Our health polls provide users with opportunities to answer
a variety of health related questions on-line. We can obtain valuable
information from our users as to their interests and demographics. The
survey information is then used to make the related community more aware of
current healthcare issues.
Preventionnaire. This interactive questionnaire, residing in our
Prevention Center, is designed to help consumers identify their healthcare
needs. After answering a series of questions tailored to the user's sex and
age, the tool advises the user to consult with his or her physician on a
variety of preventive tests or immunizations to maintain good health.
Future Tools
Listed below are some of the tools that we are presently developing.
Deployment of these tools will involve our successful acquisition and
integration of the required content and related technology. We cannot
assure you that these tools will be successfully deployed on a timely
basis, or at all, or that users will find these features attractive.
Dr. Koop's Personal Medical Record. We intend to offer a personal medical
record which will allow users to establish and maintain a lifelong record
of personal health and medical information in a secure portion of our
database. We presently expect to add a personal medical record feature to
our website in the first half of 1999 as an element of our technology
relationship with HealthMagic.
My [email protected]. This product is intended to allow consumers to
receive email newsletters with news and information tailored to their
specific needs. We presently expect to add this tool to our website in the
first half of 1999.
Recipe Database. This feature is intended to provide a customized,
searchable database of recipes meeting specific dietary requirements of the
user, such as low-fat, low-salt diets. We presently expect to add this tool
to our website in the second half of 1999.
Personal Health Shopper. This tool is intended to enable consumers to
enter their preferences for shopping and allow us to customize information
and new product offerings for the users. We presently expect to add this
tool to our website in the second half of 1999.
Physician Databases. We intend to provide to consumers access to
physician databases permitting them to find doctors in their local area. In
February 1999, we entered into a content agreement with Physicians' Online
which will allow us to implement a physician database on our website. We
are currently in the process of deploying this tool.
Insurance Assessment. This interactive questionnaire is designed to
enable consumers to better understand their health insurance needs and
assist them in making a purchase decision. We presently expect to add this
tool to our website in the first half of 1999.
Affiliates
Portals and Other Websites. The distribution of drkoop.com content to
affiliated portals and other websites is designed to rapidly increase brand
awareness through co-promotion and direct links with the affiliate's server. We
intend to affiliate with selected websites that have the potential to drive
traffic to our website and provide broad exposure to the drkoop.com brand.
Currently, portals are the leading aggregators of traffic on the Internet.
Users are augmenting these portals with subject-specific vertical portals,
which are becoming one of the fastest growing segments of the Internet. These
vertical portals are using brand awareness
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driven by quality topical content and significant market resources to establish
themselves as destinations for highly concentrated groups of users. Examples of
relationships that we have already established include:
The Go Network. drkoop.com has entered into agreements with Infoseek
Corporation and the Buena Vista Internet Group, a unit of The Walt Disney
Company, under which drkoop.com will be the exclusive provider of health
related content on three websites of the Go Network, Go.com Health Center
on Infoseek, ESPN.com Training Room and the Family.com Health Channel.
drkoop.com will also be the premier health content provider for
ABCnews.com. In addition, drkoop.com will be the exclusive pharmacy and
drugstore, health insurance and clinical trials partner in the Go.com
Health Center. Under these agreements, users on the Go Network will be able
to access various health information, services, interactive tools and
commerce opportunities through a co-branded location (http://go.drkoop.com)
served by drkoop.com. In the event drkoop.com elects not to provide
specific content, it may be obtained from a third party. We believe that
these agreements will contribute substantially to our brand awareness and
increase traffic on our website.
The term of both agreements is for three years, except that each of the
parties may elect to terminate the relationship after two years. We will
pay Infoseek and the Buena Vista Internet Group approximately $57.5 million
in total consideration consisting of cash and warrants to purchase 310,000
shares of common stock at an exercise price of $21.50 per share over the
full three year term. None of the warrants are exercisable prior to one
year after issuance.
Salon Internet, Inc. Salon Internet, Inc. and drkoop.com expect to launch
a health and wellness site called Salon Health in the first half of 1999.
Salon Health will create a unique blend of editorial content and integrated
health information for its users. drkoop.com will be the exclusive provider
of health information for Salon Health. This initiative is expected to
introduce a complete storefront offering of drugstore related products. Our
agreement with Salon has a three-year term. The parties will share in
revenues generated through the storefront and in advertising revenue. We
will pay Salon a fee for running a minimum number of drkoop.com banner
advertisements on the Salon site.
WellSt.com. drkoop.com has been selected as the provider of traditional
health and medical information for WellSt.com, a division of Element Media,
Inc., an alternative health company. The WellSt.com agreement has a three-
year term under which we will be the exclusive provider of traditional
healthcare content to WellSt.com, except that WellSt.com may use other
sources to the extent that we decline to develop any specific content.
WellSt.com will be the preferred provider of alternative medicine and
health information on drkoop.com. The parties have agreed to undertake
joint marketing activities of mutual benefit and will share in revenues
generated through the use of the other party's content. We believe this
strategic partnership will allow drkoop.com to reach a unique audience that
is interested in alternative medicine and health information.
Physicians' Online. drkoop.com will provide content and services to
Physicians' Online, one of the largest Internet communities of doctors. In
addition, Physicians' Online will offer to its member physicians the
personal medical record software when it becomes available. drkoop.com and
Physicians' Online will also undertake joint marketing and sales of the
personal medical record software and services to hospitals and other
managed health facilities and will share in the revenue generated from
these activities. Physicians' Online provides doctors with access to
medical databases, clinical symposia, medical news and other medical
resources, and has a membership in excess of 170,000 doctors. Our agreement
with Physicians' Online has a one-year term during which each party will
promote the other party's website and share in various revenue sources.
iSyndicate. iSyndicate, a service that connects small sites in search of
content with content providers, has selected drkoop.com as a provider of
health information to its 13,000 affiliate sites. Under this agreement,
iSyndicate affiliates can choose to provide headlines, teasers or full-text
content to their users. The iSyndicate agreement has a one-year term under
which iSyndicate will market the drkoop.com
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content under the several different marketing models. We pay a fee for each
user who links to drkoop.com from a headline or teaser on an affiliate
site, and we receive a fee when an affiliate elects to license the full-
text drkoop.com content to be hosted and displayed on the affiliate's site.
SeniorNet. SeniorNet.org, the world's largest trainer of older adults
about computer technology and the Internet, has selected drkoop.com to be
the exclusive provider of health information and services to users of the
SeniorNet On-line Community. Through this strategic partnership, drkoop.com
will provide our healthcare content and our products and services that will
empower SeniorNet users to better manage their health. SeniorNet operates
over 140 SeniorNet Learning Centers across the United States, providing
access to over 100,000 older adults, while educating them on how to use the
SeniorNet website and the Internet. In addition to the content partnership,
drkoop.com plans to release a co-branded version of the Dr. Koop's Personal
Medical Record for members of the SeniorNet On-Line Community. The
drkoop.com health content and PMR will become part of the Learning Center
curriculum, which is used to educate more than 45,000 older adults each
year. We will pay SeniorNet a fee for this exclusive relationship.
Yahoo! drkoop.com has entered into a relationship with Yahoo! to
syndicate Dr. Nancy Snyderman's Daily Health offering for use in Yahoo!
Health, with a launch expected in the second quarter of 1999. Under this
agreement, Dr. Snyderman will appear daily on Yahoo! in a drkoop.com
branded environment where users of Yahoo! Health are able to read Dr.
Snyderman's responses to user-submitted questions. Users who wish to ask
Dr. Snyderman a question through an email interface will be transferred to
the "Ask Dr. Nancy Snyderman" area of the drkoop.com website. New answers
and archives will be posted daily on Yahoo! Health. This is a non-paid
relationship between the two companies.
@Home Network. drkoop.com entered into a two year relationship with The
@Home Network to be the anchor tenant partner within the Health Channel
area of the @Home service. drkoop.com will be the premier content provider
appearing in the Health Channel. Under the terms of this agreement,
drkoop.com will have the ability to direct users to related commerce,
community and interactive tool features appearing on the drkoop.com website
from within all health content appearing in the Health Channel. In
addition, drkoop.com will share in all advertising revenues generated by
@Home in the Health Channel where drkoop.com content dominates the related
page. drkoop.com will pay a carriage fee to @Home for the right to be the
premier content provider in the @Home Health Channel.
Healthcare Organizations. drkoop.com enrolls healthcare organizations as
local affiliates through our Community Partner Program. This program allows
local organizations such as hospitals, health systems and other healthcare
organizations to integrate the drkoop.com brand and content into their on-line
initiatives. Under this program, we develop co-branded Internet pages linked to
drkoop.com for local healthcare organizations. The Community Partner Program
enables healthcare organizations to supply their patients with on-line health
resources and interactive capabilities integrated with specific information
about their facilities. This program provides consumers with the ability to
educate themselves, make an informed decision, and take action through a
healthcare organization's local website, strengthening the relationship between
the consumer and the organization. Those consumers are introduced to the
drkoop.com brand through our association with their local provider or payor.
Examples of local healthcare organizations that have enrolled in our Community
Partner Program include:
Adventist Health System. Adventist Health System currently operates
31 hospitals in nine states and has more than 4,900 licensed beds.
Adventist Health System also operates 27 extended-care facilities with
more than 3,000 long-term care beds. Florida Hospital, part of
Adventist Health System, serves the one million residents of the
Orlando area.
Highmark. Highmark, created in 1996 by the consolidation of Blue
Cross of Western Pennsylvania and Pennsylvania Blue Shield, is one of
the ten largest health insurers in the United States. Highmark offers
managed care programs, health plans, traditional health insurance
coverage, life and casualty insurance, and dental and vision programs
to approximately 18 million people.
MemorialCare. MemorialCare is a comprehensive healthcare system
servicing the over 5 million residents of Los Angeles and Orange
Counties in California. MemorialCare offers Southern
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Californians four major medical centers and a children's hospital, as
well as a number of subsidiary facilities.
Although not all contracts we enter into under our Community Partner Program
specify performance standards for our Community Partners, when we do specify
standards, they typically require Community Partners to:
.maintain their own website with a unique domain name server;
.provide links to up to 10 customized website pages that link to
drkoop.com;
.maintain operation of their website for at least 95% of the time; and/or
.provide monthly traffic reports to drkoop.com.
Scott and White Hospital and Clinic. Scott and White is one of the
largest multi-specialty hospital and clinic groups in the United
States. Their more than 515 physicians and scientists service the
750,000 residents of Central Texas as well as patients from throughout
the United States and many foreign countries.
Tallahassee Memorial HealthCare. Tallahassee Memorial HealthCare
provides Floridians with a comprehensive system of patient and
healthcare services coordinated under certain specialty centers. These
specialty centers include Tallahassee Memorial Hospital, the eighth
largest hospital in Florida, and eleven satellite facilities in five
counties. Founded more than fifty years ago, Tallahassee Memorial
HealthCare currently services a population of over 200,000 individuals.
Baptist Health Systems. Baptist Health Systems is South Florida's
largest not-for-profit health care organization with 7,400 employees.
The health system includes Baptist Hospital, Baptist Children's
Hospital, Miami Cardiac & Vascular Institute, Homestead Hospital,
Mariners Hospital in Tavernler and a full spectrum of outpatient
diagnostic and treatment facilities. Baptist Health Systems serves the
1.4 million residents of the Miami area.
Traditional Media. We also intend to establish additional affiliate
relationships with traditional media outlets. There are many areas of overlap
with television and print that allow for collaboration in the delivery of
quality healthcare content to an audience. Late breaking news, daily syndicated
articles and other timely relevant content can be distributed as an information
feed in multiple formats. For example, network television affiliates carry
local, relevant information directly to local audiences. Similarly, by
distributing content at the affiliate level, drkoop.com can be the leading
syndicate of Internet-ready health content and editorial-based, breaking health
news. The content that resides on our website can also be distributed through
newspapers, trade journals, periodicals, and a variety of other print media. By
aligning drkoop.com and our notable leaders in the healthcare field, Dr. C.
Everett Koop and Dr. Nancy Snyderman, with high profile publications, we have
the opportunity to build brand awareness of drkoop.com. Links from traditional
media websites to our website create additional channels for generating traffic
to the drkoop.com website. Examples of traditional media programs include:
Health Resource Marketing. drkoop.com has an agreement with Health
Resource Publishing, a division of Catalina Marketing, Inc., to place
advertisements for the drkoop.com site on up to 50% of the HRP
newsletters distributed through chain drugstores. HRP estimates that it
will distribute up to 20 million newsletters monthly during 1999.
Additionally, personalized healthcare content from the drkoop. com site
will be included in the HRP newsletters thus reaching a highly targeted
health conscious population with branded content and promotion.
Granite Broadcasting. We have entered into an agreement with Granite
Broadcasting Corporation, a publicly-traded owner of ten ABC, CBS, NBC
and WB television stations in markets such as San Francisco, Detroit
and Buffalo. A program was initiated in September 1998 with KEYE,
Granite's CBS affiliate in Austin, Texas, in which drkoop.com provides
the station with Internet health content, and the station provides both
local promotion of drkoop.com and daily prompting of the station's
viewers to drkoop.com following relevant health stories on the
station's local newscasts.
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ABC Affiliates. drkoop.com's multi-year agreement with Infoseek for
the Go Network Internet properties provides that the websites of all
ABC affiliates who participate in the network's Local Net Internet
service, currently 115 stations, will be linked to drkoop.com. ABC will
also provide details to all of its affiliates regarding how they can
participate as a full drkoop.com affiliate in their local news coverage
and promotion. ABC affiliates receive first right of negotiation for
participation in this program.
Revenue Opportunities
Our operating strategy is presently comprised of three primary means of
generating revenue:
. advertising;
. content syndication; and
. electronic commerce.
Advertising. The healthcare industry spends billions of dollars every year to
market products and services to consumers. Jupiter Communications projects that
the on-line health advertising segment will grow from $12.3 million in 1998 to
$265 million in 2002. We believe that health portals and other vertically
focused websites are uniquely positioned to attract a significant share of
these advertising expenditures. By identifying users interested in a particular
health-related topic or who desire to address a particular health condition, we
believe we can sell advertising in a highly targeted manner, thereby commanding
higher advertising rates.
Merchants can purchase advertising on our website in two ways. Banner
advertising is generally sold based on the number of impressions received by
the advertisement and its position on the website. This type of advertising
frequently encourages the user to move to other web pages which describe the
advertiser's product and solicit a direct response from the user. Sponsorships
are contracts that typically grant advertisers rights to promote their products
on a specific portion of the website. Sponsorships are designed to support
broad marketing objectives, including brand awareness, product introductions,
research and transactions, generally on an exclusive basis. Accordingly,
sponsorships are sold based on their duration, the portion of the website
sponsored and the number of impressions delivered. Some of our advertisers and
sponsors include:
. Pfizer, a pharmaceutical company, which advertises Zithromax, a
children's antibiotic, in our Ear, Nose and Throat and Children's Health
sections;
. Biogen, a pharmaceutical manufacturer, which advertises Avonex, a
Multiple Sclerosis medication, in our Multiple Sclerosis disease section;
. Schering-Plough, a pharmaceutical company, which has sponsored our
allergy health topic with Claritin. The integrated sponsorship includes
logo links, keywords, and banner impressions; and
. SmithKline Beecham, a pharmaceutical company, which has sponsored the
drkoop.com smoking cessation center with Nicorette/Nicoderm.
One form of direct response advertising involves pre-screening and
identifying potential participants in clinical trials. In 1997, approximately
$19 billion was spent by the private sector on human health research and
development in the United States alone, according to the Pharmaceutical
Manufacturers Association. A significant portion of these costs are incurred in
the later stages of clinical development, where large numbers of subjects are
enrolled into studies designed to provide the bulk of the safety and efficacy
data needed to obtain a product license from the FDA. The identification and
enrollment of qualified individuals into these studies is usually a time-
consuming and expensive process.
In December 1998 we implemented the drkoop.com Clinical Research Center, a
portion of our website designed to help educate consumers about clinical
trials: what they are; what to expect; and how to find and enroll in an
appropriate trial if the individual and their physician believe that this is a
viable therapy option. When this feature is fully developed, consumers will be
able to search a database of clinical trials by geography and by disease. We
believe that on-line pre-screening will reduce the number of inappropriate
contacts and
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result in only qualified people being referred to the clinical trial sponsors.
drkoop.com will derive a per respondent advertising fee for this recruitment
service.
Content Syndication. We license our content and certain interactive tools
through a broad variety of affiliated websites. The majority of the licensed
content is provided by third-parties and is not produced by us. The primary
source of content syndication revenue is our Community Partner Program. The
Community Partner Program allows payor and provider organizations to co-brand
their websites with drkoop.com for an annual fee. Licensing fees are typically
determined based on the channel for which the content will be used. Content
syndication agreements generally stipulate that all content provided by
drkoop.com must retain a legend indicating "Provided by drkoop.com" and is
subject to an acceptable use policy that defines how and where the content may
be used. Editorial content and/or content control generally remain the
exclusive right of the drkoop.com network. We believe that by allowing other
high-traffic websites and portals to offer our content we will gain broad
exposure of our brand and drive high volumes of traffic to the drkoop.com
website, thereby allowing us to generate more advertising and e-commerce
revenues. While we expect to also generate significant revenues from certain of
our syndication programs, this revenue source is expected to become a smaller
proportion of our overall revenues as our audience continues to grow.
E-Commerce. We provide users with the ability to access e-commerce
opportunities provided by outside parties in numerous locations throughout the
drkoop.com website. For example, users can access prescription refill services
through pages relevant to a particular condition. We also offer the drkoop.com
Health Store, a section of the website which aggregates all of the e-commerce
opportunities found throughout the site into one comprehensive storefront that
users can navigate to find the specific products or services offered by outside
parties. E-commerce interfaces on drkoop.com, whether in the drkoop.com Health
Store or in other locations within the website's general content, have been
designed to be secure, informative and easy to use.
We currently offer two primary categories of products and services which
users can purchase from third parties through our website:
On-line Pharmacy Products. According to industry statistics, the retail
prescription drug market in 1997 accounted for approximately $89.1 billion
in sales generated by 2.6 billion prescriptions. Over-the-counter
medications and the other health and beauty aids accounted for $26.8
billion and $26.9 billion in retail sales, respectively, in 1997. Due to
the convenience, privacy, cost-savings and selection that can be offered to
consumers via the Internet, we believe that the on-line pharmacy will
become a major factor in retail pharmacy sales and will capture a
significant portion of these sales in the near future. Moreover, direct
deliveries of prescription drugs to the home via mail accounts for a
significant proportion of all prescription drug sales. We expect that this
distribution channel will expand to include other products traditionally
associated with retail pharmacy stores.
Our personal drugstore provides links to 23 traditional and on-line
pharmacies where users can order prescription refills and other pharmacy
products over the Internet. We have agreements with the PlanetRX on-line
pharmacy, under which we will provide content and interactive tools as well
as links to its website. Under these agreements, we receive a fee for each
drkoop.com user who executes a transaction. We receive a flat service fee
for sales of prescription drug products and a commission based on the value
of the underlying transaction for sales of other products. We also have an
agreement with Vitamin Shoppe under which we receive an annual anchor
tenant rental fee in exchange for a category-exclusive link to its website.
Insurance. The individual health insurance market is estimated to be an
$85 billion per year industry, according to AM Best. In the past decade,
the AMA estimates that the number of Americans without health insurance
increased from 32 million to 43.4 million. Our website provides access to
an insurance center consisting of comparisons of different insurance plans
designed to assist users in determining their individual health coverage
needs and coverage options. This service is designed to
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provide useful, consumer-oriented information and to enable the purchase of
insurance coverage through various links with qualified insurers.
Our current insurance partners include:
. Quotesmith.com, an on-line insurance website where users can obtain
instant quotes from 375 leading insurance companies. We have
implemented a co-branded version of their instant quote system.
. American Health Value, a user-friendly Medical Savings Account (MSA)
administrator offering consumers access to their MSA funds with a
Visa card. We link to their website through our Personal Insurance
Center.
. HealthCore Medical Solutions, a health and consumer benefits
marketing company, which offers its members discounts on eye care,
dental and pharmacy benefits. We link to their website through our
Personal Insurance Center.
. eHealthInsurance.com, an online retail health insurance provider. We
link to their website through our Personal Insurance Center.
Sales
As of March 31, 1999, we had a direct sales organization consisting of 11
sales professionals with an average of 14 years of sales experience, and had
also contracted with WinStar Interactive, an on-line property representation
company. We have seven geographically-based sales representatives with
extensive healthcare backgrounds calling on large integrated health systems and
payors in major metropolitan areas selling drkoop.com's Community Partner
Program. We also have two sales representatives with pharmaceutical backgrounds
who call directly on pharmaceutical companies. In addition, one of our sales
representative with an insurance background calls on payors for enrollment in
our insurance commerce initiative. Further, members of management and the sales
force call on portals and other websites to establish affiliate relationships.
We also use WinStar to call on the interactive agencies and media buyers for
both sponsorship and banner advertising. As of March 31, 1999, approximately 60
percent of the advertising commitments received by us had been secured by our
direct sales force, with the balance secured by WinStar.
For the year ending December 31, 1998, sales to individual customers
constituting 10% or more of revenue included Memorial Care Hospital (63%), PCS
Health Systems (23%), and Medtronic (12%).
Marketing and Public Relations
We employ a variety of methods to promote the drkoop.com brand to attract
user traffic and affiliate relationships. Our public relations staff oversees a
comprehensive pubic relations program targeting consumer, trade and healthcare
media. In addition, we also conduct media outreach programs consisting of
public service announcements and other promotional activities targeting radio,
broadcast, and print media on a national and local basis.
Advertising. Media purchasing is a significant component to the brand
awareness and customer acquisition strategy for drkoop.com. We believe that
click-through banner advertising has been the accepted means to drive traffic
across the Internet for several years. We believe that we must continue to
promote drkoop.com to the mass Internet audience through banner advertising in
order to attract first time users. Depending on the source, we can use a banner
advertisement to direct a user to our homepage or to a place in the website
that contains topical information of interest to them. We also intend to pursue
general advertising through conventional media.
Public awareness campaigns are a significant part of the user generation
plans for drkoop.com. By strategically aligning drkoop.com with health-related
initiatives and charity organizations, we believe we will be able to reach a
large audience to help raise awareness for specific causes or organizations. By
creating opportunities for users to participate in awareness campaigns, we
believe we can raise money for organizations and charities, and at the same
time drive new registered users to drkoop.com.
Public Relations. As a well recognized, trusted spokesperson on America's
health, we believe that Dr. C. Everett Koop is in a unique position to raise
consumer awareness of health-related issues and our company.
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Since the launch of our website, Dr. C. Everett Koop has participated in
several industry events that have dramatically raised our visibility in the
Internet healthcare market. We expect Dr. C. Everett Koop to continue to raise
awareness of our company's mission to empower consumers with information and
services to better manage their personal healthcare and our initiatives to
serve them, by participating in public relations and public service activities.
Technology
A component of our strategy is to apply existing technologies in novel ways
to deliver content and provide services to our users. The various features of
the drkoop.com network are implemented using a combination of commercially
available and proprietary software components. We favor licensing and
integrating "best of breed" commercially available technology from industry
leaders. We reserve internal development of software for those components that
are either unavailable on the market or that have major strategic advantages
when developed internally. We believe that this component style approach is
more manageable, reliable, and scaleable than single-source solutions. In
addition, the emphasis on commercial components speeds development time, which
is an advantage when competing in a rapidly evolving market. Consistent with
our preference for off-the-shelf software components, we rely primarily on
industry-standard Microsoft operating systems, development, and infrastructure
components including NT, Internet Information Server, Microsoft Site Server,
Visual Interdev, and others. We have also created a content management and
development system and specialized applications, one example of which is the
drug interaction application built upon the Multum commercial database.
In January 1999, we entered into a strategic technology relationship with
HealthMagic, Inc. which includes a long-term fully paid license to use a broad
range of Internet technologies, such as a web-based personal medical record,
personalization tools, and security and authentication features. Under this
arrangement, HealthMagic will develop, implement, and support these
technologies for us, thereby permitting internal resources to address other
needs. Our relationship with HealthMagic, we believe, will allow us to improve
the functionality of our website with lower risk and at less cost than if we
developed this technology ourselves. We expect that as we deploy the
HealthMagic applications we will become dependent on that company for several
important functions of our website.
Operating Infrastructure
The drkoop.com website is based on a technical operating infrastructure, the
drkoop.com web platform, which is designed to be highly scaleable and reliable.
The drkoop.com web platform consists of several subsystems, including a
scaleable web cluster used to service user requests for web pages. The web
cluster is controlled by a hardware cluster manager which continuously monitors
the performance and availability of the individual servers within the web
cluster. In the event of an individual server failure or when a server requires
maintenance, the hardware cluster manager automatically distributes incoming
requests to other available servers without disrupting the user's experience.
The drkoop.com web platform consists of readily available, off-the-shelf,
computer systems, including dual Intel Pentium servers in a fully redundant
configuration. The drkoop.com web platform was designed using a proprietary
architecture deploying primarily Microsoft technology running the Windows/NT
Operating System. Other Microsoft web enabling technologies used in the
drkoop.com web platform include:
. the Microsoft Membership and Personalization Server--software that
captures user data and enables the drkoop.com experience to be customized
for each user;
. Microsoft SQL Server--database software used to store user data and
content; and
. Microsoft Internet Information Server--software which enables pages to be
displayed to the user.
Our data center is maintained offsite by a third party and provides us with
multiple backbone connections to the Internet and a fault-tolerant network
design. In addition, electricity for running the drkoop.com web
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platform is protected by uninterruptible power systems including back-up diesel
generators. We have an operations and disaster recovery plan, and drkoop.com is
backed up nightly to an off-site storage facility. We do not maintain a back-up
data center.
Competition
A large number of Internet companies compete for users, advertisers, e-
commerce transactions and other sources of on-line revenue. The number of
Internet websites offering users healthcare content, products and services is
vast and increasing at a rapid rate. In addition, traditional media and
healthcare providers compete for consumers' attention both through traditional
means as well as through new Internet initiatives. We believe that competition
for healthcare consumers will continue to increase as the Internet grows as a
communication and commercial medium.
We compete directly for users, advertisers, e-commerce merchants, syndication
partners and other affiliates with numerous Internet and non-Internet
businesses, including:
. health-related on-line services or websites targeted at consumers such as
accesshealth.com, ahn.com, betterhealth.com, drweil.com,
healthcentral.com, healthgate.com, intelihealth.com, mayohealth.org;
mediconsult.com, onhealth.com, thriveonline.com and webmd.com;
. on-line and Internet portal companies, such as America Online, Inc.;
Microsoft Network; Yahoo! Inc.; Excite, Inc.; Lycos Corporation and
Infoseek Corporation;
. electronic merchants and conventional retailers such as CVS, Rite Aid
Corporation, Walgreens, Advanced Paradigm, Express Scripts, Inc. and
Merck-Medco, that provide healthcare goods and services competitive to
those available from links on our website;
. hospitals, HMOs, managed care organizations, insurance companies and
other healthcare providers and payors such as Columbia/HCA Healthcare
Corporation, Kaiser Permanente and VHA Inc., which offer healthcare
information through the Internet; and
. other consumer affinity groups, such as the American Association of
Retired Persons, SeniorNet and ThirdAge Media, Inc., which offer
healthcare-related content to special demographic groups.
We believe that competition in our industry is based primarily on:
. the quality and market acceptance of healthcare content;
. brand recognition; and
. the quality and market acceptance of new enhancements to current content,
features and tools.
Although our competitive position in our market as compared to our
competitors is difficult to characterize due principally to the variety of
current and potential competitors and the emerging nature of the market, we
believe that we presently compete favorably with respect to these factors.
However, we believe that our markets are still evolving, and we cannot assure
you that we will compete successfully in the future. Additionally, many of our
competitors are likely to enjoy substantial competitive advantages compared to
our company, including:
. the ability to offer a wider array of on-line products and services;
. larger production and technical staffs;
. greater name recognition and larger marketing budgets and resources;
. larger customer and user bases; and
. substantially greater financial, technical and other resources.
To be competitive, we must respond promptly and effectively to the challenges
of technological change, evolving standards and our competitors' innovations by
continuing to enhance our products and services, as well as our sales and
marketing channels. Increased competition could result in a loss of our market
share or a
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reduction in our prices or margins, any of which could adversely affect our
business. Competition is likely to increase significantly as new companies
enter the market and current competitors expand their services.
Intellectual Property
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. We
intend to file for federal trademark registrations for the mark "drkoop.com,"
as well as other service and trademarks which incorporate the Dr. Koop name.
Our right to use the Dr. Koop name is granted to us under an agreement with Dr.
C. Everett Koop. If we lose our right to use the Dr. Koop name, we would be
forced to change our corporate name and adopt a new domain name. These changes
could confuse current and potential customers and would adversely impact our
business. See "Management--Agreements with Dr. C. Everett Koop."
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
some foreign countries do not protect proprietary rights as well as the laws of
the United States, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation could be time-consuming and costly.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our
website overlaps with competitive offerings. Defending against these claims,
even if not meritorious, could be expensive and divert our attention from
operating our company. If we become liable to third parties for infringing
their intellectual property rights, we could be required to pay a substantial
damage award and forced to develop noninfringing technology, obtain a license
or cease using the applications that contain the infringing technology or
content. We may be unable to develop noninfringing technology or content or
obtain a license on commercially reasonable terms, or at all.
We also rely on a variety of technologies that are licensed from third
parties, including our database and Internet server software, which are used in
the drkoop.com website to perform key functions. These third-party licenses may
not be available to us on commercially reasonable terms in the future. The loss
of or inability to maintain any of these licenses could delay the introduction
of software enhancements, interactive tools and other features until equivalent
technology could be licensed or developed. Any such delay could materially
adversely affect our ability to attract and retain users.
Government Regulation
General. There is an increasing number of laws and regulations pertaining to
the Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, on-line content regulation, user privacy, taxation and quality of
products and services. Moreover, it may take years to determine whether and how
existing laws such as those governing issues such as intellectual property
ownership and infringement, privacy, libel, copyright, trade mark, trade
secret, obscenity, personal privacy, taxation, regulation of professional
services, regulation of medical devices and the regulation of the sale of other
specified goods and services apply to the Internet and Internet advertising.
The requirement that we comply with any new legislation or regulation, or any
unanticipated application or interpretation of existing laws, may decrease the
growth in the use of the Internet, which could in turn decrease the demand for
our service, increase our cost of doing business or otherwise have a material
adverse effect on our business, results of operations and financial condition.
On-line Content Regulations. Several federal and state statutes prohibit the
transmission of indecent, obscene or offensive content over the Internet to
certain persons. In addition, pending legislation seeks to ban
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Internet gambling and federal and state officials have taken action against
businesses that operate Internet gambling activities. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and
advertisements available on drkoop.com. Legislation regulating on-line content
could slow the growth in use of the Internet generally and decrease the
acceptance of the Internet as an advertising and e-commerce medium, which could
have a material adverse effect on our ability to generate revenues.
Privacy Concerns. The Federal Trade Commission is considering adopting
regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing websites, with particular
emphasis on access by minors. Such regulations may include requirements that
companies establish certain procedures to, among other things:
. give adequate notice to consumers regarding information collection and
disclosure practices;
. provide consumers with the ability to have personal identifying
information deleted from a company's database;
. provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
. clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities on a company's website; and
. obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
Such regulation may also include enforcement and redress provisions. While we
have implemented programs designed to enhance the protection of the privacy of
our users, including children, there can be no assurance that such programs
will conform with any regulations adopted by the FTC. Moreover, even in the
absence of such regulations, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. One such
investigation has resulted in a consent decree pursuant to which an Internet
company agreed to establish programs to implement the principles noted above.
We may become subject to such an investigation, or the FTC's regulatory and
enforcement efforts may adversely affect the ability to collect demographic and
personal information from users, which could have an adverse effect on the our
ability to provide highly targeted opportunities for advertisers and e-commerce
marketers. Any such developments could have a material adverse effect on the
our business, results of operations and financial condition.
It is also possible that "cookies" may become subject to laws limiting or
prohibiting their use. The term "cookies" refers to information keyed to a
specific server, file pathway or directory location that is stored on a user's
hard drive, possibly without the user's knowledge and which is used to track
demographic information and to target advertising. Certain currently available
Internet browsers allow users to modify their browser settings to remove
cookies at any time or prevent cookies from being stored on their hard drives.
In addition, a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of the
use of cookies could limit the effectiveness of the our targeting of
advertisements, which could have a material adverse effect on our ability to
generate advertising revenue.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under this EU directive, EU citizens are
guaranteed certain rights, including the right of access to their data, the
right to know where the data originated, the right to have inaccurate data
rectified, the right to recourse in the event of unlawful processing and the
right to withhold permission to use their data for direct marketing. The EU
directive could, among other things, affect U.S. companies that collect
information over the Internet from individuals in EU member countries, and may
impose restrictions that are more stringent than current Internet privacy
standard in the United States. In particular, companies with offices located in
EU countries will not be allowed to send personal information to countries that
do not maintain adequate standards of privacy. The EU directive does not,
however, define what standards of privacy are adequate. As a result,
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there can be no assurance that the EU directive will not adversely affect the
activities of entities such as our company that engage in data collection from
users in EU member countries.
Planned features of our website include the retention of personal information
about our users which we obtain with their consent. We have a stringent privacy
policy covering this information. However, if third persons were able to
penetrate our network security and gain access to, or otherwise misappropriate,
our users' personal information, we could be subject to liability. Such
liability could include claims for misuses of personal information, such as for
unauthorized marketing purposes or unauthorized use of credit cards. These
claims could result in litigation, our involvement in which, regardless of the
outcome, could require us to expend significant financial resources. Moreover,
to the extent any of the data constitute or are deemed to constitute patient
health records, a breach of privacy could violate federal law.
Data Protection. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information, such as stock quotes and sports scores. Such protection already
exists in the EU. If enacted, this legislation could result in an increase in
the price of services that provide data to websites. In addition, such
legislation could create potential liability for unauthorized use of such data.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet and
certain states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. Such legislation or other attempts at
regulating commerce over the Internet may substantially impair the growth of
commerce on the Internet and, as a result, adversely affect our opportunity to
derive financial benefit from such activities.
Domain Names. Domain names are the user's Internet "address." Domain names
have been the subject of significant trademark litigation in the United States.
There can be no assurance that third parties will not bring claims for
infringement against us or Dr. C. Everett Koop for the use of this trademark.
Moreover, because domain names derive value from the individual's ability to
remember such names, there can be no assurance that our domain names will not
lose their value if, for example, users begin to rely on mechanisms other than
domain names to access on-line resources.
The current system for registering, allocating and managing domain names has
been the subject of litigation and of proposed regulatory reform. There can be
no assurance that our domain names will not lose their value, or that we will
not have to obtain entirely new domain names in addition to or in lieu of its
current domain names, if such litigation or reform efforts result in a
restructuring in the current system.
FDA Regulation of Medical Devices. Some computer applications and software
are considered medical devices and are subject to regulation by the United
States Food and Drug Administration. We do not believe that our current
applications or services will be regulated by the FDA; however, our
applications and services may become subject to FDA regulation. Additionally,
we may expand our application and service offerings into areas that subject us
to FDA regulation. We have no experience in complying with FDA regulations. We
believe that complying with FDA regulations would be time consuming, burdensome
and expensive and could delay or prevent our introduction of new applications
or services.
Regulation of the Practice of Medicine and Pharmacology. The practice of
medicine requires licensing under applicable state law. We have endeavored to
structure our website and affiliate relationships to avoid violation of state
licensing requirements. For example, we have included notices where we have
deemed appropriate advising our users that the data provided on the drkoop.com
network is not a substitute for consultation with their personal physician.
Similar guidelines have been adopted governing the activities of
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moderators in our interactive communities, many of whom are not licensed
physicians. However, the application of this area of the law to Internet
services such as drkoop.com is novel and, accordingly, a state regulatory
authority may at some point allege that some portion of our business violates
these statutes.
Similarly, we provide information about drugs and other prescription
medications on our website and enable e-commerce transactions with third
parties who sell these products. We have included within our website
disclaimers and other notices that we have deemed appropriate to advise users
that the information provided is not intended to be a substitute for
consultation with a licensed pharmacist. For example, use of our drug
interaction database requires that the user affirmatively click on a dialog box
on the website page to indicate acceptance of the notices before being given
access to the database. However, as with the practice of medicine, the
application of this area to Internet services such as drkoop.com is novel and,
accordingly, a state regulatory authority may at some point allege that some
portion of our business violates state or federal law governing the dispensing
of pharmacy products. Any application of the regulation of the practice of
medicine or pharmacology to us could result in a material adverse affect on our
business, results of operations and financial condition. Further, any liability
based on a determination that we engaged in the practice of medicine without a
license may be excluded from coverage under the terms of our current general
liability insurance policy.
Federal and State Healthcare Regulation. We earn a service fee when users on
our website purchase prescription pharmacy products from certain of our e-
commerce partners. The fee is not based on the value of the sales transaction.
Federal and state "anti-kickback" laws govern certain financial arrangements
among healthcare service providers and others who may be in a position to refer
or recommend patients to such providers. These laws prohibit, among other
things, certain direct and indirect payments that are intended to induce the
referral of patients to, the arranging for services by, or the recommending of,
a particular provider of health care items or services. The federal healthcare
program's anti-kickback law has been broadly interpreted to apply to
contractual relationships between healthcare providers and sources of patient
referrals. Such laws apply to the sales of pharmacy products that are
reimburseable under federal Medicare and Medicaid programs and other
reimbursement programs. Violation of these laws can result in civil and
criminal penalties.
As the primary purpose of marketing is to generate business by referring or
recommending, the Office of Inspector General of the United States Department
of Health and Human Services has recognized that "many marketing and
advertising activities may involve at least technical violations of the federal
anti-kickback statute." Because of the breadth of the federal anti-kickback
statute, Congress required DHHS to promulgate regulatory safe harbors to
protect activities which do not harm federal healthcare programs. Some of our
electronic commerce activities do not qualify for safe harbor protection under
the federal anti-kickback statute because the aggregate compensation received
by us for these services is not fixed in advance and takes into consideration
the volume of business generated, because we receive a fixed service fee per
completed prescription drug product transaction. Failure to meet a safe harbor,
however, does not mean that the arrangement violates the statute. Instead, an
analysis of the factual elements must be made. Alternatively, the OIG is
authorized to issue advisory opinions regarding the interpretation and
applicability of the federal anti-kickback statute, including whether an
activity or proposed activity constitutes grounds for the imposition of civil
or criminal sanctions. We have not sought such an opinion and are aware of no
opinion that has been issued related to Internet sales activities. If our
program was deemed to be inconsistent with the federal anti-kickback statute,
we could face civil and criminal penalties. Further, we would be required
either not to accept any transactions which are subject to reimbursement under
federal or state healthcare programs or restructure our compensation structure
to comply with the statute and any applicable regulations. Presently, federal
and state programs provide only limited cost reimbursement for prescription
drugs, although there have been proposals made from time to time to expand the
benefits of these programs. In addition, similar laws in several states apply
not only to government reimbursement but also to reimbursement by private
insurers. Although there is uncertainty regarding the applicability of these
"anti-kickback" laws, we believe that the service fees we receive from our e-
commerce partners are for the primary purpose of marketing and do not
constitute payments that would violate present federal or state law. If,
however, our activities were deemed to violate any of these laws, it could
cause a material adverse affect on our business, results of operations and
financial condition.
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State Insurance Regulation. We market insurance on-line and receive
transaction fees in connection with this activity. All of the insurance
products are offered by unrelated third-party providers who we believe to be
appropriately licensed under applicable law. The use of the Internet in the
marketing of insurance products is a relatively new practice. It is not clear
whether or to what extent state insurance licensing laws apply to our
activities. If we were required to comply with such licensing laws, compliance
could be costly or not possible and could have a material adverse effect on our
business.
Jurisdiction. Due to the global reach of the Internet, it is possible that,
although our transmissions over the Internet originate primarily in the State
of Texas, the governments of other states and foreign countries might attempt
to regulate Internet activity and our transmissions or take action against us
for violations of their laws. There can be no assurance that violations of such
laws will not be alleged or charged by state or foreign governments and that
such laws will not be modified, or new laws enacted, in the future. Any of the
foregoing could have a material adverse effect on our business, results of
operations and financial condition.
Human Resources
As of March 31, 1999, we had 73 full-time employees. None of our employees
are represented by a union. We believe that our relationship with our employees
is good.
Facilities
We currently lease approximately 11,000 square feet of office space in
Austin, Texas, under a lease expiring on October 31, 2000. We believe that our
facilities are adequate for our current operations and that additional leased
space can be obtained if needed.
Legal Proceedings
On April 12, 1999, a civil complaint was filed as Agrawal v. drkoop.com,
Inc., Donald W. Hackett and John F. Zaccaro in the District Court of Travis
County, Texas, 126 Judicial District, Case No. 99-04294. In the lawsuit,
plaintiff attempts to allege causes of action including fraud, constructive
fraud, promissory estoppel, negligent misrepresentation, breach of contract,
conversion, stock fraud, defamation and misrepresentation. Plaintiff claims,
among other things, that misrepresentations were made to him regarding his
involvement in the early stages of development of drkoop.com and we breached a
consulting agreement entered into between him and our company in September
1998. Plaintiff seeks recovery of actual damages which he alleges to be
$4 million, punitive damages alleged to be in excess of $5 million, attorneys
fees and costs and a temporary and permanent injunction prohibiting drkoop.com
from offering stock for sale to the public unless and until we recognize
plaintiff's alleged right to options to acquire 93,000 shares of our common
stock which he claims are owed to him under the consulting agreement. We
believe that the claims made by plaintiff are without merit and intend to
defend this lawsuit vigorously.
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MANAGEMENT
The following table sets forth, as of March 31, 1999, the name, age and
position of each director and executive officer of drkoop.com, Inc.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
C. Everett Koop, M.D. .... 82 Chairman of the Board of Directors
John F. Zaccaro(1)(2)..... 64 Vice Chairman of the Board of Directors
Donald W. Hackett(1)...... 42 President, Chief Executive Officer and Director
Dennis J. Upah............ 37 Chief Operating Officer
Susan M. Georgen-Saad..... 41 Chief Financial Officer
Robert C. Hackett, Jr. ... 48 Executive Vice President, Business Development
Louis A. Scalpati......... 35 Senior Vice President, Chief Architect
Jeffrey C. Ballowe........ 43 Director
Mardian J. Blair.......... 67 Director
G. Carl Everett, Jr....... 48 Director
Richard D. Helppie, 43
Jr.(2)................... Director
Nancy L. Snyderman, 47
M.D.(1).................. Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
For purposes of the biographical data set forth below, service with
drkoop.com, Inc. includes service with our predecessor.
C. Everett Koop, M.D., has served as our Chairman of the Board of Directors
since he co-founded drkoop.com in July 1997. Since 1992, Dr. Koop has served as
the McInerney Professor of Surgery at the Dartmouth Medical School and as
Senior Scholar at the C. Everett Koop Institute at Dartmouth. Dr. Koop is also
a frequent lecturer on healthcare topics. An internationally respected
pediatric surgeon, Dr. Koop was Surgeon-in-Chief of the Children's Hospital of
Philadelphia from 1948 to 1981 and Editor-in-Chief of the Journal of Pediatric
Surgery from 1964-1976. Dr. Koop is a director of Superior Consultant Holdings
Corporation, a publicly-traded healthcare consulting company, as well as
several private healthcare companies. From 1994 to 1996, Dr. Koop was a
director and ex-officio Chairman of the Board of Patient Education Media, Inc.,
a producer of medical video tapes which filed for bankruptcy protection in
1996. Dr. Koop was Surgeon General of the United States from 1981 to 1989. He
was also appointed Director of the Office of International Health in May 1982.
Dr. Koop is also the recipient of numerous honors and rewards, including 35
honorary doctorates.
John F. Zaccaro has served as our Vice Chairman of the Board of Directors
since he co-founded drkoop.com in July 1997. From 1991 until November 1997, Mr.
Zaccaro served as the President and Executive Producer of the International
Health & Medical Film Festival. In addition, since 1995 Mr. Zaccaro has served
as a Senior Administrator to the Russian Arts Foundation. Mr. Zaccaro is also a
director of Kit Manufacturing Company, a publicly-traded constructor of
manufactured housing. Mr. Zaccaro is a published author and a motivational
speaker.
Donald W. Hackett has served as our President, Chief Executive Officer and a
director since he co-founded drkoop.com in July 1997. From January 1996 until
joining drkoop.com, Mr. Hackett served in various management positions,
including President and Chief Executive Officer, of Tradewave Corporation, an
Internet network security company. From September 1988 until December 1995, Mr.
Hackett served as Senior Vice President of Physician Computer Network, Inc., a
provider of practice management services. While employed at Physician Computer
Network, Inc., Mr. Hackett successfully implemented the first provider-centric,
computer-based pay-per-view-advertising network, and initiated direct data
interchange transactions between laboratories, pharmacies and hospitals with
practice management systems.
Dennis J. Upah has served as our Chief Operating Officer since January 1999.
From February 1995 until joining drkoop.com, Mr. Upah served as President and
General Manager of KEYE-TV (the CBS affiliate in
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Austin, Texas), a unit of Granite Broadcasting Corporation. From September 1988
until January 1995, Mr. Upah served as President and General Manager of WEEK-TV
(the NBC affiliate in Peoria, Illinois), also a unit of Granite Broadcasting
Corporation. Mr. Upah is the former Technology Chairman and an elected
representative to the national CBS Affiliates Advisory Board of Directors. He
was also elected to the board of directors for several groups, including the
Illinois Broadcasters Association (where he served as President), Texas
Association of Broadcasters, Austin Better Business Bureau and St. Jude
Children's Hospital Midwest Affiliate.
Susan M. Georgen-Saad has served as our Chief Financial Officer since October
1998. From March 1997 until joining drkoop.com, Ms. Georgen-Saad served as
Chief Financial Officer of IntelliQuest Information Group, a market research
company. From July 1996 until February 1997, she served as Chief Financial
Officer of Clinicor, Inc., a clinical research company. From April 1994 until
June 1996, Ms. Georgen-Saad served as Senior Vice President, Finance, of the
Texas Worker's Compensation Insurance Fund, an insurance company. Ms. Georgen-
Saad has more than 19 years of experience in strategic operational and
financial management in the high-technology services, pharmaceutical research,
insurance, healthcare and financial services industries.
Robert C. Hackett, Jr. has served as our Executive Vice President, Business
Development, since he co-founded drkoop.com in July 1997. From September 1996
until July 1997, Mr. Hackett served as Vice President of Business Development,
Vaccine Division, of Merck & Co., a pharmaceutical company. From January 1995
until September 1996, Mr. Hackett served as Assistant Vice President of
International Vaccines of American Home Products, a pharmaceutical company.
From April 1990 until January 1995, Mr. Hackett served as Director of
International Vaccines of American Cyanamid Company, a diversified
pharmaceutical and chemicals company.
Louis A. Scalpati has served as our Senior Vice President, Chief Architect
and Secretary since he co-founded drkoop.com in July 1997. From December 1995
until joining drkoop.com, Mr. Scalpati served as Director of the Healthcare
Business Unit, Tradewave Corporation, an Internet network security company, and
from July 1990 until November 1995, Mr. Scalpati served as Chief Network
Architect of Physician Computer Network, Inc., a provider of practice
management services.
Jeffrey C. Ballowe has served as a director of drkoop.com since March 1999.
Since 1997, Mr. Ballowe has been self-employed. From 1986 until 1997, Mr.
Ballowe held various management positions at Ziff-Davis, an international media
company, including President of the Interactive Media and Development Group.
Mr. Ballowe is Chairman of the Board of Deja News and is a director of
VerticalNet, Xoom.com and ZDTV.
Mardian J. Blair has served as a director of drkoop.com since February 1999.
For more than the past five years, Mr. Blair has served as the President of
Adventist Health System Sunbelt Healthcare Corporation. Mr. Blair is also a
director of multiple healthcare organizations in the Adventist system,
including HealthMagic, Inc., as well as numerous not-for-profit charitable and
educational institutions.
G. Carl Everett, Jr. has served as a director of drkoop.com since March 1999.
Mr. Everett has been Senior Vice President, Personal Systems Group, of Dell
Computer Corporation, responsible for worldwide development and marketing of
all Dell desktop and notebook products since February 1998. For the prior
twenty years, Mr. Everett was employed by Intel Corporation, most recently as
General Manager of the Desktop Products Group.
Richard D. Helppie, Jr. has served as a director of drkoop.com since May
1998. He has been the Chairman of the Board and Chief Executive Officer of
Superior Consultant Holdings Corporation, a publicly-traded healthcare
consulting company, since its inception in July 1996, and he founded Superior
Consultant Company, Inc., its predecessor, in May 1984. Mr. Helppie has more
than 22 years of experience in the healthcare and information systems
industries. In 1998 Mr. Helppie was the recipient of the Michigan Entrepreneur
of the Year Award (sponsored by Ernst & Young LLP) for healthcare.
Nancy L. Snyderman, M.D., has served as a director of drkoop.com since March
1998. Dr. Snyderman has been a practicing physician for more than fifteen
years. Dr. Snyderman is a medical
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correspondent for ABC and can be seen on Good Morning America and Prime Time
Live. Dr. Snyderman's Healthtalk segments can be heard daily on the CBS radio
network, and she also writes a monthly column for Good Housekeeping.
Dr. Snyderman is a published author and has received broadcasting awards from
the California Medical Association, Radio and Television News Directors, the
Associated Press, United Press International and the American Academy of Facial
Plastic and Reconstructive Surgery. Dr. Snyderman continues to publish in peer-
reviewed journals and has received grants from the Kellogg Foundation and the
American Cancer Society.
Donald W. Hackett and Robert C. Hackett, Jr. are brothers.
Other Key Employees
Set forth below is the name, age, and recent business experience of the key
members of our management team not described above.
Ian J. Bagnall, 27, serves as our Vice President of Business Development and
has served as Director of our website since April 1998. From October 1996 until
joining drkoop.com, Mr. Bagnall served as Marketing Relations Manager for
ichat, Inc. (now Acuity, Inc.), a provider of web-integrated chat browser and
server products. From October 1995 to October 1996, Mr. Bagnall worked as an
Internet Consultant, and from July 1994 until October 1995 Mr. Bagnall served
as Business Manager for Enter Television, Inc.
Alex Cavalli, Ph.D., 49, has served as our Chief Development Officer since
August 1998. From April 1995 until joining drkoop.com, Dr. Cavalli served as
Chief Architect of Tradewave Corporation, an Internet network security company.
From January 1992 until April 1995, Dr. Cavalli served as Chief Architect for
the Enterprise Integration Project at Microelectronics and Computer Technology
Corporation, a research consortium.
Neal K. Longwill, 44, has served as our Senior Vice President of Sales since
May 1998. From May 1980 until joining drkoop.com, Mr. Longwill served in
various sales and management positions with Intel Corporation.
Guy D. MacNeill, 38, has served as our Vice President of Marketing since
February 1998. From January 1997 until joining drkoop.com, Mr. MacNeill served
as Vice President of Marketing of ichat, Inc. (now Acuity, Inc.). From March
1996 until January 1997, he served as Director of Marketing, and from January
1995 until March 1996, he served as a Senior Product Manager, of Intuit, Inc.
While at Intuit, Mr. MacNeill was active in all aspects of product management
and marketing for the best selling TurboTax and MacInTax line of desktop and
on-line consumer tax preparation products.
Roy A. Smith, 41, has served as our Chief Technology Officer since January
1998. In November 1996, Mr. Smith founded MarketPlace Consulting, a computer
consulting company. From April 1995 until November 1996, Mr. Smith was the
founder of Tradewave Corporation, an Internet network security company, and
held the following positions: Chief Executive Officer, Vice Chairman and
President. From April 1992 until April 1995, Mr. Smith served as Vice President
of Microelectronics and Computer Technology Corporation, where he led the
development of key information technologies for the National Information
Infrastructure (NII) in conjunction with the Defense Advanced Research Projects
Agency (DARPA) and the National Institute of Standards and Technology (NIST).
Board Composition
We currently have eight authorized directors. In accordance with the terms of
our restated certificate of incorporation which will become effective upon the
closing of this offering, the terms of office of the directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 2000; Class II, whose term will expire at the annual
meeting of stockholders to be held in 2001; and Class III, whose term will
expire at the annual meeting of stockholders to be held in 2002. The Class I
directors
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are Jeffrey C. Ballowe, Richard D. Helppie, Jr. and Mardian J. Blair, the Class
II directors are G. Carl Everett, Jr., John F. Zaccaro and Nancy L. Snyderman,
M.D., and the Class III directors are Donald W. Hackett and Dr. C. Everett
Koop. At each annual meeting of stockholders after the initial classification
or special meeting in lieu thereof, the successors to directors whose terms
will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election or special
meeting held in lieu thereof. In addition, our restated certificate of
incorporation provides that the authorized number of directors may be changed
only by resolution of the board of directors or a super-majority vote of the
stockholders. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of drkoop.com.
Board Committees
The audit committee of the board of directors reviews, acts on and reports to
the board of directors with respect to various auditing and accounting matters,
including the recommendation of our independent auditors, the scope of the
annual audits, fees to be paid to the independent auditors, the performance of
our independent auditors and our accounting practices. The members of the audit
committee are Messrs. Helppie and Zaccaro.
The compensation committee of the board of directors determines the salaries
and benefits for our employees, consultants, directors and other individuals
compensated by our company. The members of the compensation committee are
presently Dr. Snyderman and Messrs. Hackett and Zaccaro.
The Company plans to establish a stock awards committee of the board of
directors to administer the 1999 Equity Participation Plan and determine the
stock option grants for our employees, consultants, directors and other
individuals under this plan. A majority of the members of this committee will
be non-employee directors.
Director Compensation
From and after the completion of this offering, non-employee directors, other
than Dr. Koop and Mr. Zaccaro, will receive $1,500 for attendance at each
meeting of the board. In addition, those non-employee directors will receive
formula stock option grants under our 1999 Equity Participation Plan. This
formula feature will provide for the grant of options to purchase 15,000 shares
of common stock upon initial appointment to the board of directors and an
additional grant of options to purchase 5,000 shares immediately after each
annual meeting of stockholders, provided that no such subsequent annual grant
will be made if the director was initially appointed within 90-days of the
annual meeting. Dr. C. Everett Koop and Mr. Zaccaro will not receive annual
formula grants so long as they receive compensation under their respective
consulting agreements. All of these options will vest in three equal annual
instalments and will have an exercise price equal to fair market value on the
date of grant. These options will vest immediately upon a change in control.
The 1999 Plan permits additional discretionary option grants to non-employee
directors if approved by the full board of directors with the interested
director abstaining.
Each of Dr. C. Everett Koop and Mr. Zaccaro is party to a consulting
agreement with us. The compensation payable to them under those agreements
includes their service as a director. See "--Agreements with Dr. C. Everett
Koop" and "--Other Consulting Agreements with Directors."
In addition, in 1998 we granted options to Dr. Snyderman and Mr. Helppie in
consideration for their services as directors. Dr. Snyderman received an option
to purchase 73,500 shares of common stock with an exercise price of $0.30 per
share. Mr. Helppie received an option to purchase 45,000 shares of common stock
with an exercise price of $0.39 per share. In 1999 we have granted to Messrs.
Blair, Everett and Ballowe options to purchase 30,000, 35,000 and 35,000
shares, respectively. Each option has an exercise price of $11.94 per share. As
noted above, additional grants may be made in the future. All directors are
also
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reimbursed for their reasonable expenses incurred in connection with attendance
at board and committee meetings and on related company business.
Compensation Committee Interlocks And Insider Participation
Our compensation committee consists of Dr. Snyderman and Messrs. Hackett and
Zaccaro. Prior to the offering, all compensation decisions were made by the
full board of directors.
No executive officer serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors or compensation committee. However, Dr. C.
Everett Koop is a director of Superior Consultant Holdings Corporation, and Mr.
Helppie is the Chairman of the Board and Chief Executive Officer of Superior.
Employment Agreements with Management
Donald W. Hackett. We are a party to an employment agreement with Donald W.
Hackett, dated August 1, 1997. The term of the agreement is three years,
although we may, by mutual agreement with Mr. Hackett, extend the agreement for
successive one-year terms. Pursuant to the agreement, we are obligated to pay
Mr. Hackett an initial annual salary of $195,000. This salary automatically
increases by 20% at the end of each of the first three years of the agreement.
In addition, Mr. Hackett receives a monthly car allowance of $700 and is
eligible for annual discretionary bonuses. In the event Mr. Hackett's
employment is terminated without cause or by reason of disability, he would
receive a severance payment in an amount equal to his annual base salary. In
the event Mr. Hackett resigns or his employment is terminated with cause, he
has agreed not to compete with us for a period of 12 months following the
cessation of his employment.
Dennis J. Upah. We are a party to an employment agreement with Dennis J.
Upah, dated January 15, 1999. The term of the agreement is three years.
Pursuant to the agreement, we are obligated to pay Mr. Upah an annual salary of
$140,000 plus an annual bonus of at least $140,000 for the first year of the
agreement and $105,000 for the second and third years. In addition, Mr. Upah
receives a monthly car allowance of $600. Upon commencement of his employment,
Mr. Upah was granted options to purchase 135,000 shares of common stock and,
upon closing of this offering, will receive an option to purchase an additional
60,000 shares of our common stock with an exercise price equal to the public
offering price set forth on the cover of this prospectus. In the event Mr.
Upah's employment is terminated without cause or by reason of disability, each
of the options granted under the agreement would vest immediately, and he would
receive a severance payment in an amount equal to his annual base salary and
annual bonus. Mr. Upah has agreed not to compete with us for a period of 12
months following the cessation of his employment.
Robert C. Hackett. We are a party to an employment agreement with Robert C.
Hackett, dated August 1, 1997. The term of the agreement is three years,
although we may, by mutual agreement with Mr. Robert Hackett, extend the
agreement for successive one-year terms. Pursuant to the agreement, we are
obligated to pay Mr. Robert Hackett an initial annual salary of $165,000. This
salary automatically increases by 20% at the end of each of the first three
years of the agreement. In addition, Mr. Robert Hackett receives a monthly car
allowance of $600 and is eligible for annual discretionary bonuses. In the
event Mr. Robert Hackett's employment is terminated without cause or by reason
of disability, he would receive a severance payment in an amount equal to his
annual base salary. In the event Mr. Robert Hackett resigns or his employment
is terminated with cause, he has agreed not to compete with us for a period of
12 months following the cessation of his employment.
Susan M. Georgen-Saad. We are a party to an employment agreement with Susan
M. Georgen-Saad, dated January 27, 1999. The term of the agreement is two
years. Pursuant to the agreement, Ms. Georgen-Saad's initial annual salary of
$124,000 was increased to $150,000 on January 1, 1999. In addition,
Ms. Georgen-Saad receives a monthly car allowance of $600 and is eligible for
annual discretionary bonuses. Upon commencement of her employment, Ms. Georgen-
Saad was granted options to purchase 135,000 shares
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of common stock and, upon the closing of this offering, Ms. Georgen-Saad will
receive an option to purchase an additional 60,000 shares of our common stock
with an exercise price equal to the public offering price set forth on the
cover of this prospectus. In the event Ms. Georgen-Saad's employment is
terminated without cause or by reason of disability, each of the options
granted under the agreement would vest immediately, and she would receive a
severance payment in an amount equal to one-half her annual base salary. Ms.
Georgen-Saad has agreed not to compete with us for a period of 12 months
following the cessation of her employment.
Louis A. Scalpati. We are a party to an employment agreement with Louis A.
Scalpati, dated August 1, 1997. The term of the agreement is three years,
although we may, by mutual agreement with Mr. Scalpati, extend the agreement
for successive one-year terms. Pursuant to the agreement, we are obligated to
pay Mr. Scalpati an initial annual salary of $145,000. This salary
automatically increases by 20% at the end of each of the first three years of
the agreement. In addition, Mr. Scalpati receives a monthly car allowance of
$600 and is eligible for annual discretionary bonuses. In the event Mr.
Scalpati's employment is terminated without cause or by reason of disability,
he would receive a severance payment in an amount equal to his annual base
salary. In the event Mr. Scalpati resigns or his employment is terminated with
cause, he has agreed not to compete with us for a period of 12 months following
the cessation of his employment.
Agreements with Dr. C. Everett Koop
Name and Likeness Agreement. We are a party to an agreement, dated January 5,
1999 and amended effective as of January 5, 1999, with Dr. C. Everett Koop. The
Koop Agreement permits us to use the image, name and likeness of Dr. C. Everett
Koop in connection with healthcare-related software services and products.
Under the Koop Agreement, our use of Dr. Koop's name, image or likeness is
subject to his prior written approval of the resulting products, which may not
be unreasonably withheld and which must be rendered within ten working days of
our request. Upon his death, these approvals will be made by Dr. Koop's estate.
The agreement is exclusive except that it does not prohibit non-profit
activities of the Koop Institute. The term of the Koop Agreement is for five
years subject to automatic renewal for additional three year terms unless
terminated by either party within 120 days of the end of each term. If a
voluntary termination is requested by Dr. Koop and is not the result of a
breach or default by us, we will have the right on a non-exclusive basis for
three years following voluntary termination to rebrand and sell approved
products bearing the name, image or likeness of Dr. Koop. If we default in our
obligations and do not promptly cure the default, Dr. C. Everett Koop may
terminate the Koop Agreement immediately, no rebranding period will apply and
we would immediately lose all rights to use Dr. Koop's name and likeness. Dr.
C. Everett Koop may also terminate the Koop Agreement upon a change in control
of our company. Any development that would cause Dr. C. Everett Koop to
exercise his right to terminate his relationship with us or which otherwise
would cause us to lose the benefits of our affiliation with him would have a
material adverse effect on our business, results of operation and financial
condition.
As consideration for the Koop Agreement, we are obligated to pay Dr. C.
Everett Koop a royalty equal to two percent (2%) of our revenues derived from
sales of our current products during the term of the agreement including any
rebranding period. In the event any new products are developed in the future,
the royalty will be between two percent (2%) and four percent (4%) of revenues
as determined by the board of directors. We have agreed with Dr. C. Everett
Koop that, when we introduce a personal medical records feature to our users,
we will obtain appropriate and fully informed consent from the user in
compliance with all applicable laws and regulations and will take reasonable
precautions to assure the security of that data. A personal medical records
feature is a product which permits our users to store historical personal and
healthcare information in a secure portion of our database. The Koop Agreement
obligates us to convey to Dr. C. Everett Koop the trademarks "drkoop.com,"
"Dr. Koop's Community" and "Dr. Koop's Personal Medical Records" upon
termination of the Koop Agreement including any rebranding period.
Consulting Agreement. We are party to a letter agreement with Dr. C. Everett
Koop dated October 1, 1997. Under the agreement, which is for a three year
term, we paid him $100,000 for the first year ended September 30, 1998, and are
obligated to pay him $135,000 in the second year ending September 30, 1999 and
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$150,000 in the third year ending September 30, 2000. These amounts represent
the cash compensation payable to Dr. Koop for services provided to us as a
consultant and director. Dr. Koop has also provided lecture services from time
to time for which he has been separately compensated, and he has also been
granted stock options to purchase an aggregate of 285,375 shares of common
stock with a weighted average exercise price of $0.27 per share. The options
vested immediately on the date of grant.
Other Consulting Agreements with Directors
John F. Zaccaro. We are party to a letter agreement with John F. Zaccaro
dated October 1, 1997. Under the agreement, which is for a three year term, we
paid him $100,000 for the first year ended September 30, 1998 and are obligated
to pay him $135,000 in the second year ending September 30, 1999 and $150,000
in the third year ending September 30, 1999. These amounts represent the cash
compensation payable to Mr. Zaccaro for services provided to us as a consultant
and director. He has also been granted stock options to purchase an aggregate
of 375,375 shares of common stock with a weighted average exercise price of
$0.21 per share. Options to purchase 90,000 shares will be fully vested on July
17, 1999. The other options to purchase 285,375 shares of common stock vested
immediately on the date of grant.
Dr. Nancy L. Snyderman. We are a party to an agreement, dated June 1, 1998,
with Dr. Nancy Snyderman, a director of our company. The Snyderman Agreement
permits us to use the image, name and likeness of Dr. Snyderman in connection
with healthcare-related software services and programs. The agreement is
exclusive in that Dr. Snyderman may not enter into agreements with companies
that directly compete with us, except that Dr. Snyderman may continue to act
under any agreements she entered into prior to entering into this agreement.
The term of the Snyderman Agreement is for three years subject to automatic
renewal for additional three year terms unless terminated by either party
within 60 days of the end of a given term. If the voluntary termination is
requested by Dr. Snyderman and is not the result of a breach or default by us,
we will have the right on a non-exclusive basis for two years following
voluntary termination to rebrand approved software services and programs
bearing the name, image or likeness of Dr. Snyderman. As consideration for the
Snyderman Agreement, we granted to Dr. Snyderman options to acquire 73,500
shares of our common stock with an exercise price of $0.39 per share. The
options vested immediately on the date of grant. Our use of Dr. Snyderman's
name, image or likeness is also subject to her prior written approval of the
resulting programs, which may not be unreasonably withheld and which must be
rendered within ten working days of our request.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or paid
to our Chief Executive Officer and the two other executive officers of the
Company whose annual salary and bonus exceeded $100,000 in 1998 for services
rendered in all capacities to us during 1998. We may refer to these officers as
our named executive officers in other parts of this prospectus.
In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted for the named
executive officers because the aggregate amount of such perquisites and other
personal benefits was less than the lesser of $50,000 or 10% of the total of
annual salary and bonuses for each of the named executive officers in 1998.
Dennis J. Upah, our Chief Operating Officer, joined drkoop.com in January 1999.
His annual salary is $140,000, and he is guaranteed a bonus of at least
$140,000 in 1999. Susan M. Georgen-Saad, our Chief Financial Officer, joined
drkoop.com in October 1998. Her annual salary is $150,000. In addition, each of
Mr. Upah and Ms. Georgen-Saad have been granted significant stock option awards
in connection with their employment. See "--Employment Agreements with
Management."
Our board of directors appointed two outside directors and an employee
director to our compensation committee on February 24, 1999. Criteria
previously established for determining executive bonus compensation, which is
expected to be ratified by our compensation committee, includes measurement
against predetermined management business objectives and our operating results
for the period in review.
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<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
-------------- Shares Underlying
Name and Principal Position Salary Bonus Options
--------------------------- -------- ----- -----------------
<S> <C> <C> <C>
Donald W. Hackett, President and Chief
Executive Officer........................... $146,250 -- 824,790
Robert C. Hackett, Jr., Executive Vice
President................................... $144,750 -- 186,000
Louis A. Scalpati, Senior Vice President,
Chief Architect............................. $129,750 -- 147,000
</TABLE>
Option Grants During the Year Ended December 31, 1998
The following table sets forth specified information regarding options
granted to each of the named executive officers during the year ended December
31, 1998. We have not granted any stock appreciation rights. The options were
granted under our Amended and Restated 1997 Stock Option Plan. In general,
options granted under the plan vest over four years and expire on the tenth
anniversary of the date of grant. The options granted to Donald W. Hackett
expire five years after the date of grant. Potential realizable values are net
of exercise price before taxes, and are based on the assumption that our common
stock 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 our projection or estimate of future stock price growth.
<TABLE>
<CAPTION>
Individual Grants
---------------------
Potential Realizable
Value At
Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to for Option Term
Options Employees Exercise Market Expiration ---------------------
Name Granted in 1998 Price Price Date 5% 10%
---- ---------- ---------- -------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald W. Hackett....... 390,000 15% $.33 $.30 3/24/03 $ 20,600 $ 61,900
Donald W. Hackett....... 434,790 16% $.33 $.30 4/27/03 $ 23,000 $ 69,000
Robert C. Hackett,
Jr. ................... 186,000 7% $.30 $.30 3/24/08 $ 15,400 $ 35,100
Louis A. Scalpati....... 147,000 5% $.30 $.30 3/24/08 $ 12,200 $ 27,700
</TABLE>
The percentage of total options granted to employees in 1998 shown in the
table above is based on options to purchase an aggregate of 2,683,805 shares of
common stock granted during the year ended December 31, 1998.
1998 Year-End Option Values
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the named executive officers at
December 31, 1998. None of the named executive officers exercised options to
purchase common stock during the year ended December 31, 1998. The value of in-
the-money options is based on the initial public offering price of $ per
share and is net of the option exercise price.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options At December 31, In-The-Money Options at
1998 December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald W. Hackett.......... 451,073 618,592
Robert C. Hackett, Jr. .... 403,500 45,000
Louis A. Scalpati.......... 400,125 75,000
</TABLE>
Stock Option Plans
Amended and Restated 1997 Stock Option Plan. Our Amended and Restated 1997
Stock Option Plan authorizes the issuance of up to 4,500,000 shares of common
stock. To date we have granted options to purchase an aggregate of 4,446,761
shares of common stock to employees, directors and consultants under the
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1997 Plan with a weighted average exercise price of $1.33 per share. From and
after the completion of this offering, no further options will be granted under
the 1997 Plan.
The board of directors, or a committee thereof, has the power to determine
the terms of the options, including the exercise price of the options, the
number of shares subject to each option, the exercisability thereof, and the
form of consideration payable on such exercise, provided that the exercise
price must be at least 100% of fair market value for incentive stock options
and not less than 85% of fair market value for nonqualified stock options. Any
options must be granted within ten years from the date of the 1997 Plan.
Incentive stock options granted to any holder of 10% or more of the combined
voting power of all classes of stock must have an exercise price of not less
than 110% of fair market value and be exercisable for a term of no more than
five years.
1999 Equity Participation Plan. Our 1999 Equity Participation Plan was
adopted by our board of directors in February 1999 as a successor equity plan
to our 1997 Plan. The 1999 Plan will become effective upon the completion of
this offering and thereafter no further grants will be made under the 1997
Plan. Up to 1,500,000 shares of common stock may be issued under the 1999 Plan.
The 1999 Plan provides for the discretionary grant of incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of
1986, to employees and for the grant of nonstatutory stock options, stock
appreciation rights, performance awards, dividend equivalents, stock payments
and deferred stock to employees and consultants. The 1999 Plan provides that we
cannot issue incentive stock options after February 2009. The 1999 Plan also
provides for grants to the non-employee directors of nonstatutory stock options
to purchase 15,000 shares of common stock upon initial election to the board of
directors and 5,000 shares of common stock annually thereafter (except that no
annual grant will be made if the director was first appointed to the board
within 90 days of the applicable annual meeting of stockholders). Dr. C.
Everett Koop and Mr. Zaccaro will not receive annual formula grants so long as
they receive compensation under their respective consulting agreements.
The 1999 Plan may be administered by the board or a board committee. The
administrator has the power to determine the terms of the options or other
awards granted, including the exercise price of the options or other awards,
the number of shares subject to each option or other award (up to 500,000 per
year per participant), the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, the administrator has
the authority to amend, suspend or terminate the 1999 Plan, provided that no
such action may affect any share of common stock previously issued and sold or
any option previously granted under the 1999 Plan without the consent of the
holder.
The exercise price of all incentive stock options granted under the 1999 Plan
must be at least equal to the fair market value of the common stock on the date
of grant. The exercise price of nonstatutory stock options and other awards
granted under the 1999 Plan is determined by the administrator, but with
respect to nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the tax code, the
exercise price must be at least equal to the fair market value of the common
stock on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive stock option
granted must be at least equal 110% of the fair market value on the grant date
and the term of such incentive stock option must not exceed five years. The
term of all other options granted under the 1999 Plan may not exceed ten years.
In the case of restricted stock, unless the administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with our company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to a restricted stock purchase agreement must be the
original price paid by the purchaser. The repurchase option will lapse at a
rate determined by the administrator.
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Options and other awards granted under the 1999 Plan are generally not
transferable by the optionee, and each option and other award is exercisable
during the lifetime of the optionee only by such optionee. Options granted
under the 1999 Plan must generally be exercised within 3 months after the end
of optionee's status as an employee, director or consultant, or within one year
after such optionee's termination by disability or death, respectively, but in
no event later than the expiration of the option's term.
The 1999 Plan provides that, in the event of a merger of drkoop.com with or
into another corporation, the administrator will have the authority, but not
the obligation to accelerate the vesting of each outstanding option and other
award, except that options issued to non-employee directors will vest in full
upon the closing of such a transaction. Contemporaneously with the closing of
this offering, we will grant options to purchase 127,500 shares of common stock
to three of our employees in accordance with their employment agreements. The
exercise price of these options will be the public offering price disclosed on
the cover of this prospectus.
Registration under the Securities Act. We intend promptly after the
completion of this offering to register on Form S-8 all shares of common stock
issuable upon exercise of compensatory stock options other than shares which
may be resold under Rule 701 without registration.
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PRINCIPAL STOCKHOLDERS
The following table sets forth specified information with respect to the
beneficial ownership of the common stock as of March 31, 1999, and as adjusted
to reflect the sale of the shares of common stock offered hereby, by:
(1) each person (or group of affiliated persons) who is known by us to
beneficially own 5% or more of the common stock;
(2) each of our directors;
(3) each of our named executive officers; and
(4) all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. Unless otherwise indicated, the persons named in the
table have sole voting and sole investment control with respect to all shares
beneficially owned. The number and percentage of shares beneficially owned are
based on 7,255,838 shares of common stock outstanding as of March 31, 1999,
assuming conversion of all outstanding shares of preferred stock into common
stock and assuming conversion of convertible notes and accrued interest. The
number and percentage of shares beneficially owned also assumes that shares of
common stock subject to options and other rights that are currently exercisable
or exercisable within 60 days of March 31, 1999 are deemed to be outstanding
and beneficially owned. The address for those individuals for which an address
is not otherwise indicated is: c/o drkoop.com, Inc., 8920 Business Park Drive,
Suite 200, Austin, Texas 78759.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior Owned After
To This Offering(1) This Offering(1)
---------------------------------------------
Beneficial Owner Number Percent Number Percent
---------------- ------------ ------------------- ----------
<S> <C> <C> <C> <C>
C. Everett Koop, M.D. (1).. 1,017,402 11%
John F. Zaccaro (2)........ 657,402 7
Donald W. Hackett (3)...... 2,823,361 30
Jeffrey C. Ballowe ........ -- *
Mardian J. Blair (4)....... 1,100,078 12
Adventist Health System 1,100,078 12
Sunbelt Healthcare
Corporation...............
111 North Orlando Avenue
Winter Park, Florida 32789
G. Carl Everett, Jr. ...... -- *
Richard D. Helppie, Jr.
(5)....................... 2,080,422 22
Superior Consultant 2,069,172 22
Holdings Corporation......
4000 Town Center, Suite
1100
Southfield, Michigan 48075
Nancy L. Snyderman, M.D.
(6)....................... 147,000 2
Robert C. Hackett, Jr.
(7)....................... 493,500 5
Louis A. Scalpati (8)...... 550,125 6
All directors and executive
officers as a group (10
persons).................. 8,869,290 94
</TABLE>
- --------
(1) Includes 285,375 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
(2) Includes 375,375 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999. The business address
of Mr. Zaccaro is 24050 Madison Street, Torrance, California 90505.
(3) Includes 657,271 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
64
<PAGE>
(4) Consists of 1,046,271 shares of common stock held by Adventist Health
Systems Sunbelt Healthcare Corporation and 53,808 shares of common stock
that will be issued to Adventist upon the closing of this Offering. Please
see "Certain Transactions." Mr. Blair, a director of drkoop.com, is also
the president of Adventist and disclaims beneficial ownership of the shares
held by Adventist. Mr. Blair's business address is the same as that of
Adventist.
(5) Consists of 1,584,906 shares of common stock held by Superior Consultant
Holdings Corporation, 484,266 shares of common stock that will be issued to
Superior upon the closing of this offering and 11,250 shares of common
stock issuable upon the exercise of options exercisable within 60 days of
March 31, 1999. Please see "Certain Transactions." Mr. Helppie, a director
of drkoop.com, is the Chairman of the Board and Chief Executive Officer of
Superior and disclaims beneficial ownership of the shares held by Superior.
Mr. Helppie's business address is the same as that of Superior.
(6) Consists of 147,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
(7) Includes 403,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
(8) Includes 400,125 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
65
<PAGE>
CERTAIN TRANSACTIONS
Series A Financing
From March 1, 1998 through April 6, 1998, we issued 247,641 shares of Series
A 8% Convertible Preferred Stock to 17 accredited investors for an aggregate
purchase price of $742,900. These shares will be converted into 268,691 shares
of common stock upon the closing of this offering. Three members of Donald W.
Hackett's immediate family purchased 41,802 shares of the stock for an
aggregate purchase price of $125,400.
Series B Financing
On April 28, 1998, we entered into a series of agreements with Superior
Consultant Holdings Corporation. Pursuant to the terms of a stock purchase
agreement, Superior purchased 1,540,239 shares of our Series B Non-Voting
Preferred Stock for a purchase price of $6,000,000. Superior has agreed that
these shares will automatically be converted into 1,584,906 shares of common
stock upon the closing of this offering. Pursuant to this agreement Superior
also acquired the right to have one or more designees appointed to our board of
directors. From and after the completion of this offering, we will be obligated
to include on our slate for the election of directors one designee of Superior
so long as they own not less than 10% of the outstanding common stock. Mr.
Hackett, our Chief Executive Officer, has agreed to vote his shares in favor of
Superior's designee. As part of this investment transaction, Richard D.
Helppie, Jr., Chief Executive Officer of Superior, became a director of
drkoop.com. If Superior's designee is other than Mr. Helppie, such person is
subject to the approval of our board of directors, which may not be
unreasonably withheld. In addition, Dr. C. Everett Koop was appointed a
director of Superior. Please see "Management--Compensation Committee Interlocks
and Insider Participation."
In connection with the issuance of the Series B shares, we also entered into
an option and put agreement and a registration rights agreement with Superior.
Among other things, the option and put agreement gives Superior the right to
require us to repurchase their shares at specified times prior to our initial
public offering and gave Superior the right to acquire an additional 1,540,239
shares of Series B Preferred Stock (convertible into 1,584,906 shares of common
stock) at an exercise price equal to seventy percent (70%) of the fair market
value of the underlying shares of common stock on the date of exercise. All
substantive provisions of the option and put agreement will be terminated at
the closing of this offering in exchange for the issuance of 484,266 shares of
common stock to Superior plus 53,808 shares to be issued to Adventist Health
System Sunbelt Healthcare Corporation to satisfy an anti-dilution right held by
them. The Adventist investment agreement includes a requirement that upon the
issuance of any shares to Superior under their option and put agreement,
additional shares will be issued to Adventist equal to approximately 9.9
percent of the total combined issuance. No further issuances are due to
Adventist under this anti-dilution adjustment provision because it is specific
to the Superior option and put agreement. Please see "Description of
Securities--Registration Rights" for a summary of the registration rights
granted to Superior.
Other Agreements with Superior
On April 29, 1998, we entered into a service agreement with Superior which
contemplates our retention of them on an exclusive basis to provide
professional services in connection with consulting and information technology
matters, including the construction of our website. The term of the agreement
is five years. The service agreement also includes an agreement calling for
Superior to recognize at least $3.0 million in professional services revenue
from its relationship with us (including specific work for other parties
referred by us) during the first year of the relationship. This commitment has
been modified to extend the period during which we may generate these revenues
to September 1999. During the year ended December 31, 1998, we paid Superior an
aggregate of approximately $1.5 million for services under the service
agreement. We believe that these services have been provided on terms not less
favorable than could have been obtained from an unaffiliated third party. This
assessment reflects the determination of our management based on their business
experience and other professional services firms engaged by them and is not
based on a request for competitive proposals or similar agreements maintained
with other parties.
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<PAGE>
Series C Financing
On January 29, 1999, we received $3.5 million in cash and acquired 10% of the
outstanding stock of HealthMagic, Inc., a subsidiary of Adventist Health System
Sunbelt Healthcare Corporation, in exchange for 1,046,271 shares of our Series
C convertible preferred stock, which will be converted into an equivalent
number of shares of common stock upon the closing of this offering. The parties
also entered into related agreements which provide for registration rights and
specified transfer restrictions. These agreements called for an Adventist
representative, Mr. Mardian J. Blair, to become a director of our company and
for us to designate a director of HealthMagic. The right of Adventist to
designate a director of drkoop.com will terminate with this offering, although
we expect Mr. Blair to continue to serve as a director. To the extent that our
board of directors deems it necessary, Mr. Blair abstains from discussions and
votes involving Adventist.
HealthMagic Transaction
On January 29, 1999, we established a technology relationship with
HealthMagic, a supplier of applications to Internet companies, whereby we
contributed to them our PMR product and received from them a license to use a
broad range of Internet technologies, including a web-enabled personal medical
record, personalization tools, and security and authentication features.
HealthMagic will develop, implement and support these technologies for us.
Currently, we expect to deploy these features in the first half of 1999. In
addition, on January 29, 1999 we entered into a content subscription and
software licensing agreement with Adventist for $500,000. The license fee was
fully paid at the execution of the license, and no future payments by Adventist
are required. Mardian J. Blair, a director of our company, is president of
Adventist.
Other Financing Agreement with Adventist
On March 3, 1999 we entered into a loan agreement with Adventist. Pursuant to
this agreement, Adventist is irrevocably obligated to loan to us the aggregate
principal amount of up to $2.0 million at an interest rate of 7% per annum.
Upon the closing of this offering, the principal amount borrowed under this
agreement and all accrued interest will, solely at Adventist's option, either
be due and payable or convert into common stock at a per share price of $18.57.
As of March 31, 1999, we had borrowed the full $2.0 million under this
agreement.
Hackett Loan Agreement
From July 1997 through March 1998, Donald W. Hackett loaned the company an
aggregate of $216,043. On March 16, 1998, we issued 720,144 shares of common
stock to Mr. Hackett in exchange for cancellation of this indebtedness. The
conversion price was established by the board of directors based on their
assessment of the fair market value of the common stock on the date of
conversion.
Agreements with Dr. C. Everett Koop
We are party to a name and likeness agreement and a consulting agreement with
Dr. Koop. For the year ended December 31, 1998 we accrued royalty fees of $855,
paid him lecture fees of $95,000 and director's fees of $83,333. Additionally,
during such period we reimbursed him for his travel and other expenses incurred
on company business in the amount of $9,200. For the year ended December 31,
1997, we paid Dr. Koop $2,200 in connection with certain services he rendered
to our company. Please see "Management--Agreements with Dr. C. Everett Koop."
Consulting Agreement with Mr. Zaccaro
We are party to a consulting agreement with Mr. Zaccaro pursuant to which we
paid him $83,333 for the year ended December 31, 1998. Please see "Management--
Other Consulting Agreements with Directors."
Name and Likeness Agreement with Dr. Snyderman
We are party to a name and likeness agreement with Dr. Snyderman. For the
year ended December 31, 1998, she received no cash compensation but was granted
options to purchase 73,500 shares of common stock
67
<PAGE>
for an exercise price of $0.30 per share, which we believe was not less than
fair market value on the date of grant. In addition, Dr. Snyderman was granted
options to purchase 73,500 shares of common stock for an exercise price of
$0.39 per share as compensation for her services as a director. All of these
options vested immediately on the date of grant. Please see "Consulting
Agreements with Other Directors."
Promoters of drkoop.com, Inc.
Each of Dr. Koop, Chairman of the Board, Mr. Zaccaro, Vice Chairman, Mr.
Donald Hackett, Chief Executive Officer and President, Mr. Robert Hackett,
Executive Vice President, Business Development, and Mr. Scalpati, Senior Vice
President, Chief Architect, is a co-founder of drkoop.com and may be deemed a
promoter for purposes of the federal securities laws. All material transactions
with such persons are described in this section or elsewhere in this
prospectus. Please see "Management" and Note 12 to the financial statements.
68
<PAGE>
DESCRIPTION OF SECURITIES
The following description of our capital stock and certain provisions of our
restated certificate of incorporation and bylaws are summaries thereof and are
qualified by reference to the certificate and the bylaws. Copies of these
documents have been filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part. The descriptions of the
common stock and preferred stock reflect changes to our capital structure that
will occur upon the closing of this offering.
Upon completion of this offering, our authorized capital stock consists of
75,000,000 shares of common stock, par value $0.001 per share, and 15,000,000
shares of preferred stock, par value $0.001 per share.
Common Stock
As of March 31, 1999, there were 7,255,838 shares of common stock outstanding
and held of record by 25 stockholders, assuming conversion of all outstanding
shares of preferred stock and the convertible note payable and accrued interest
as set forth under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and they do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
dividends, if any, as may be declared by the board of directors out of funds
legally available therefor, subject to any preferential dividend rights of any
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
drkoop.com the holders of common stock are entitled to receive ratably the net
assets of drkoop.com available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. Upon the closing of this offering, there will be no shares
of preferred stock outstanding.
Preferred Stock
Upon the closing of this offering, the board of directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 15,000,000 shares of preferred stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption including sinking fund provisions, redemption price
or prices, liquidation preferences and the number of shares constituting any
series or designations of such series. We have no present plans to issue any
shares of preferred stock. See "--Anti-Takeover Effects of Provisions of
Delaware Law and our Certificate of Incorporation and Bylaws."
Convertible Notes and Restated Warrants
On December 24, 1998, we issued a convertible note payable to a stockholder
in the original principal amount of $800,000--$500,000 of which was received in
1998--bearing simple interest at 6% per annum and due December 24, 1999, along
with five-year warrants to purchase 13,393 shares of Series C Preferred Stock
for an exercise price of $11.95 per share, which will become the right to
purchase 13,393 shares of common stock for $11.95 per share upon the closing of
this offering. Interest on the notes is payable at maturity. At any time prior
to the closing of this offering any unpaid principal and interest may be
converted at a conversion price of $11.95 per share.
On April 9, 1999, we entered into distribution agreements with Infoseek
Corporation and the Buena Vista Internet Group, a unit of The Walt Disney
Company. Under these agreements, we agreed to issue warrants to purchase an
aggregate of 310,000 shares of common stock at an exercise price of $21.50 per
share.
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<PAGE>
None of these warrants are exercisable prior to one year after issuance.
Registration Rights
Pursuant to the terms of the amended and restated investors' rights
agreement, after this offering, the holders of approximately 3,249,607 shares
of common stock will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of the
agreement between us and the holders of such registrable securities, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such common stock therein. Additionally,
such holders are also entitled to certain demand registration rights pursuant
to which they may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock, and
we are required to use our best efforts to effect such registration. All of
these registration rights are subject to conditions and limitations, among them
the right of the underwriters of an offering to limit the number of shares
included in such registration and our right not to effect a requested
registration within six months following an offering of our securities,
including this offering. In addition, we have agreed to use our best efforts to
provide similar registration rights to the holders of convertible promissory
notes in the event holders convert the notes into shares of common stock.
Please see "Shares Eligible for Future Sale."
Anti-Takeover Effects of Provisions Of Delaware Law and Our Certificate of
Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 of Delaware law
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, fifteen percent or more of a corporation's voting
stock. This statute could prohibit or delay the accomplishment of mergers or
other takeover or change in control attempts with respect to drkoop.com and,
accordingly, may discourage attempts to acquire us.
In addition, some provisions of the certificate and bylaws may be deemed to
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by our stockholders. These provisions include:
Board of Directors. Our board of directors will be divided into three classes
of directors serving staggered three year terms. The certificate of
incorporation authorizes our board of directors to fill vacant directorships or
increase the size of the board of directors. Accordingly, even if a stockholder
brings a successful proxy fight, he would likely only be able to elect a
minority of our board of directors at any one annual meeting.
Stockholder Action; Special Meeting of Stockholders. The certificate of
incorporation provides that stockholders may not take action by written
consent, but only at a duly called annual or special meeting of stockholders.
The certificate of incorporation further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors, by a
committee of the board of directors or a majority of the board of directors,
and in no event may the stockholders call a special meeting. Thus, without
approval by the board of directors or chairman, stockholders may take no action
between annual meetings.
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<PAGE>
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice of this intention in writing. To be timely, a stockholder's notice must
be delivered to or mailed and received at our principal executive offices not
less than 120 days prior to the first anniversary of the date of our notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders. However, if no annual meeting of stockholders was held in the
previous year or the date of the annual meeting of stockholders has been
changed to be more than 30 calendar days from the time contemplated at the time
of the previous year's proxy statement, then a proposal shall be received no
later than the close of business on the 10th day following the date on which
notice of the date of the meeting was mailed or a public announcement was made,
whichever first occurs. The bylaws also include a similar requirement for
making nominations at special meetings and specify requirements as to the form
and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual or special meeting of
stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to certain limitations imposed by the Nasdaq National Market.
These additional shares may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of the drkoop.com by means
of a proxy contest, tender offer, merger or otherwise.
Delaware law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
drkoop.com has provisions in its certificate and bylaws which require a super-
majority vote of the stockholders to amend, revise or repeal anti-takeover
provisions.
Limitation of Liability and Indemnification Matters
The certificate of incorporation provides that, except to the extent
permitted by Delaware law, our directors shall not be personally liable to us
or our stockholders for monetary damages for any breach of fiduciary duty as a
director. Under Delaware law, the directors have a fiduciary duty to us that is
not eliminated by this provision of the certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or that involve
intentional misconduct, or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by the
Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws.
Section 145 of the Delaware corporate law empowers a corporation to indemnify
its directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided
that this provision shall not eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. arising under Section 174 of the Delaware corporate law; or
. for any transaction from which the director derived an improper personal
benefit.
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<PAGE>
Delaware law provides further that the indemnification permitted by that law
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under a corporation's bylaws, any agreement, a vote of
stockholders or otherwise. The certificate of incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware corporate law and provides that we may fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was an employee, director or officer of drkoop.com or is or
was serving at our request as an employee, director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in the bylaws. We believe that
these provisions and agreements are necessary to attract and retain qualified
directors and officers. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions, regardless of whether Delaware law would permit
indemnification.
Transfer Agent And Registrar
Upon the closing of this offering, the transfer agent and registrar for the
common stock will be American Stock Transfer Trust Company.
Listing
We have applied to have our common stock admitted for quotation on the Nasdaq
National Market under the symbol "KOOP."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of the common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of common stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our future ability
to raise capital through the sale of equity securities. See "Risk Factors--
There will be a Significant Number of Shares Eligible for Future Sale."
Upon the closing of this offering, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, the shares sold in this offering will be freely tradable,
except that any shares held by "affiliates" (as that term is defined in Rule
144 promulgated under the Securities Act) may only be sold in compliance with
the limitations described below. The remaining shares of common stock will
be deemed "restricted securities" as defined under Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
After the date of this prospectus
Upon the filing of a registration statement to register for resale
shares of common stock issuable upon the exercise of options granted
under drkoop.com, stock option plan
At various times after 90 days from the date of this prospectus
(Rule 144)
After 180 days from the date of this prospectus (subject, in some
cases, to volume limitations)
At various times after 180 days from the date of this prospectus
(Rule 144)
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock (approximately shares immediately after this
offering) or the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions. In addition, a person who is not deemed to have been
an affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate, such person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliate.
Our directors and officers and certain stockholders who hold shares in
the aggregate, together with the holders of options to purchase shares of
common stock and the holders of warrants to purchase shares of common
stock, have agreed that they will not offer, sell or agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock without the
prior written consent of Bear, Stearns & Co. Inc. for a period of 180 days from
the date of this Prospectus. Please see "Underwriting."
We have agreed not to sell or otherwise dispose of any shares of common stock
during the 180-day period following the date of the prospectus, except that we
may issue, and grant options to purchase, shares of common stock under the 1999
Equity Participation Plan. In addition, we may issue shares of common stock in
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<PAGE>
connection with any acquisition of another company if the terms of such
issuance provide that such common stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. See
"Risk Factors--There will be a Significant Number of Shares Eligible for Future
Sale."
Following this offering, holders of shares of outstanding common stock
will have demand registration rights with respect to their shares of common
stock (subject to the 180-day lock-up arrangement described above) to require
us to register their shares of common stock under the Securities Act, and they
will have certain rights to participate in any future registration of our
securities. We are not required to effect more than an aggregate of three
demand registrations on behalf of such holders. These holders are subject to
lock-up periods of not more than 180 days following the date of this prospectus
or any subsequent prospectus. In addition, we have agreed to use our best
efforts to provide similar registration rights to the holders of convertible
promissory notes in the event the holders convert the notes into shares of
common stock. The notes are convertible into an aggregate of up to 188,476
shares of common stock. See "Description of Securities--Registration Rights."
We also plan to register all shares issuable under our stock option plans on
Form S-8 or to otherwise permit the resale of those shares in reliance on Rule
701 under the Securities Act.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and drkoop.com, each of the underwriters named below,
through their representatives Bear, Stearns & Co. Inc., William Blair &
Company, L.L.C. and Wit Capital Corporation as e-Manager(TM), has severally
agreed to purchase from drkoop.com the aggregate number of shares of common
stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ..........................................
William Blair & Company, L.L.C. ...................................
Wit Capital Corporation............................................
---
Total............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the underwriters' obligations is such
that they are committed to purchase and pay for all of the above shares of
common stock if any are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the "public offering price" set forth on the cover page of this
prospectus and at such price less a concession not in excess of $ per share
of common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and such dealers may
reallow, concessions not in excess of $ per share of common stock to certain
other dealers. After this offering, the offering price, concessions and other
selling terms may be changed by the underwriters. The common stock is offered
subject to receipt and acceptance by the underwriters and to certain other
conditions, including the right to reject orders in whole or in part.
The underwriters, at the request of drkoop.com, have reserved for sale at the
initial public offering price up to shares of common stock to registered
users of drkoop.com's website who express an interest in purchasing such
shares. The sale of such shares will be made by Wit Capital acting as
e-Manager(TM) in the offering. Purchases of the reserved shares are to be made
through an account at Wit Capital in accordance with Wit Capital's procedures
for opening an account and transacting in securities. Any reserved shares not
purchased by registered users of our website will be offered by the
underwriters on the same basis as other shares offered hereby. The prospectus
in electronic format is being made available on an Internet website maintained
by Wit Capital Corporation.
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common stock
exercisable at the "public offering price" less the "underwriting discounts and
commissions," each as set forth on the cover page of this prospectus. If the
underwriters exercise such option in whole or in part, then each of the
underwriters will be severally committed, subject to certain conditions,
including the approval of certain matters by counsel, to purchase the
additional shares of common stock in proportion to their respective purchase
commitments as indicated in the preceding table.
75
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by us and the expenses payable by us.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us............................... $ $ $
Expenses payable by us.................... $ $ $
</TABLE>
The underwriters, at the request of drkoop.com, have reserved for sale at the
initial public offering price up to percent of the shares of common stock
to be sold in this offering for sale to our employees of and its
affiliates, and to their associates and related persons. The number of shares
available for sale to the general public will be reduced to the extent that any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the underwriters on the same basis as the other shares offered
hereby.
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the
Securities Act of 1933, as amended, or will contribute to payments that the
underwriters may be required to make in respect thereof.
Our directors and officers and certain stockholders who hold shares in
the aggregate, together with the holders of options to purchase shares of
common stock and the holders of warrants to purchase shares of common
stock, have agreed that they will not offer, sell or agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock in the public
market without the prior written consent of Bear, Stearns & Co. Inc. for a
period of 180 days from the date of this prospectus.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not, without the prior written consent of Bear, Stearns
& Co. Inc., offer, sell or otherwise dispose of any shares of common stock
except for the shares of common stock offered hereby and the shares of common
stock issuable upon exercise of outstanding options and warrants.
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the underwriters. Among the factors
to be considered in such negotiations will be our results of operations in
recent periods, estimates of our prospects and the industry in which we
compete, an assessment of our management, the general state of the securities
markets at the time of this offering and the prices of similar securities of
generally comparable companies. We have applied for approval for the quotation
of our common stock on the Nasdaq National Market, under the symbol "KOOP."
There can be no assurance, however, that an active or orderly trading market
will develop for the common stock or that the common stock will trade in the
public markets subsequent to this offering at or above the initial offering
price. Please see "Risk Factors--The liquidity of our common stock is uncertain
since it has not been publicly traded."
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than we have sold to them. The underwriters may elect to cover any
such short position by purchasing shares of common stock in the open market or
by exercising the over-allotment option granted to the underwriters. In
addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market
and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
76
<PAGE>
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price
at a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
A relative of a person associated with one of the underwriters entered into a
loan agreement in March 1999 to purchase promissory notes in the principal
amount of $500,000. The loan agreement contains substantially the same terms
and conditions as the loan agreements entered into by other investors.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for drkoop.com, Inc. by Latham & Watkins, Menlo Park, California. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The financial statements for drkoop.com, Inc. as of December 31, 1997 and
1998 and for the period from July 17, 1997 (date of inception) to December 31,
1997, the year ended December 31, 1998, and the cumulative period from July 17,
1997 (date of inception) to December 31, 1998, included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of that firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
the exhibits, schedules and amendments thereto) under the Securities Act with
respect to the shares of common stock to be sold in this offering. As permitted
by the SEC's rules and regulations, this prospectus does not contain all the
information set forth in the registration statement. For further information
regarding our company and the shares of common stock to be sold in this
offering, please refer to the registration statement and the contracts,
agreements and other documents filed as exhibits to the registration statement.
You may read and copy all or any portion of the registration statement or any
other information that we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the SEC's website (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
77
<PAGE>
drkoop.com, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999, actual
(unaudited) and pro forma (unaudited).................................... F-3
Statements of Operations for the period from July 17, 1997 (date of
inception) to December 31, 1997, the year ended December 31, 1998, the
cumulative period from July 17, 1997 (date of inception) to December 31,
1998, and the three months ended March 31, 1998 (unaudited) and 1999
(unaudited).............................................................. F-4
Statements of Changes in Stockholders' Deficit for the period from July
17, 1997 (date of inception) to December 31, 1997, the year ended
December 31, 1998, and the three months ended March 31, 1999
(unaudited).............................................................. F-5
Statements of Cash Flows for the period from July 17, 1997 (date of
inception) to December 31, 1997, the year ended December 31, 1998, the
cumulative period from July 17, 1997 (date of inception) to December 31,
1998, and the three months ended March 31, 1998 (unaudited) and 1999
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
drkoop.com, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' deficit and cash flows listed in the index
on page F-1 of this Form S-1 Registration Statement present fairly, in all
material respects, the financial position of drkoop.com, Inc., a development
stage enterprise ("the Company"), at December 31, 1997 and 1998, and the
results of its operations and its cash flows for the period from July 17, 1997
(date of inception) to December 31, 1997, for the year ended December 31, 1998,
and the cumulative period from July 17, 1997 (date of inception) to December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses and negative cash flows
from operations since inception, which raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
March 4, 1999
F-2
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31, 1999
----------------------- --------------------------
1997 1998 Actual Pro Forma
--------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............ $ 7,586 $ 303 $ 2,021,273 $ 2,021,273
Accounts receivable..... -- 40,531 405,725 405,725
Employee receivables.... -- 4,130 2,630 2,630
Prepaids and other...... -- 17,500 108,940 108,940
--------- ------------ ------------ ------------
Total current assets.. 7,586 62,464 2,538,568 2,538,568
Equipment, furniture and
fixtures, net............ 35,204 306,539 389,745 389,745
Investment in affiliate... -- -- 5,000,000 5,000,000
Intangible, net........... -- -- 3,777,778 3,777,778
Other assets.............. -- 11,373 11,373 11,373
--------- ------------ ------------ ------------
Total assets.......... $ 42,790 $ 380,376 $ 11,717,464 $ 11,717,464
========= ============ ============ ============
Liabilities and
Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable........ $ 57,747 $ 804,459 $ 860,437 $ 860,437
Accrued liabilities..... 61,993 519,800 1,327,090 1,315,248
Related party payables.. 537,308 1,193,125 104,049 104,049
Deferred revenue........ -- -- 544,372 544,372
Convertible notes
payable to
stockholders, net of
discount of $49,439 and
$59,326 at December 31,
1998 and March 31,
1999................... -- 450,561 2,740,674 --
--------- ------------ ------------ ------------
Total current
liabilities.......... 657,048 2,967,945 5,576,622 2,824,106
Commitments and
contingencies (Note 6)... -- -- -- --
Mandatorily redeemable
convertible (Series B)
preferred stock;
liquidation preference of
$2,998,408 (Note 8)...... -- 12,835,650 30,296,306 --
Stockholders' equity
(deficit):
Convertible preferred
stock: $0.001 par
value; 15,000,000
shares authorized:
Series A 300,000 shares
designated; 247,641
shares issued and
outstanding;
liquidation preference
of $790,639 and
$805,498 (unaudited)
at December 31, 1998
and March 31, 1999.... -- 248 248 --
Series C 1,200,000
shares designated:
1,046,271 shares
issued and outstanding
(unaudited);
liquidation preference
of $12,440,162........ -- -- 1,046 --
Common stock: $0.001 par
value; 15,000,000
shares authorized;
2,700,000 and 3,420,144
shares issued and
outstanding in 1997 and
1998, 3,642,221
(unaudited) and
7,255,838 (unaudited)
shares at March 31,
1999, actual and
proforma............... 2,700 3,420 3,642 7,256
Additional paid-in
capital................ 6,300 -- -- 33,105,828
Deferred stock
compensation........... -- (252,017) (2,475,039) (2,475,039)
Amounts receivable from
common stockholders.... (1,300) -- -- --
Accumulated deficit..... (621,958) (15,174,870) (21,685,361) (21,744,687)
--------- ------------ ------------ ------------
Total stockholders'
equity (deficit)..... (614,258) (15,423,219) (24,155,464) 8,893,358
--------- ------------ ------------ ------------
Total liabilities and
stockholders' equity
(deficit)............ $ 42,790 $ 380,376 $ 11,717,464 $ 11,717,464
========= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative
Period from Year Period from Three Months Ended
Inception to Ended Inception to March 31,
December 31, December 31, December 31, -----------------------
1997 1998 1998 1998 1999
------------ ------------ ------------ --------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Content subscription
and software
license.............. $ -- $ 27,000 $ 27,000 $ -- $ 216,216
Advertising and
sponsorship.......... -- 15,470 15,470 -- 187,526
Other................. -- 264 264 -- 473
---------- ------------ ------------ --------- ------------
-- 42,734 42,734 -- 404,215
---------- ------------ ------------ --------- ------------
Operating expenses:
Production, content
and product
development.......... 460,629 4,448,125 4,908,754 283,716 1,034,654
Sales and marketing... -- 2,008,372 2,008,372 165,927 2,048,090
General and
administrative....... 161,329 2,616,883 2,778,212 259,244 1,177,114
---------- ------------ ------------ --------- ------------
Total operating
expenses........... 621,958 9,073,380 9,695,338 708,887 4,259,858
---------- ------------ ------------ --------- ------------
Loss from operations.... (621,958) (9,030,646) (9,652,604) (708,887) (3,855,643)
Interest income
(expense).............. -- 33,646 33,646 -- (30,922)
---------- ------------ ------------ --------- ------------
Net loss.............. (621,958) (8,997,000) (9,618,958) (708,887) (3,886,565)
Accretion of redeemable
securities to fair
value.................. -- (8,715,650) (8,715,650) -- (17,460,656)
---------- ------------ ------------ --------- ------------
Loss attributable to
common stockholders.... $ (621,958) $(17,712,650) $(18,334,608) $(708,887) $(21,347,221)
========== ============ ============ ========= ============
Net loss per share--
basic and diluted...... $ (.23) $ (5.47) $ (5.99) $ (.25) $ (6.23)
========== ============ ============ ========= ============
Shares used in per share
calculations--basic and
diluted................ 2,700,000 3,240,108 3,060,072 2,812,022 3,427,547
========== ============ ============ ========= ============
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (1.86) $ (.59)
============ ============
Shares used in pro forma
calculations--basic and
diluted (unaudited).... 4,844,268 6,538,939
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
For the Period from Inception to December 31, 1997, the Year Ended December
31, 1998, and the Three Months Ended March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts
Preferred Stock Common Stock Additional Deferred Receivable
---------------- ---------------- Paid-in Stock from Common Accumulated
Shares Amount Shares Amount Capital Compensation Stockholders Deficit Total
--------- ------ --------- ------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock in July 1997
to founders for
cash and other
consideration..... -- $ -- 2,700,000 $2,700 $ 6,300 $ -- $(1,300) $ -- $ 7,700
Net loss.......... -- -- -- -- -- -- -- (621,958) (621,958)
--------- ------ --------- ------ ----------- ----------- ------- ------------ ------------
Balance at
December 31,
1997.............. -- -- 2,700,000 2,700 6,300 -- (1,300) (621,958) (614,258)
Issuance of Series
A preferred stock
for cash,
net of issuance
costs of $6,232... 210,300 210 -- -- 624,456 -- -- -- 624,666
Issuance of Series
A preferred stock
for services...... 37,341 38 -- -- 111,987 -- -- -- 112,025
Issuance of
options to Series
B stockholders.... -- -- -- -- 1,880,000 -- -- -- 1,880,000
Issuance of common
stock upon
conversion of
stockholder note
payable........... -- -- 720,144 720 215,323 -- -- -- 216,043
Payment received
on amounts
receivable from
common
stockholders...... -- -- -- -- -- -- 1,300 -- 1,300
Deferred stock
compensation...... -- -- -- -- 272,233 (272,233) -- -- --
Amortization of
deferred stock
compensation...... -- -- -- -- -- 20,216 -- -- 20,216
Issuance of
warrant to
convertible note
holder............ -- -- -- -- 49,439 -- -- -- 49,439
Accretion of
redeemable
securities to fair
value............. -- -- -- -- (3,159,738) -- -- (5,555,912) (8,715,650)
Net loss.......... -- -- -- -- -- -- -- (8,997,000) (8,997,000)
--------- ------ --------- ------ ----------- ----------- ------- ------------ ------------
Balance at
December 31,
1998.............. 247,641 248 3,420,144 3,420 -- (252,017) -- (15,174,870) (15,423,219)
Issuance of Series
C preferred stock
for cash and
investment
(unaudited)....... 1,046,271 1,046 -- -- 12,498,954 -- -- -- 12,500,000
Amortization of
deferred stock
compensation
(unaudited)....... -- -- -- -- -- 72,739 -- -- 72,739
Issuance of
warrant to
convertible note
holder
(unaudited)....... -- -- -- -- 29,663 -- -- -- 29,663
Exercise of stock
options
(unaudited)....... -- -- 222,077 222 12,352 -- -- -- 12,574
Deferred stock
compensation
(unaudited)....... -- -- -- -- 2,295,761 (2,295,761) -- -- --
Accretion of
redeemable
securities to fair
value
(unaudited)....... -- -- -- -- (14,836,730) -- -- (2,623,926) (17,460,656)
Net loss
(unaudited)....... -- -- -- -- -- -- -- (3,886,565) (3,886,565)
--------- ------ --------- ------ ----------- ----------- ------- ------------ ------------
Balance as of
March 31, 1999
(unaudited)....... 1,293,912 $1,294 3,642,221 $3,642 $ -- $(2,475,039) $ -- $(21,685,361) $(24,155,464)
========= ====== ========= ====== =========== =========== ======= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from Year Period from Three Months Ended
Inception to Ended Inception to March 31,
December 31, December 31, December 31, ----------------------
1997 1998 1998 1998 1999
------------ ------------ ------------ --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss............. $(621,958) $(8,997,000) $(9,618,958) $(708,887) $(3,886,565)
Depreciation and
amortization........ 6,941 64,090 71,031 5,036 258,631
Amortization of
deferred stock
compensation........ -- 20,216 20,216 -- 72,739
Interest accretion on
convertible note
payable to
stockholders........ -- -- -- -- 19,776
Stock issued for
services............ 2,000 112,025 114,025 -- --
Changes in assets and
liabilities:
Accounts
receivable........ -- (40,531) (40,531) -- (365,194)
Employee
receivables....... -- (4,130) (4,130) (500) 1,500
Prepaids and other
current assets.... -- (17,500) (17,500) (7,264) (91,440)
Other assets....... -- (11,373) (11,373) -- --
Accounts payable... 57,747 746,712 804,459 75,416 55,978
Accrued expenses... 61,993 457,807 519,800 158,150 807,290
Related party
payable........... 537,308 871,860 1,409,168 (23,783) (1,089,076)
Deferred revenue... -- -- -- -- 544,372
--------- ----------- ----------- --------- -----------
Cash provided by
(used in)
operating
activities...... 44,031 (6,797,824) (6,753,793) (501,832) (3,671,989)
--------- ----------- ----------- --------- -----------
Investing Activities:
Purchase of
equipment, furniture
and fixtures........ (42,145) (335,425) (377,570) (29,030) (119,615)
--------- ----------- ----------- --------- -----------
Cash used in
investing
activities...... (42,145) (335,425) (377,570) (29,030) (119,615)
--------- ----------- ----------- --------- -----------
Financing Activities:
Proceeds from
issuance of
convertible note
payable to
stockholder......... -- 500,000 500,000 -- 2,300,000
Proceeds from
issuance of
preferred stock,
net................. -- 6,624,666 6,624,666 518,680 3,500,000
Proceeds from
issuance of common
stock, net.......... 5,700 -- 5,700 -- 12,574
Repayment of
stockholder
payables............ -- 1,300 1,300 -- --
--------- ----------- ----------- --------- -----------
Cash provided by
financing
activities.......... 5,700 7,125,966 7,131,666 518,680 5,812,574
--------- ----------- ----------- --------- -----------
Increase (decrease) in
cash and cash
equivalents........... 7,586 (7,283) 303 (12,182) 2,020,970
Cash and cash
equivalents at
beginning of period... -- 7,586 -- 7,586 303
--------- ----------- ----------- --------- -----------
Cash and cash
equivalents at end of
period................ $ 7,586 $ 303 $ 303 $ (4,596) $ 2,021,273
========= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
1. Organization and Basis of Presentation
drkoop.com, Inc. (formerly Empower Health Corporation and Personal Medical
Records, Inc.) ("the Company"), a Delaware corporation, was incorporated on
July 17, 1997 (date of inception). The Company's name as of March 4, 1999
was Empower Health Corporation, a Texas corporation. The Company is in the
process of reincorporating in the State of Delaware as drkoop.com, Inc. This
change has been reflected in the financial statements. The Company operates
an Internet-based consumer healthcare network, consisting of an interactive
website providing consumers with healthcare information and services, as
well as affiliate relationships with portals, other websites, local
healthcare organizations and traditional media outlets.
The Company has sustained losses and negative cash flows from operations
since its inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to raise
additional financing through public or private equity financings, establish
profitable operations, enter into collaborative or other arrangements with
corporate sources, or secure other sources of financing to fund operations.
During 1998, the Company received cash and services of approximately $6.7
million through the issuance of preferred stock. In January 1999, the
Company received approximately $4.3 million through transactions which
included the issuance of preferred stock, convertible debt and warrants.
Additionally, the Company has received loan commitments from a preferred
stockholder and new investors to finance anticipated working capital
requirements up to $5.5 million.
Management intends to raise working capital through additional equity and/or
debt financings in the near future. If anticipated financing transactions
and operating results are not achieved, management has the intent and
believes it has the ability to delay or reduce expenditures so as not to
require additional financial resources, if such resources were not available
on terms acceptable to the Company. Nevertheless, these matters raise
substantial doubt about the Company's ability to continue as a going
concern. This uncertainty will be mitigated if the Company successfully
completes the initial public offering of its common stock which it is
pursuing. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services.
These risks include the failure to develop and extend the Company's on-line
service brands, the rejection of the Company's services by Internet
consumers, vendors and/or advertisers, the inability of the Company to
maintain and increase the levels of traffic on its on-line services, as well
as other risks and uncertainties. In the event that the Company does not
successfully implement its business plan, certain assets may not be
recoverable.
2. Summary of Significant Accounting Policies
Development Stage Enterprise
For the period from inception through December 31, 1998, the Company was a
development stage enterprise, as planned principal operations had not yet
begun to generate significant revenue. In its development stage, all pre-
operating costs have been expensed as incurred.
Interim Financial Statements (Unaudited)
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited and should be read in conjunction with
the Company's annual financial statements for the year ended December 31,
1998. Such interim financial statements have been prepared in conformity
with
F-7
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
the rules and regulations of the Securities and Exchange Commission. Certain
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations pertaining to interim financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been
included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
Unaudited Pro Forma Information
In conjunction with the Company's anticipated initial public offering, all
of the Company's outstanding convertible preferred stock and convertible
notes payable to stockholders will be converted into shares of common stock.
The pro forma effect of these conversions has been reflected in the
accompanying unaudited pro forma balance sheet assuming the conversion had
occurred on March 31, 1999. Original issue discount representing the
unamortized portion of the value attributed to the warrants on such
convertible notes amounting to approximately $59,000 has been charged to
accumulated deficit (interest expense) as of the assumed date of conversion.
Cash Equivalents
Highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the
assets, generally three to seven years. Upon disposal, the Company removes
the asset and the accumulated depreciation from its records and recognizes
the related gain or loss in the results of operations.
Revenue Recognition
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of
time for a fixed fee. Advertising revenues are recognized ratably as
impressions or pages are delivered, provided that no significant obligations
remain. To the extent that minimum guaranteed page deliveries are not met,
the Company defers recognition of the corresponding revenues until the
guaranteed page deliveries are achieved. In advertising arrangements in
which the Company is deemed to bear all material economic risks, revenues
are recorded at gross, with commissions stated separately as selling
expense. In advertising arrangements in which the Company is not deemed to
bear material economic risks, revenues are recorded net of commissions.
Sponsorship revenues are derived principally from contracts in which the
Company commits to provide sponsors enhanced promotional opportunities
beyond traditional banner advertising. Sponsorship agreements typically
include the delivery of impressions, exclusive relationships and the design
and development of customized features designed to enhance the promotional
objective of the sponsor. The portion of sponsorship revenues related to the
delivery of impressions are recognized ratably in the period in which the
advertisement is displayed, provided that no significant obligations remain.
To the extent that minimum guaranteed page deliveries are not met, the
Company defers recognition of the corresponding revenue until the guaranteed
page deliveries are achieved.
F-8
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
Content subscription and software license revenues are derived from
contracts under the Dr. Koop Community Partner Program with local affiliates
such as healthcare providers and third party payor organizations. Sales of
software licenses to Community Partner Program affiliates are recognized as
revenue upon shipment of the software, provided that the portion of the
contract allocated to the software license is based upon vendor specific
objective evidence of fair value, and collectibility is probable. Content
subscription revenue is recognized ratably over the term of the Community
Partner Program contract, generally ranging from twelve to thirty-six
months.
Revenues from barter transactions are recorded at the estimated fair value
of the advertisements, goods or services received or the estimated fair
value of the advertisements given, whichever is a more clearly evident
measure of fair value of the transaction. Revenue from barter transactions
is recognized as income when advertisements are delivered on the Company's
websites. Barter expense is recognized when the Company's advertisements are
run on other companies' websites, which is typically in the same period when
the related barter revenue is recognized. For the quarter ended March 31,
1999, barter transactions represented 13% of total revenues from continuing
operations, respectively.
Transactional revenues are derived primarily from sales of pharmacy and
insurance products. The Company earns transaction fees and recognizes
revenue at the time the related referred sale occurs.
Production, Content and Product Development Expense
Production, content and product development expenses consist primarily of
salaries and benefits, consulting fees and other costs related to content
acquisition and licensing, software development, application development and
website operations. These costs are expensed as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" issued
by the Financial Accounting Standards Board requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. To date, costs incurred following the
establishment of technological feasibility, but prior to general release,
have been insignificant.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the
period from inception to December 31, 1997 and for the year ended December
31, 1998 were $0 and $1,140,000, respectively.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", which prescribes accounting and
reporting standards for all stock-based compensation plans, including
employee stock options. As allowed by SFAS No. 123, the Company accounts
for its employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized and
measured using enacted tax rates in effect for the year in which the
differences are expected to be realized. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. The primary sources of temporary differences are
depreciation of equipment, furniture and fixtures.
F-9
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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 financial statements and accompanying notes.
Actual results could differ from the estimates.
Net Loss Per Share
Basic net loss per common share and diluted net loss per common share are
presented in conformity with SFAS No. 128, "Earnings Per Share," 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 the Company'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, the Company has
not had any issuances or grants for nominal consideration.
In accordance with SFAS No. 128, basic net loss per common share has been
computed using the weighted-average number of shares of common stock
outstanding during the period. Because the Company
has incurred net losses since inception, the effect of all common stock
equivalent shares (2,702,983 common equivalent shares as of December 31,
1998) is anti-dilutive; therefore basic and diluted loss per share are
equivalent. Basic pro forma net loss per common share, as presented in the
statement of operations, has been computed as described above and also gives
effect, under Securities and Exchange Commission guidance, to the conversion
of the convertible and convertible redeemable preferred stock and the
convertible note payable to stockholder and to common stock issued
subsequent to December 31, 1998 to satisfy in full a purchase option and
anti-dilution right held by a stockholder (using the if-converted method)
from the original date of issuance.
The numerator in the pro forma net loss per share calculation is equivalent
to net loss. The denominator in the pro forma net loss per share calculation
is comprised of the following weighted average shares:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ---------
<S> <C> <C>
Weighted average number of common shares
outstanding........................................ 3,240,108 3,427,547
Effect of convertible securities:
Convertible preferred stock......................... 1,280,513 2,562,736
Common stock issued to satisfy purchase option and
anti-dilution right held by a stockholder.......... 322,844 484,266
Convertible notes payable and interest payable to
stockholders....................................... 803 64,390
--------- ---------
Shares used in pro forma calculation.............. 4,844,268 6,538,939
========= =========
</TABLE>
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company currently does not engage or plan to engage in
derivative instruments or hedging activities.
F-10
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
4. Equipment, Furniture and Fixtures, Net
Equipment, furniture and fixtures are comprised of the following at December
31, 1997 and 1998, and March 31, 1999:
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment............................ $42,145 $324,695 $ 403,221
Furniture and fixtures........................ -- 40,144 81,869
Leasehold improvements........................ -- 12,264 12,096
------- -------- ---------
42,145 377,103 497,186
Accumulated depreciation...................... (6,941) (70,564) (107,441)
------- -------- ---------
$35,204 $306,539 $ 389,745
======= ======== =========
</TABLE>
Depreciation expense of $6,941 and $64,090 for the period from inception to
December 31, 1997 and the year ended December 31, 1998, respectively, is
included in the statements of operations.
5. Convertible Notes Payable to Stockholders
On December 24, 1998, the Company issued a convertible note payable to a
stockholder in the amount of $800,000, of which $500,000 was received at
closing and $300,000 was received on January 11, 1999. The note, which is
payable December 24, 1999, bears interest at 6% and is subordinated to
senior indebtedness of the Company, if any. The principal and accrued
interest of the note is convertible, at the option of the holder and until
such time as the Company closes a firm commitment for an underwritten public
offering, into Series C preferred stock, at a conversion price of $11.95 per
share.
In connection with the convertible note payable, the Company issued stock
purchase warrants to acquire the number of Series C preferred stock shares
equating to twenty percent of the face amount of the note divided by the
exercise price. At December 31, 1998, warrants to acquire 8,371 shares of a
total of 13,393 shares were deemed outstanding based upon the cash received
as of that date. Warrants for the remaining 5,022 shares were deemed
outstanding upon funding of the remaining $300,000 in January 1999. The
exercise price is $11.95 per share, subject to anti-dilution provisions. The
warrants expire December 24, 2003.
The proceeds from the note payable have been allocated to the note and the
warrants based upon the relative fair values of the instruments. The
warrants are recorded at a fair value of $5.91 per warrant which is
calculated at the time of issuance using the Black-Scholes option-pricing
model with the following weighted average assumptions: zero dividend yield;
0.5 volatility; risk-free interest rate of 4.9%; and expected life of 5
years. The amount allocated to the warrants is recognized as original issue
discount and amortized, using the interest method, over the term of the
related indebtedness.
On March 3, 1999, the Company issued a convertible note payable to a
stockholder in the amount of $2,000,000, the proceeds of which were received
on March 30, 1999. The note, which is payable March 5, 2000, bears interest
at 7%, and is subordinated to all senior indebtedness of the Company, if
any. The principal and accrued interest of the note is convertible, at the
option of the holder and until such time as the Company closes a firm
commitment for an underwritten public offering, into common stock, at a
conversion price of $18.57 per share.
F-11
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
6. Commitments and Contingencies
Leases
The Company is obligated through December 31, 2000 under operating lease
agreements covering certain facilities and computer equipment.
Future minimum payments for all noncancelable operating leases with initial
terms of one year or more consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Fiscal Year
1999............................................................. $252,236
2000............................................................. 206,630
--------
Total minimum lease payments.................................... $458,866
========
</TABLE>
Rental expense for the period from inception to December 31, 1997 and for the
year ended December 31, 1998 was $11,855 and $131,298, respectively.
Legal Matters
Subsequent to December 31, 1998, the Company paid $99,000 to settle a legal
matter in which a former contractor of the Company claimed breach of
contract. This amount was accrued by the Company as of December 31, 1998.
On April 12, 1999, a civil complaint was filed against the Company attempting
to allege, among other things, fraud and breach of contract regarding a
terminated consulting arrangement and seeking recovery of damages of $4
million, punitive damages exceeding $5 million, attorney's fees and an
injunction prohibiting the Company from offering stock for sale to the
public unless and until it recognizes plaintiff's claim to options to
acquire 93,000 shares of the Company's common stock alleged to be owed under
the consulting agreement. The Company believes that the claims are without
merit and intends to defend this lawsuit vigorously.
Other Matters
The Company has a contingent liability resulting from a preferred
stockholder's right to require the Company to repurchase its shares. That
stockholder also has an option to acquire shares at a 30% discount. The
Company also has a consulting services purchase commitment with that
stockholder. As disclosed in Note 8, the preferred stockholder has agreed to
terminate the option and put agreements upon the completion of a specified
offering, in exchange for 484,266 shares of common stock.
7. Income Taxes
The Company did not incur any income taxes for the period from July 17, 1997
(inception) to December 31, 1997 and for the year ended December 31, 1998 as
a result of operating losses.
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $9,189,000. These net operating loss and tax
credit carryforwards will expire from 2012 through 2019 if not utilized.
F-12
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
Significant components of the Company's deferred taxes as of December 31,
1997 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets (liabilities):
Depreciable assets........................... $ 810 $ (7,585)
Tax carryforwards............................ 208,600 3,124,200
Accrued liabilities.......................... -- 142,800
--------- -----------
Net deferred tax assets........................ 209,410 3,259,415
--------- -----------
Valuation allowance for net deferred tax
asset......................................... (209,410) (3,259,415)
--------- -----------
Net deferred taxes............................. $ -- $ --
========= ===========
</TABLE>
The Company has established valuation allowances equal to the net deferred
tax assets due to uncertainties regarding the realization of deferred tax
assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $3,050,000 during the year ended
December 31, 1998.
The Company's provision for income taxes differs from the expected tax
benefit amount computed by applying the statutory federal income tax rate of
34% to income before income taxes as a result of permanent differences and
the increase in the valuation allowance.
8. Mandatorily Redeemable Convertible (Series B) Preferred Stock
The Company has authorized various classes of preferred stock, up to a
maximum of 15,000,000 shares. As of December 31, 1998, the Company had
designated 5,512,458 shares as $.001 par value Series B Convertible Non-
Voting Preferred Stock. On April 28, 1998, the Company issued 1,540,239
shares of Series B to Superior Consultant Holdings Corporation for
consideration of $6.0 million. Each share of Series B is convertible into
1.029 shares of common stock. In the event that the Company's board of
directors elects to declare a dividend on the shares of common stock,
Superior is entitled to received dividends as if the Series B shares had
been converted to common stock. In the event of any liquidation, dissolution
or winding up of the Company, the holders of each share of Series B then
outstanding are entitled to receive a liquidation preference over common
stockholders and preferred stockholders other than Series A holders. At
December 31, 1998, this liquidation preference was $2,998,408, which is
equivalent to $1.95 per share plus an amount in cash equal to all
accumulated and unpaid dividends thereon.
At the date of closing, Superior was granted an option to purchase up to
1,584,906 shares of common stock, or the number of shares of preferred stock
convertible into 1,584,906 shares of common stock. The exercise price per
share shall be a price, subject to adjustment for dilution, equal to 70% of
the fair market value per share of common stock into which each share of
preferred stock is convertible. The option expires on April 28, 2000.
Superior was granted a right to require the Company to repurchase the Series
B shares, or the shares of common stock into which the Series B shares may
have been converted, for the current fair market price
F-13
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
per share. The put option may only be exercised during each of the 90-day
periods following April 28, 2000 and April 28, 2001. If the Company is
unable to complete the purchase of the shares under the put option,
Superior may elect nominees representing a majority of the Company's board
of directors. Upon completion of an underwritten public offering by the
Company of not less than $20.0 million after which the common stock is
listed on a national securities exchange or admitted for quotation on the
Nasdaq National Market, Superior has agreed to terminate the provisions of
the aforementioned option and put agreements in exchange for 484,266 shares
of common stock (an additional 53,808 shares will be issued to the Series C
holder pursuant to antidilution protection provisions).
The Company allocated the $6.0 million of proceeds to the Series B stock and
to the options based on the fair values determined as of the closing date
using the Black-Scholes valuation model with the following weighted average
assumptions: zero dividend yield; 0.5 volatility; risk free interest rate
of 5.9%; and expected life of 2 years. The Company is recognizing accretion
of value on the mandatorily redeemable convertible preferred stock to
redemption value (fair value) over the period between the closing date and
the redemption dates as defined by the agreement.
In conjunction with the January 1999 equity financing (Note 14), Superior
received voting rights on an as-if converted to common stock basis and
additional anti-dilution rights similar to those granted to preferred
Series C stockholders.
The Company has a purchase commitment with Superior whereby the Company is
obligated to purchase a minimum of $3.0 million in management consulting,
information technology or outsourcing services from Superior by September
30, 1999, or pay the difference in cash. As of December 31, 1998, the
Company had purchased approximately $1.5 million of such services from
Superior.
9. Capital Stock
The authorized capital stock of the Company consists of 15,000,000 shares of
common stock, par value $0.001 per share, and 15,000,000 shares of
preferred stock, par value $0.001 per share.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and they do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the board of
directors out of funds legally available therefor, subject to any
preferential dividend rights of any outstanding preferred stock. Upon the
liquidation, dissolution or winding up of the Company the holders of common
stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities and subject
to the prior rights of any outstanding preferred stock. Holders of the
common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock which the Company may designate
and issue in the future. Upon the closing of this offering, there will be
no shares of preferred stock outstanding.
Series A Preferred Stock
The Company designated 300,000 shares of its authorized preferred stock as
Series A 8% convertible preferred stock. From March 1, 1998 through April
6, 1998, the Company issued 247,641 Series A
F-14
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
preferred shares for $742,923 including 41,802 shares issued to three
members of an officer's immediate family for $125,400. Each share of Series
A is senior to all other preferred stock and common stock and is convertible
into 1.085 shares of common stock. Conversion is automatic in the event of
an initial public offering. Holders of Series A shares have the right to
vote on all matters, except the election of directors, with the number of
votes equal to the number of shares into which the Series A is convertible.
Series A shares have a cumulative dividend, which are payable when and if
declared, prior to any class or series of the Company's equity, at the per
annum rate of 8%, or $0.24 per share. Dividends are cumulative and accrue on
each share from the date of issuance. In the event of any liquidation,
dissolution or winding up of the Company, the holders of each share of
Series A then outstanding have a liquidation preference over other preferred
and common stockholders. The liquidation preference of $790,639 at December
31, 1998 is equivalent to $3.00 per share plus an amount equal to all
accumulated and unpaid dividends thereon which totaled $47,716 at December
31, 1998.
10. Stock Option Plan
The Company has established the 1997 Stock Option Plan under which 1,500,000
shares of common stock were reserved for issuance. During 1998, the Company
amended the 1997 Plan and increased the number of shares of common stock
reserved under the 1997 Plan by 3,000,000 shares to 4,500,000 shares. Under
the 1997 Plan, incentive options can be issued to employees, officers and
directors of the Company at an exercise price not less than 100% of the fair
market value of the Company's common stock at the date of grant as
determined by the board of directors or by a committee of the board
appointed to administer the 1997 Plan, except for incentive option grants to
a stockholder that owns greater than 10% of the Company's outstanding stock
in which case the exercise price per share is not less than 110% of the fair
market value of the Company's common stock at the date of grant. Non-
statutory stock options can be issued to employees, officers, directors or
consultants of the Company at exercise prices determined by the board of
directors or by a committee of the board appointed to administer the 1997
Plan but not less than 85% of the fair market value of the Company's common
stock at the date of grant. The 1997 Plan provides that options are
exercisable no later than ten years from the date of grant. Generally 25% of
the options granted are exercisable after one year, and then ratably over
the remaining three years.
Option activity under the 1997 Plan for the period from inception to
December 31, 1997 and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Options Options Exercise
Authorized Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Options authorized........................... 1,500,000 -- $ --
Options granted.............................. -- 1,140,600 0.05
Options canceled............................. -- -- --
Options exercised............................ -- -- --
--------- --------- -----
Balances, December 31, 1997.................. 1,500,000 1,140,600 0.05
Options authorized........................... 3,000,000 -- --
Options granted.............................. -- 2,728,805 0.33
Options canceled............................. -- (27,672) 0.25
Options exercised............................ -- -- --
--------- --------- -----
Balances, December 31, 1998.................. 4,500,000 3,841,733 $0.25
========= ========= =====
</TABLE>
F-15
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- -------------------------------
Number Number
Outstanding at Weighted-Average Exercisable at
Exercise December 31, Remaining Weighted-Average December 31, Weighted-Average
Price 1998 Contractual Life Exercise Price 1998 Exercise Price
-------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.01 347,298 8.50 $0.01 173,515 $0.01
$0.07 788,130 9.00 0.07 737,131 0.07
$0.30 - $0.33 2,063,880 9.25 0.31 1,184,347 0.31
$0.39 642,425 9.75 0.39 73,500 0.39
--------- ---------
$0.01 - $0.39 3,841,733 9.21 $0.25 2,168,493 $0.20
========= =========
</TABLE>
At December 31, 1997 and 1998, 788,100 and 2,168,493 options were vested,
respectively.
During 1997 and 1998 the Company issued stock options under the 1997 Stock
Option Plan, with the following weighted average exercise prices:
<TABLE>
<CAPTION>
Options Weighted Average
Granted Exercise Price
--------- ----------------
<S> <C> <C>
At fair value................................. 2,071,215 $0.19
Below fair value.............................. 728,525 $0.74
Above fair value.............................. 1,069,665 $0.25
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
plan, which are described below. Had compensation cost for the Company's
stock option plans been determined based on the fair market value at the
grant dates for awards under the Plan consistent with the method provided
by SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
loss would have been increased to the following pro forma amounts for the
periods ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Period from Year Ended
Inception to December
December 31, 31,
1997 1998
------------ -----------
<S> <C> <C>
Net loss: As reported.............................. $(621,958) $(8,997,000)
Pro forma...................................... $(629,445) $(9,055,796)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the periods ended December 31, 1997 and
1998:
<TABLE>
<CAPTION>
Period from
Inception to Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Dividend yield..................................... -- --
Expected volatility................................ 0% 0%
Risk-free rate of return........................... 5.9% 5.9%
Weighted average expected life..................... 3.1 years 3.6 years
</TABLE>
The Company granted 577,356 stock options with a weighted average exercise
price of $8.64 during the three month period ending March 31, 1999. During
this period, 222,077 options were exercised with a weighted average exercise
price of $0.057 per share.
F-16
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
Contingent upon the successful completion of this offering, certain officers
and employees will receive 127,500 options with an exercise price equivalent
to the offering price.
11. Concentrations of Credit Risk
The Company maintains its cash and cash equivalent balances in high credit
quality financial institutions and has not experienced any material losses
relating to cash or cash equivalent balances.
At December 31, 1997 and December 31, 1998, the financial instruments which
subject the Company to significant concentrations of credit risk consist
principally of cash investments and trade receivables.
For the year ending December 31, 1998, sales to individual customers
constituting 10% or more of revenue were as follows:
<TABLE>
<S> <C>
Customer A............................................................... 63%
Customer B............................................................... 23%
Customer C............................................................... 12%
</TABLE>
12. Related Party Transactions
Related party payables are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1997 1998 1999
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Accounts payable to stockholder for
consulting services (Note 8)............. $ -- $1,032,219 $ 29,934
Stockholder note payable.................. 216,043 -- --
Other payables to employees and
stockholders............................. 321,265 160,906 74,115
-------- ---------- --------
$537,308 $1,193,125 $104,049
======== ========== ========
</TABLE>
On March 16, 1998, the Company issued 720,144 shares of common stock to its
stockholder/CEO in exchange for cancellation of the $216,043 note payable.
The conversion price was established by the board of directors based on
their assessment of the fair market value of the common stock at the date of
conversion.
The Company has entered into a name and likeness agreement with a
stockholder, whereby the Company pays the stockholder 2% of revenues derived
from sales of current products and up to 4% of revenues derived from sales
of new products during the five-year term of the agreement. During 1998, the
Company accrued royalty fees of $855 to this stockholder. Additionally,
during this period, the Company reimbursed him for his travel and other
expenses incurred on Company business in the amount of $9,200. The Company
has entered into a consulting agreement with this stockholder whereby the
Company pays the stockholder $11,250 per month relating to his services as
Chief Medical Officer.
During 1998, the Company paid a stockholder professional fees of $95,000
related to speaking engagements, and director's fees of $83,333.
During 1998, the Company paid a board member $83,333 for corporate governance
consulting services.
The Company has entered into a name and likeness agreement with a stockholder
whereby the stockholder has received options to purchase 73,500 shares at an
exercise price of $0.39 per share as compensation for services rendered.
F-17
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
13. Supplemental Cash Flows Information
<TABLE>
<CAPTION>
Cumulative
Period from Year Period from Three Months Ended
Inception to Ended Inception to March 31,
December 31, December 31, December 31, ---------------------
1997 1998 1998 1998 1999
------------ ------------ ------------ -------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure
of Noncash Financing
Activities:
Conversion of related
party payable to common
stock.................. $ -- $ 216,043 $ 216,043 $216,043 $ --
====== ========== ========== ======== ============
Issuance of notes
receivable from common $
stockholders........... $1,300 $ -- $ 1,300 -- $ --
====== ========== ========== ======== ============
Deferred stock
compensation related to
options granted........ $ -- $ (272,233) $ (272,233) $ -- $ (2,295,761)
====== ========== ========== ======== ============
Accretion of redeemable
securities to fair
value.................. $ -- $8,715,650 $8,715,650 $ -- $(17,460,656)
====== ========== ========== ======== ============
Stock issued for
services............... $2,000 $ 112,025 $ 114,025 $ -- $ --
====== ========== ========== ======== ============
Amortization of deferred
stock compensation..... $ -- $ 20,216 $ 20,216 $ -- $ 72,739
====== ========== ========== ======== ============
Issuance of preferred
stock for investment in
affiliate.............. $ -- $ -- $ -- $ -- $ 5,000,000
====== ========== ========== ======== ============
Issuance of preferred
stock for intangible
asset.................. $ -- $ -- $ -- $ -- $ 4,000,000
====== ========== ========== ======== ============
</TABLE>
14. Subsequent Events
On January 29, 1999, the Company received $3.5 million in cash and a license
to certain Internet technology, and acquired 10% of the outstanding stock of
HealthMagic, Inc. ("HealthMagic"), a subsidiary of Adventist Health System
Sunbelt Healthcare Corporation ("Adventist"), in exchange for 1,046,271
shares of Series C convertible preferred stock (which will be converted into
an equivalent number of shares of common stock upon the closing of this
offering). The Company has recorded its 10% investment in HealthMagic using
the cost method of accounting valuing it at $5.0 million based on a
discounted cash flow analysis. The Company also established a technology
relationship with HealthMagic, a supplier of applications to Internet
companies, whereby the Company contributed certain technology and received
from HealthMagic a license to use a broad range of Internet technologies,
including a web-enabled personal medical record, personalization tools,
security and authentication features. HealthMagic will develop, implement
and support these technologies for the Company. The Company has capitalized
$4.0 million related to the HealthMagic technology license. The fair value
of this license was determined using the cost method and is being amortized
on a straight-line basis over a three-year period.
The Series C is senior to common stock and upon the closing of this offering,
each share of Series C will convert into one share of common stock. Holders
of Series C are entitled to one vote for each share held.
Series B and Series C stockholders were given certain anti-dilution
protections as a result of this transaction. In connection with these
provisions, Series B stockholders received 8,793 shares of Series C
preferred stock and Series C stockholders received 53,808 shares of Series C
preferred stock.
These agreements call for the appointment of an Adventist representative to
the Company's board of directors, and for the Company to appoint a
representative to HealthMagic's board of directors.
F-18
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
In addition, on January 29, 1999, the Company entered into a content
subscription and software licensing agreement with Adventist for $500,000.
The content subscription and software licensing agreement grants Adventist
the right to implement CPP's over a period of three years. Each CPP content
subscription has a term of one-year.
On March 3, 1999, the Company entered into loan agreements with a preferred
stockholder and a new investor whereby these investors are irrevocably
obligated to loan the Company up to $2.5 million at an interest rate of 7%
per annum. Upon the closing of this offering, borrowings under these
agreements plus accrued interest will, solely at the option of each
investor, either be due and payable or convert into common stock at a
conversion price of $18.57 per share. As of March 31, 1999, the Company has
borrowed $2.0 million under these loan agreements.
On March 5, 1999, the Company effected a three-for-one stock split of common
and preferred stock. The effect of the stock split has been recorded
retroactively to inception of the Company in the accompanying financial
statements.
15. Subsequent Events (Unaudited)
On March 5, 1999, the Company entered into loan agreements with new
investors, whereby those investors are irrevocably obligated to loan the
Company up to $3.0 million at an interest rate of 7% per annum. Upon the
closing of this offering, borrowings under these agreements plus accrued
interest will, solely at the the option of each investor, either be due and
payable or convert into common stock at a conversion price of $18.57 per
share.
On April 9, 1999, the Company entered into agreements with Infoseek
Corporation and the Buena Vista Internet Group, a unit of The Walt Disney
Company, under which the Company will be the exclusive provider of health
and related content on three websites of the Go Network, Go.com Health
Center on Infoseek, ESPN.com Training Room and the Family.com Health
Channel. The Company will be also the premier health content provider for
ABCnews.com. In addition, the Company will be the exclusive pharmacy and
drugstore, health insurance and clinical trials partner in the Go.com
Health Center. Under these agreements, users on the Go Network will be able
to access various health information, services, interactive tools and
commerce opportunities through a co-branded website served by the Company.
In the event the Company elects not to provide specific content, content
may be obtained from a third party.
The term of both agreements is for three years; except that, each of the
parties may elect to terminate the relationship after two years. The
Company will pay Infoseek and the Buena Vista Internet Group $57.5 million
in total consideration consisting of cash and warrants to purchase 310,000
shares of common stock at an exercise price of $21.50 per share over the
full three year term. The cash portion of this obligation is payable as
approximately $15.8 million in the first year of the agreements, $18.2
million in the second year of the agreements and $21.3 million in the third
year. None of the warrants are exercisable prior to one year after
issuance.
The Company entered into a two year relationship with The @Home Network to
be the anchor tenant partner within the Health Channel area of the @Home
service. The Company will be the premier content provider appearing in the
Health Channel. Under the terms of this agreement, the Company will have
the ability to direct users to related commerce, community and interactive
tool features appearing on the
F-19
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
Company's website from within all health content appearing in the Health
Channel. In addition, the Company will share in all advertising revenues
generated by @Home in the Health Channel where the Company's content
dominates the related page. The Company will pay a carriage fee of $2.25
million to @Home in installments over the term of the agreement.
On March 24, 1999, the Company increased its authorized capital stock to
25,000,000 shares of common stock, par value $0.001 per share.
* * *
F-20
<PAGE>
Inside Back Cover
Picture of the drkoop.com home page with call-outs describing the features of
selected linked sites within our network.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this
prospectus. Neither drkoop.com, Inc. nor any underwriter has authorized anyone
to provide prospective investors with different or additional information.
This prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
The information contained in this prospectus is correct only as of the date of
this prospectus, regardless of the time of the delivery of this prospectus or
any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 35
Management............................................................... 54
Principal Stockholders................................................... 64
Certain Transactions..................................................... 66
Description of Securities................................................ 69
Shares Eligible for Future Sale.......................................... 73
Underwriting............................................................. 75
Legal Matters............................................................ 77
Experts.................................................................. 77
Additional Information................................................... 77
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF DRKOOP APPEARS HERE]
drkoop.com, Inc.
Shares
Common Stock
----------------
PROSPECTUS
----------------
Bear, Stearns & Co. Inc.
William Blair & Company
Wit Capital Corporation
as e-Manager(TM)
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
---------
<S> <C>
SEC registration fee............................................... $13,900
NASD filing fee.................................................... 5,500
Nasdaq National Market listing fee................................. *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Printing and engraving............................................. *
Blue sky fees and expenses (including legal fees).................. *
Transfer agent fees................................................ *
Miscellaneous...................................................... *
-------
Total.......................................................... *
=======
</TABLE>
*To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our restated certificate of incorporation in effect as of the date hereof,
and our restated certificate of incorporation to be in effect upon the closing
of this offering provides that, except to the extent prohibited by the Delaware
General Corporation Law, as amended, the Registrant's directors shall not be
personally liable to the Registrant or its stockholders for monetary damages
for any breach of fiduciary duty as directors of the Registrant. Under Delaware
law, the directors have a fiduciary duty to the Registrant which is not
eliminated by this provision of the Certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to the Registrant, for acts or omissions which are
found by a court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by Delaware
law. This provision also does not affect the directors' responsibilities under
any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Registrant has applied for liability insurance for its
officers and directors.
Section 145 of Delaware law empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of Delaware law, or (iv) for any transaction from which the
director derived an improper personal benefit. Delaware law provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of Delaware law and provides that the
Registrant may fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that such person is or was a director or officer of the
Registrant, or is or was serving at the request of the
II-1
<PAGE>
Registrant as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.
On or prior to the effectiveness of this Registration Statement, we intend to
enter into contractual indemnification agreements with each of our executive
officers and directors. These agreements provide for contractual
indemnification to the fullest extent permitted by applicable law and provide
mechanical and administrative procedures to be followed in the event of any
such claim.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since July 17, 1997
(inception):
(1) Since July 17, 1997, we have granted options to purchase 4,446,761 shares
of common stock to a total of 107 employees, consultants and non-employee
directors at a weighted average exercise price of $1.33 per share pursuant to
the Amended and Restated 1997 Stock Option Plan.
(2) On July 17, 1997, we issued an aggregate of 2,700,000 shares of common
stock to Dr. C. Everett Koop, Donald W. Hackett, John F. Zaccaro, Robert C.
Hackett, Jr. and Louis A. Scalpati, the founders of our company, for an
aggregate purchase price of $9,000.
(3) On March 16, 1998, we issued 720,144 shares of common stock to Donald W.
Hackett in exchange for cancellation of indebtedness in the amount of $216,043.
(4) On April 28, 1998, we issued 1,540,239 shares of Series B Non-voting
Preferred Stock to Superior Consultant Holdings Corporation for a purchase
price of $6.0 million. These shares will be converted into 1,584,906 shares of
common stock upon the closing of this offering. In connection with this
transaction, we also gave Superior the right to require us to repurchase their
shares prior to our initial public offering and the right to purchase an
additional 1,540,239 shares of either Series B Non-voting Preferred Stock or
common stock at a per share exercise price equal to 70% of the fair market
value of the common stock on the date of exercise. All substantive provisions
of these rights will terminate at the closing of this offering for the issuance
of an additional 484,266 shares of common stock to Superior and 53,808 shares
to Adventist Health System Sunbelt Healthcare Corporation.
(5) From March 1, 1998 through April 6, 1998, we issued 247,641 shares of
Series A 8% Convertible Preferred Stock to 17 accredited investors, including
one of our officers, for an aggregate purchase price of $742,923. These shares
will be converted into 268,691 shares of common stock upon the closing of this
offering.
(6) On December 24, 1998, we issued a convertible note payable in the
original principal amount of $800,000, $500,000 of which was received in 1998,
bearing interest at 6% per annum due December 24, 1999 along with five year
warrants to purchase 13,393 shares of Series C Preferred Stock for an exercise
price of $11.95 per share (which will become the right to purchase 13,393
shares of common stock for $11.95 per share upon the closing of this offering).
Interest on the note is payable at the maturity. At any time prior to maturity
any unpaid principal and interest may be converted into Series C Preferred
Stock at a conversion price of $11.95 per share.
(7) On January 29, 1999, we received $3.5 million in cash and acquired 10% of
the outstanding stock of HealthMagic, Inc., a subsidiary of Adventist Health
System Sunbelt Healthcare Corporation, a supplier of applications to Internet
companies, in exchange for 1,046,271 shares of Series C convertible preferred
stock. These shares will be converted into an equivalent number of shares of
common stock upon the closing of this offering.
II-2
<PAGE>
(8) On March 24, 1999, we reincorporated our predecessor corporation as a
Delaware corporation and changed our name to drkoop.com, Inc.
(9) From March 3, 1999 through March 5, 1999, we entered into loan agreements
with ten accredited investors. None of these investors is an executive officer,
director or 5% stockholder of drkoop.com except that Adventist Health System
Sunbelt Healthcare Corporation committed to provide convertible notes of up to
$2.0 million aggregate principal amount. Pursuant to these agreements, the
investors are irrevocably obligated to loan to us the aggregate principal
amount of up to $5.5 million at an interest rate of 7% per annum. Upon the
closing of this offering, the principal amount borrowed under these agreements
and all accrued interest will, solely at the option of each investor, either be
due and payable or convert into common stock at a conversion price of $18.57
per share. As of March 31, 1999, we had borrowed $2.0 million.
(10) On April 9, 1999, we entered into distribution agreements with Infoseek
Corporation and the Buena Vista Internet Group, a unit of The Walt Disney
Company, pursuant to which we will be the exclusive provider of health-related
content on three websites of the Go Network, Go.com Health Center, ESPN.com
Training Room and the Family.com Health Channel. drkoop.com will also be the
premier health content provider for ABCnews.com. As an element of the
consideration paid by us, we agreed to issue warrants to purchase an aggregate
of 310,000 shares of common stock. These warrants are governed by substantially
identical strategic warrant agreements, none of which may, under any
circumstances, be exercised prior to one year of issuance. The exercise price
of the warrants is $21.50 per share, subject to customary anti-dilution
adjustments.
The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or, with respect to issuances to
employees, directors and consultants, Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
instruments representing such securities issued in such transactions. All
recipients either received adequate information about drkoop.com or had
adequate access, through their relationships with drkoop.com to such
information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
-------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of drkoop.com, Inc., a
Delaware corporation, as currently in effect
3.2 Bylaws of drkoop.com, Inc., a Delaware corporation, as currently in
effect
3.3* Form of Bylaws of drkoop.com, Inc., a Delaware corporation, as in
effect after the closing of the offering made under this
registration statement
3.4* Form of Restated Certificate of Incorporation of drkoop.com, Inc.,
a Delaware corporation, to be filed after the closing of the
offering made under this registration statement
4.1* Specimen common stock certificate
5.1* Opinion of Latham & Watkins
10.1** Amended and Restated 1997 Stock Option Plan
10.2 1999 Equity Participation Plan
10.3 Amended and Restated Registration Rights Agreement, dated as of
January 29, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
-------- -----------
<C> <S>
10.4** Employment Agreement dated January 27, 1999 by and between Company
and Susan M. Georgen-Saad
10.5** Employment Agreement dated August 1, 1997 by and between Company
and Donald W. Hackett
10.6** Employment Agreement dated August 1, 1997 by and between Company
and Robert C. Hackett, Jr.
10.7** Employment Agreement dated August 1, 1997 by and between Company
and Louis A. Scalpati
10.8** Employment Agreement dated January 15, 1999 by and between Company
and Dennis J. Upah
10.9+ Distribution Agreement dated April 9, 1999 by and between Company
and Infoseek Corporation
10.10+ Content Agreement dated March 30, 1999 by and between Company and
the Trustees of Dartmouth College
10.11+** D.A.R.T. Service Agreement dated November 15, 1998 by and between
Company and DoubleClick, Inc.
10.12+* Distribution Agreement dated April 9, 1999 by and between Company
and Buena Vista Internet Group
10.13+ Software Sale, License and Development Agreement dated January 29,
1999 by and between Company and HealthMagic, Inc.
10.14+ Content License and Distribution Agreement dated March 10, 1999 by
and between Company and @Home Network
10.15** Tradename License Agreement dated January 5, 1999 by and between
Company and C. Everett Koop, M.D.
10.16** Consulting Letter Agreement dated October 1, 1997 by and between
Company and C. Everett Koop, M.D.
10.17+** License Agreement dated July 13, 1998 by and between Company and
Multum Information Services, Inc.
10.18+** Linking Agreement dated February 10, 1999 by and between Company
and Physicians' Online
10.19 Reserved
10.20+** Interim Linking Agreement dated January 28, 1999 by and between
Company and Quotesmith.com
10.21+ First Amendment to License Agreement dated March 25, 1999 by and
between Company and Multum Information Services, Inc.
10.22** Tradename License Agreement dated June 1, 1998 by and between
Company and Nancy Snyderman, M.D.
10.23 Reserved
10.24** Agreement for Sub-Sublease dated May 20, 1998 by and between
Company and The Software Atelier L.L.C.
10.25 Reserved
10.26+** Internet Advertising Sales Agreement dated October 16, 1998 by and
between Company and WinStar Interactive Media Sales, Inc.
10.27** Consulting Letter Agreement dated October 1, 1997 by and between
Company and John Zaccaro
10.28+ Sponsorship Agreement dated March 11, 1999 by and between Company
and Vitamin Shoppe Industries, Inc.
10.29+ Preferred Partner Agreement dated April 1999 by and between Company
and Salon Internet, Inc.
10.30 Reserved
10.31 Reserved
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.32 Form of Community Partner Program Agreement
10.33 Form of Indemnification Agreement
10.34 Reserved
10.35 Investment Agreement dated January 29, 1999 by and among Company,
Adventist Health System Sunbelt Healthcare Corporation and
HealthMagic, Inc.
10.36 Letter Agreement dated February 25, 1999 by and among Company,
Superior Consultant Holdings Corporation and Donald W. Hackett
10.37 Letter Agreement dated January 29, 1999 by and among Company,
Superior Consultant Holdings Corporation, Adventist Health System
Sunbelt Healthcare Corporation, HealthMagic, Inc. and Donald W.
Hackett
10.38 Stock Restriction Agreement dated January 29, 1999 by and among
Company, HealthMagic, Inc. and Adventist Health System Sunbelt
Healthcare Corporation
10.39 Loan Agreement dated December 24, 1998 between Company and Neal
Longwill
10.40 Form of Loan Agreement between Company and accredited investors
10.41 Loan Agreement dated March 3, 1999 between Company and Adventist
Health System Sunbelt Healthcare Corporation
10.42 Warrant to Purchase Shares of Common Stock Issued to Infoseek
Corporation as of April 9, 1999
10.43 Agreement for Issuance and Sale of Stock between Company and Superior
Consultant Holdings Corporation dated April 28, 1998
10.44 Letter of Donald W. Hackett dated April 28, 1998 constituting a
Voting Agreement between Donald W. Hackett and Superior Consultant
Holdings Corporation
10.45 Option and Put Agreement dated April 28, 1998 between Company and
Superior Consultant Holdings Corporation
10.46 Service Agreement dated April 29, 1998 between Company and Superior
Consultant Inc., a wholly owned subsidiary of Superior Consultant
Holdings Corporation
10.47* Warrant to Purchase Shares of Common Stock Issued to Buena Vista
Interactive Group as of April 9, 1999
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Latham & Watkins (included in Exhibit 5.1)
24.1** Powers of Attorney
27.1** Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed
+ Confidential treatment requested.
(b) Financial Statement Schedules.
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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
II-5
<PAGE>
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 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Austin, State of Texas, on this 21 day of April, 1999.
drkoop.com, Inc.
/s/ Donald W. Hackett
By:
-----------------------------------
Name: Donald W. Hackett
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the 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/ Donald W. Hackett President, Chief Executive April 21, 1999
______________________________________ Officer and Director
Donald W. Hackett (Principal Executive
Officer)
/s/ Susan M. Georgen-Saad Chief Financial Officer April 21, 1999
______________________________________ (Principal Financial and
Susan M. Georgen-Saad Accounting Officer)
/s/ C. Everett Koop, M.D.* Chairman of the Board April 21, 1999
______________________________________
C. Everett Koop, M.D.
/s/ John F. Zaccaro* Vice Chairman of the Board April 21, 1999
______________________________________
John F. Zaccaro
/s/ Mardian J. Blair* Director April 21, 1999
______________________________________
Mardian J. Blair
/s/ Richard D. Helppie, Jr.* Director April 21, 1999
______________________________________
Richard D. Helppie, Jr.
/s/ Nancy L. Snyderman, M.D.* Director April 21, 1999
______________________________________
Nancy L. Snyderman, M.D.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey C. Ballowe Director April 21, 1999
______________________________________
Jeffrey C. Ballowe
/s/ G. Carl Everett, Jr. Director April 21, 1999
______________________________________
G. Carl Everett, Jr.
</TABLE>
*By:
/s/ Donald W. Hackett
----------------------------
Donald W. Hackett
Attorney-in-Fact
II-8
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Number Description
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<C> <S>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of drkoop.com, Inc., a Delaware
corporation, as currently in effect
3.2 Bylaws of drkoop.com, Inc., a Delaware corporation, as currently in
effect
3.3* Form of Bylaws of drkoop.com, Inc., a Delaware corporation, as in
effect after the closing of the offering made under this registration
statement
3.4* Form of Restated Certificate of Incorporation of drkoop.com, Inc., a
Delaware corporation, to be filed after the closing of the offering
made under this registration statement
4.1* Specimen common stock certificate
5.1* Opinion of Latham & Watkins
10.1** Amended and Restated 1997 Stock Option Plan
10.2 1999 Equity Participation Plan
10.3 Amended and Restated Registration Rights Agreement, dated as of
January 29, 1999
10.4** Employment Agreement dated January 27, 1999 by and between Company
and Susan M. Georgen-Saad
10.5** Employment Agreement dated August 1, 1997 by and between Company and
Donald W. Hackett
10.6** Employment Agreement dated August 1, 1997 by and between Company and
Robert C. Hackett, Jr.
10.7** Employment Agreement dated August 1, 1997 by and between Company and
Louis A. Scalpati
10.8** Employment Agreement dated January 15, 1999 by and between Company
and Dennis J. Upah
10.9+ Distribution Agreement dated April 9, 1999 by and between Company and
Infoseek Corporation
10.10+ Content Agreement dated March 30, 1999 by and between Company and the
Trustees of Dartmouth College
10.11+** D.A.R.T. Service Agreement dated November 15, 1998 by and between
Company and DoubleClick, Inc.
10.12+* Distribution Agreement dated April 9, 1999 by and between Company and
Buena Vista Internet Group
10.13+ Software Sale, License and Development Agreement dated January 29,
1999 by and between Company and HealthMagic, Inc.
10.14+ Content License and Distribution Agreement dated March 10, 1999 by
and between Company and @Home Network
10.15** Tradename License Agreement dated January 5, 1999 by and between
Company and C. Everett Koop, M.D.
10.16** Consulting Letter Agreement dated October 1, 1997 by and between
Company and C. Everett Koop, M.D.
10.17+** License Agreement dated July 13, 1998 by and between Company and
Multum Information Services, Inc.
10.18+** Linking Agreement dated February 10, 1999 by and between Company and
Physicians' Online
10.19 Reserved
10.20+** Interim Linking Agreement dated January 28, 1999 by and between
Company and Quotesmith.com
10.21+ First Amendment to License Agreement dated March 25, 1999 by and
between Company and Multum Information Services, Inc.
10.22** Tradename License Agreement dated June 1, 1998 by and between Company
and Nancy Snyderman, M.D.
10.23 Reserved
10.24** Agreement for Sub-Sublease dated May 20, 1998 by and between Company
and The Software Atelier L.L.C.
10.25 Reserved
10.26+** Internet Advertising Sales Agreement dated October 16, 1998 by and
between Company and WinStar Interactive Media Sales, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
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<C> <S>
10.27** Consulting Letter Agreement dated October 1, 1997 by and between
Company and John Zaccaro
10.28+ Sponsorship Agreement dated March 11, 1999 by and between Company and
Vitamin Shoppe Industries, Inc.
10.29+ Preferred Partner Agreement dated April 1999 by and between Company
and Salon Internet, Inc.
10.30 Reserved
10.31 Reserved
10.32 Form of Community Partner Program Agreement
10.33 Form of Indemnification Agreement
10.34 Reserved
10.35 Investment Agreement dated January 29, 1999 by and among Company,
Adventist Health System Sunbelt Healthcare Corporation and
HealthMagic, Inc.
10.36 Letter Agreement dated February 25, 1999 by and among Company,
Superior Consultant Holdings Corporation and Donald W. Hackett
10.37 Letter Agreement dated January 29, 1999 by and among Company, Superior
Consultant Holdings Corporation, Adventist Health System Sunbelt
Healthcare Corporation, HealthMagic, Inc. and Donald W. Hackett
10.38 Stock Restriction Agreement dated January 29, 1999 by and among
Company, HealthMagic, Inc. and Adventist Health System Sunbelt
Healthcare Corporation
10.39 Loan Agreement dated December 24, 1998 between Company and Neal
Longwill
10.40 Form of Loan Agreement between Company and accredited investors
10.41 Loan Agreement dated March 3, 1999 between Company and Adventist
Health System Sunbelt Healthcare Corporation
10.42 Warrant to Purchase Shares of Common Stock Issued to Infoseek
Corporation as of April 9, 1999
10.43 Agreement for Issuance and Sale of Stock between Company and Superior
Consultant Holdings Corporation dated April 28, 1998
10.44 Letter of Donald W. Hackett dated April 28, 1998 constituting a Voting
Agreement between Donald W. Hackett and Superior Consultant Holdings
Corporation
10.45 Option and Put Agreement dated April 28, 1998 between Company and
Superior Consultant Holdings Corporation
10.46 Service Agreement dated April 29, 1998 between Company and Superior
Consultant, Inc., a wholly owned subsidiary of Superior Consultant
Holdings Corporation
10.47* Warrant to Purchase Shares of Common Stock Issued to Buena Vista
Interactive Group as of April 9, 1999
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Latham & Watkins (included in Exhibit 5.1)
24.1** Powers of Attorney
27.1** Financial Data Schedule
</TABLE>
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* To be filed by amendment.
** Previously filed
+ Confidential treatment requested.
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
DRKOOP.COM, INC.
DRKOOP.COM, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Company"), does
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hereby certify that:
I. The name of the Company is drkoop.com, Inc.
II. The original Certificate of Incorporation of the Company was filed
with the Delaware Secretary of State on February 26, 1999.
III. The Board of Directors of the Company, acting in accordance with
Sections 141(f), 242 and 245 of the General Corporation Law of the State of
Delaware, duly adopted resolutions and declared the advisability of such
resolutions to amend and restate the Certificate of Incorporation of the Company
to read in its entirety as follows:
ONE
The name of the Company is drkoop.com, Inc.
TWO
The address of the corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THREE
The purpose of the Company is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
Delaware.
FOUR
A. The aggregate number of shares that the Company shall have authority
to issue is 40,000,000 divided into 25,000,000 shares of Common Stock (the
"Common Stock") each with the par value of $0.001 per share, and 15,000,000
shares of Preferred Stock (the "Preferred Stock") each with the par value of
$0.001 per share. The Preferred Stock may be issued from time to time in one or
more series. The first series shall be denominated the "Series A 8% Convertible
-----------------------
Preferred Stock" and shall consist of 300,000 shares. The second series shall
- ---------------
be denominated the "Series B Preferred Stock" and shall consist of 5,512,458
------------------------
shares. The third series shall be denominated the "Series C Preferred Stock"
-------------------------
and shall consist of 1,200,000 shares.
The remaining shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the Corporation (the "Board of
Directors") is expressly
<PAGE>
authorized to provide for the issue of all or any of the remaining shares of the
Preferred Stock in one or more series, and to fix the number of shares and to
determine or alter for each such series, such voting powers, full or limited, or
no voting powers, and such designations, preferences, and relative,
participating, optional, or other rights and such qualifications, limitations,
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
shares (a "Preferred Stock Designation") and as may be permitted by the General
Corporation Law of the State of Delaware. The Board of Directors is also
expressly authorized to increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series other than
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
subsequent to the issue of shares of that series. In case the number of shares
of any such series shall be so decreased, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
B. The terms and provisions of the Preferred Stock are as follows:
1. Definitions. For purposes of this Article, the following definitions
-----------
shall apply:
(a) "Convertible Securities" shall mean any bonds, debentures, notes
----------------------
or other evidences of indebtedness, and any warrants, shares or any other
securities (other than shares of Series A 8% Convertible Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock) convertible into, exercisable
for, or exchangeable for Common Stock.
(b) "Options" shall mean rights, options or warrants to subscribe for,
-------
purchase or otherwise acquire Common Stock or Convertible Securities.
(c) "Original Issue Date" shall mean the date upon which shares of
-------------------
Series A 8% Convertible Preferred Stock are first issued.
(d) "Original Purchase Price" shall mean $3.00 for each share of
-----------------------
Series A 8% Convertible Preferred Stock, $1.95 for each share of Series B
Preferred Stock, and $11.89 for each share of Series C Preferred Stock, subject
to equitable and proportional adjustment in the event of stock splits, reverse
splits, recapitalization and the like.
(e) "Preferred Stock" shall mean all outstanding series of Preferred
---------------
Stock, from time to time.
2. Dividends.
---------
(a) Treatment of Preferred. The Series A 8% Convertible Preferred
----------------------
Stock shall be entitled to receive annual dividends, prior and in preference to
any declaration or payment of any Distribution (as defined below) to holders of
any class or series of capital stock of the Company, of eight percent (8%) of
the Original Purchase Price, out of any assets at the time legally available
therefore, when, as and if declared by the Board of Directors, payable
2
<PAGE>
semi-annually beginning on June 1, 1998. Dividends shall accrue on each share of
Series A 8% Convertible Preferred Stock from April 1, 1998 and shall be
cumulative. The Board of Directors is under no obligation to declare dividends
with respect to shares of Series B Preferred Stock or Series C Preferred Stock
and no rights shall accrue to the holders of Series B Preferred Stock and Series
C Preferred Stock if dividends are not declared, and any dividends declared
shall be noncumulative. To the extent that the Corporation declares or pays
dividends on the Common Stock, the Corporation shall declare and pay a
participating dividend on each share of Preferred Stock on an as-converted
basis; and no dividend shall be paid on the Common Stock at a rate greater than
the rate at which dividends are paid on the Preferred Stock. The number of
shares of Common Stock into which shares of Preferred Stock are convertible
shall be determined as of the date on which the dividend is declared. For such
purpose, all shares of Preferred Stock held by each holder of Preferred Stock
shall be aggregated, and any resulting fractional share of Common Stock shall be
disregarded.
(b) Priority of Dividends. The Company shall make no Distribution (as
---------------------
defined below) to the holders of shares of Common Stock except in accordance
with Section 2(a) above, and no Distributions shall be paid on any Common Stock
of the Company during any fiscal year of the Company until dividends in the
amount set forth in Section 2(a) above have been paid to the holders of Series A
8% Convertible Preferred Stock during that fiscal year.
(c) Distribution. As used in this section, "Distribution" means the
------------ ------------
transfer of cash or property without consideration, whether by way of dividend
or otherwise (except a dividend in shares of the Company) or the purchase of
shares of the Company (other than in connection with the repurchase of shares of
Common Stock issued to or held by employees, consultants, officers and directors
upon termination of their employment or services pursuant to agreements
providing for the right of said repurchase) for cash or property.
3. Liquidation Rights.
------------------
(a) Series A Liquidation Preference. In the event of any liquidation,
-------------------------------
dissolution or winding up of the Company ("Liquidation"), either voluntary or
-----------
involuntary, the holders of the Series A 8% Convertible Preferred Stock shall be
entitled to receive, out of the assets of the Company, the Original Purchase
Price plus an amount equal to all declared and unpaid dividends thereon (the
"Series A Liquidation Preference"), if any, to the date that payment is made,
before any payment shall be made or any assets distributed to the holders of
Series B Preferred Stock, Series C Preferred Stock or Common Stock.
If upon the liquidation, dissolution or winding up of the Company,
the assets to be distributed among the holders of the Series A 8% Convertible
Preferred Stock are insufficient to permit the payment to such holders of the
full Series A Liquidation Preference for their shares, then the entire assets of
the Company legally available for distribution shall be distributed with equal
priority and pro rata among the holders of the Series A 8% Convertible Preferred
--- ----
Stock in proportion to the aggregate Series A Liquidation Preference each such
holder is otherwise entitled to receive.
3
<PAGE>
(b) Series B Liquidation Preference. After payment of the full Series
-------------------------------
A Liquidation Preference as set forth above, the holders of the Series B
Preferred Stock shall be entitled to receive, out of the assets of the Company,
the Original Purchase Price plus an amount equal to all declared and unpaid
dividends thereon (the "Series B Liquidation Preference"), if any, to the date
that payment is made, before any payment shall be made or any assets distributed
to the holders of the Series C Preferred Stock or Common Stock.
If upon the liquidation, dissolution or winding up of the Company, the
assets to be distributed are sufficient to permit the payment of the full Series
A Liquidation Preference but are insufficient to permit the payment of the full
Series B Liquidation Preference, then the remaining assets of the Company
legally available for distribution shall be distributed with equal priority and
pro rata among the holders of the Series B Preferred Stock in proportion to the
- --- ----
aggregate Series B Liquidation Preference each such holder is otherwise entitled
to receive.
(c) Remaining Assets. After the payment to the holders of Series A 8%
----------------
Convertible Preferred Stock and Series B Preferred Stock of the full
preferential amounts specified above, no further payments shall be made to the
holders of Series A 8% Convertible Preferred Stock, and any remaining assets of
the Company shall be distributed with equal priority and pro rata among the
--- ----
holders of the Company's Series B Preferred Stock, Series C Preferred Stock and
Common Stock.
(d) Reorganization. For purposes of this Section 3, a Liquidation
--------------
shall be deemed to be occasioned by, or to include, (a) the acquisition of the
Company by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation but excluding any merger effected exclusively for the purpose of
changing the domicile of the Company); or (b) a sale of all or substantially all
of the assets of the Company; provided, however, that, in each such case, the
-----------------
applicable transaction shall not be deemed a liquidation unless the Company's
------
stockholders of record as constituted immediately prior to such acquisition or
sale hold less than 50% of the voting power of the surviving or acquiring entity
(or its parent).
(e) Shares not Treated as Both Preferred Stock and Common Stock in any
------------------------------------------------------------------
Distribution. Shares of Preferred Stock shall not be entitled to be converted
- ------------
into shares of Common Stock in order to participate in any distribution, or
series of distributions, as shares of Common Stock, without first foregoing
participation in the distribution, or series of distributions, as shares of
Preferred Stock.
(f) Non-Cash Consideration. If any assets of the Corporation
----------------------
distributed to stockholders in connection with any liquidation, dissolution, or
winding up of the Corporation are other than cash, then the value of such assets
shall be their fair market value as determined by the Board of Directors, except
------
that any securities to be distributed to stockholders in a liquidation,
- ----
dissolution, or winding up of the Corporation shall be valued as follows:
4
<PAGE>
(i) The method of valuation of securities not subject to investment
letter or other similar restrictions on free marketability shall be as follows:
a. if the securities are then traded on a national securities
exchange or the Nasdaq National Market (or a similar national quotation system),
then the value shall be deemed to be the average of the closing prices of the
securities on such exchange or system over the 30-day period ending three (3)
days prior to the distribution;
b. if actively traded over-the-counter, then the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) days prior to the distribution; and
c. if there is no active public market, then the value shall be
the fair market value thereof, as determined in good faith by the Board of
Directors of the Company.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
(i)(a), (i)(b) or (i)(c) of this subsection to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors.
4. Conversion. The Preferred Stock shall have conversion rights as
----------
follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Company or the transfer agent for
the Preferred Stock. Each share of Series A 8% Convertible Preferred Stock shall
be convertible into that number of fully-paid and nonassessable shares of Common
Stock that is equal to the Original Purchase Price divided by the Series A
Conversion Price (as hereinafter defined). The "Series A Conversion Price" shall
-------------------------
initially be $2.765, and shall be subject to adjustment as provided herein. Each
share of Series B Preferred Stock shall be convertible into that number of
fully-paid and nonassessable shares of Common Stock that is equal to the
Original Purchase Price divided by the Series B Conversion Price (as hereinafter
defined). The "Series B Conversion Price" shall initially be $1.895 and shall be
-------------------------
subject to adjustment as provided herein. Each share of Series C Preferred Stock
shall be convertible into that number of fully-paid and nonassessable shares of
Common Stock that is equal to the Original Purchase Price divided by the Series
C Conversion Price (as hereinafter defined). The "Series C Conversion Price"
--------------------------
shall initially be $11.89 and shall be subject to adjustment as provided herein.
The number of shares of Common Stock into which each share of Preferred Stock
may be converted is hereinafter referred to as the "Conversion Rate."
---------------
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Rate for such share immediately upon the closing of a firmly
underwritten public offering pursuant to the Securities
5
<PAGE>
Act of 1933, as amended (the "Securities Act") on Form S-1 (as defined in the
--------------
Securities Act), in which the aggregate gross proceeds to the Company are not
less than $20,000,000 and after which the Company's Common Stock is listed on a
national securities exchange or admitted for quotation on the Nasdaq National
Market (or any successor exchange or automatic quotation system).
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to such fraction multiplied by the then fair market value
of such fractional shares as determined in good faith by the Board of Directors
(as evidenced by certified resolutions) of the Company. For such purpose, all
shares of Preferred Stock held by each holder shall be aggregated, and any
resulting fractional share of Common Stock shall be paid in cash. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of the transfer agent for the Preferred Stock, and shall give written
notice to the Company at such office that he elects to convert the same;
provided, however, that in the event of an automatic conversion pursuant to
- -----------------
paragraph 4(b) above, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided further, however, that the Company
-------- ------- -------
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless either the certificates
evidencing such shares of Preferred Stock are delivered to the Company or its
transfer agent as provided above, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates.
The Company shall, as soon as practicable after such delivery, or after
such agreement and indemnification, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock, plus any declared and
unpaid dividends on the converted Preferred Stock; provided, however, that no
-----------------
declared and unpaid dividends shall be paid on Preferred Stock converted
pursuant to Section 4(a) herein. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date; provided, however, that if the conversion is in
-----------------
connection with an underwritten offer of securities registered pursuant to the
Securities Act, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Preferred Stock
shall not be deemed to have
6
<PAGE>
converted such Preferred Stock until immediately prior to the closing of the
sale of such securities.
(d) Adjustments to Conversion Prices.
--------------------------------
(i) Stock Dividends. In the event the Company at any time or
---------------
from time to time after the Original Issue Date shall declare or pay any
dividend on the Common Stock payable in Common Stock, and with respect to which
no similar Common Stock dividend is to be distributed to holders of Preferred
Stock, then and in any such event, the Conversion Prices in effect immediately
prior to such event shall, concurrently with the effectiveness of such event, be
proportionately decreased.
(ii) Adjustments for Subdivisions or Combinations of Common. In
------------------------------------------------------
the event the outstanding shares of Common Stock shall be subdivided (by stock
split or otherwise other than by payment of a dividend in Common Stock), into a
greater number of shares of Common Stock, the Conversion Prices in effect
immediately prior to such subdivision shall, concurrently with the effectiveness
of such subdivision, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined into a lesser number of shares of
Common Stock, the Conversion Prices in effect immediately prior to such
combination shall, concurrently with the effectiveness of such combination, be
proportionately increased.
(iii) Adjustments for Reclassification, Exchange and Substitution.
-----------------------------------------------------------
If the Common Stock issuable upon conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Prices then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
which a holder of the number of shares of Common Stock deliverable upon
conversion of the Preferred Stock immediately before that change would have been
entitled to receive in such reorganization or reclassification.
(e) Certificate of Adjustments. Upon the occurrence of each
--------------------------
adjustment or readjustment of any Conversion Price pursuant to this Section 4,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Prices at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Preferred Stock.
7
<PAGE>
(f) Notices of Record Date. In the event that the Company shall
----------------------
propose at any time (i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge with or
into any other corporation, or sell, lease or convey all or substantially all
its property or business, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Company shall send to the holders of the
Preferred Stock at least 20 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the matters referred to
in clauses (iii) and (iv) above. Each such written notice shall be given by
first class mail, postage prepaid, or reputable overnight courier, or personally
delivered, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of the Company (with the date such notice is
deemed given to be three days after such deposit in the U.S. Mail, the day after
deposit with a reputable overnight courier and upon delivery in the case of
personal delivery).
(g) Reservation of Stock Issuable Upon Conversion. The Company shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(h) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section and in the taking of all such action as may be necessary or appropriate
in order to protect the conversion rights of the holders of the Preferred Stock
against impairment.
5. Redemption. The Preferred Stock is not redeemable.
----------
6. Voting. Except as otherwise expressly provided herein or as required
------
by law, the holders of Preferred Stock and the holders of Common Stock shall
vote together and not as separate classes.
8
<PAGE>
(a) Preferred Stock. 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 such shares of Preferred Stock held by such holder of Preferred Stock
could then be converted. The holders of shares of the Preferred Stock shall be
entitled to vote on all matters on which the Common Stock shall be entitled to
vote. The holders of the Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of the Company. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Preferred Stock held by each holder could be converted), shall be rounded
down to the next whole number.
(b) Common Stock. Each holder of shares of Common Stock shall be
------------
entitled to one vote for each share thereof held.
(c) No Series Voting. Other than as provided by law or as set forth
----------------
herein, there shall be no separate class or series voting.
7. Notices. Any notice required by the provisions of this Article FOUR
-------
to be given to the holders of Preferred Stock shall be, and shall be deemed,
given as provided above in Section 4(f) ("Notices of Record Date").
8. Series A 8% Convertible Preferred Stock Protective Provisions. So
-------------------------------------------------------------
long as any shares of Series A 8% Convertible Preferred Stock remains
outstanding, the Company shall not without first obtaining the approval, voting
or consenting as the case may be, of all of the holders of the outstanding
shares of Series A 8% Convertible Preferred Stock:
(a) Certificate of Incorporation. Amend or restate the Certificate of
----------------------------
Incorporation so as to adversely affect the Series A 8% Convertible Preferred
Stock; or
(b) Create Any New Class or Series. Create any new class or series of
------------------------------
shares having dividend or liquidation rights superior to or on a parity with the
Series A 8% Convertible Preferred Stock.
9. Series B Preferred Stock Protective Provisions. So long as any shares
----------------------------------------------
of Series B Preferred Stock remains outstanding, the Company shall not without
first obtaining the approval, voting or consenting as the case may be, of the
holders of a majority of the outstanding shares of Series B Preferred Stock:
(a) Certificate of Incorporation. Amend or restate the Certificate of
----------------------------
Incorporation so as to adversely affect the Series B Preferred Stock; or
(b) Create Any New Class or Series. Create any new class or series of
------------------------------
shares having dividend or liquidation rights superior to or on a parity with the
Series B Preferred Stock.
9
<PAGE>
10. Series C Preferred Stock Protective Provision. So long as any shares
---------------------------------------------
of Series C Preferred Stock remains outstanding, the Company shall not without
first obtaining the approval, voting or consenting as the case may be, of the
holders of a majority of the outstanding shares of Series C Preferred Stock
amend or restate the Certificate of Incorporation so as to adversely affect the
Series C Preferred Stock.
FIVE
The Board of Directors of the corporation is expressly authorized to
adopt, amend or repeal the bylaws of corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaws whether adopted by them or
otherwise.
SIX
Elections of directors need not be by written ballot except and to the
extent provided in the bylaws of the corporation.
SEVEN
A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
B. The corporation shall indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director, officer or
employee of the corporation or any predecessor of the corporation or serves or
served any other enterprise as a director, officer or employee at the request of
the corporation or any predecessor to the corporation.
C. Neither any amendment nor repeal of this Article SEVEN nor the
adoption of any provision of this corporation's Certificate of Incorporation
inconsistent with this Article SEVEN, shall eliminate or reduce the effect of
this Article SEVEN in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SEVEN, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
IV. Thereafter, pursuant to a resolution of the Board of Directors, this
Restated Certificate of Incorporation was duly approved by the holders of the
necessary number of shares of the Company's voting securities in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
its duly authorized officer this 18/th/ of March, 1999.
------
DRKOOP.COM, INC.
By: /s/ Donald W. Hackett
----------------------------
Donald W. Hackett, President
ATTEST:
By: /s/ Louis A. Scalpati
----------------------------
Louis A. Scalpati, Secretary
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
DRKOOP.COM, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 STOCKHOLDERS........................................................................................... 1
1.1 ANNUAL MEETINGS.......................................................................................... 1
1.2 SPECIAL MEETINGS......................................................................................... 1
1.3 NOTICE OF MEETINGS....................................................................................... 1
1.4 ADJOURNMENTS............................................................................................. 2
1.5 QUORUM................................................................................................... 2
1.6 ORGANIZATION............................................................................................. 2
1.7 VOTING; PROXIES.......................................................................................... 2
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.................................................. 3
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE.................................................................... 4
1.10 ACTION BY CONSENT OF STOCKHOLDERS........................................................................ 4
ARTICLE 2 BOARD OF DIRECTORS..................................................................................... 4
2.1 NUMBER; QUALIFICATIONS................................................................................... 4
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES................................................................ 4
2.3 REGULAR MEETINGS......................................................................................... 5
2.4 SPECIAL MEETINGS......................................................................................... 5
2.5 TELEPHONIC MEETINGS PERMITTED............................................................................ 5
2.6 QUORUM; VOTE REQUIRED FOR ACTION......................................................................... 5
2.7 ORGANIZATION............................................................................................. 5
2.8 INFORMAL ACTION BY DIRECTORS............................................................................. 6
ARTICLE 3 COMMITTEES............................................................................................. 6
3.1 COMMITTEES............................................................................................... 6
3.2 COMMITTEE RULES.......................................................................................... 6
ARTICLE 4 OFFICERS............................................................................................... 7
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES............ 7
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS.................................................................. 7
ARTICLE 5 STOCK.................................................................................................. 7
5.1 CERTIFICATES............................................................................................. 7
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES............................... 8
ARTICLE 6 INDEMNIFICATION........................................................................................ 8
6.1 RIGHT TO INDEMNIFICATION................................................................................. 8
6.2 PREPAYMENT OF EXPENSES................................................................................... 8
6.3 CLAIMS................................................................................................... 9
6.4 NON-EXCLUSIVITY OF RIGHTS................................................................................ 9
6.5 OTHER INDEMNIFICATION.................................................................................... 9
6.6 AMENDMENT OR REPEAL...................................................................................... 9
ARTICLE 7 MISCELLANEOUS.......................................................................................... 9
7.1 FISCAL YEAR.............................................................................................. 9
7.2 SEAL..................................................................................................... 9
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES................................... 10
7.4 INTERESTED DIRECTORS; QUORUM............................................................................. 10
7.5 FORM OF RECORDS.......................................................................................... 10
7.6 AMENDMENT OF BYLAWS...................................................................................... 11
</TABLE>
-i-
<PAGE>
BYLAWS
------
OF
--
DRKOOP.COM, INC.
----------------
ARTICLE 1
STOCKHOLDERS
------------
1.1 ANNUAL MEETINGS
---------------
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the State of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
----------------
Special meetings of stockholders for any purpose or purposes may be called
at any time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings, but such special meetings
may not be called by any other person or persons.
1.3 NOTICE OF MEETINGS
------------------
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the certificate of incorporation or these bylaws, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1
<PAGE>
1.4 ADJOURNMENTS
------------
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
1.5 QUORUM
------
Except as otherwise provided by law, the certificate of incorporation or
these bylaws, at each meeting of stockholders the presence in person or by proxy
of the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote at the
meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
bylaws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.6 ORGANIZATION
------------
Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
1.7 VOTING; PROXIES
---------------
Except as otherwise provided by the certificate of incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in
2
<PAGE>
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the corporation.
Voting at meetings of stockholders need not be by written ballot and need not be
conducted by inspectors of election unless so determined by the holders of
shares of stock having a majority of the votes which could be cast by the
holders of all outstanding shares of stock entitled to vote thereon which are
present in person or by proxy at such meeting. At all meetings of stockholders
for the election of directors a plurality of the votes cast shall be sufficient
to elect. All other elections and questions shall, unless otherwise provided by
law, the certificate of incorporation or these bylaws, be decided by the vote of
the holders of shares of stock having a majority of the votes which could be
cast by the holders of all shares of stock entitled to vote thereon which are
present in person or represented by proxy at the meeting.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
-------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; (2) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (3) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
3
<PAGE>
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS
---------------------------------
Unless otherwise restricted by the certificate of incorporation, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE 2
BOARD OF DIRECTORS
------------------
2.1 NUMBER; QUALIFICATIONS
----------------------
The Board of Directors shall consist of one or more members, the number
thereof to be determined from time to time by resolution of the Board of
Directors. Directors need not be stockholders.
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES
-----------------------------------------
Each director so elected shall hold office until the first annual meeting
of stockholders or until his successor is elected and qualified. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a
4
<PAGE>
term of one year or until his successor is elected and qualified. Any director
may resign at any time upon written notice to the corporation. Any newly created
directorship or any vacancy occurring in the Board of Directors for any cause
may be filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum, or by a plurality of the votes
cast at a meeting of stockholders, and each director so elected shall hold
office until the expiration of the term of office of the director whom he has
replaced or until his successor is elected and qualified.
2.3 REGULAR MEETINGS
----------------
Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.4 SPECIAL MEETINGS
----------------
Special meetings of the Board of Directors may be held at any time or place
within or without the State of Delaware whenever called by the President, any
Vice President, the Secretary, or by any member of the Board of Directors.
Notice of a special meeting of the Board of Directors shall be given by the
person or persons calling the meeting at least twenty-four hours before the
special meeting.
2.5 TELEPHONIC MEETINGS PERMITTED
-----------------------------
Members of the Board of Directors, or any committee designated by the Board
of Directors, may participate in a meeting thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this by law shall constitute presence in person at such meeting.
2.6 QUORUM; VOTE REQUIRED FOR ACTION
--------------------------------
At all meetings of the Board of Directors a majority of the whole Board of
Directors shall constitute a quorum for the transaction of business. Except in
cases in which the certificate of incorporation or these bylaws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
2.7 ORGANIZATION
------------
Meetings of the Board of Directors shall be presided over by the Chairman
of the Board, if any, or in his absence by the Vice Chairman of the Board, if
any, or in his absence by the President, or in their absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
5
<PAGE>
2.8 INFORMAL ACTION BY DIRECTORS
----------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or such committee.
ARTICLE 3
COMMITTEES
----------
3.1 COMMITTEES
----------
The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it.
3.2 COMMITTEE RULES
---------------
Unless the Board of Directors otherwise provides, each committee designated
by the Board of Directors may make, alter and repeal rules for the conduct of
its business. In the absence of such rules each committee shall conduct its
business in the same manner as the Board of Directors conducts its business
pursuant to Article III of these bylaws.
6
<PAGE>
ARTICLE 4
OFFICERS
--------
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
-------------------------------------------------------------
RESIGNATION; REMOVAL; VACANCIES
-------------------------------
The Board of Directors shall elect a President and Secretary, and it may,
if it so determines, choose a Chairman of the Board and a Vice Chairman of the
Board from among its members. The Board of Directors may also choose one or
more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or
more Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS
---------------------------------------
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE 5
STOCK
-----
5.1 CERTIFICATES
------------
Every holder of stock shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or Vice President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued
7
<PAGE>
by the corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue.
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
-------------------------------------------------------------
CERTIFICATES
------------
The corporation may issued a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE 6
INDEMNIFICATION
---------------
6.1 RIGHT TO INDEMNIFICATION
------------------------
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person.
The corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by the
Board of Directors of the corporation.
6.2 PREPAYMENT OF EXPENSES
----------------------
The corporation shall pay the expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article or otherwise.
8
<PAGE>
6.3 CLAIMS
------
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
6.4 NON-EXCLUSIVITY OF RIGHTS
-------------------------
The rights conferred on any person by the Article VI shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.
6.5 OTHER INDEMNIFICATION
---------------------
The corporation's obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or non-
profit enterprise.
6.6 AMENDMENT OR REPEAL
-------------------
Any repeal or modification of the foregoing provisions of this Article VI
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 FISCAL YEAR
-----------
The fiscal year of the corporation shall be determined by resolution of the
Board of Directors.
7.2 SEAL
----
The corporate seal shall have the name of the corporation inscribed thereon
and shall be in such form as may be approved from time to time by the Board of
Directors.
9
<PAGE>
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES
----------------------------------------------------------------------
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
7.4 INTERESTED DIRECTORS; QUORUM
----------------------------
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.5 FORM OF RECORDS
---------------
Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same.
10
<PAGE>
7.6 AMENDMENT OF BYLAWS
-------------------
These bylaws may be altered or repealed, and new bylaws made, by the Board
of Directors, but the stockholders may make additional bylaws and may alter and
repeal any bylaws whether adopted by them or otherwise.
11
<PAGE>
EXHIBIT 10.2
THE 1999 EQUITY PARTICIPATION PLAN
OF
DRKOOP.COM, INC.
----------------
drKoop.com, Inc., a Delaware corporation, has adopted The 1999 Equity
Participation Plan of drKoop.com, Inc. (the "Plan"), effective February 26,
----
1999, for the benefit of its eligible employees, consultants and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and Consultants (as such terms are defined below) to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General.
-------
Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise.
1.2. Administrator.
-------------
"Administrator" shall mean the entity that conducts the general
-------------
administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to Options granted to Independent
Directors, the term "Administrator" shall refer to the Board. With reference to
the administration of the Plan with respect to any other Award, the term
"Administrator" shall refer to the Committee unless the Board has assumed the
authority for administration of the Plan generally as provided in Section 10.1.
1.3. Award.
-----
"Award" shall mean an Option, a Restricted Stock award, a Performance
-----
Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment
award or a Stock Appreciation Right which may be awarded or granted under the
Plan (collectively, "Awards").
------
<PAGE>
1.4. Award Agreement.
---------------
"Award Agreement" shall mean a written agreement executed by an
---------------
authorized officer of the Company and the Holder which shall contain such terms
and conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.
1.5. Award Limit.
-----------
"Award Limit" shall mean 500,000/1/ shares of Common Stock, as
-----------
adjusted pursuant to Section 11.3 of the Plan.
1.6. Board.
-----
"Board" shall mean the Board of Directors of the Company.
-----
1.7. Change in Control.
-----------------
"Change in Control" shall mean a transaction in which the stockholders
-----------------
of the Company approve a merger or consolidation of the Company with any other
corporation (or other entity), other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into a voting securities of the surviving entity) more than a majority
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
- -------- -------
recapitalization of the Company (or similar transaction) in which no person
acquires more than 25% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control.
1.8. Code.
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
1.9. Committee.
---------
"Committee" shall mean the Compensation Committee of the Board, or
---------
another committee or subcommittee of the Board, appointed as provided in Section
10.1.
1.10. Common Stock.
------------
"Common Stock" shall mean the common stock of the Company, par value
------------
$0.001 per share, and any equity security of the Company issued or authorized to
be issued in the future, but excluding any preferred stock and any warrants,
options or other rights to purchase Common Stock.
___________________________
/1/ Adjusted to reflect the 3:1 stock split effective March 5, 1999.
2
<PAGE>
1.11. Company.
-------
"Company" shall mean drKoop.com, Inc., a Delaware corporation.
-------
1.12. Consultant.
----------
"Consultant" shall mean any consultant or adviser if:
----------
(a) the consultant or adviser renders bona fide services to the
Company or any corporation which is a Subsidiary;
(b) the services rendered by the consultant or adviser are not
in connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) the consultant or adviser is a natural person who has
contracted directly with the Company or any corporation which is a
Subsidiary to render such services.
1.13. Deferred Stock.
--------------
"Deferred Stock" shall mean Common Stock awarded under Article VIII of
--------------
the Plan.
1.14. Director.
--------
"Director" shall mean a member of the Board.
--------
1.15. Dividend Equivalent.
-------------------
"Dividend Equivalent" shall mean a right to receive the equivalent
-------------------
value (in cash or Common Stock) of dividends paid on Common Stock, awarded under
Article VIII of the Plan.
1.16. DRO.
---
"DRO" shall mean a domestic relations order as defined by the Code or
---
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.
1.17. Employee.
--------
"Employee" shall mean any officer or other employee (as defined in
--------
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
1.18. Exchange Act.
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
3
<PAGE>
1.19. Fair Market Value.
-----------------
"Fair Market Value" of a share of Common Stock as of a given date
-----------------
shall be (a) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on the
trading day previous to such date, or if shares were not traded on the trading
day previous to such date, then on the next preceding date on which a trade
occurred, or (b) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, the last reported sale price for the
Common Stock on the trading day previous to such date as reported by Nasdaq or
such successor quotation system; or (c) if Common Stock is not publicly traded
on an exchange and not quoted on Nasdaq or a successor quotation system, the
Fair Market Value of a share of Common Stock as established by the Administrator
acting in good faith.
1.20. Holder.
------
"Holder" shall mean a person who has been granted or awarded an Award.
------
1.21. Incentive Stock Option.
----------------------
"Incentive Stock Option" shall mean an option which conforms to the
----------------------
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.
1.22. Independent Director.
--------------------
"Independent Director" shall mean a member of the Board who is not an
--------------------
Employee of the Company.
1.23. Non-Qualified Stock Option.
--------------------------
"Non-Qualified Stock Option" shall mean an Option which is not
--------------------------
designated as an Incentive Stock Option by the Administrator.
1.24. Option.
------
"Option" shall mean a stock option granted under Article IV of the
------
Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
-------- -------
Consultants shall be Non-Qualified Stock Options.
1.25. Performance Award.
-----------------
"Performance Award" shall mean a cash bonus, stock bonus or other
-----------------
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VIII of the Plan.
4
<PAGE>
1.26. Performance Criteria.
--------------------
"Performance Criteria" shall mean the following business criteria with
--------------------
respect to the Company, any Subsidiary or any division or operating unit: (a)
net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock and (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization.
1.27. Plan.
----
"Plan" shall mean The 1999 Equity Participation Plan of drKoop.com,
----
Inc.
1.28. Restricted Stock.
----------------
"Restricted Stock" shall mean Common Stock awarded under Article VII
----------------
of the Plan.
1.29. Rule 16b-3.
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
----------
Act, as such Rule may be amended from time to time.
1.30. Section 162(m) Participant.
--------------------------
"Section 162(m) Participant" shall mean any key Employee designated by
--------------------------
the Administrator as a key Employee whose compensation for the fiscal year in
which the key Employee is so designated or a future fiscal year may be subject
to the limit on deductible compensation imposed by Section 162(m) of the Code.
1.31. Securities Act.
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
1.32. Stock Appreciation Right.
------------------------
"Stock Appreciation Right" shall mean a stock appreciation right
------------------------
granted under Article IX of the Plan.
1.33. Stock Payment.
-------------
"Stock Payment" shall mean (a) a payment in the form of shares of
-------------
Common Stock, or (b) an option or other right to purchase shares of Common
Stock, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including without limitation, salary, bonuses
and commissions, that would otherwise become payable to a key Employee or
Consultant in cash, awarded under Article VIII of the Plan.
5
<PAGE>
1.34. Subsidiary.
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
----------
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
1.35. Substitute Award.
----------------
"Substitute Award" shall mean an Option granted under this Plan upon
----------------
the assumption of, or in substitution for, outstanding equity awards previously
granted by a company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property or
stock; provided, however, that in no event shall the term "Substitute Award" be
-------- -------
construed to refer to an award made in connection with the cancellation and
repricing of an Option.
1.36. Termination of Consultancy.
--------------------------
"Termination of Consultancy" shall mean the time when the engagement
--------------------------
of a Holder as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement; but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Administrator, in its sole and absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of the Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
Consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
1.37. Termination of Directorship.
---------------------------
"Termination of Directorship" shall mean the time when a Holder who is
---------------------------
an Independent Director ceases to be a Director for any reason, including, but
not by way of limitation, a termination by resignation, failure to be elected,
death or retirement. The Board, in its sole and absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Directorship with respect to Independent Directors.
1.38. Termination of Employment.
-------------------------
"Termination of Employment" shall mean the time when the employee-
-------------------------
employer relationship between a Holder and the Company or any Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding (a) terminations where there is a simultaneous
reemployment or continuing employment of a Holder by the Company or any
6
<PAGE>
Subsidiary, (b) at the sole and absolute discretion of the Administrator,
terminations which result in a temporary severance of the employee-employer
relationship, and (c) at the sole and absolute discretion of the Administrator,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company or a Subsidiary with the former employee.
The Administrator, in its sole and absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Employment;
provided, however, that, with respect to Incentive Stock Options, unless
- -------- -------
otherwise determined by the Administrator in its sole and absolute discretion, a
leave of absence, change in status from an employee to an independent contractor
or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence,
change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
----------------------
(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock, par value $0.001 per share.
The aggregate number of such shares which may be issued upon exercise of
such Options or rights or upon any such Awards under the Plan shall not
exceed 1,500,000/2/ shares. The shares of Common Stock issuable upon
exercise of such Options or rights or upon any such awards may be either
previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Awards,
granted under the Plan to any individual in any calendar year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Award Limit.
2.2. Add-back of Options and Other Rights.
------------------------------------
If any Option, or other right to acquire shares of Common Stock under
any other Award under the Plan, expires or is canceled without having been fully
exercised, or is exercised in whole or in part for cash as permitted by the
Plan, the number of shares subject to such Option or other right but as to which
such Option or other right was not exercised prior to its expiration,
cancellation or exercise may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Furthermore, any shares subject to
Awards which are adjusted pursuant to Section 11.3 and become exercisable with
respect to shares of stock of another
_____________________________
/2/ Adjusted to reflect the 3:1 stock split effective March 5, 1999.
7
<PAGE>
corporation shall be considered canceled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement.
---------------
Each Award shall be evidenced by an Award Agreement. Award Agreements
evidencing Awards intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall
contain such terms and conditions as may be necessary to meet the applicable
provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
----------------------------------------------------
(a) The Committee, in its sole and absolute discretion, may
determine whether an Award is to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock, the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable upon the
attainment of performance goals which are related to one or more of the
Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the
8
<PAGE>
Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the Performance Criteria applicable to the fiscal
year or other designated fiscal period or period of service, (iii)
establish the various performance targets, in terms of an objective formula
or standard, and amounts of such Awards, as applicable, which may be earned
for such fiscal year or other designated fiscal period or period of service
and (iv) specify the relationship between Performance Criteria and the
performance targets and the amounts of such Awards, as applicable, to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the completion of
each fiscal year or other designated fiscal period or period of service,
the Committee shall certify in writing whether the applicable performance
targets have been achieved for such fiscal year or other designated fiscal
period or period of service. In determining the amount earned by a Section
162(m) Participant, the Committee shall have the right to reduce (but not
to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the Plan
or any Award which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, and
the Plan shall be deemed amended to the extent necessary to conform to such
requirements.
3.3. Limitations Applicable to Section 16 Persons.
--------------------------------------------
Notwithstanding any other provision of the Plan, the Plan, and any
Award granted or awarded to any individual who is then subject to Section 16 of
the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule.
3.4. Consideration.
-------------
In consideration of the granting of an Award under the Plan, if
requested by the Company the Holder shall agree, in the Award Agreement, to
remain in the employ of (or to consult for or to serve as an Independent
Director of, as applicable) the Company or any Subsidiary for a period of at
least one year (or such shorter period as may be fixed in the Award Agreement or
by action of the Administrator following grant of the Award) after the Award is
granted (or, in the case of an Independent Director, until the next annual
meeting of stockholders of the Company).
9
<PAGE>
3.5. At-Will Employment.
Nothing in the Plan or in any Award Agreement hereunder shall confer
upon any Holder any right to continue in the employ of, or as a Consultant for,
the Company or any Subsidiary, or as a director of the Company, or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Holder at any
time for any reason whatsoever, with or without cause and with or without
notice, except to the extent expressly provided otherwise in a binding written
employment agreement between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. Eligibility.
-----------
Any Employee or Consultant selected by the Committee pursuant to
Section 4.4(a)(i) shall be eligible to be granted an Option. Each Independent
Director of the Company shall be eligible to be granted Options at the times and
in the manner set forth in Section 4.5.
4.2. Disqualification for Stock Ownership.
------------------------------------
No person may be granted an Incentive Stock Option under the Plan if
such person, at the time the Incentive Stock Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any then existing Subsidiary or parent
corporation (within the meaning of Section 422 of the Code) unless such
Incentive Stock Option conforms to the applicable provisions of Section 422 of
the Code.
4.3. Qualification of Incentive Stock Options.
----------------------------------------
No Incentive Stock Option shall be granted to any person who is not an
Employee.
4.4. Granting of Options to Employees and Consultants.
------------------------------------------------
(a) The Committee shall from time to time, in its sole and
absolute discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and
select from among the key Employees or Consultants (including
Employees or Consultants who have previously received Awards under the
Plan) such of them as in its opinion should be granted Options;
10
<PAGE>
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or Consultants;
(iii) Subject to Section 4.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
-------- -------
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee or Consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of
the Option as it deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be
modified by the Committee, with the consent of the Holder, to disqualify
such Option from treatment as an "incentive stock option" under Section 422
of the Code.
4.5. Granting of Options to Independent Directors.
--------------------------------------------
During the term of the Plan, a person who is initially elected to the
Board after the consummation of the initial public offering of Common Stock and
who is an Independent Director at the time of such initial election
automatically shall be granted (i) an Option to purchase fifteen thousand
(15,000) shares of Common Stock (subject to adjustment as provided in Section
11.3) on the date of such initial election and (ii) an Option to purchase five
thousand (5,000) shares of Common Stock (subject to adjustment as provided in
Section 11.3) on the date of each annual meeting of stockholders after such
initial election provided the Independent Director remains a member of the Board
immediately following the meeting; provided, however, that no such annual grant
-------- -------
of an Option to purchase an additional 5,000 shares pursuant to clause (ii) of
this sentence will be made if the Independent Director was first appointed to
the Board within 90 days prior to the date of the annual meeting. Members of
the Board who are employees of the Company who subsequently retire from the
Company and remain on the Board will not receive an initial Option grant
pursuant to clause (i) of the preceding sentence, but to the extent that they
are otherwise eligible, will receive, after retirement from employment with the
Company, Options as described in clause (ii) of the preceding sentence. So long
as he is a party to a consulting agreement with the Company that provides for
separate compensation, neither Dr. C. Everett Koop nor John F. Zaccaro shall
receive annual option grants under this Section 4.5. All the foregoing Option
grants authorized by this Section 4.5 are subject to stockholder approval of the
Plan.
11
<PAGE>
4.6. Options in Lieu of Cash Compensation.
------------------------------------
Options may be granted under the Plan to Employees and Consultants in
lieu of cash bonuses which would otherwise be payable to such Employees and
Consultants and to Independent Directors in lieu of directors' fees which would
otherwise be payable to such Independent Directors, pursuant to such policies
which may be adopted by the Administrator from time to time.
4.7. Additional Director Grants.
--------------------------
Section 4.5 and 4.6 shall not foreclose additional grants of Options
to an Independent Director approved by the Board (with such Independent Director
abstaining from consideration or approval of the grant).
ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price.
------------
The price per share of the shares subject to each Option granted to
Employees and Consultants shall be set by the Committee; provided, however, that
-------- -------
such price shall be no less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted and:
(a) in the case of Options intended to qualify as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, such
price shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted;
(b) in the case of Incentive Stock Options such price shall not
be less than 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted (or the date the Option is modified,
extended or renewed for purposes of Section 424(h) of the Code);
(c) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code), such price shall not be less than 110%
of the Fair Market Value of a share of Common Stock on the date the Option
is granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code).
12
<PAGE>
5.2. Option Term.
-----------
The term of an Option granted to an Employee or consultant shall be
set by the Committee in its sole and absolute discretion; provided, however,
-------- -------
that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from the date the Incentive Stock Option is granted if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code). Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder
applicable to Incentive Stock Options, the Committee may extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Holder, or amend any other term or condition
of such Option relating to such a termination.
5.3. Option Vesting.
---------------
(a) The period during which the right to exercise, in whole or
in part, an Option granted to an Employee or a Consultant vests in the
Holder shall be set by the Committee and the Committee may determine that
an Option may not be exercised in whole or in part for a specified period
after it is granted; provided, however, that, unless the Committee
-------- -------
otherwise provides in the terms of the Award Agreement or otherwise, no
Option shall be exercisable by any Holder who is then subject to Section 16
of the Exchange Act within the period ending six months and one day after
the date the Option is granted. At any time after grant of an Option, the
Committee may, in its sole and absolute discretion and subject to whatever
terms and conditions it selects, accelerate the period during which an
Option granted to an Employee or Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant
which is unexercisable at Termination of Employment or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided by the Committee either in the Award Agreement or
by action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code)
are exercisable for the first time by a Holder during any calendar year
(under the Plan and all other incentive stock option plans of the Company
and any parent or subsidiary corporation, within the meaning of Section 422
of the Code) of the Company, exceeds $100,000, such Options shall be
treated as Non-Qualified Options to the extent required by Section 422 of
the Code. The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted. For
purposes of this Section 5.3(c), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.
13
<PAGE>
5.4. Terms of Options Granted to Independent Directors.
-------------------------------------------------
The price per share of the shares subject to each Option granted to an
Independent Director shall equal 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; provided, however, that the
-------- -------
price of each share subject to each Option granted to Independent Directors on
the date of the initial public offering of Common Stock shall equal the initial
public offering price (net of underwriting discounts and commissions) per share
of Common Stock. Options granted to Independent Directors shall become
exercisable in cumulative annual installments of 33 1/3% on each of the first,
second, and third anniversaries of the date of Option grant and, subject to
Section 6.6, the term of each Option granted to an Independent Director shall be
ten (10) years from the date the Option is granted, except that (a) any Option
granted to an Independent Director may by its terms become immediately
exercisable in full upon the retirement of the Independent Director in
accordance with the Company's retirement policy applicable to directors and (b)
each such Option shall vest and become automatically exercisable immediately
prior to the effective date of the Change in Control without any further action
by the Independent Director. No portion of an Option which is unexercisable at
Termination of Directorship shall thereafter become exercisable.
5.5. Substitute Awards.
-----------------
Notwithstanding the foregoing provisions of this Article V to the
contrary, in the case of an Option that is a Substitute Award, the price per
share of the shares subject to such Option may be less than the Fair Market
Value per share on the date of grant, provided, that the excess of:
--------
(a) the aggregate Fair Market Value (as of the date such
Substitute Award is granted) of the shares subject to the Substitute Award;
over
(b) the aggregate exercise price thereof; does not exceed the
excess of;
(c) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Committee) of the shares of the
predecessor entity that were subject to the grant assumed or substituted
for by the Company; over
(d) the aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise.
----------------
An exercisable Option may be exercised in whole or in part. However,
an Option shall not be exercisable with respect to fractional shares and the
Administrator may require that, by the terms of the Option, a partial exercise
be with respect to a minimum number of shares.
14
<PAGE>
6.2. Manner of Exercise.
------------------
All or a portion of an exercisable Option shall be deemed exercised
upon delivery of all of the following to the Secretary of the Company or his
office:
(a) A written notice complying with the applicable rules
established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Holder or other
person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in
its sole and absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any
other federal or state securities laws or regulations. The Administrator
may, in its sole and absolute discretion, also take whatever additional
actions it deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing stop-transfer
notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Holder, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its sole and absolute discretion (i)
allow a delay in payment up to thirty (30) days from the date the Option,
or portion thereof, is exercised; (ii) allow payment, in whole or in part,
through the delivery of shares of Common Stock which have been owned by the
Holder for at least six months, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow
payment, in whole or in part, through the delivery of property of any kind
which constitutes good and valuable consideration; (iv) allow payment, in
whole or in part, through the delivery of a full recourse promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code) and payable upon such terms as may
be prescribed by the Administrator; (v) allow payment, in whole or in part,
through the delivery of a notice that the Holder has placed a market sell
order with a broker with respect to shares of Common Stock then issuable
upon exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price, provided that payment of such
--------
proceeds is then made to the Company upon settlement of such sale; or (vi)
allow payment through any combination of the consideration provided in the
foregoing subparagraphs (ii), (iii), (iv) and (v). In the case of a
promissory note, the Administrator may also prescribe the form of such note
and the security to be given for such note. The Option may not be
exercised, however, by delivery of a promissory note or by a loan
15
<PAGE>
from the Company when or where such loan or other extension of credit is
prohibited by law.
6.3. Conditions to Issuance of Stock Certificates.
--------------------------------------------
The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator shall, in its sole and
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
sole and absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to time
for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by
the Holder to pay for such shares under Section 6.2(d).
6.4. Rights as Stockholders.
----------------------
Holders shall not be, nor have any of the rights or privileges of,
stockholders of the Company in respect of any shares purchasable upon the
exercise of any part of an Option unless and until certificates representing
such shares have been issued by the Company to such Holders.
6.5. Ownership and Transfer Restrictions.
-----------------------------------
The Administrator, in its sole and absolute discretion, may impose
such restrictions on the ownership and transferability of the shares purchasable
upon the exercise of an Option as it deems appropriate. Any such restriction
shall be set forth in the respective Award Agreement and may be referred to on
the certificates evidencing such shares. The Holder shall give the Company
prompt notice of any disposition of shares of Common Stock acquired by exercise
of an Incentive Stock Option within (a) two years from the date of granting
(including
16
<PAGE>
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code) such Option to such Holder or (b) one year after the
transfer of such shares to such Holder.
6.6. Limitations on Exercise of Options Granted to Independent
---------------------------------------------------------
Directors.
- ---------
No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Holder's death;
(b) the expiration of twelve (12) months from the date of the
Holder's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Holder's Termination of Directorship for any reason other than such
Holder's death or his permanent and total disability, unless the Holder
dies within said three-month period; or
(d) The expiration of ten (10) years from the date the Option was
granted.
6.7. Additional Limitations on Exercise of Options.
---------------------------------------------
Holders may be required to comply with any timing or other
restrictions with respect to the settlement or exercise of an Option, including
a window-period limitation, as may be imposed in the discretion of the
Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility.
-----------
Subject to the Award Limit, Restricted Stock may be awarded to any
Employee who the Committee determines is a key Employee or any Consultant who
the Committee determines should receive such an Award.
7.2. Award of Restricted Stock
-------------------------
(a) The Committee may from time to time, in its sole and
absolute discretion:
(i) Determine which Employees are key Employees and select
from among the key Employees or Consultants (including Employees or
Consultants who have previously received other awards under the Plan)
such of them as in its opinion should be awarded Restricted Stock; and
17
<PAGE>
(ii) Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Stock, consistent with
the Plan.
(b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; provided, however, that such
-------- -------
purchase price shall be no less than the par value of the Common Stock to
be purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or Consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.
7.3. Rights as Stockholders.
----------------------
Subject to Section 7.4, upon delivery of the shares of Restricted
Stock to the escrow holder pursuant to Section 7.6, the Holder shall have,
unless otherwise provided by the Committee, all the rights of a stockholder with
respect to said shares, subject to the restrictions in his Award Agreement,
including the right to receive all dividends and other distributions paid or
made with respect to the shares; provided, however, that in the discretion of
-------- -------
the Committee, any extraordinary distributions with respect to the Common Stock
shall be subject to the restrictions set forth in Section 7.4.
7.4. Restriction.
-----------
All shares of Restricted Stock issued under the Plan (including any
shares received by holders thereof with respect to shares of Restricted Stock as
a result of stock dividends, stock splits or any other form of recapitalization)
shall, in the terms of each individual Award Agreement, be subject to such
restrictions as the Committee shall provide, which restrictions may include,
without limitation, restrictions concerning voting rights and transferability
and restrictions based on duration of employment with the Company, Company
performance and individual performance; provided, however, that, unless the
-------- -------
Committee otherwise provides in the terms of the Award Agreement or otherwise,
no share of Restricted Stock granted to a person subject to Section 16 of the
Exchange Act shall be sold, assigned or otherwise transferred until at least six
months and one day have elapsed from the date on which the Restricted Stock was
issued, and provided, further, that, except with respect to shares of Restricted
-------- -------
Stock granted to Section 162(m) Participants, by action taken after the
Restricted Stock is issued, the Committee may, on such terms and conditions as
it may determine to be appropriate, remove any or all of the restrictions
imposed by the terms of the Award Agreement. Restricted Stock may not be sold
or encumbered until all restrictions are terminated or expire. If no
consideration was paid by the Holder upon issuance, a Holder's rights in
unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company; provided,
--------
however, that the Committee in its sole and absolute
- -------
18
<PAGE>
discretion may provide that such rights shall not lapse in the event of a
Termination of Employment following a "change of ownership or control" (within
the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any successor
regulation thereto) of the Company or because of the Holder's death or
disability; provided, further, except with respect to shares of Restricted Stock
-------- -------
granted to Section 162(m) Participants, the Committee in its sole and absolute
discretion may provide that no such lapse or surrender shall occur in the event
of a Termination of Employment, or a Termination of Consultancy, without cause
or following any Change in Control of the Company or because of the Holder's
retirement, or otherwise.
7.5. Repurchase of Restricted Stock.
------------------------------
The Committee shall provide in the terms of each individual Award
Agreement that the Company shall have the right to repurchase from the Holder
the Restricted Stock then subject to restrictions under the Award Agreement
immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy between the Holder and the Company, at a cash price
per share equal to the price paid by the Holder for such Restricted Stock;
provided, however, that the Committee in its sole and absolute discretion may
- -------- -------
provide that no such right of repurchase shall exist in the event of a
Termination of Employment following a "change of ownership or control" (within
the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any successor
regulation thereto) of the Company or because of the Holder's death or
disability; provided, further, that, except with respect to shares of Restricted
-------- -------
Stock granted to Section 162(m) Participants, the Committee in its sole and
absolute discretion may provide that no such right of repurchase shall exist in
the event of a Termination of Employment or a Termination of Consultancy without
cause or following any Change in Control of the Company or because of the
Holder's retirement, or otherwise.
7.6. Escrow.
------
The Secretary of the Company or such other escrow holder as the
Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
7.7. Legend.
------
In order to enforce the restrictions imposed upon shares of Restricted
Stock hereunder, the Committee shall cause a legend or legends to be placed on
certificates representing all shares of Restricted Stock that are still subject
to restrictions under Award Agreements, which legend or legends shall make
appropriate reference to the conditions imposed thereby.
7.8. Section 83(b) Election.
----------------------
If a Holder makes an election under Section 83(b) of the Code, or any
successor section thereto, to be taxed with respect to the Restricted Stock as
of the date of transfer of the
19
<PAGE>
Restricted Stock rather than as of the date or dates upon which the Holder would
otherwise be taxable under Section 83(a) of the Code, the Holder shall deliver a
copy of such election to the Company immediately after filing such election with
the Internal Revenue Service.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility.
-----------
Subject to the Award Limit, one or more Performance Awards, Dividend
Equivalents, awards of Deferred Stock, and/or Stock Payments may be granted to
any Employee whom the Committee determines is a key Employee or any Consultant
whom the Committee determines should receive such an Award.
8.2. Performance Awards.
------------------
Any key Employee or Consultant selected by the Committee may be
granted one or more Performance Awards. The value of such Performance Awards
may be linked to any one or more of the Performance Criteria or other specific
performance criteria determined appropriate by the Committee, in each case on a
specified date or dates or over any period or periods determined by the
Committee. In making such determinations, the Committee shall consider (among
such other factors as it deems relevant in light of the specific type of award)
the contributions, responsibilities and other compensation of the particular key
Employee or Consultant.
8.3. Dividend Equivalents.
(a) Any key Employee or Consultant selected by the Committee may
be granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period
between the date a Stock Appreciation Right, Deferred Stock or Performance
Award is granted, and the date such Stock Appreciation Right, Deferred
Stock or Performance Award is exercised, vests or expires, as determined by
the Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
(b) Any Holder of an Option who is an Employee or Consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the
date such Option is exercised, vests or expires, as determined by the
Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
20
<PAGE>
(c) Any Holder of an Option who is an Independent Director
selected by the Board may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the
date such Option is exercised, vests or expires, as determined by the
Board. Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Board.
(d) Dividend Equivalents granted with respect to Options
intended to be qualified performance-based compensation for purposes of
Section 162(m) of the Code shall be payable, with respect to pre-exercise
periods, regardless of whether such Option is subsequently exercised.
8.4. Stock Payments.
--------------
Any key Employee or Consultant selected by the Committee may receive
Stock Payments in the manner determined from time to time by the Committee. The
number of shares shall be determined by the Committee and may be based upon the
Performance Criteria or other specific performance criteria determined
appropriate by the Committee, determined on the date such Stock Payment is made
or on any date thereafter.
8.5. Deferred Stock.
--------------
Any key Employee or Consultant selected by the Committee may be
granted an award of Deferred Stock in the manner determined from time to time by
the Committee. The number of shares of Deferred Stock shall be determined by
the Committee and may be linked to the Performance Criteria or other specific
performance criteria determined to be appropriate by the Committee, in each case
on a specified date or dates or over any period or periods determined by the
Committee. Common Stock underlying a Deferred Stock award will not be issued
until the Deferred Stock award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee. Unless otherwise provided by the
Committee, a Holder of Deferred Stock shall have no rights as a Company
stockholder with respect to such Deferred Stock until such time as the Award has
vested and the Common Stock underlying the Award has been issued.
8.6. Term.
----
The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Committee in its sole
and absolute discretion.
8.7. Exercise or Purchase Price.
--------------------------
The Committee may establish the exercise or purchase price of a
Performance Award, shares of Deferred Stock, or shares received as a Stock
Payment; provided, however, that such price shall not be less than the par value
-------- -------
for a share of Common Stock, unless otherwise permitted by applicable state law.
21
<PAGE>
8.8. Exercise Upon Termination of Employment, Termination of
-------------------------------------------------------
Consultancy or Termination of Directorship.
- ------------------------------------------
A Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment is exercisable or payable only while the Holder is an
Employee, Consultant or Independent Director, as applicable; provided, however,
-------- -------
that the Administrator in its sole and absolute discretion may provide that the
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment may be exercised or paid subsequent to a Termination of Employment
following a "change of control or ownership" (within the meaning of Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company; provided,
--------
further, that except with respect to Performance Awards granted to Section
- -------
162(m) Participants, the Administrator in its sole and absolute discretion may
provide that Performance Awards may be exercised or paid following a Termination
of Employment or a Termination of Consultancy without cause, or following a
Change in Control of the Company, or because of the Holder's retirement, death
or disability, or otherwise.
8.9. Form of Payment.
---------------
Payment of the amount determined under Section 8.2 or 8.3 above shall
be in cash, in Common Stock or a combination of both, as determined by the
Committee. To the extent any payment under this Article VIII is effected in
Common Stock, it shall be made subject to satisfaction of all provisions of
Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights.
----------------------------------
A Stock Appreciation Right may be granted to any key Employee or
Consultant selected by the Committee. A Stock Appreciation Right may be granted
(a) in connection and simultaneously with the grant of an Option, (b) with
respect to a previously granted Option, or (c) independent of an Option. A
Stock Appreciation Right shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose and shall be evidenced
by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
---------------------------------
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related
----
to a particular Option and shall be exercisable only when and to the extent
the related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the
number of shares subject to the simultaneously or previously granted Option
to which it is coupled.
22
<PAGE>
(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the CSAR
by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Committee may
impose.
9.3. Independent Stock Appreciation Rights.
-------------------------------------
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as
the Committee may determine; provided, however, that unless the Committee
-------- -------
otherwise provides in the terms of the ISAR or otherwise, no ISAR granted
to a person subject to Section 16 of the Exchange Act shall be exercisable
until at least six months have elapsed from (but excluding) the date on
which the Option was granted. The exercise price per share of Common Stock
subject to each ISAR shall be set by the Committee. An ISAR is exercisable
only while the Holder is an Employee or Consultant; provided that the
Committee may determine that the ISAR may be exercised subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a Change in Control of the Company, or because of the Holder's
retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled
to exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with respect
to which the ISAR shall have been exercised, subject to any limitations the
Committee may impose.
9.4. Payment and Limitations on Exercise.
-----------------------------------
(a) Payment of the amounts determined under Section 9.2(c) and
9.3(b) above shall be in cash, in Common Stock (based on its Fair Market
Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the settlement
or exercise of a Stock
23
<PAGE>
Appreciation Right, including a window-period limitation, as may be imposed
in the discretion of the Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation Committee.
----------------------
The Compensation Committee (or another committee or a subcommittee of
the Board assuming the functions of the Committee under the Plan) shall consist
solely of two or more Independent Directors appointed by and holding office at
the pleasure of the Board, each of whom is both a "non-employee director" as
defined by Rule 16b-3 and an "outside director" for purposes of Section 162(m)
of the Code. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be
filled by the Board.
10.2. Duties and Powers of Committee.
------------------------------
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Award Agreements, and to
adopt such rules for the administration, interpretation, and application of the
Plan as are consistent therewith, to interpret, amend or revoke any such rules
and to amend any Award Agreement provided that the rights or obligations of the
Holder of the Award that is the subject of any such Award Agreement are not
affected adversely. Any such grant or award under the Plan need not be the same
with respect to each Holder. Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of Section 422
of the Code. In its sole and absolute discretion, the Board may at any time and
from time to time exercise any and all rights and duties of the Committee under
the Plan except with respect to matters which under Rule 16b-3 or Section 162(m)
of the Code, or any regulations or rules issued thereunder, are required to be
determined in the sole and absolute discretion of the Committee.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options and Dividend Equivalents granted to Independent Directors.
10.3. Majority Rule; Unanimous Written Consent.
----------------------------------------
The Committee shall act by a majority of its members in attendance at
a meeting at which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions.
---------------------------------------------------------
Members of the Committee shall receive such compensation, if any, for
their services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne
24
<PAGE>
by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
10.5. Delegation of Authority to Grant Awards.
---------------------------------------
The Committee may, but need not, delegate from time to time some or
all of its authority to grant Awards under the Plan to a committee consisting of
one or more members of the Committee or of one or more officers of the Company;
provided, however, that the Committee may not delegate its authority to grant
- -------- -------
Awards to individuals (i) who are subject on the date of the grant to the
reporting rules under Section 16(a) of the Exchange Act, (ii) who are Section
162(m) Participants or (iii) who are officers of the Company who are delegated
authority by the Committee hereunder. Any delegation hereunder shall be subject
to the restrictions and limits that the Committee specifies at the time of such
delegation of authority and may be rescinded at any time by the Committee. At
all times, any committee appointed under this Section 10.5 shall serve in such
capacity at the pleasure of the Committee.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable.
----------------
No Award under the Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution or,
subject to the consent of the Administrator, pursuant to a DRO, unless and until
such Award has been exercised, or the shares underlying such Award have been
issued, and all restrictions applicable to such shares have lapsed. No Award or
interest or right therein shall be liable for the debts, contracts or
engagements of the Holder or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Holder, only he may exercise an Option or
other Award (or any portion thereof) granted to him under the Plan, unless it
has been disposed of with the consent of the Administrator pursuant to a DRO.
After the death of the Holder, any exercisable portion of an Option or other
Award may, prior to the time when such portion becomes
25
<PAGE>
unexercisable under the Plan or the applicable Award Agreement, be exercised by
his personal representative or by any person empowered to do so under the
deceased Holder's will or under the then applicable laws of descent and
distribution.
11.2. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
Except as otherwise provided in this Section 11.2, the Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Administrator. However, without approval
of the Company's stockholders given within twelve months before or after the
action by the Administrator, no action of the Administrator may, except as
provided in Section 11.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Holder
alter or impair any rights or obligations under any Award theretofore granted or
awarded, unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded during any period of suspension or after termination of
the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 11.4.
11.3. Changes in Common Stock or Assets of the Company, Acquisition
-------------------------------------------------------------
or Liquidation of the Company and Other Corporate Events.
- --------------------------------------------------------
(a) Subject to Section 11.3 (d), in the event that the
Administrator determines that any dividend or other distribution (whether
in the form of cash, Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company, or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of
the Company, or other similar corporate transaction or event, in the
Administrator's sole and absolute discretion, affects the Common Stock such
that an adjustment is determined by the Administrator to be appropriate in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to an
Award, then the Administrator shall, in such manner as it may deem
equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations
in Section 2.1 on the
26
<PAGE>
maximum number and kind of shares which may be issued and adjustments
of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Awards, and
(iii) grant or exercise price with respect to any Award.
(b) Subject to Section 11.3(d), in the event of any transaction
or event described in Section 11.3(a) or any unusual or nonrecurring
transactions or events affecting the Company, any affiliate of the Company,
or the financial statements of the Company or any affiliate, or of changes
in applicable laws, regulations, or accounting principles, the
Administrator, in its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, either by the terms of the Award or by
action taken prior to the occurrence of such transaction or event and
either automatically or upon the Holder's request, is hereby authorized to
take any one or more of the following actions whenever the Administrator
determines that such action is appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to any Award under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:
(i) To provide for either the purchase of any such Award
for an amount of cash equal to the amount that could have been
attained upon the exercise of such Award or realization of the
Holder's rights had such Award been currently exercisable or payable
or fully vested or the replacement of such Award with other rights or
property selected by the Administrator in its sole and absolute
discretion;
(ii) To provide that the Award cannot vest, be exercised or
become payable after such event;
(iii) To provide that such Award shall be exercisable as to
all shares covered thereby, notwithstanding anything to the contrary
in Section 5.3 or 5.4 or the provisions of such Award;
(iv) To provide that such Award be assumed by the successor
or survivor corporation, or a parent or subsidiary thereof, or shall
be substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and
(v) To make adjustments in the number and type of shares
of Common Stock (or other securities or property) subject to
outstanding Awards, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and conditions
of (including the grant or exercise price), and
27
<PAGE>
the criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(vi) To provide that, for a specified period of time prior
to such event, the restrictions imposed under an Award Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares
of such Restricted Stock may cease to be subject to repurchase under
Section 7.5 or forfeiture under Section 7.4 after such event.
(c) Subject to Sections 11.3(d), 3.2 and 3.3, the Administrator
may, in its discretion, include such further provisions and limitations in
any Award, agreement or certificate, as it may deem equitable and in the
best interests of the Company.
(d) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation
under Section 162(m)(4)(C), no adjustment or action described in this
Section 11.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause such Award to fail to
so qualify under Section 162(m)(4)(C), or any successor provisions thereto.
No adjustment or action described in this Section 11.3 or in any other
provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code. Furthermore, no such adjustment or action shall be authorized to
the extent such adjustment or action would result in short-swing profits
liability under Section 16 or violate the exemptive conditions of Rule 16b-
3 unless the Administrator determines that the Award is not to comply with
such exemptive conditions. The number of shares of Common Stock subject to
any Award shall always be rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the Company
becomes a party to a transaction that is intended to qualify for "pooling
of interests" accounting treatment and, but for one or more of the
provisions of this Plan or any Award Agreement would so qualify, then this
Plan and any Award Agreement shall be interpreted so as to preserve such
accounting treatment, and to the extent that any provision of the Plan or
any Award Agreement would disqualify the transaction from pooling of
interests accounting treatment (including, if applicable, an entire Award
Agreement), then such provision shall be null and void. All determinations
to be made in connection with the preceding sentence shall be made by the
independent accounting firm whose opinion with respect to "pooling of
interests" treatment is required as a condition to the Company's
consummation of such transaction.
(f) The existence of the Plan, the Award Agreement and the
Awards granted hereunder shall not affect or restrict in any way the right
or power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options,
28
<PAGE>
warrants or rights to purchase stock or of bonds, debentures, preferred or
prior preference stocks whose rights are superior to or affect the Common
Stock or the rights thereof or which are convertible into or exchangeable
for Common Stock, or the dissolution or liquidation of the company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
11.4. Approval of Plan by Stockholders.
--------------------------------
The Plan will be submitted for the approval of the Company's
stockholders within twelve months after the date of the Board's initial adoption
of the Plan. Awards may be granted or awarded prior to such stockholder
approval, provided that such Awards shall not be exercisable nor shall such
Awards vest prior to the time when the Plan is approved by the stockholders, and
provided further that if such approval has not been obtained at the end of said
twelve-month period, all Awards previously granted or awarded under the Plan
shall thereupon be canceled and become null and void. In addition, if the Board
determines that Awards other than Options or Stock Appreciation Rights which may
be granted to Section 162(m) Participants should continue to be eligible to
qualify as performance-based compensation under Section 162(m)(4)(C) of the
Code, the Performance Criteria must be disclosed to and approved by the
Company's stockholders no later than the first stockholder meeting that occurs
in the fifth year following the year in which the Company's stockholders
previously approved the Performance Criteria.
11.5. Tax Withholding.
---------------
The Company shall be entitled to require payment in cash or deduction
from other compensation payable to each Holder of any sums required by federal,
state or local tax law to be withheld with respect to the issuance, vesting,
exercise or payment of any Award. The Administrator may in its discretion and
in satisfaction of the foregoing requirement allow such Holder to elect to have
the Company withhold shares of Common Stock otherwise issuable under such Award
(or allow the return of shares of Common Stock) having a Fair Market Value equal
to the sums required to be withheld.
11.6. Loans.
-----
The Committee may, in its sole and absolute discretion, extend one or
more loans to key Employees in connection with the exercise or receipt of an
Award granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such
loan shall be set by the Committee.
11.7. Forfeiture Provisions.
---------------------
Pursuant to its general authority to determine the terms and
conditions applicable to Awards under the Plan, the Administrator shall have the
right to provide, in the terms of Awards made under the Plan, or to require a
Holder to agree by separate written instrument, that (a) (i) any proceeds, gains
or other economic benefit actually or constructively received by the
29
<PAGE>
Holder upon any receipt or exercise of the Award, or upon the receipt or resale
of any Common Stock underlying the Award, must be paid to the Company, and (ii)
the Award shall terminate and any unexercised portion of the Award (whether or
not vested) shall be forfeited, if (b)(i) a Termination of Employment,
Termination of Consultancy or Termination of Directorship occurs prior to a
specified date, or within a specified time period following receipt or exercise
of the Award, or (ii) the Holder at any time, or during a specified time period,
engages in any activity in competition with the Company, or which is inimical,
contrary or harmful to the interests of the Company, as further defined by the
Administrator or (iii) the Holder incurs a Termination of Employment,
Termination of Consultancy or Termination of Directorship for cause.
11.8. Effect of Plan Upon Options and Compensation Plans.
--------------------------------------------------
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in the
Plan shall be construed to limit the right of the Company (a) to establish any
other forms of incentives or compensation for Employees, Directors or
Consultants of the Company or any Subsidiary or (b) to grant or assume options
or other rights or awards otherwise than under the Plan in connection with any
proper corporate purpose including but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, limited liability company, firm or association.
11.9. Compliance with Laws.
--------------------
The Plan, the granting and vesting of Awards under the Plan and the
issuance and delivery of shares of Common Stock and the payment of money under
the Plan or under Awards granted or awarded hereunder are subject to compliance
with all applicable federal and state laws, rules and regulations (including but
not limited to state and federal securities law and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under the Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
11.10. Titles.
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
30
<PAGE>
11.11. Governing Law.
-------------
The Plan and any agreements hereunder shall be administered,
interpreted and enforced under the internal laws of the State of Delaware
without regard to conflicts of laws thereof.
* * *
31
<PAGE>
EXHIBIT 10.3
EMPOWER HEALTH CORPORATION
SUPERIOR CONSULTANT HOLDINGS CORPORATION
NEAL LONGWILL
ADVENTIST HEALTH SYSTEM SUNBELT HEALTHCARE CORPORATION
_______________________________________
EMPOWER HEALTH CORPORATION
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
_______________________________________
January 29, 1999
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made as of January 29, 1999, by and among EMPOWER HEALTH CORPORATION, a Texas
corporation ("Empower"), SUPERIOR CONSULTANT HOLDINGS CORPORATION, a Delaware
corporation ("Superior"), NEAL LONGWILL ("Longwill") and ADVENTIST HEALTH SYSTEM
SUNBELT HEALTHCARE CORPORATION, a Florida not-for-profit corporation
("Adventist").
RECITALS
A. Empower and Superior are parties to a Registration Rights Agreement
dated April 28, 1998 (the "the Former Registration Rights Agreement"), pursuant
to which Empower granted to Superior certain registration rights relating to the
shares of the capital stock of Empower purchased by Superior in connection with
a Stock Issuance and Sale Agreement between Empower and Superior dated as of
April 28, 1998 (the "Sale Agreement").
B. The execution, delivery and effectiveness of the Investment Agreement
of even date herewith (the "Investment Agreement") among Adventist, Empower and
HealthMagic, Inc., a Delaware Corporation, is contingent upon the simultaneous
execution and delivery of this Agreement;
C. Pursuant to the Investment Agreement, Adventist acquired shares of
Series C Convertible Preferred Stock of Empower (the "Series C Preferred
Stock"), which shares are convertible into 10% of the issued and outstanding
common stock of Empower on a fully diluted basis;
D. Pursuant to the Loan Agreement between Empower and Longwill dated
December 30, 1998 (the "Loan Agreement"), Longwill has the right to acquire up
to approximately 27,000 shares of Series C Preferred Stock;
E. Empower and Superior wish to supersede and replace the Former
Registration Rights Agreement with this Agreement; and
F. Empower has agreed to provide Adventist and Superior the registration
rights set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. The following terms, when capitalized herein, shall have
-----------
the following meanings.
1.1 "ADVENTIST SHARES" means (a) the shares of Series C Preferred Stock
issued to Adventist pursuant to the Investment Agreement, and (b) any other
shares of any class of Empower's common stock which Adventist acquires from
Empower in a non-registered
<PAGE>
transaction, whether directly or upon conversion of any security, warrant or
instrument acquired from Empower in a non-registered transaction.
1.2 "BUSINESS DAYS" means any that is not a day on which banking
institutions in the city of Austin, Texas are authorized by law, regulation or
executive order to close; and Saturdays and Sundays shall not be considered
"Business Days."
1.3 "COMMISSION" means the Securities and Exchange Commission.
1.4 "COMMON STOCK" means the common stock, par value $.01 per share, of
Empower.
1.5 "CONVERSION SHARES" means shares of Common Stock (i) received by
Superior, Longwill or Adventist upon conversion of their respective Shares and
(ii) issued or issuable to Superior, Longwill or Adventist in respect of or in
exchange for any of their respective Shares by way of a stock dividend or stock
split or in connection with a combination of Shares, recapitalization,
reclassification, merger, consolidation, or exchange offer.
1.6 "DEMAND NOTICE" means a written notice delivered to Empower pursuant
to Section 2 below demanding that Empower effect a Demand Registration.
1.7 "DEMAND REGISTRATION" means a registration by Empower of all or a
part of the Registrable Securities under the 1933 Act pursuant to a Demand
Notice delivered in accordance with Section 2.1 of this Agreement.
1.8 "DEMANDING REGISTRABLE SECURITIES HOLDER" means the Registrable
Securities Holder(s) who has delivered to Empower a Demand Notice pursuant to
Section 2.1 of this Agreement.
1.9 "EXCHANGE ACT" means the Securities and Exchange Act of 1934, as
amended.
1.10 "INDEMNIFIED PARTY" means each party entitled to indemnification
pursuant to Section 7.
1.11 "INDEMNIFYING PARTY" means each party required to provide
indemnification pursuant to Section 7.
1.12 "LONGWILL SHARES" means (a) the shares of Series C Preferred Stock
issued to Longwill pursuant to the Loan Agreement and (b) any other shares of
any class of Empower's common stock which Longwill acquires from Empower in a
non-registered transaction, whether directly or upon conversion of any security,
warrant or instrument acquired from Empower in a non-registered transaction.
1.13 "INITIAL PUBLIC OFFERING" means the first (and only the first) firm
commitment underwritten sale by Empower to the public (a) of a number of shares
of its common stock which, when added to any other outstanding shares then
eligible for public trading without registration or other restriction under the
1933 Act, constitute at least 20% of the number of shares of common stock
outstanding, on a fully diluted basis, after completion of such offering
2
<PAGE>
and (b) for an aggregate offering price (before payment of underwriters, or
brokers, commissions or discounts and the expenses of the offering) which, when
added to the aggregate offering price received by Empower from all other
offerings of its common stock pursuant to effective 1933 Act registration
statements, equals not less than $30 Million.
1.14 "NON-DEMANDING REGISTRABLE SECURITIES HOLDER" means a Registrable
Securities Holder(s) other than the Demanding Registrable Securities Holder.
1.15 "OTHER SHAREHOLDERS" means collectively, officers or directors of
Empower who own Common Stock, or holders of Common Stock other than the
Registrable Securities Holders or their assignees, who are entitled, by contract
with Empower, to have their Common Stock included in a registration of Empower
securities.
1.16 "PARTICIPATING REGISTRABLE SECURITIES HOLDER" means Registrable
Securities Holder that is participating in the registration of Common Stock
pursuant to this Agreement.
1.17 "PERSON" means any individual, corporation, partnership, limited
partnership, limited liability company or other business entity.
1.18 "PIGGYBACK NOTICE" means a written notice delivered by Empower to The
Registrable Securities Holders stating that Empower intends to conduct a
Piggyback Registration, which notice shall include a list of the jurisdictions
in which Empower intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws.
1.19 "PIGGYBACK REGISTRATION" means any registration by Empower of any of
its Common Stock under the 1933 Act for sale in an underwritten public offering,
other than (a) a Demand Registration or (b) a registration on Form S-8 or Form
S-4, or any other form which in the future may be approved by the SEC in lieu of
such forms for the same purposes.
1.20 "REGISTRABLE SECURITIES" means (a) the Conversion Shares, and (b) any
securities issued or issuable in respect of or in exchange for any of the
Conversion Shares by way of a stock dividend or stock split or in connection
with a combination of Conversion Shares, recapitalization, reclassification,
merger, consolidation, or exchange offer. For purposes of this Agreement, a
security ceases to be a Registrable Security (i) when it has been effectively
registered under the 1933 Act and disposed of in a public market transaction
pursuant to the registration statement, (ii) when it has been sold pursuant to
Rule 144 (or any successor provision) under the 1933 Act, (iii) when it has been
otherwise transferred and a new certificate therefor, not bearing a legend
restricting further transfer, has been delivered by Empower following Empower's
receipt of a reasonably satisfactory opinion of counsel that the issuance and
delivery of such a certificate is legal and proper under this Agreement and
applicable law or (iv) when it is no longer outstanding.
1.21 "REGISTRABLE SECURITIES HOLDER" means the holder(s) of any
Registrable Securities that assumes in writing the obligations of a Registrable
Securities Holder under this Agreement.
1.22 "REGISTRATION EXPENSES" means all expenses, other than Selling
Expenses, incurred in connection with any registration of securities including,
without limitation, all
3
<PAGE>
registration and filing fees, printing expenses, fees and disbursements of
independent auditors and counsel for Empower, blue sky fees and expenses, the
fees and disbursements of one counsel to The Registrable Securities Holders in
connection with the registration of the Registrable Securities incident to or
required by any such registration (but excluding the compensation of regular
employees of Empower, which shall be paid in any event by Empower).
1.23 "1933 ACT" means the Securities Act of 1933, as amended.
1.24 "SELLING EXPENSES" means all underwriting discounts and selling
commissions incurred in connection with any registration of securities.
1.25 "SHARES" means (a) the Superior Shares, (b) the Longwill Shares and
(c) the Adventist Shares.
1.26 "SUPERIOR SHARES" means (a) the shares of Empower's Series B
Convertible Preferred Stock issued pursuant to the Sale Agreement, and (b) any
other shares of any class of Empower's common stock which Superior acquires from
Empower in a non registered transaction, whether directly or upon conversion of
any security, warrant or instrument acquired from Empower in a non-registered
transaction.
2. DEMAND REGISTRATION.
--------------------
2.1 DEMAND FOR REGISTRATION. If Empower shall receive from a Demanding
Registrable Securities Holder a Demand Notice, then, subject to Section 2.2,
Empower will, as soon as practicable, provide notice of such Demand Notice to
each Registrable Securities Holder and use its reasonable best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the 1933 Act) as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of the Registrable Securities as are identified in the Demand Notice and
written notices provided to Empower and the Demanding Registrable Securities
Holder by the Non-Demanding Registrable Securities Holder within 15 days of
receipt of Empower's notice of a Demand Notice.
2.2 EXCEPTIONS TO OBLIGATION. Notwithstanding the provisions of Section
2.1, Empower's obligation to effect, or to take any action to effect, any
registration demanded pursuant to that Section shall be subject to the
following:
(a) Empower shall not be obligated to effect, or take any action to
effect, any registration in any particular jurisdiction in which Empower
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless Empower is
already subject to service in such jurisdiction and except as may be
required by the 1933 Act or applicable roles or regulations thereunder.
(b) Except as provided in Section 2.5 and 2.6, Empower shall not be
obligated to effect, or take any action to effect, any registration after
Empower has effected one such registration for each of Superior, Adventist
and Longwill pursuant to Section 2.1, provided that such registration has
been declared or ordered effective and no stop order
4
<PAGE>
has been entered with respect to such registration statement which has not
been lifted or discontinued.
(c) If prior to the receipt by Empower of the Demand Notice from a
Demanding Registrable Securities Holder, Empower has given written notice
to the Registrable Securities Holders of Empower's intent to register in a
proposed public offering of Empower Common Stock for employer's own account
under the 1933 Act other than a registration relating solely to employee
benefit plans or Rule 145 transactions), then, provided thereafter Empower
files the registration statement with the Commission within 60 days after
Empower has given notice of its intent to register and provided the
offering is declared or becomes effective within 60 days after the initial
filing of the registration statement, the following shall apply:
(i) If all Registrable Securities held by a Registrable
Securities Holder are registered and sold in that public offering as
a consequence of the piggyback registration rights arising under
Section 4 below, then the right of such Registrable Securities Holder
under this Agreement to demand registration of the Registrable
Securities pursuant to this Section 2.1 shall be extinguished.
(ii) If all Registrable Securities of a Registrable Securities
Holder are not registered and sold in that public offering, then such
Registrable Securities Holder may not make its request under this
Section 2, prior to the earlier of (A) one hundred twenty (120) days
after the date Empower sent out the first notice of the intent to
register (provided the registration statement has not become
effective) or (B) six months after the effective date of the
registration statement.
(iii) Empower may not give any written notice of intent to
register as provided in this Section 2.2(c) prior to one hundred
eighty (180) days after it has previously given any such notice which
has led to a completed offering of Common Stock.
(d) Empower shall not be obligated to effect, or take any action to
effect, the registration of any Registrable Securities with respect to
which Superior has exercised its option, under the Put and Option Agreement
dated April 28, 1998 between Superior and Empower, to require Empower to
repurchase such Registrable Securities, provided that Empower is not in
default in the performance of such obligation.
(e) Empower shall not be obligated to effect, or take any action to
effect, any registration if (i) Empower delivers to the Demanding
Registrable Securities Holder, within twenty (20) days after its receipt of
a Demand Notice, an opinion (reasonably acceptable to the Participating
Registrable Securities Holders and their counsel) of outside counsel
qualified in Federal securities law issues to the effect that all
Registrable Securities can be sold or disposed of in a single public
transaction without registration under the 1933 Act and that the resale of
such securities to any purchaser does not require registration under the
1933 Act and (ii) Empower agrees to remove all restrictive legends on the
certificates evidencing the Registrable Securities. Empower agrees to
indemnify the Participating Registrable Securities Holders against and to
hold them harmless from
5
<PAGE>
all damages, losses and liabilities (including liability for rescission),
costs and expenses including reasonable attorneys' fees) based upon or
arising out of the failure to comply with Section 5 of the 1933 Act as a
consequence of the Registrable Securities Holders proceeding in accordance
with such outside counsel's opinion.
(f) Empower may delay filing a registration statement for a period of
not more than ninety (90) days after the date of receipt of the request
from a Demanding Registrable Securities Holder if a majority of the
directors then comprising Empower's Board of Directors (including a
majority of the independent Directors) determine that compelling corporate
requirements necessitate the postponement.
(g) Empower shall not be obligated to effect, or take action to
effect, any registration until 180 days after the completion of an Initial
Public Offering.
(h) Empower shall, in any event, not be obligated to effect any
registration unless the anticipated aggregate offering proceeds, net of
underwriting discounts and commissions, are expected to exceed $5,000,000.
(i) Any registration under this Agreement shall be for resale only;
Empower shall have no obligation to attempt to register the original
issuances of securities subject to options, warrants or other derivative
securities.
2.3 EFFECTING REGISTRATION. Subject to the foregoing Section 2.2, Empower
shall use its reasonable best efforts to file a registration statement covering
the Registrable Securities identified in a Demand Notice as soon as practicable
after receipt of the Demand Notice, and shall use reasonable best efforts to do
all of the things required pursuant to Section 5 below.
2.4 UNDERWRITING.
(a) If the Demanding Registrable Securities Holder intends to
distribute the Registrable Securities covered by the Demand Notice by means
of an underwriting, it shall so advise Empower in the Demand Notice. The
lead underwriter shall be chosen by the Demanding Registrable Securities
Holder, which underwriter shall be acceptable to Empower in the exercise of
its reasonable judgment.
(b) If the Non-Demanding Registrable Securities Holder wishes to
include shares of Common Stock held by it in the underwritten offering, it
shall notify the Demanding Registrable Securities Holder in writing within
thirty (30) days after receiving the Registrable Securities Holder's Demand
Notice of the number of shares it wishes to include in the registration and
the Demanding Registrable Securities Holder shall include such shares in
the underwriting. If Empower wishes to include, in the underwritten
registration, Common Stock to be sold for the account of Empower it shall
notify the Demanding Registrable Securities Holder in writing within thirty
(30) days after Empower has received the Demand Notice of the number of
shares Empower wishes to include in the registration. If any Other
Shareholders of Empower wish to include shares of Common Stock held by them
in the underwritten offering, they shall notify the Demanding Registrable
Securities Holder in writing within thirty (30) days after Empower has
received the Registrable Securities Holder's Demand Notice. If the
6
<PAGE>
Demanding Registrable Securities Holder consents to the inclusion of Common
Stock offered for Empower's account or the Other Shareholders, (i) Empower
shall offer to include the shares of the Participating Registrable
Securities Holder and the Other Shareholders in the underwriting and shall
condition such offer on their acceptance of the further applicable
provisions of this Agreement, and (ii) Empower shall (together with the
Registrable Securities Holders and the Other Shareholders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Demanding Registrable
Securities Holders as set forth above.
(c) Notwithstanding any other provision of this Section 2.4, if the
underwriter advises the Registrable Securities Holders in writing that
marketing factors require a limitation on the number of shares to be
underwritten,
(i) Common Stock held by Other Shareholders shall be excluded
from such registration to the extent so required by such limitation
in proportion, as nearly as practicable, to the respective amounts of
securities which each such Other Shareholder and Participating
Registrable Securities Holder has a contractual right to be included;
(ii) If a limitation of the number of shares is still required,
the number of shares of Common Stock which Empower has requested to
be included in the registration and underwriting shall be reduced or
eliminated, as required; and
(iii) If a limitation on the number of shares is still required,
Common Stock held by the Demanding Registrable Securities Holders and
the Participating Registrable Securities Holder shall be excluded
from such registration to the extent so required by such limitation
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities which each such Registrable Securities Holder
holds.
No securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Other
Shareholder or the Participating Securities Holder has requested inclusion
in such registration as provided above disapproves of the terms of the
underwriting, such Other Shareholder or Participating Securities Holder may
elect to withdraw therefrom by written notice to Empower, the underwriter
and the Demanding Registrable Securities Holder. The securities so
withdrawn shall also be withdrawn from registration.
(d) If the Registrable Securities being registered pursuant to this
Section 2 are not to be distributed by means of an underwriting, then the
provisions of Section 3 shall apply.
2.5 EXCHANGE ACT REGISTRATION AND FORM S-3. Within thirty days after the
effectiveness of the registration statement pursuant to which Empower first
registers Common Stock under the 1933 Act, Empower shall register its Common
Stock under Section 12 of the Exchange Act and use its best efforts to maintain
that Exchange Act registration. After Empower has qualified for the use of Form
S-3, then (i) Empower shall use Form S-3 for any
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registration demanded by a Demanding Registrable Securities Holder pursuant to
Section 2.1 and (ii) Section 2.2(b) shall not be applicable; provided, that the
Registrable Securities Holders shall not be entitled to require Empower to
register Registrable Securities on a Form S-3 which has been declared effective,
pursuant to a Demand Notice delivered under Section 2.1, more than once in any
twelve month period.
2.6 WITHDRAWAL. A Demanding Registrable Securities Holder may withdraw a
Demand Notice prior to the effective date of the registration statement if a
material adverse change has occurred in the condition, business or prospects of
Empower and its subsidiaries from that known to the Demanding Registrable
Securities Holder at the time of delivery of its Demand Notice. In such event,
the Demanding Registrable Securities Holder's right to demand registration
pursuant to Section 2.1 shall be reinstated.
3. SELLING RESTRICTIONS. The following provisions shall apply if the
--------------------
registration demanded pursuant to Section 2.1 is not an underwritten
registration:
3.1 NOTICE TO COMPANY. The Demanding Registrable Securities Holder shall
notify Empower, at least two (2) Business Days prior to any disposition of
Registrable Securities pursuant to the registration statement, of its intent to
dispose of such Registrable Securities. Each Other Shareholder and Participating
Registrable Securities Holder whose shares shall have been registered shall
provide a similar notice to Empower with respect to any shares which such Other
Shareholder or Participating Registrable Securities Holder intends to dispose of
pursuant to the registration statement. Such notice shall be in writing, by
facsimile or by an actual telephone conversation with either Empower's Chief
Financial Officer, General Counsel or Director of Investor Relations, at the
address, facsimile number or the phone number, as the case may be, of Empower,
all as set forth in Section 11 below. Empower will exert reasonable efforts to
respond to such notice by the next Business Day, but in any event, Empower shall
respond no later than the second Business Day following the date of receipt.
Such response shall consist of one of the following:
(a) an oral or written confirmation that Empower knows of no reason
why the Demanding Registrable Securities Holder, the Participating
Registrable Securities Holder or the Other Shareholder should not proceed
with the proposed sale or disposition; or
(b) a notification that the proposed disposition must be delayed for
a period of up to thirty (30) days as provided in Section 3.2 below; or
(c) a confirmation from either the Chief Financial Officer or the
General Counsel of Empower that Empower requires a limited time, not to
exceed three (3) Business Days following the receipt of Empower's receipt
of the notice, within which to determine which of the foregoing responses
is appropriate under the circumstances.
(d) The failure by Empower to respond by the end of the second
Business Day (or the end of the third Business Day thereafter if a
confirmation pursuant to Section 3.1 (c) has been delivered) shall be
deemed to waive any objection to the proposed sale or disposition.
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3.2 RESTRICTION ON SALE. Following the effectiveness of a non-
underwritten registration, Empower may restrict disposition of Registrable
Securities or Common Stock, in which event the holders will not dispose of those
securities for the period designated by Empower, but not exceeding thirty days;
provided that:
(a) Empower shall have delivered a notice in writing to the Demanding
Registrable Securities Holder(s), the Participating Registrable Securities
Holder and such Other Shareholders stating that a delay in the disposition
of Registrable Securities or other shares is necessary because Empower, in
its reasonable judgment, exercised in good faith, has determined that such
sales would require public disclosure by Empower of material nonpublic
information that Empower deems advisable not to disclose at that time; and
(b) Empower shall exert commercially reasonable efforts to amend the
registration statement or amend or supplement the prospectus relating
thereto, if necessary, and to take all other actions necessary to allow the
proposed disposition to take place as promptly as practicable after the
conditions referred to therein have ceased to exist. Empower agrees to Use
all commercially reasonable efforts to keep the registration statement, as
amended pursuant to this Section 3.2, effective for an additional period of
time equal to the period during which sales were restricted pursuant to
this Section 3.2.
3.3 DISCONTINUANCE OF SALE. Each Registrable Security Holder and each
Other Shareholder whose shares are included in any registration contemplated
hereunder shall agree as a condition to the inclusion of their shares, that upon
receipt of any notice from Empower specified in Section 5.4(a) below, such
Person shall forthwith discontinue all sales and distributions of Registrable
Securities pursuant to the then-current prospectus until such Person receives
copies of a supplemental or amended prospectus as contemplated by Section 3.2,
or until such Person is advised in writing by Empower that the use of the
prospectus may be resumed, and, if so directed by Empower, such Person will
deliver to Empower all copies then in the possession of such Shareholder of the
prospectus in effect with respect to the Registrable Securities or other shares
at the time of such notice. Empower shall promptly take all such action as may
be necessary or appropriate, including, without limitation, the filing of an
amendment to the registration statement and/or the filing of an amended
prospectus or a prospectus supplement, to limit the duration of any
discontinuance with respect to the sale and distribution of Registrable
Securities pursuant to this Section 3.3, and shall keep the registration
statement, as amended, effective for an additional period of time equal to the
period during which sales were required to be discontinued.
4. PIGGYBACK REGISTRATION.
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4.1 INCLUSION IN OFFERING. If at any time during the period commencing on
the date of this Agreement and ending on the third anniversary of the closing
date of its Initial Public Offering, Empower shall determine to conduct a
Piggyback Registration either for its own account or the account of a security
holder or holders, Empower will use its reasonable best efforts to:
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(a) promptly deliver a Piggyback Notice to each Non-Demanding
Registrable Securities Holder; and
(b) include in such registration (and any related qualification under
blue sky laws or other compliance) and in any underwriting involved therein
all of the Registrable Securities specified in a written request or
requests made by a Participating Registrable Securities Holder within
fifteen (15) business days after receipt of the Piggyback Notice from
Empower.
4.2 UNDERWRITING. If the registration of which Empower gives notice is
for a registered public offering involving an underwriting, Empower shall so
advise the Participating Registrable Securities Holders in the Piggyback Notice.
In such event the right of a Registrable Securities Holder to registration
pursuant to this Section 4 shall be conditioned upon its participation in such
underwriting and the inclusion of the Participating Registrable Securities in
the underwriting. The Registrable Securities Holder shall (together with Empower
and any Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for the underwriting by Empower. If a
Participating Registrable Securities Holder or any Other Shareholder disapproves
of the terms of any such underwriting, such Person may elect to withdraw
therefrom by written notice to Empower and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration, and the allocation (if any) pursuant
to the following sections shall be adjusted accordingly. Any such withdrawal
shall be without prejudice to the right of a Registrable Securities Holder to
include Registrable Securities in future offerings pursuant to this Section 4.
4.3 PRIORITY IN PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten offering on behalf of Empower, and the managing underwriters advise
Empower in writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, Empower
will include securities in such registration in the following order of priority:
(i) there shall first be included all securities which Empower proposes to sell;
(ii) to the extent additional shares may be included, there shall next be
included all Registrable Securities requested to be included in such
registration by the Participating Registrable Securities Holders pro rata based
on the respective number of shares of Common Stock held by each Participating
Registrable Securities Holder and (iii) to the extent additional shares may be
included, there shall next be included the Common Stock requested to be included
in such registration by Other Shareholders, pro rata based on the respective
number of shares of Common Stock held by each Other Shareholder.
4.4 PRIORITY IN SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary offering on behalf of holders of Empower's securities,
and the managing underwriters advise Empower in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering without adversely affecting the
marketability of the offering, Empower will include securities in such
registration in the following order of priority: (i) there shall first be
included Common Stock requested to be included in such registration by Other
Shareholders and any Participating Registrable Securities Holders, pro-rata,
based on their respective number of shares of Common
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Stock, and (ii) to the extent additional shares may be included, there shall be
included additional Empower securities which Empower has requested to be
included in such registration.
4.5 WITHDRAWAL OR DELAY OF REGISTRATION. The provisions of Sections 4.1
through 4.4 notwithstanding, if, at any time after delivering a Piggyback Notice
and prior to the effective date of the registration statement for such Piggyback
Registration Empower shall determine for any reason not to register or to delay
registration of the securities covered thereby, Empower may, at its election,
give written notice of such determination the Participating Registrable
Securities Holders and, thereupon (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation, if
any, to pay Registration Expenses in connection therewith), without prejudice,
however, to the right of the Participating Registrable Securities Holders to
include Registrable Securities in a subsequent registration and (ii) in the case
of a determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering the
other securities covered by the registration statement.
5. REGISTRATION PROCEDURES. In the case of any Demand Registration or
-----------------------
Piggyback Registration effected by Empower, upon request Empower will keep the
Registrable Securities Holders advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, Empower will use
its reasonable best efforts to.
5.1 REGISTRATION STATEMENT. Prepare and file with the Securities and
Exchange Commission such amendments and supplements to the registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of one hundred twenty
(120) days or until the Participating Registrable Securities Holders have
completed the distribution described in the registration statement relating
thereto (which period shall be extended as contemplated in Section 3.2(b) or
Section 3.3), whichever first occurs, and comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement during such period.
5.2 BLUE SKY QUALIFICATION. Subject to Section 2.2(a) above, to register
and qualify the Registrable Securities included in the registration under the
securities or blue sky laws of such states and the District of Columbia the
Demanding Registrable Securities Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
the Participating Registrable Securities Holders to consummate the disposition
in such states and the District of Columbia of the Registrable Securities so
included.
5.3 FURNISH PROSPECTUSES. Furnish the number of prospectuses (including
preliminary prospectuses conforming to the requirements of the 1933 Act and
roles and regulations thereunder) and other documents incident thereto as The
Registrable Securities Holders from time to time may reasonably request.
5.4 NOTIFICATION.
(a) Notify the Participating Registrable Securities Holders, at any
time when a prospectus relating to Registrable Securities covered by a
registration statement is
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required to be delivered under the 1933 Act, of the happening of any event;
as a result of which the prospectus included in such registration statement
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of circumstances then
existing.
(b) Notify the Participating Registrable Securities Holders and the
managing underwriters, if any, promptly, and (if requested by any such
person) confirm such advice in writing, (i) when the registration
statement, the prospectus or any prospectus supplement or post-effective
amendment, has been filed, and, with respect to the registration statement
or any post-effective amendment, when the same has become effective; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose; Empower shall promptly use its reasonable
best efforts to prevent the issuance of any stop order or to obtain a
withdrawal of any stop order should one be issued; and (iii) of the receipt
by Empower of any notification with respect to the suspension of the
qualification or exemption from qualification of a registration statement
of any Registrable Securities for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose.
5.5 OPINIONS AND COMFORT LETTERS. To the extent requested, furnish to the
underwriter, in an underwritten offering, or to the Registrable Securities
Holders, in a non-underwritten offering, (i) a signed opinion of Empower's
counsel, and (ii) "comfort" letters signed by Empower's independent public
accountants who have examined and reported on Empower's financial statements
included in the registration statement, to the extent permitted by the American
Institute of Certified Public Accountants, coveting the same matters with
respect to the registration statement (and prospectus included therein) and with
respect to the events subsequent to the date of the financial statements, as are
customarily covered in opinions of counsel and in accountants' "comfort" letters
delivered to the underwriters in underwritten public offerings of securities.
5.6 EXCHANGE OR NASDAQ LISTING. Use reasonable efforts to cause all
Registrable Securities included in the registration to be listed or admitted for
trading on such exchanges or markets (including but not limited to the NASDAQ
Stock Market, if applicable) as the Common Stock is otherwise listed or admitted
for trading.
5.7 EARNINGS STATEMENT. Otherwise use all reasonable efforts to comply
with all applicable roles and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement coveting the period of at least twelve months
beginning with the first day of Empower's first full calendar quarter after the
effective date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 1 ll(a) of the 1933 Act and Rule 158
thereunder.
6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
-------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by Empower, and all Selling Expenses shall be borne by
the holders of the securities so registered
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(including the Registrable Securities Holders, Other Shareholders and Empower,
to the extent securities are offered for its account) pro rata on the basis of
the gross sales proceeds received by each in the offering.
7. INDEMNIFICATION.
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7.1 COMPANY INDEMNIFICATION. Empower shall indemnify and hold harmless, to
the fullest extent permitted by law, each seller of Registrable Securities, any
underwriter for such registration and each person or entity, if any, controlling
such seller or underwriter within the meaning of the 1933 Act or the Exchange
Act, against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and legal expenses) to which such seller,
underwriter or controlling person or entity, as the case may be, may become
subject under the 1933 Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) arise out of or are based upon any of the following:
(a) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement, any prospectus or any
amendments or supplements thereto;
(b) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
or
(c) any violation or alleged violation by Empower, in connection with
such registration, of the 1933 Act, the Exchange Act, any state securities
law or any role or regulation promulgated under the 1933 Act, the Exchange
Act or any state securities law;
provided, however, that Empower shall not be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon any untrue statement or omission made in reliance upon and
in conformity with written information furnished for use in connection with such
registration by any such seller, underwriter or controlling person or entity.
7.2 INDEMNIFICATION BY REGISTRABLE SECURITIES HOLDERS. Each Registrable
Securities Holder shall indemnify and hold harmless, to the fullest extent
permitted by law, Empower, its officers, directors, employees, representatives
and agents, each Person who controls (within the meaning of the 1933 Act)
Empower, any underwriter, each other Registrable Securities Holder and each
Other Shareholder whose shares have been included in any registration in which
Registrable Securities have been included, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and legal
expenses) resulting from such Registrable Security Holder's (i) untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any amendment or supplement thereto, and (ii)
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission is made in reliance
upon and in conformity with written information furnished to Empower by such
Registrable Securities Holder expressly for
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use therein, or (iii) if such offering is not an underwritten offering, from
such Registrable Securities Holder's failure to deliver a copy of the
registration statement, prospectus or any amendment or supplement thereto after
Empower has furnished such Registrable Securities Holder with a sufficient
number of copies of the same; provided, however, the obligation of a Registrable
Security Holder to indemnify will be several, not joint and several among the
Registrable Securities Holders, and in no event shall a Registrable Securities
Holder's aggregate indemnification obligation under this Section 7.2 exceed the
net proceeds from the offering received by such Registrable Securities Holder.
7.3 NOTICE OF CLAIM. Each Indemnified Party shall give notice to each
Indemnifying Party promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom; provided, that counsel for the Indemnifying Party, who will conduct
the defense of such claim or litigation at its expense, is approved by the
Indemnified Party (whose approval will not be unreasonably withheld or delayed);
and provided, further, that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
except to the extent that its defense of the claim or litigation involved is
prejudiced by such failure. The Indemnified party may participate in such
defense at such party's expense. No Indemnifying Party, in the defense of any
such claim or litigation, except with the consent of each Indemnified Party,
shall consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of any claim or litigation, and no Indemnified Party will consent to entry of
any judgment or settle any claim or litigation without the prior written consent
of the Indemnifying Party. Each Indemnified Party shall furnish such information
regarding himself, herself or itself and the claim in question as the
Indemnifying Party may reasonably request and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
7.4 CONTRIBUTION. If for any reason the indemnification provided for in
this Section 7 from an Indemnifying Party, although otherwise applicable by its
terms, is determined by a court of competent jurisdiction to be unavailable to
an Indemnified Party hereunder, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by the Indemnified Parties as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of such Indemnifying Party and the Indemnified Parties in
connection with the actions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and the Indemnified Parties shall
be determined by reference, among other things, to whether any action in
question, including any untrue or alleged untrue statement of a material fact,
has been made by, or relates to information supplied by, such Indemnifying Party
or the Indemnified Parties, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding. Notwithstanding the foregoing, in no event
shall the amount contributed by a Registrable Securities Holder exceed under
this Section 7.4 exceed the net proceeds from the offering received by such
Registrable Securities Holder.
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7.5 FROM OTHER SHAREHOLDERS. Empower agrees that, to the extent that it
shall grant to Other Shareholders the right to have Empower securities held by
them included in any registration of Empower securities, or to require Empower
to register their securities, it shall require as a condition to such grant that
such Other Shareholders agree to indemnify Empower and the Registrable
Securities Holders, and the officers, directors, employees, representatives and
agents of each as well as each Person who controls (within the meaning of the
1933 Act) each, with respect to any registration of their securities, on terms
substantially identical to that provided by the Registrable Securities Holders
in Section 7.2.
8. LOCK UP AGREEMENTS. In consideration for Empower agreeing to its
------------------
obligations under this Agreement, in connection with any Initial Public Offering
(whether or not a Registrable Securities Holder is participating in such
registration), upon the written request of Empower and the underwriters managing
any underwritten offering of Empower's securities, Registrable Securities
Holders agree not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of Empower
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days from the effective date of such registration) as
Empower and the underwriters may specify, so long as the Registrable Securities
Holders and all executives, officers and directors of the Company and Other
Shareholders holding more than one percent (1%) of the outstanding Common Stock
are bound by a comparable obligation provided, however, that nothing herein
shall prevent the Registrable Securities Holders from making a distribution of
Registrable Securities to its shareholders that is otherwise in compliance with
applicable securities laws, so long as such distributees agree to be so bound.
9. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
--------------------------
Registrable Securities Holders the benefits of Rule 144 and any other rule or
regulations of the Securities and Exchange Commission that may at any time
permit a holder to sell securities of Empower to the public without
registration, Empower agrees to use its reasonable best efforts to do all of the
following at any time after it shall become subject to the reporting
requirements of Sections 13 and 14 of the Exchange Act:
9.1 PUBLIC INFORMATION. Make and keep public information available as
contemplated in Rule 144, at all times.
9.2 SEC REPORTS. File with the Securities and Exchange Commission all
reports and other documents required of Empower under the 1933 Act and the
Exchange Act.
9.3 RULE 144 STATEMENT. Furnish to the Registrable Securities Holders, so
long as each of them holds any Registrable Securities, forthwith upon request, a
written statement by Empower that it as to whether or not it has complied with
the reporting requirements of Rule 144, the 1933 Act and the Exchange Act, a
copy of the most recent annual or quarterly report of Empower and such other
reports and documents so filed with the Securities and Exchange Commission by
Empower as may be reasonably requested in availing any holder, under any rule or
regulation of the Securities and Exchange Commission, of the right to sell any
such Registrable Securities without registration.
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10. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The right to cause
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Empower to register Registrable Securities in a Demand Registration granted
under Section 2, the right to include Registrable Securities in a Piggyback
Registration granted under Section 4 and the other rights granted to a
Registrable Securities Holders hereunder may be transferred or assigned by such
Registrable Securities Holder to one or more transferees or assignees of the
Registrable Securities Holder, provided that Empower is given written notice by
such Registrable Securities Holder at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of each
transferee or assignee and identifying the number of shares of Registrable
Securities with respect to which such registration rights are being transferred
or assigned, and provided further that the transferee or assignee of such rights
assumes in writing the obligations of the Registrable Securities Holder under
this Agreement. Notwithstanding the foregoing, Empower shall have no obligation
to recognize any assignment of Registrable Securities by a Registrable
Securities Holder, nor to cause Registrable Securities to be transferred on its
books or records, unless such transfer is made in accordance with the
registration or qualification requirements of the 1933 Act and all applicable
blue sky or other state securities laws or pursuant to available exemptions
therefrom (as evidenced by an opinion of counsel satisfactory in form and
substance to counsel for Empower).
11. INFORMATION FROM REGISTRABLE SECURITIES HOLDERS. Each Registrable
-----------------------------------------------
Securities Holder shall furnish to Empower such information regarding such
Registrable Securities Holder, the Registrable Securities and the distribution
proposed by such Registrable Securities Holder as Empower may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
12. MISCELLANEOUS.
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12.1 NO INCONSISTENT AGREEMENT. Empower will not hereafter enter into any
agreement with respect to rights securities which violates the rights granted to
the Registrable Securities Holders in this Agreement or grants to any holders
rights to demand registration of Empower securities, or have Empower securities
included in any registration, which rights are superior to those granted to the
Registrable Securities Holders herein.
12.2 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of Empower and of the holders of seventy five percent (75%) of
the Registrable Securities; notwithstanding the foregoing, if an amendment to
this Agreement shall provide (i) the holder(s) of the Adventist Shares with
rights that are materially less than, or obligations that are materially greater
than, the rights of the Registrable Securities Holders in general, then such
amendment must be approved by the holders of 51% of the Adventist Shares, (ii)
the holder(s) of the Superior Shares with rights that are materially less than,
or obligations that are materially greater than the rights of the Registrable
Securities Holders in general, then such amendment must be approved by the
holders of 51% of the Superior Shares, or (iii) the holder(s) of the Longwill
Shares with rights that are materially less than, or obligations that are
materially greater than the rights of the Registrable Securities Holders in
general, then such amendment must be approved by the holders of 51% of the
Longwill Shares.
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12.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and permitted assigns.
12.4 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
12.5 REMEDIES. The parties hereto agree and acknowledge that money
damages may not be any adequate remedy for any breach of the provisions of this
Agreement and that any party to this Agreement may apply to any court of law or
equity of competent jurisdiction (without posting bond or other security) for
specific performance and for other injunctive or equitable relief in order to
enforce or prevent violation Of the provisions of this Agreement.
12.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
12.7 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
12.8 GOVERNING LAW. The corporate law of Texas will govern all issues
concerning the internal governance of Empower and the relative rights of Empower
and its stockholders in connection therewith. All other questions concerning the
construction, validity and interpretation of this Agreement and the exhibits and
schedules hereto will be governed by the laws of Michigan without regard to
choice of law principles which would require the application of the laws of any
other jurisdiction.
12.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, representations,
warranties, statements, promises, information, arrangement, and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof including the Former Registration Rights Agreement. Upon the execution
and delivery of this Agreement, the Former Registration Rights Agreement will be
terminated without any liability to any party, and fully superceded by this
Agreement.
12.10 NOTICES. Any and all notices and other communications hereunder
shall be in writing addressed to the parties at the addresses specified below or
such other addresses as either party may direct by notice given in accordance
with this section, and shall be delivered in one of the following manners' (i)
by personal delivery, in which case notice shall be deemed to have been duly
given when delivered; (ii) by certified mail, return receipt requested, with
postage prepaid, in which case notice shall be deemed to have been duly given on
the date indicated on the return receipt; (iii) by reputable delivery service
(including, by way of example and not limitation, Federal Express, UPS and DHL)
which makes a record of the date and time of delivery, in which case notice
shall be deemed to have been duly given on the date indicated on
17
<PAGE>
the delivery service's record of delivery, or (iv) by fax transmission to the
fax numbers given below, with confirmation of good receipt and confirmed by
letter to the addresses set forth below, in which case notice shall be deemed to
have been duly given on the date indicated in the confirmation of fax
transmission (or the next Business Day if such date is not a Business Day or the
transmission is made after business hours):
if to Superior, to:
Superior Consultant Holdings Corporation
4000 Town Center, Suite 1100
Southfield, Michigan 48075
Attention: Richard P. Saslow
Vice President and General Counsel
Fax: (248) 386-8459
if to Empower, to:
Empower Health Corporation 4008 River Place Boulevard
Austin, Texas 78730
Attention: Donald W. Hackett
President and CEO
Fax: (512) 832-0752
if to Adventist to
111 North Orlando Avenue
Winter Park, Florida 32789-3675
Attention: Calvin Wiese
407-975-1458 (facsimile)
if to Longwill to:
4008 River Place Boulevard
Austin, Texas 78730
Fax: (512) 832-0752
12.11 LEGEND. Each certificate representing shares of Common Stock that are
-------
subject to this Agreement shall bear a legend substantially in the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED
EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES
WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT RELATING THE
18
<PAGE>
DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
AND BLUE SKY LAWS. THESE SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS OF A
REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 29, 1999 AND A COMPLETE AND
CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE CORPORATION AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT
CHARGE
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
- --------------------------------------------------------------------------------
EMPOWER HEALTH CORPORATION, SUPERIOR CONSULTANT HOLDINGS
a Texas corporation CORPORATION,
a Delaware corporation
- --------------------------------------------------------------------------------
By:____________________________ By:______________________________
- --------------------------------------------------------------------------------
Its:___________________________ Its:_____________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVENTIST HEALTH SYSTEM LONGWILL
SUNBELT HEALTHCARE
CORPORATION,
a Florida not-for-profit corporation
- --------------------------------------------------------------------------------
By: /s/ Calvin W. Wiese
---------------------------- _________________________________
- --------------------------------------------------------------------------------
Its: Senior Vice President Neil Longwill
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
- --------------------------------------------------------------------------------
EMPOWER HEALTH CORPORATION, SUPERIOR CONSULTANT HOLDINGS
a Texas corporation CORPORATION,
a Delaware corporation
- --------------------------------------------------------------------------------
By: /s/ Donald Hackett By: /s/ Richard P. Saslow
------------------------------ -------------------------------
- --------------------------------------------------------------------------------
Its: CEO/PRES. Its: VP & GENERAL COUNSEL
----------------------------- ------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVENTIST HEALTH SYSTEM LONGWILL
SUNBELT HEALTHCARE
CORPORATION,
a Florida not-for-profit corporation
- --------------------------------------------------------------------------------
By: _____________________________ /s/ Neal Longwill
-------------------------------
- --------------------------------------------------------------------------------
Its: Senior Vice President Neal Longwill
-----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20
<PAGE>
EXHIBIT 10.9
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is entered into by and between
Infoseek Corporation, a corporation duly organized under the laws of California,
with its principal place of business at 1399 Moffett Park Drive, Sunnyvale,
California 94089-1134, hereinafter referred to as "Infoseek", and DRKOOP.COM,
INC., a corporation organized under the laws of the State of Delaware with its
principal place of business at 8920 BUSINESS PARK DRIVE, LONGHORN SUITE, AUSTIN,
TEXAS 78759, hereinafter referred to as "Content Partner" or "DRKOOP.COM". ABC
News/Starwave Partners (which operates the ABCNews.com U.S. Internet site
referred to herein a "ABCNews.com") and ESPN/Starwave Partners (also referred to
as "EIV") (which operates the ESPN.com U.S. Internet site referred to herein as
"ESPN.com") are parties to this Agreement only with respect to those provisions
herein that specifically reference and apply to "ABCNews.com", "ESPN.com" and/or
GO Partners. ABC News/Starwave Partners and ESPN/Starwave Partners are
collectively referred to herein as the "GO Partners."
WITNESSETH:
WHEREAS, Infoseek hosts and maintains a U.S. version of the Internet service
known as GO Network (the "Service" or "GO Network") located at
www.infoseek.go.com, www.go.com and/or such successor site(s) as may be
- ------------------- ----------
designated by Infoseek through which information organized in applicable
subject-related centers ("the Centers") is provided to its users ("Users"); the
GO Network currently includes the following Infoseek Affiliate Internet sites:
www.abcnews.com and www.espn.com; and
- --------------- ------------
WHEREAS, Content Partner operates an Internet site located at www.drkoop.com
(the "DrKoop.com Site" ) and is the provider of information described in
Appendix A hereto ("DKC Health Content"), and e-commerce related content
described in Appendix G (the "Commerce Content") which Content Partner and
Infoseek desire to make available to Users. Content Partner and Infoseek have
been in discussions concerning this Agreement since February, 1999. DKC Health
Content and Commerce Content provided by Content Partner may be collectively
referred to herein as "Content Partner Content".
NOW, THEREFORE, for good and valuable consideration, and in consideration of the
mutual covenants and conditions herein set forth, and with the intent to be
legally bound thereby, Infoseek and Content Partner hereby agree as follows:
1. LICENSE; OBLIGATIONS OF CONTENT PARTNER; OBLIGATIONS OF INFOSEEK
1.1 Grant. Subject to the terms and conditions of this Agreement,
-----
Content Partner hereby grants to Infoseek and the GO Partners,
a fully-paid, worldwide, non-exclusive right and license to
use, reproduce, adapt, incorporate, integrate, distribute and
otherwise exploit the Content Partner Content solely on the
Service and to use Content Partner's trade names, trade dress,
and trademarks as expressly permitted herein and as reasonably
necessary with respect to the display and use of the Content
Partner Content on the Service. Infoseek and its subsidiaries
and Affiliates may use Content Partner Content other than on
the Service, provided that Infoseek obtains Content Partner's
prior consent for such use on a case-by-case basis. As used
herein, "Affiliate" means with respect to a party to this
Agreement, any entity that directly or indirectly controls, or
is under common control with, or is controlled by, such party;
"control" (including, with its correlative meanings,
"controlled
______________________
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated * * *. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
1
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by and "under common control with") means possession, directly
or indirectly, of the power to direct or cause the direction
of management or policies (whether through ownership of
securities or partnership or other ownership interests, by
contract or otherwise). The terms set forth in the Appendices
attached hereto shall also apply to this Agreement. The
Content Partner Content shall be hosted by the parties as
described herein and in the Appendices.
1.2 Page Views. Infoseek shall guarantee, over the three year term
----------
of this Agreement, a minimum total number of Page Views on GO
Network in accordance with the following:
* * *
If, on the second anniversary of the Effective Date, Infoseek
has not satisfied the minimum annual Page View requirements
set forth above for Years 1 and 2 of this Agreement, * * *
Infoseek shall have * * * days to correct the shortfall by
delivering additional Page Views to Content Partner (a "make
good" period). If such shortfall has not been corrected at the
expiration of such ninety (90) day make good period, Infoseek
shall refund to Content Partner the fees paid by Content
Partner for Page Views not delivered. Notwithstanding the
foregoing, if Infoseek subsequently delivers Page Views in
excess of those guaranteed above ("Excess Page Views") * * *.
Notwithstanding the foregoing, if Infoseek delivers * * *.
As used herein, a "Page View" refers to each instance in which
an HTML page is displayed to a User, which page contains any
DKC Health Content or DrKoop.com branding (including, without
limitation, banners, buttons or links), which shall, at
minimum, contain one direct link to the GO Network-Wrapped
Pages.
* * *
As used herein "Impression" means an advertisement image that
is viewable by a person accessing a web page on the Service.
Impressions may include banners, buttons, interstitials, and
any other web-based advertising that becomes generally
available to advertisers on GO Network.
1.3 Hosting by Infoseek. DKC Health Content to be hosted on
-------------------
Infoseek's servers will be available to Users through certain
web pages located at www.drkoop.go.com. Infoseek shall host
all DKC Health Content that appears at Levels 1-3 within the
Health Center on the Service. As used herein, "Level" means a
page location within the Service as further described in
Appendix B. Level 1 is the home page of the Health Center;
Level 2 is a navigation page, and Level 3 is the first page
where full text DKC Health Content appears. GO Partners will
host any DKC Health Content on their sites.
1.4 Hosting by Dr.Koop. The portion of the DKC Health Content not
------------------
hosted on Infoseek's servers (Level 4 content) will be hosted
on Content Partner's servers and accessed by Users from
Content Partner/Infoseek co-branded Web pages located at
http://go.drkoop. com ("GO Network-Wrapped Pages") pursuant to
---------------------
the specifications in Appendix B hereto. Content Partner shall
cooperate and assist Infoseek by promptly answering questions
and complaints regarding any Content Partner Content. Each
party shall promptly inform the other party of any event or
circumstance, and provide all information pertaining to such
event or circumstance, related or arising from this Agreement
which could lead to a claim or
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
2
<PAGE>
demand against the other party by any third party. All DKC
Health Content shall be provided to Users free of charge;
provided, however, that GO Partners may charge Users for ISP
services.
1.5 Delivery of Content. Content Partner will deliver to Infoseek
-------------------
the Infoseek-hosted Content Partner Content in a mutually
agreeable format, electronically via modem or Internet access
(e.g. Internet ftp or Internet e-mail). Content Partner agrees
to certify that all deliveries hereunder were made
electronically. Content Partner will make updates to the
Content Partner Content available to Infoseek and Infoseek
shall update the Infoseek-hosted Content Partner Content on a
regular mutually agreed upon basis. Infoseek shall have the
right, but not the obligation, to remove, or direct Content
Partner to remove any Content Partner Content, which Infoseek,
in its reasonable discretion, determines to be offensive, in
poor taste, or otherwise objectionable.
1.6 Exclusivity. Subject to the exceptions set forth below, during
-----------
the term of this Agreement, Content Provider shall be the
exclusive provider of Health Content on the Center of GO
Network * * *. The Health Center shall be the only Center
within the Service devoted primarily to comprehensive health
and medical information. In addition, during the term of this
Agreement, Infoseek shall not enter into any agreements with
any third party, other than Content Partner, to sell or offer
within the Health Center (i) Health Insurance or (ii) clinical
trial or clinical research opportunities of any kind. As used
herein, Health Insurance is limited to insurance policies
written to cover medical, dental and vision bills and expenses
exclusively. * * *
1. * * *
2. Infoseek's preexisting contracts with third parties for
health related content; provided, however, Infoseek hereby
agrees it shall not renew any such existing third party
contracts and represents that such contracts shall expire on
or before September 15, 1999. The foregoing representation
concerning renewals and expirations shall not apply to third
party agreements relating to GO Shop, as referenced in
Appendix G, Section 2.1
3. Health Content provided to Infoseek by news or data feeds
or Freelancers;
4. Any content created internally by Infoseek or a GO Partner
or any of their Affiliates;
5. * * *
6. * * *
7. Infoseek standard advertising banner business and Spotlight
business * * *.
8. News and Editorial Content of any kind. As used herein
"Editorial Content" means opinion pieces related to current
events and magazine articles that may relate to health; * * *.
As used herein, "Freelancers" shall mean independent parties
who receive a fee for their services and who are not (to
Infoseek's or a GO Partner's knowledge) employed by any * * *.
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
3
<PAGE>
DrKoop.com acknowledges that the following shall not
constitute a breach of this Section 1.6: (a) the Infoseek
search technology may search the sites * * *; (b) Infoseek may
provide search-related products that may include results from
such * * *, health insurance information or products, or
clinical trial information; and (c) such * * * may be in the
Service Directory. As used herein, Service Directory means the
general directory on GO Network which is currently accessed
through the tab "Web Directory."
The placement and positioning of DKC Health Content within the
Health Center shall be consistent with the mock up pages
attached hereto as Appendix B. Each page of the Health Center
will include separate links to DKC Health Content relating to
pharmacy products and health insurance. Although Infoseek
reserves the right to revise the look and feel of the Health
Center and the display of DKC Health Content within the Health
Center (except as expressly set forth herein), the relative
prominence of such DKC Health Content within the Health Center
shall be consistent with the mock up pages attached hereto as
Appendix B.
In the event of a breach of this Section 1.6 by Infoseek (an
"Exclusivity Breach"), Content Partner's sole and exclusive
remedy shall be to request removal of the content that
violates this Section 1.6, and Infoseek shall comply with such
request within five (5) business days. * * *
1.7 Access. The Health Center shall be accessible by Users through
------
no more than one hyperlink from the GO home page. Further,
Infoseek shall maintain the Health Center, in a manner
consistent with its development and operation of the other
Centers within GO Network.
1.8 Commerce Content. Content Partner will provide Commerce
-----------------
Content to the Service as further described in Appendix G.
1.9 * * *
1.10 Response Times. The response times which DrKoop.com shall use
--------------
to remedy and/or correct any material limitations or errors in
any Content Partner Content made available by or through
DrKoop.com that Infoseek brings to DrKoop.com's attention or
about which DrKoop.com otherwise becomes aware are specified
in Appendix E; * * *. DrKoop.com agrees not to override
browser back button functionality to prevent Users who link to
the GO Network-Wrapped Pages from the Service from returning
to the Service. As used herein "Link" means a so-called "hot
link" in graphical and/or textual format located on the
applicable areas of the Service which takes the User directly
to another web site or area within the site.
1.11 Maintenance of Service. Each party will be responsible for its
----------------------
respective telecommunications charges with respect to the
provision of respective portions of the Content Partner
Content to Infoseek and to Users. Except as expressly provided
herein, Infoseek retains the right to adapt or otherwise alter
the design, look, and any other attributes of the Service and
Service pages. Infoseek will use reasonable efforts to
promptly incorporate into the Content Partner Content error
corrections within a reasonable period of time after Content
Partner makes such corrections available to Infoseek;
provided, however that if Content Partner advises Infoseek in
writing during normal business hours that failure to promptly
correct an error could result in serious physical injury to a
User,
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
4
<PAGE>
Infoseek shall exercise prompt and commercially reasonable
efforts to expedite the correction of such error.
1.12 User Registration
-----------------
a. DrKoop.com shall ensure that its privacy policy applicable
to the DrKoop.com Site and the GO Network-Wrapped Pages, to
the extent applicable to its performance under this
Agreement, is consistent with Infoseek's privacy policy, as
may be changed from time to time, including, without
limitation, a mechanism that allows Users to opt in to
sharing of User data (not including personal medical
information) with Infoseek.
b. The following illustrates the User registration experience
which shall be implemented pursuant to this Agreement:
i. An unregistered User in the Health Center encounters
DrKoop.com functionality or DKC Health Content that
provides the User with an opportunity to register. The
standard series of GO Network user registration screens
appear, the first of which explains that this is a
simultaneous registration for DrKoop.com and GO
Network. The User then has the option to continue to
register or to click back to the User's original
starting point. If the User responds "yes", then the
User's data will go simultaneously to DrKoop.com and
Infoseek. If the User responds "no", then the User
cannot proceed to use DrKoop.com functionality.
ii. If the User who responds "yes" when initially
registering as specified in Section 1.12 b.i. above,
returns to GO Network or to the DrKoop.com site (not
the GO Network-Wrapped Pages) and logs in, the User
will be recognized as a registered User of both
services (provided that the User is known to the
Content Partner as a GO Network registered User) .
iii. The Infoseek privacy policy shall be available to Users
(via a link) at the time of registration as set forth
in Section 1.12(b)(i).
iv If a User that has already registered on GO Network
elects to opt-in to Content Partner registration, the
User shall only be required to execute "one click" to
transfer his or her registration data to DrKoop.com.
1.13 DrKoop.com User Data
--------------------
a. * * * DrKoop.com shall make available to Infoseek, via a
method and timing to be mutually agreed upon, all names
and email addresses from each Dr.Koop.com User accessing
DKC Health Content from the Service provided that such
User has opted in to the sharing of his/her data with
third parties and provided such disclosure is not
prohibited by law or regulation. Notwithstanding the
foregoing, DrKoop.com shall not provide personal medical
information to Infoseek, including, without limitation,
personal medical records. In addition, except as
prohibited by law, Dr.Koop.com shall provide to Infoseek
all available data (in aggregate, anonymous form only)
concerning Users who access the GO Network Wrapped Pages
from GO Network, concerning products and/or
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
5
<PAGE>
services purchased by such Users, survey and promotion
responses, and other demographic information concerning
such Users. Infoseek may use such information for its
internal business purposes and may provide such aggregate,
anonymous information to third parties as it deems
appropriate in connection with its operations; provided,
however that such aggregate, anonymous data may not be
identified to third parties as DrKoop.com User data. Such
User data must be aggregated with other Infoseek User data
before being provided to a third party.
1.14 Infoseek User Data
------------------
Infoseek shall own all right, title and interest in and to and
the exclusive right to use all User data generated on all
pages of the Service hosted by Infoseek.
1.15 Go Wrapper
----------
Both parties hereby acknowledge that the GO Network-Wrapped
Pages wrapper (the "GO Wrapper") will evolve over the term of
the Agreement. To this end, Infoseek shall ensure that the GO
Wrapper will include the following elements, consistent with
the mock up pages attached hereto as Appendix B
Header
Tabs
Breadcrumbs
Footer
In the event that Infoseek elects to substantially modify the
GO Wrapper that is displayed in connection with DKC Health
Content, Infoseek shall seek DrKoop.com's approval of such
modifications, which approval shall not be unreasonably
withheld or delayed.
2. FEES AND PAYMENTS
2.1 Content Partner will make payments to Infoseek in the amounts and
at the times specified in Appendix F and Appendix G. Content Partner
will be responsible for the proper payment of all taxes, including
sales, excise and value added taxes, which may be levied in connection
therewith, exclusive of taxes based upon Infoseek's net income.
2.2 All payments made to Infoseek hereunder shall be made via wire
transfer in accordance with the following instructions, or such other
instructions as may be provided to Content Partner in writing by an
authorized representative of Infoseek:
Wire transfer, EFT/ACH Payment remittance instructions:
Bank of America
San Francisco, California
ABA Number: 121000358
Account Name: Infoseek Corporation
Account Number: 12335-30390
Swift ID: BOFAUS6S
6
<PAGE>
3. CONFIDENTIAL INFORMATION
3.1 Either Infoseek (which, for purposes of this Article 3 only,
shall include the GO Partners) or Content Partner may disclose
to the other (the "Receiving Party") certain information that
the disclosing party deems to be confidential and proprietary
("Proprietary Information"), and technical and other business
information of the disclosing party that is not generally
available to the public.
3.2 The Receiving Party agrees to use Proprietary Information
solely in conjunction with its performance under this
Agreement and not to disclose or otherwise use such
information in any fashion. The Receiving Party, however, will
not be required to keep confidential such Proprietary
Information that becomes generally available without fault on
its part; is already rightfully in the Receiving Party's
possession without restriction prior to its receipt from the
disclosing party; is independently developed by the Receiving
Party; is disclosed by third parties without similar
restrictions; is rightfully obtained by the Receiving Party
from third parties without restriction; or is otherwise
required by law or judicial process.
3.3 Unless required by law or to assert its rights under this
Agreement, and except for disclosure on a "need to know basis"
to its own employees, and its legal, investment, financial and
other professional advisers on a confidential basis, each
party agrees not to disclose the terms of this Agreement or
matters related thereto without the prior written consent of
the other party.
4. REPRESENTATIONS AND WARRANTIES
4.1 Content Partner represents and warrants that it is the owner
of the Content Partner Content and/or has the right to grant
the rights hereunder. Content Partner represents and warrants
to Infoseek and the GO Partners that it holds the necessary
rights to permit the use of Content Partner Content by
Infoseek and the GO Partners for the purpose of this
Agreement; that its entry into this Agreement does not violate
any agreement with any other party; that its performance under
this Agreement will conform to applicable U.S. laws and
government rules and regulations; that to the best of its
knowledge, after reasonable inquiry, the Content Partner
Content is true, accurate and does not contain material
omissions; Content Partner further represents and warrants to
Infoseek and the GO Partners that the use, reproduction,
distribution, transmission, or display of Content Partner
Content, Content Partner's collection and use of DrKoop.com
User Data and the sale of products and services by Content
Partner as contemplated in this Agreement will not (a) violate
any laws or any rights of any third parties, including, but
not limited to, such violations as infringement or
misappropriation of any U.S. copyright, patent, trademark,
trade dress, trade secret, music, image, or other proprietary
or property right, false advertising, unfair competition,
defamation, invasion of privacy or publicity rights, moral or
otherwise, or rights of celebrity, violation of any
antidiscrimination law or regulation, or any other right of
any person or entity; or (b) contain any material that is:
unlawful, harmful, fraudulent, threatening, abusive,
harassing, defamatory, vulgar, obscene, profane, hateful,
racially, ethnically, or otherwise objectionable, including,
without limitation, any material that supports, promotes or
otherwise encourages wrongful conduct that would constitute a
criminal offense, give rise to civil liability, or otherwise
violate any applicable local, state or national laws.
7
<PAGE>
4.2 Content Partner represents and warrants that, * * * the
systems and technology utilized to operate the DrKoop.com Site
and the GO Network Wrapped Pages (including, without
limitation, order fulfillment systems relating to products
sold by Content Partner) are compliant with the following Year
2000 requirements: (a) the occurrence in or use by such
systems of dates before, on or after January 1, 2000 will not
adversely affect the performance of such systems with respect
to date-dependent data, computations, output, or other
functions (including, without limitations, calculating,
comparing and sequencing); and (b) such systems will not
abnormally end or provide invalid or incorrect results as a
result of date dependent data.
4.3 Infoseek represents and warrants* * *.
4.4 Infoseek represents and warrants to Content Partner that * *
*.
5. LIMITATION OF LIABILITY; DISCLAIMER
5.1 EXCEPT FOR EITHER PARTY'S LIABILITY FOR THIRD PARTY CLAIMS AS
SPECIFIED IN ARTICLE 9 BELOW OR IN APPENDIX A, SECTION C(7),
OR ANY PARTY'S BREACH OF ARTICLE 3, OR DAMAGES ARISING FROM
PERSONAL INJURY, IN NO EVENT SHALL CONTENT PROVIDER, INFOSEEK,
GO PARTNERS OR ANY OF THEIR AFFILIATES BE LIABLE TO ANY OTHER
PARTY OR ITS AFFILIATES FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR EXEMPLARY DAMAGES OF ANY NATURE, EVEN IF SUCH
PARTY SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. THE FOREGOING SHALL APPLY REGARDLESS OF THE
NEGLIGENCE OR OTHER FAULT OF ANY PARTY AND REGARDLESS OF
WHETHER SUCH LIABILITY SOUNDS IN CONTRACT, NEGLIGENCE, TORT,
STRICT LIABILITY OR ANY OTHER THEORY OF LIABILITY.
5.2 EXCEPT AS SET FORTH IN ARTICLE 4, CONTENT PARTNER, INFOSEEK
AND THE GO PARTNERS MAKE NO, AND EACH PARTY ACKNOWLEDGES THAT
EACH PARTY HAS NOT MADE ANY, AND HEREBY SPECIFICALLY DISCLAIMS
ANY, REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE SERVICE, THE CONTENT PARTNER CONTENT, GO
PARTNERS, THE DRKOOP.COM SITE, OR THE OPERATION OF THE CONTENT
PARTNER CONTENT ON THE SERVICE, INCLUDING, BUT NOT LIMITED TO
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
6. TERM AND TERMINATION
6.1 This Agreement shall be effective on the date executed by both
parties ("Effective Date") and shall continue in force for an
initial term ending thirty-six (36) months from the Effective
Date. Upon prior mutual written agreement, the then current
term of this Agreement may be renewed at the end of such
initial term and each anniversary date thereafter for one (1)
year renewal terms. * * *
6.2 Either party will have the right to immediately terminate this
Agreement if the other party is in default of any obligation
herein, including failure of DrKoop.com to provide DKC Health
Content, or Commerce Content, and such breach is incapable of
being cured, or if such breach is capable of cure, such breach
is not cured within thirty (30) days (or fourteen (14)
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
8
<PAGE>
days with respect to any default in any payment obligation)
after receipt of written notice of such default from the non-
defaulting party or within such additional cure period as the
non-defaulting party may authorize.
6.3 If the GO Network-Wrapped Pages do not meet the following
performance standards (which shall be measured by Infoseek or
an independent third party mutually agreed to between the
parties and paid for solely by DrKoop.com), and such failure
is not due to force majeure events or the failure of any third
party services, hardware, software or telecommunications
systems not controlled by Content Partner, Infoseek shall
notify the Content Partner in writing and Content Partner
shall exercise commercially reasonable efforts to promptly
correct the failure. * * *
* * *
If Infoseek elects to terminate the Agreement pursuant to this
Section 6.3, such termination shall relieve both parties of
any further liability (except as provided in Section 6.5
below), including but not limited to, the payment of fees as
set forth in Section 2.
6.4 If that portion of the Health Center hosted by Infoseek
("Health Center" as used in this Section 6.4) does not meet
the following external performance standards, as measured by
Keynote or another independent service provider, mutually
agreed to between the parties, and such failure is not due to
force majeure events or the failure of any third party
services, hardware, software or telecommunications systems not
controlled by Infoseek, DrKoop.com shall notify the Infoseek
in writing and upon such notice Infoseek shall use
commercially reasonable efforts to promptly correct the
problem. * * * Such performance standards are as follows:
* * *
6.5 The following provisions of this Agreement shall survive the
termination or expiration of this Agreement: 1.13 (first
sentence only), 1.14, 2.1, Article 3, Article 5, 8.1 (first
two sentences only), 8.2, Article 4 (as to claims arising
prior to termination or expiration or claims based on events
arising prior to termination or expiration), Article 9, and
Article 10.
6.6 Upon the termination or expiration of this Agreement, each
party shall (a) promptly return all Proprietary Information,
and other information, documents, manuals and other materials
belonging to the other party (or any GO Partner), except as
may be otherwise provided in this Agreement; and (b) promptly
remove the other party's content, branding, links, and any
other material provided under this Agreement.
6.7 During the term of this Agreement, Infoseek shall not enter
into any agreements to permit the sale or distribution of
tobacco or tobacco products on the Health Center.
Notwithstanding the foregoing, Content Partner acknowledges
and agrees that information concerning tobacco and tobacco
products may be displayed in standard search and directory
result format on the Health Center in response to the search
queries of Users.
7. FORCE MAJEURE
Neither party will be liable for delay or default in the performance of
its obligations under this Agreement (other than for non-payment) if
such delay or default is caused by conditions beyond its reasonable
control, including, but not limited to, fire, flood, accident,
earthquakes,
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
9
<PAGE>
telecommunications line failures, storm, acts of war, riot, government
interference, strikes and/or walk-outs. In the event of a force majeure
event which lasts longer than twenty (20) days, the party not
experiencing the force majeure event may terminate this Agreement upon
prior written notice to the other party.
8. ADVERTISING AND PROMOTION; PUBLICITY
8.1 Content Partner shall not issue or permit the issuance of any
press releases or publicity regarding, or grant any interview,
or make any public statements whatsoever concerning, this
Agreement, GO Network or Infoseek (or its Affiliates,
including, without limitation, ESPN.com, ABCNews.com, The Walt
Disney Company, or any of their Affiliates) without prior
coordination with and written approval from Infoseek, which
approval may be granted or withheld in Infoseek's sole
discretion. Infoseek shall not issue or permit the issuance of
any press releases or publicity regarding, or grant any
interview, or make any public statements whatsoever concerning
this Agreement or Content Partner without prior coordination
with and written approval from Content Partner, which approval
may be granted or withheld in Content Partner's sole
discretion. Notwithstanding the foregoing, promptly after
execution of this Agreement and during the term of the
Agreement, DrKoop.com * * * shall reasonably cooperate with
Infoseek in the issuance of a press release, mutually agreed
to between the parties, announcing this Agreement and
endorsing the distribution of DKC Health Content on the Health
Center of GO Network. All Content Partner endorsements and
public statements concerning this Agreement must receive
Infoseek's prior review and approval. Notwithstanding the
foregoing, DrKoop.com shall not state or imply, in
advertisements, writings, or otherwise, that Infoseek or its
Affiliates endorse DrKoop.com's products or services or any
other product or service. Content Partner shall not use,
verbally or in writing, the names ABC, ABCNews or The Walt
Disney Company in connection with the sale of advertising by
Content Partner (except that Content Partner may describe the
sites included within the GO Network).
8.2 Neither Infoseek or the GO Partners shall have any right to
use the name and/or likeness of Dr. C Everett Koop or to make
any statements, whether written or oral, which state or
otherwise imply, directly or indirectly, any endorsement from
or affiliation with Dr. Koop in any manner whatsoever without
the prior written consent of DrKoop.com, which consent may be
withheld in DrKoop.com's sole discretion.
8.3 Content Partner and Infoseek may undertake such joint
marketing efforts as may be mutually agreed upon from time to
time. Each party shall cooperate and assist the other party by
supplying, without charge, reasonable quantities of materials
for the other party's marketing and promotional activities.
Neither party shall be obligated to participate in any joint
marketing efforts, except as expressly provided in Section 8.1
above.
9. INDEMNIFICATION
9.1 Content Partner agrees to defend, indemnify and hold Infoseek
and the GO Partners and their officers, directors, agents and
employees harmless from and against any and all claims,
demands, liabilities, actions, judgments, and expenses,
including reasonable fees and expenses of attorneys,
paralegals and other professionals, arising out of or related
to (i) any breach or alleged breach of any of Content
Partner's representations and warranties set forth in Section
4.1; (ii) any breach by Content Partner of an international
law, rule or regulation or international third party
proprietary right (as if Content Partner had made the
representations and warranties equivalent to those set forth
in Section 4.1 regarding US laws, regulations and proprietary
rights) * * * Content Partner shall bear full responsibility
for the defense (including any settlements) of any such claim;
provided however, that (a) Content Partner shall keep Infoseek
(and GO Partners, as applicable) informed of, and
____________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
10
<PAGE>
consult with Infoseek in connection with the progress of such
litigation or settlement; and (b) Content Partner shall not
have any right, without Infoseek's written consent, to settle
any such claim if such settlement arises from or is part of
any criminal action, suit or proceeding or contains a
stipulation to or admission or acknowledgment of, any
liability or wrongdoing (whether in contract, tort or
otherwise) on the part of Infoseek or its Affiliates or
otherwise requires Infoseek or its Affiliates to take or
refrain from taking any material action (such as the payment
of fees).
9.2 Infoseek agrees * * * Content Partner and its officers,
directors, agents and employees * * *. Infoseek shall bear
full responsibility for the defense (including any
settlements) of any such claim; provided, however, that (a)
Infoseek shall keep Content Partner informed of, and consult
with Content Partner in connection with the progress of such
litigation or settlement; and (b) Infoseek shall not have any
right, without Content Partner's written consent, to settle
any such claim if such settlement arises from or is part of
any criminal action, suit or proceeding or contains a
stipulation to or admission or acknowledgment of, any
liability or wrongdoing (whether in contract, tort or
otherwise) on the part of Content Provider or its Affiliates
or otherwise requires Content Partner or its Affiliates to
take or refrain from taking any material action (such as the
payment of fees).
9.3 Each GO Partner agrees * * * Content Partner and its officers,
directors, agents and employees * * *. The indemnifying party
shall bear full responsibility for the defense (including any
settlements) of any such claim; provided however, that (a)
such party shall keep Content Partner informed of, and consult
with Content Partner in connection with the progress of such
litigation or settlement; and (b) such party shall not have
any right, without Content Partner's written consent, to
settle any such claim if such settlement arises from or is
part of any criminal action, suit or proceeding or contains a
stipulation to or admission or acknowledgment of, any
liability or wrongdoing (whether in contract, tort or
otherwise) on the part of Content Partner or otherwise
requires Content Partner to take or refrain from taking any
material action (such as the payment of fees).
10. GENERAL TERMS AND CONDITIONS
10.1 The parties to this Agreement are independent contractors.
Neither party is an agent, representative or partner of the
other party. Neither party shall have any right, power or
authority to enter into any agreement for or on behalf of, or
to incur any obligation or liability for, or to otherwise
bind, the other party. This Agreement shall not be interpreted
or construed to create an association, joint venture,
co-ownership, co-authorship, or partnership between the
parties or to impose any partnership obligation or liability
upon either party.
10.2 Neither party shall assign, sublicense or otherwise transfer
(voluntarily, by operation of law or otherwise) this Agreement
or any right, interest or benefit under this Agreement,
without the prior written consent of the other party;
provided, however, that either party may assign this Agreement
to any entity that acquires all or substantially all of the
assets or shares (or controlling shares) of such party;
provided that the acquiring entity is not a direct competitor
of the other party. Any attempted assignment, sublicense or
transfer by a party in derogation hereof shall be null and
void. Subject to the foregoing, this Agreement shall be fully
binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and
assigns. Any change of control of either party shall be deemed
_________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
11
<PAGE>
an "assignment" for purposes of this Section 10.2; provided,
however, that as long as control is not transferred to a
direct competitor of the nonassigning party, it shall be an
approved assignment. As used herein, "change of control" shall
include any event (including, without limitation, a merger,
sale, liquidation, transfer, encumbrance or other disposition)
which results in a change of the control of a party. As used
in this Section 10.2 "change of control" shall mean a change
in the legal, beneficial or equitable ownership, directly or
indirectly, of more than fifty (50%) of a class of capital
stock having voting rights of either party.
10.3 No change, amendment or modification of any provision of this
Agreement or waiver of any of its terms will be valid unless
set forth in writing and signed by the party to be bound
thereby.
10.4 This Agreement shall be interpreted, construed and enforced in
all respects in accordance with the laws of the State of
California. Each party irrevocably consents to the exclusive
jurisdiction of any state or federal court for or within Santa
Clara County, California over any action or proceeding arising
out of or related to this Agreement, and waives any objection
to venue or inconvenience of the forum in any such court.
10.5 The failure of either party to insist upon or enforce strict
performance by the other party of any provision of this
Agreement or to exercise any right under this Agreement shall
not be construed as a waiver or relinquishment to any extent
of such party's right to assert or rely upon any such
provision or right in that or any other instance; rather the
same shall be and remain in full force and effect.
10.6 Any notice, approval, request, authorization, direction or
other communication under this Agreement shall be given in
writing, will reference this Agreement, and shall be deemed to
have been delivered and given (a) when delivered personally;
(b) three (3) business days after having been sent by
registered or certified U.S. mail, return receipt requested,
postage and charges prepaid; or (c) one (1) business day after
deposit with a commercial overnight courier, with written
verification of receipt. All communications will be sent to
the addresses set forth below or to such other address as may
be designated by a party by giving written notice to the other
party pursuant to this Section 10.6.
If to Infoseek: If to Content Partner:
Infoseek Corporation drkoop.com, Inc.
1399 Moffett Park Drive 8920 Business Park Drive,
Longhorn Suite
Sunnyvale, CA 94089-1134 Austin, Texas 78759
Attention: Legal Department Attention: CFO
Tel: (408) 543-6000 Tel: (512) 726-5110
With a copy to: With a copy to:
ABCNews.com Latham & Watkins
77 W. 66th Street 135 Commonwealth Drive
New York, NY 10023 Menlo Park, CA 94025
Attention: Cherie Carr, Esq. Attention: Anthony Richmond,
Esq.
Tel: (212) 456-7310 Tel: (650) 463-4600
10.7 This Agreement and the Appendices attached hereto and
incorporated herein by reference constitute the entire
agreement between the parties and supersede any and all prior
agreements or understandings between the parties with respect
to the subject matter hereof. Neither party shall be bound by,
and each party specifically objects to, any term, condition or
other provision or other condition which is different from or
in addition to the provisions of this Agreement (whether or
not it would materially alter this Agreement) and which is
12
<PAGE>
proffered by the other party in any purchase order,
correspondence or other document, unless the party to be bound
thereby specifically agrees to such provision in writing.
10.8 The headings used in this Agreement are for convenience only
and are not to be construed to have legal significance. In the
event that any provision of this Agreement conflicts with the
law under which this Agreement is to be construed or if any
such provision is held invalid by a court with jurisdiction
over the parties to this Agreement, such provision shall be
deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with
applicable law, and the remainder of this Agreement shall
remain in full force and effect. This Agreement may be
executed in counterparts.
INFOSEEK CORPORATION DRKOOP.COM, INC.
By: /s/ Harry Motro By: /s/ Donald W. Hackett
-------------------------------- ---------------------------------
Authorized Signature Authorized Signature
Print Name: Harry Motro Print Name: Donald W. Hackett
------------------------- -------------------------
Title: CEO Title: CEO
------------------------------ -------------------------
Date: 4/9/99 Date: 4/9/99
------------------------------ -------------------------------
Accepted with respect to all matters affecting ABCNews.com and ABC News/Starwave
Partners d/b/a ABC News Internet Ventures:
ABC NEWS/STARWAVE PARTNERS D/B/A ABC NEWS INTERNET VENTURES
By: /s/ Patricia E. Vance
--------------------------------
Print Name: Patricia E. Vance
-------------------------
Title: Senior Vice President
------------------------------
Date: 4/9/99
-------------------------------
Accepted with respect to all matters affecting ESPN.com and ESPN/Starwave
Partners d/b/a ESPN Internet Ventures:
ESPN/STARWAVE PARTNERS D/B/A ESPN INTERNET VENTURES
By: /s/ Steve Taues
---------------------------------
Print Name: Steve Taues
-------------------------
Title: SVP-General Manager
------------------------------
Date: 4/9/99
-------------------------------
13
<PAGE>
APPENDIX A
A. HEALTH CONTENT
"Health Content" means content that relates to human health conditions,
medicine, and the treatment of disease.
"DKC Health Content" means content that relates to human health
conditions, medicine, and the treatment of disease as further defined
on Appendix A-1, which content includes DrKoop.com branding.
Dr.Koop.com may, subject to Infoseek's approval, which shall not be
unreasonably withheld or delayed, revise Appendix A-1 to include new
content and functionality added to the DrKoop.com Site after the date
of this Agreement. As part of DKC Health Content, DrKoop.com will
provide Infoseek and the GO Partners with unique Health Content that is
not available from DrKoop.com on any other Internet portal with which
DrKoop.com has an agreement.
B. GO NETWORK PROGRAM DESCRIPTION
1. A sample schematic illustrating the layout of the Infoseek hosted
Health Center is set forth in Appendix B. Any material change to such
layout shall be mutually agreed to by Infoseek and Content Partner.
2. a. DrKoop.com shall provide DKC Health Content and related tools to the
Health Center in areas and subjects as specified by Infoseek. * * *
b. * * *
* * *
3. All links pointing to GO Network-Wrapped Pages from the Service shall
provide links back to the Service.
4. Infoseek will have editorial control over all content appearing on the
Service and branded in any way to Infoseek and GO Network.
Notwithstanding the foregoing, Infoseek shall not modify, edit,
abbreviate or censor DKC Health Content, but Infoseek shall have the
right to not include such content on any pages of GO Network.
5. All DKC Health Content shall carry Content Partner's standard legal
disclaimer, which is set forth in Appendix A-1, and may be subject to
reasonable changes from time to time. This disclaimer shall be
presented in its entirety any time DKC Health Content is displayed. In
addition, certain third party content which is provided by Content
Partner may have additional requirements for displaying, such as
including the logo of the original content provider (for example,
Dartmouth Medical content must carry the branding and logo of the
Dartmouth Medical School), which requirements are described on Appendix
A-1. Content Partner will provide further details concerning such
requirements at the time DKC Health Content is submitted for inclusion
in the Service.
_________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
14
<PAGE>
6. At Infoseek's request, DrKoop.com shall temporarily send to Infoseek's
facilities a minimum of three (3) on-site designers/producers/engineers
during the term of this Agreement for a mutually agreed upon duration
for purposes of assisting Infoseek in building the Health Center, and
Infoseek Commerce Area as it relates to Commerce Content.
7. * * *
8. If Infoseek elects to provide Health Content for other potential GO
Network health areas during the term of this Agreement, Infoseek shall
have the option, but not the obligation, subject to Content Provider's
approval, which shall not be unreasonably withheld or delayed, to use
any such DrKoop.com Health Content pursuant to GO Network producers and
editors decisions.
9. * * *
10. Any promotions and/or links to GO Network provided by DrKoop.com shall
be approved in advance by Infoseek, which approval shall not be
unreasonably withheld or delayed.
11. Both parties will discuss how Infoseek may integrate Dr. Koop community
functions (Chat and Message Boards) into Go Network Communities Center
and Go Network Health Center * * *. Go Network Community Center is
defined as Chat and Message Boards only. Such functions are scheduled
to be launched in * * *. Fees for custom Go Community services will be
assessed on a case by case basis. Infoseek shall provide Content
Partner with a right of first negotiation (for a period not to exceed
ten (10) business days) to become a content provider with respect to
health related matters in the GO Network Community Center.
C. PROGRAM DESCRIPTION - ABCNEWS.COM
1. Subject to the following exceptions, ABCNews.com shall not * * *
2. DrKoop.com shall provide DKC Health Content to ABCNews.com in content
areas and subjects as specified by ABCNews.com. * * * All Health
Content appearing on ABCNews.com shall be hosted by ABCNews.com or
Infoseek, or an Infoseek Affiliate, unless otherwise mutually agreed.
Any links from ABCNews.com to DKC Health Content will be links directed
to GO-Network Wrapped Pages or to pages with an ABCNews.com wrapper or
to pages with no wrapper, at ABC's sole discretion. Nothing in this
Agreement shall give Content Partner the right to sell or provide
advertising of any kind on ABCNews.com.
3. ABCNews.com shall determine which of the following content
shall be included as part of the DKC Health Content displayed on
ABCNews.com and the parties shall mutually agree upon a schedule and
method for such implementation within 90 days of the Effective Date.
OVERALL HEALTH AND INDIVIDUAL ILLNESS RISK ASSESSMENT TOOLS
-----------------------------------------------------------
a. Risk calculators for specific diseases/conditions
b. Personal health diary
c. Clinical pathways/symptom checklists "trees"
d. Health IQ quizzes
_________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
15
<PAGE>
REFERENCE MATERIALS
-------------------
a. Virtual Anatomy applications
b. Virtual tour of body
c. Link to Physician Finder Service
d. Link to Hospital Rankings
e. Link to Encyclopedic health manual
MEDICAL RECORDS
---------------
a. The ability of ABCNEWS.com users to download Personal Medical
Record(TM)
b. Personal Medical Record(TM)
VIDEO AND LIVE EVENTS
---------------------
Other
Alternative Medicine resources
4. All links pointing to the GO Network-Wrapped Pages (or pages with an
ABCNews.com wrapper, if applicable) from ABCNews.com shall provide
links back to ABCNews.com.
5. ABCNews.com and DrKoop.com shall negotiate in good faith * * * to
finalize a mutually acceptable agreement pursuant to which ABCNews.com
would be the * * * provider of news and headlines to DrKoop.com (the
"News Agreement"). Any such headlines or news stories would be provided
* * * for use on the GO Network-Wrapped Pages and/or the DrKoop.com
Site. Provided a mutually acceptable News Agreement is finalized within
such * * * period, DrKoop.com shall follow the process in item C (6)
below if it seeks to obtain news stories not provided by ABCNews.com.
If a News Agreement is not finalized within such time period, the
provisions of Section C(6) below shall be inapplicable.
6. * * *
7. ABCNews.com will have editorial control over all content appearing on
its site and shall control the look and feel of its site.
Notwithstanding the foregoing, ABCNews.com shall not modify, edit,
abbreviate or censor DKC Health Content, but ABCNews.com shall have the
right not to include such content on any pages of ABCNews.com. * * *
8. Any promotions and/or links to ABCNews.com provided by DrKoop.com shall
be approved in advance by ABCNews.com
9. Nothing in this Agreement shall restrict or limit the right of
ABCNews.com to sell and display on the ABCNews.com site advertising,
promotions and sponsorships from DrKoop.com Direct Competitors listed
on Appendix C. The advertising restrictions set forth in Section B (7)
of this Appendix A do not apply to ABCNews.com.
10. ABC AFFILIATE PROVISIONS
In consideration of this Agreement, ABCNews.com and DrKoop.com agree as
follows:
(a) Dr. Koop.com * * * a "link" on the ABC Local Net for * * *,
pursuant to a Distribution Agreement to be mutually agreed to between
the parties. The ABC Local Net makes available Internet content to 115
affiliate ABC television stations throughout the country.
_________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
16
<PAGE>
(b) Provided that DrKoop.com has purchased the link referenced in
section 10(a) above, ABCNews.com will use reasonable efforts to
facilitate introductory communications and meetings between DrKoop.com
management and executives at all ABC owned stations concerning
DrKoop.com services and strategic initiatives.
(c) ABC owned and affiliate stations in all United States markets will
be * * * participate in DrKoop.com's station affiliate program (the
"DrKoop Affiliate Program"), in designated market areas ("DMAs") where
this program is offered at the sole discretion of DrKoop.com . Provided
that DrKoop.com has purchased the link referenced in Section 10(a)
above, Information concerning the details of the DrKoop Affiliate
Program, which details shall be mutually agreed to between the parties,
will be distributed to such affiliates by ABC, at DrKoop.com's sole
expense, within 30 days of the Execution Date of this agreement.
(d) Should an ABC affiliated station express interest in the DrKoop
Affiliate Program, DrKoop.com will arrange for a presentation of the
DrKoop Affiliate Program terms to the station at the mutual convenience
of DrKoop.com and the station, and such station will have 10 business
days following this presentation to either accept or reject the terms
of the DrKoop Affiliate Program. If DrKoop.com and such station are
unable to agree on terms * * *.
11. ABCNews.com and Infoseek shall each appoint a project liaison to
coordinate the provision of DKC Health Content to ABCNews.com.
D. PROGRAM DESCRIPTION - ESPN.COM
1. Subject to the exceptions set forth below in Section this Section D
(1), during the term of this Agreement, Content Provider shall be the
exclusive provider of Health Content to the section of the ESPN.com
site devoted primarily to health and medical related topics, which
section is currently named the Training Room (the "Training Room"). * *
*
2. ESPN.com and DrKoop.com shall mutually agree upon a schedule for the
display of DKC Health Content on the Training Room of ESPN.com, which
may include implementation of the following features:
(i) weekly articles for both the fitness and conditioning and
the sports nutrition subsections of Training Room, either re-
purposed directly from existing DKC Health Content or written
specifically by DrKoop.com staff for ESPN.com's audience of
recreational athletes and sports fans.
(ii) weekly replies from experts affiliated with DrKoop.com to
ESPN.com user questions in each of the two subsections specified
in Section D. 2(i) above.
(iii) online assessments (quizzes, rate-yourself surveys, body-
fat calculators, etc.) for both subsections.
(iv) at least one photo for each article and illustrations,
graphs, statistical tables and charts wherever appropriate in
subsections specified in Section D. 2(i) and D.2(ii) above.
(v) periodic online chats with experts provided by DrKoop.com.
_________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
17
<PAGE>
3. DrKoop.com may provide additional health related content in areas
within the League sites (NFL, NBA, and NASCAR); subject to Infoseek, in
its role as a general partner of EIV, using commercially reasonable
efforts to receive applicable approvals from the owners of such sites;
no assurance can be provided that such approvals will be obtained.
4. DrKoop.com shall provide DKC Health Content to the Training Room in
areas and subjects as specified by ESPN.com., which shall be mutually
agreed to by the parties within 90 days of the Effective Date. * * *
5. All links pointing to the GO Network-Wrapped Pages from ESPN.com shall
provide links back to ESPN.com. All Health Content appearing on
ESPN.com shall be hosted by ESPN.com or Infoseek, or an Infoseek
Affiliate, unless otherwise mutually agreed. Any links from
ESPN.com.com to DKC Health Content will be links directed to GO-Network
Wrapped Pages or to pages with an ESPN.com wrapper or to pages with no
wrapper, at ESPN.com's sole discretion. Nothing in this Agreement shall
give Content Partner the right to sell or provide advertising of any
kind on ESPN.com.
6. * * *
7. ESPN.com will have editorial control over all content appearing on its
site and the look and feel of its site. Notwithstanding the foregoing,
ESPN.com shall not modify, edit, abbreviate or censor DKC Health
Content, but ESPN.com shall have the right to not include such content
on pages of ESPN.com.
8. Any promotions and/or links to ESPN.com provided by DrKoop.com shall be
approved in advance by ESPN.com
9. Nothing in this Agreement shall restrict or limit the right of ESPN.com
to sell or provide advertising, promotions and sponsorships for display
on ESPN.com (including the Training Center) * * *. The advertising
restrictions set forth in Section B (7) of this Appendix A do not apply
to ESPN.com.
_________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
18
<PAGE>
APPENDIX A-1
This Appendix A-1 sets forth existing DKC Health Content as of the Effective
Date. Content Partner may revise this Appendix from time to time, to reflect new
content added to the DrKoop.com Site, and to reflect the termination or
expiration of third party agreements, which revisions shall be subject to
Infoseek's reasonable approval; notwithstanding the foregoing, Content Partner
shall maintain the quality and quantity of DKC Health Content available to
Infoseek and the GO Partners throughout the term of the Agreement.
<TABLE>
<CAPTION>
CATEGORY SOURCE COPYRIGHT DISTRIBUTION DISCLAIMER LOGO
RIGHTS REQUIRED NEEDED
====================================================================================================
<S> <C> <C> <C> <C> <C>
DISEASE
Dartmouth Drkoop.com any use Standard Yes
N. Snyderman Drkoop.com any use Standard Yes
Public Domain - Drkoop.com any use Standard Yes
NIH
Patient Individual deals - Standard No
Associations please inquire
about specifics with
[email protected]
==========================================================================================
EXPERT CONTENT Sharon Howard - Drkoop.com any use Standard No
Nutrition
Armond Tecco - Drkoop.com any use Standard No
Fitness
Debora Orrick - Drkoop.com any use Standard No
Smoking
Elizabeth Farrugia Drkoop.com any use Standard No
- Insurance
==========================================================================================
PHARMACY Joe Graedon JG Limited offline use Standard No
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C>
Multum Multum Standard + Yes
Multum
==========================================================================================
INSURANCE J. Hallam / Drkoop.com any use Standard No
T. Rowen
==========================================================================================
==========================================================================================
CLINICAL Public domain any use Standard No
TRIALS
==========================================================================================
COMMUNITY Day in my life Drkoop.com any use Standard No
In the Spotlight Individual deals - Standard No
please inquire
==========================================================================================
No
HEALTH SITE Drkoop.com any use Standard
REVIEWS
</TABLE>
STANDARD DISCLAIMER
- -------------------
This information is not intended to be a substitute for professional medical
advice. You should not use this information to diagnose or treat a health
problem or disease without consulting with a qualified healthcare provider.
Please consult your healthcare provider with any questions or concerns you may
have regarding your condition.
MULTUM DISCLAIMER
- -----------------
Every effort has been made to ensure that the information provided by Multum is
accurate, up-to-date, and complete, but no guarantee is made to that effect. In
addition, the drug information contained herein may be time sensitive and should
not be utilized as a reference resource beyond the date hereof. Also requires
user to accept Terms of Use when such content is first displayed.
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APPENDIX B
GO NETWORK-WRAPPED PAGES SPECIFICATIONS
AND
INFOSEEK-HOSTED HEALTH CENTER SCHEMATIC
See attached
21
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APPENDIX C
(LONG LIST)
* * *
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
22
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APPENDIX D
* * *
* * *
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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APPENDIX E
ERROR CORRECTION SCHEDULE
The response times within which DrKoop.com shall remedy and/or correct any
material limitations or errors in any Content Partner Content made available by
or through DrKoop.com that Infoseek brings to DrKoop.com's attention or about
which DrKoop.com otherwise becomes aware are specified below. DrKoop.com shall
acknowledge receipt of the problem description, and, in the time frames
specified below, remedy and/or correct the problem.
Program/Error Severity Levels Problem/Error Correction Time
- ----------------------------- -----------------------------
* * * * * *
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
24
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APPENDIX F
FEES AND PAYMENTS
A. FEES AND PAYMENTS
1. This Agreement is contingent upon the closing of a financing
transaction (including, without limitation, the proposed initial public offering
of common stock) resulting in aggregate net cash proceeds to Content Partner of
not less than Thirty Million Dollars ($30,000,000) (herein the "Financing"). In
the event the Financing is not completed on or before June 30, 1999, either
party may terminate this Agreement on 30 days prior written notice, provided
such notice is provided prior to August 1, 1999. In the event DrKoop.com is not
successful in completing the Financing and this Agreement is terminated by
either party * * *.
2. * * *
Ecommerce Premier Merchant listing * * *
Exclusivity in the Health Center and related content distribution
* * *.
3. * * *
4. * * *
6. Infoseek (or its agents or Affiliates) shall receive all monies derived from
advertising, product sales, and all other activities and transactions on all
pages of GO Network hosted by Infoseek or its Affiliates. DrKoop.com shall
receive all monies derived from advertising, product sales and all other
activities and transactions on GO Network-Wrapped Pages, except as otherwise
expressly provided herein.
7. During the term of this Agreement, DrKoop.com shall pay to Infoseek * * * of
all Net Revenues in excess of * * * received by DrKoop.com attributable to all
Commerce Content transactions conducted by Users within the Health Center or
attributable to links on Levels 1, 2 or 3 within the Health Center. As used
herein, Net Revenues means gross revenues received by DrKoop.com for such
transactions reduced by (1) any amounts paid directly for the acquisition of
goods or services intended for resale; (2) any amounts for refunds or other
credits including amounts credited for product returns, bad debt or fraud; and
(3) any applicable sales, use, value added or withholding taxes (other than
income taxes) associated with such sales. As used in this Section 7, Commerce
Content means any products and/or services relating to DrKoop.com Premier
Products (as defined in Appendix G, Section 6), health insurance sales, or
clinical trials made available by DrKoop.com or by an Affiliate Partner on the
GO Network-Wrapped Pages.
8. Infoseek shall have the right to retain a U.S. nationally prominent or other
mutually agreeable independent auditor to whom DrKoop.com shall allow reasonable
access to DrKoop.com's applicable books of account and other for the purpose of
verifying the amounts due and payable to Infoseek under this Agreement.
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
25
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Access to DrKoop.com's documentation shall be during DrKoop.com's regular
business hours upon at least fifteen (15) business days prior written notice. In
the event that an audit discloses an underpayment of more than five percent (5%)
of the amount due to Infoseek, DrKoop.com shall immediately pay to Infoseek the
amount of such underpayment and shall pay the reasonable costs of such audit.
9. Fees and Payment Schedules for the Infoseek Commerce Area are specified
in Appendix G hereto.
10. All Infoseek invoices are to be mailed to:
drkoop.com, Inc.
8920 Business Park Drive
Longhorn Suite
Austin, Texas 78759
Attention: Accounts Payable
11. Content Partner Content shall be accessible by Users on the Service
within 90 days from the Effective Date (the "Execution Date"). At such time, the
Advertising Agreement by and between Infoseek and drkoop.com dated February 26,
1999, shall terminate and such termination shall relieve both parties of any
further liability, including but not limited to, the payment of fees thereunder.
Notwithstanding the foregoing, future payments under such Advertising Agreement
shall terminate upon the Effective Date of this Agreement.
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APPENDIX G
COMMERCE TERMS
1. DEFINITIONS
1.1 "DEPARTMENT" means a commerce category designated on and linked
from the home page of the Infoseek Commerce Area, such as Books,
Music, Toys & Games, as further specified in this Appendix G.
1.2 "INFOSEEK COMMERCE AREA" means the electronic commerce/shopping
area located on the Service also known as "GO SHOP".
1.3 "COMMERCE CONTENT" means the content provided to Infoseek by
DrKoop.com for placement on the Infoseek Commerce Area relating to
DrKoop.com Premier Products (as defined in Section 6 below) made
available by DrKoop.com or by an Affiliate Partner on the GO
Network Wrapped Pages. Commerce Content may include DrKoop.com's
or Affiliate Partner's trademarks, service marks, logos and
related proprietary materials. As used herein, "Affiliate Partner"
means any third party web site to which DrKoop.com provides a link
which allows Users who follow such link to purchase a product or
service.
1.4 "SUB-DEPARTMENT" means a specific topic within a Department, such
as Action Figures under the Toys & Games Department, or Jazz under
the Music Department.
2. COMMERCE CONTENT AND DRKOOP.COM SITE
2.1 DrKoop.com shall provide Infoseek with Commerce Content, to be
displayed on GO Shop in electronic form. Infoseek retains the
right to request removal of any Commerce Content from GO Shop
based on the reasonable determination by Infoseek that the
Commerce Content does not comply with Infoseek's then current
advertising or content guidelines or would cause Infoseek to be in
violation of any existing agreements with third parties (for
example, exclusivity agreements prohibiting the sale of books or
music by third party merchants), and DrKoop.com shall immediately
comply with such request. During the term of this Agreement,
Infoseek shall not enter into any agreements with third parties
that would prohibit the sale of prescription drugs, OTC drugs, or
vitamins and nutritional supplements by Content Partner on GO
Shop. Currently, certain areas of GO Shop are operated by Infoseek
utilizing third party technology. In the event Infoseek elects to
make such third party technology available to DrKoop.com directly,
DrKoop.com may be required to agree to additional terms and
conditions regarding use of such third party technology as a
condition of utilizing such technology.
2.2 DrKoop.com will provide Infoseek with all necessary technology and
information required to establish and maintain such Commerce
Content in the Infoseek Commerce Area, at DrKoop.com's sole
expense, which in no event shall exceed commercially reasonable
costs.
2.3 DrKoop.com will reasonably cooperate with Infoseek, and any other
third party designated by Infoseek, and provide necessary
information and make commercially reasonable technical changes to
its Commerce Content systems and data feeds to allow the Commerce
Content to be effectively retrieved, searched, and displayed on
the Service.
3. INFOSEEK COMMERCE AREA
Except as expressly set forth in this Agreement, Infoseek retains the right
to adapt or otherwise alter the design, look, and any other attributes of
the Service and Service pages, including the Infoseek
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Commerce Area. Infoseek shall have the right, but not the obligation, to
remove, or direct DrKoop.com to remove, from the Commerce Content
information or other material which Infoseek, in its reasonable discretion,
determines to be offensive, in poor taste, or otherwise objectionable.
Notwithstanding the foregoing, DrKoop.com or its Affiliate Partner shall
have the right to control the design, look and any other attributes of
pages served off DrKoop.com or Affiliate Partner servers.
4. ORDER FULFILLMENT; CUSTOMER SERVICE
4.1 DrKoop.com (or its Affiliate Partner to whom Dr.Koop.com may
delegate order processing functions) shall be solely responsible
for (a) processing and fulfilling all product and service orders
relating to the Commerce Content, whether the orders are made
through the GO Network-Wrapped Pages or on GO Shop; (b) all
accounting with respect to such orders, and (c) all customer
service and support with respect to such orders, purchases and
returns. DrKoop.com or its Affiliate Partner shall provide all of
the foregoing services in the same manner as it provides such
services with respect to orders received by DrKoop.com in any
other manner and with the high quality consistent with
DrKoop.com's name and reputation, and industry standards.
DrKoop.com acknowledges and agrees that it is solely responsible
for the security of any transactions initiated within or relating
to the Commerce Content and for all * * * relating to the Commerce
Content, including, without limitation the acts or omissions of
Affiliate Partners (except to the extent that such liability
arises from Infoseek's modification of such content or Infoseek's
unauthorized representations to Users concerning such content).
4.2 a. DrKoop.com shall cooperate and assist Infoseek by answering
questions and complaints regarding the Commerce Content. * * *
b. In the event Infoseek receives * * * complaint for every * * *
transactions completed (whether such complaints are in
writing, via telephone or email) concerning DrKoop.com's order
fulfillment or customer service practices, Infoseek shall be
entitled, at its discretion, to permanently remove all
Commerce Content relating to such complaints from the Service
(or, pursuant to mutual agreement of the parties, the
Affiliate Partner responsible for such complaints, if
reasonably necessary to terminate future complaints). Ongoing
fees payable by DrKoop.com for inclusion of the Commerce
Content in GO Shop, as specified in Appendix F, shall remain
unchanged unless all Commerce Content is removed from GO Shop,
in which case future fees payable by DrKoop.com for
participation in GO Shop would terminate.
5. FEES/REVENUE SHARING
5.1 During the term of this Agreement, DrKoop.com shall pay to
Infoseek * * * of Net Revenues received by DrKoop.com attributable
to Commerce Content transactions conducted by Users (I) within GO
Shop or (ii) directed to the GO Network-Wrapped Pages from GO
Shop. As used herein, Net Revenues means gross revenues received
by DrKoop.com for such transactions reduced by (1) any amounts
paid directly for the acquisition of goods or services intended
for resale; (2) any amounts for refunds or other credits including
amounts credited for product returns, bad debt or fraud; and (3)
any applicable sales, use, value added or withholding taxes (other
than income taxes) associated with such sales.
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
28
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5.2 DrKoop.com shall pay such applicable transaction revenues to
Infoseek within thirty (30) days from the end of calendar quarter
in which the revenue accrues. Each payment will be accompanied by
a report which details the payment due for the preceding quarter
and the methodology used to calculate the payment due.
6. PREMIER MERCHANT; DEPARTMENT; SUB-DEPARTMENT; COMMERCE CONTENT; AND
ADDITIONAL COMMERCE AREA FEATURES
6.1 DrKoop.com shall be the Premier Merchant of the following Commerce
Content on GO Shop:
Prescription drugs;
Vitamins and nutritional supplements; and
Over the counter ("OTC") pharmacy products
(herein the "DrKoop.com Premier Products")
* * *
Search queries
Directory Listings
General Merchandise listings
Ad banner displays
6.2 DrKoop.com shall use commercially reasonable efforts to integrate
its Commerce Content, and its order processing and fulfillment
functionality in support of any future Infoseek Commerce Area
features, which may include, without limitation, "wallet" and
affinity and rewards programs.
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
29
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APPENDIX H
* * *
* * *
_________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
30
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APPENDIX I
WARRANT AGREEMENT
31
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APPENDIX J
GUIDELINES FOR ADVERTISING ON GO NETWORK
THE ADVERTISING ENVIRONMENT MUST BE APPROPRIATE IN THE CONTEXT OF THE GO
NETWORK. This "advertising environment" includes the ad unit itself, the
advertiser's web site and direct links off of it, the specific destination URL,
interstitial or buffer pages, and all other elements that define the guest's
online experience.
An advertising environment or advertising materials of the types enumerated in
the first grouping below will not be accepted and materials may also be
rejected, at the discretion of Infoseek
WHAT IS CLEARLY NOT APPROPRIATE?
. Hard liquor-related (brown goods, white goods, etc)
. Tobacco-related (cigarettes, cigars, pipes, chewing tobacco, etc)
. Guns/weapons-related (firearms, bullets, etc)
. Drugs-related (marijuana, etc)
. Gambling-related (casinos, lotteries, etc)
. Pornographic-related (sex sites)
. Crime-related (dealing with the notorious)
. Death-related (funeral homes, mortuaries)
. Graphic violence (including certain types of game sites)
WHAT MAY ALSO BE CONSIDERED BY INFOSEEK AS INAPPROPRIATE?
. Involves what Infoseek considers to be a direct business competitor of GO
Network.
. Involves unauthorized or unapproved use of GO Network creative assets
(including ESPN talent, ABC logos, Disney characters, movie logos, theme park
imagery, names and marks used in GO Network).
. Involves an advertiser in a category where the privilege of exclusivity has
previously been sold to another advertiser.
. Involves a copy or parody of current or past GO Network product.
. Politics-related (lobbyists, PAC sites, political campaigns)
. Non-hard liquor related (beer, non-alcoholic beer, wine, champagne, etc.)
. Other "controversial topics" (politics, social issues, etc.) as determined by
Infoseek in its discretion
. Involves an implied affiliation or favored status with GO Network.
. Involves unreasonable or highly unlikely product or service claims.
SOLICITATION OF PERSONAL INFORMATION: The advertiser's web site should not
require guest registration prior to site access when linking to such site
through the banner. The destination URL should not be a registration screen,
sweepstakes entry screen or other screen that immediately solicits personal
information from a site guest.
WHERE INFORMATION IS REQUESTED:
. Any solicitation of personal information must include a clear request that
children below the age of 13 years seek parental permission before providing
any such information.
. The advertiser must clearly explain to the guest how the advertiser will
utilize the personal information collected.
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. Only certain functionality or premium content areas will require the user to
submit personal information.
Infoseek welcomes the opportunity to work closely with advertisers and agencies,
to insure that ad content and web sites meet standards for advertising
applicable to GO Network.
Immediately upon determining that an advertisement does not meet these ad
guidelines, that ad will be removed from GO Network.
All advertisers, agents or representatives placing ads on behalf of or with GO
Networks must adhere to these advertising guidelines. Infoseek reserves the
right of refusal for any advertising placement for any reason, whether due to
content, technological, legal, privacy or other considerations.
OTHER GUIDELINES:
* * *
____________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
33
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EXHIBIT 10.10
AGREEMENT BETWEEN DARTMOUTH COLLEGE
AND DRKOOP.COM, INC.
THIS AGREEMENT is made this 29th day of March 1999 (the Effective Date) by and
between Trustees of Dartmouth College ("Dartmouth"), a Corporation established
by Royal Charter and existing under the laws of the state of New Hampshire,
owner and operator of Dartmouth Medical School (DMS), and drkoop.com, Inc.
("DKC"), a Delaware corporation whose principal offices are located at 8920
Business Park Drive, Suite 200, Austin, Texas 78759 (together, the Parties).
BACKGROUND
DKC is developing and marketing drkoop.com, a web site on the worldwide
web/Internet, hereafter, Internet. Included in its web format are Dr. Koop's
Community (an on-line community), Dr. Nancy Hospital Partnership Programs, and
disease and wellness management titles which together with other DKC products,
constitute DKC's web site, drkoop.com. The content of these titles is textual,
statistical, video, audio and graphical representations of medical and
scientific information constructed in a dynamic and interactive format that
educates the consumer about disease and wellness topics of personal interest
(hereafter the Content) on its web site, drkoop.com, and elsewhere.
DKC wishes to display on its website, and license for display on other web
sites, articles (including text and graphics) produced by science and health
care professionals on disease and wellness management topics, aimed at an
audience of health care consumers. Such articles shall be known as Health Care
and Disease Content Articles ("HCDCAs").
The mission of DMS is excellence in teaching, patient care, and research, and it
is the view of DMS that the accomplishment of this mission can be furthered
through innovative efforts in patient education and physician communication.
Consequently, in an effort to improve the skill of its faculty in communicating
with patients (and teaching such skills to medical students and other health
care professionals), and to improve the ability of patients to make informed,
participatory decisions concerning their own health care, Dartmouth (through
DMS) desires to be the principal provider to DKC of HCDCAs for the duration of
this Agreement. These articles that are produced and approved by Dartmouth
shall be known as the "Deliverable Content".
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein, and intending to be legally bound hereby, the Parties agree as follows:
ARTICLE I.
DARTMOUTH RESPONSIBILITIES
1.1. Delivery of Content: Dartmouth will be responsible for delivering, in
--------------------
electronic format, a minimum of 30 HCDCAs (not to exceed 35 HCDCAs without
mutual consent of the parties) in the form of text and graphics to DKC.
Dartmouth will deliver content for the first year of the
____________________
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as * * *. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
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Agreement to DKC according to a mutually agreed upon delivery schedule to be
defined and attached hereto as Schedule A ("Deliverable Content") within thirty
(30) days of the Effective Date, which sets forth the articles contracted for
and agreed upon delivery dates. Adjustment to this schedule will be based on
mutual consent. Not less than 30 days before the annual anniversary date of this
Agreement, Dartmouth and DKC shall agree on a "Schedule A" for the upcoming year
of the Agreement, setting forth the Dartmouth Content to be provided during such
year and the schedule for its delivery.
1.2. Content Updates: Dartmouth will review and update all Deliverable Content
---------------
and Existing DKC Content reviewed by Dartmouth regularly as needed, and not less
often than semiannually. All Deliverable Content will include a statement that
states "This content is regularly updated by Dartmouth Medical School."
Dartmouth will use reasonable efforts to ensure that the information contained
in the Dartmouth Content, including footnotes and bibliographic and other
references remains complete and accurate and incorporates relevant new
scientific or medical information related to the topic presented in the
Dartmouth Content. Deliverable Content, Existing DKC Content reviewed by
Dartmouth and Dartmouth News Content collectively shall be referred to as
Dartmouth Content.
1.3. Existing DKC Content Review: DKC will make available to Dartmouth in
---------------------------
electronic form the Existing DKC Content specified in Schedule B. Dartmouth
will review such Existing DKC Content on a preliminary basis for accuracy and
timeliness in accordance with the schedule set forth below, and identify each
article of such content as i) acceptable for continued display as is; ii)
acceptable for continued display with minor revisions for accuracy; iii)
unacceptable for continued display. Articles in category (i) will remain unless
and until replaced by Dartmouth with Dartmouth Content. Articles in category
(ii) will be revised in accordance with the schedule set forth on Schedule B.
Articles in category (iii) will be removed from the drkoop.com website as soon
as reasonably possible. Replacement of articles in category (iii) will be
accomplished in accordance with Section 1.4. Existing DKC Content, either
before or after the preliminary review, shall not be represented or identified
as Dartmouth Content, but shall be treated as Dartmouth Content for the purposes
of this Agreement as set forth in Section 1.2 above. DKC represents and warrants
to Dartmouth that it owns, and will license to Dartmouth, all rights necessary
for Dartmouth to carry out its obligations under this Section 1. Dartmouth will
review and revise the Existing DKC Content in accordance with Schedule B and
shall commence such work no later than April 1, 1999 (the "Anniversary Date").
1.4. Revisions or Replacement of Website Content: Should the parties agree that
-------------------------------------------
an article of Existing drkoop.com Content is within category (iii) as set forth
in Section 1.3 above, and should be replaced or revised, that article will by
mutual agreement be placed on Schedule A as a new article of Deliverable Content
to be provided pursuant to this Agreement. The priority assigned to revising or
replacing an article of existing content will be mutually agreed upon in
relation to the priorities assigned to the other items of Deliverable Content
listed on Schedule A.
1.5. Performance Standards: Dartmouth will use good faith efforts to ensure
---------------------
that all Dartmouth Content it delivers to DKC shall be supported by current
medical and academic research and development, and shall have been developed in
accordance with prevailing medical
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and academic standards for development of disease management protocols. DKC and
Dartmouth will agree on editorial guidelines for Dartmouth Content to ensure a
consumer oriented style of language for the Dartmouth Content as well as
consistency with prevailing medical standards for effective communication.
Dartmouth will adhere to these guidelines unless they are changed by mutual
consent.
1.6. Dartmouth Name and Logo. Each article of the Deliverable Content and
-----------------------
Dartmouth News Content, when displayed in full (e.g. excluding abstracts and
----
headline) will display the name and logo of DMS/DCMS, the Content title, and
authors' names, photographs, and biographies, all in a manner and according to
style criteria to be mutually agreed upon. In the event a portion of the
Deliverable Content or Dartmouth News Content is displayed as an abstract or
excerpt, such abstract will: (i) not contain DMS/DCMS logos, and (ii) will
contain language that states: "This abstract/excerpt is derived from a longer
article written by the Dartmouth Medical School."
1.7. Consumer News Articles: Dartmouth will provide at least 1 news article per
----------------------
week (expected length of 500-1000 words) focusing on medical advances or
groundbreaking developments in the world of medicine ("Dartmouth News Content").
These articles will be written at a consumer level of understanding, yet
maintain a professional nature. This "What your Doctor is Reading" type of
feature is intended to allow visitors to DRKOOP.COM to learn about medical
research and medical journal articles in greater detail than standard news
reports, without being overwhelmed by technical language. Dartmouth will be a
non-exclusive provider of news content for DKC.
1.8. Right of First Refusal. Dartmouth will have a right of first refusal to
-----------------------
produce additional medical school-supplied HCDCAs beyond those identified on
Schedule A for any year of this Agreement, and medical school-supplied reviews
of publications authored by third parties. In the event that such services are
required by DKC from a medical school, DKC will first offer Dartmouth the
opportunity to perform them, and the parties will negotiate mutually agreeable
terms and conditions for such work. If the parties are unable to agree on terms
and conditions within five (5) business days of DKC's notice to Dartmouth, DKC
shall be free to have such functions performed by third parties. This right of
first refusal applies only to those editorial functions for which DKC is seeking
a medical school as an outside contractor. This right of first refusal shall
not apply in the event DKC customers create subcommunities that contain non-
Dartmouth disease and wellness content, or in the case that an individual party
or an affiliate customer provides disease and wellness content (not created by a
medical school) to drkoop.com.
ARTICLE II.
DKC RESPONSIBILITIES
2.1. DKC will operate and maintain drkoop.com, and any other of its websites on
which Dartmouth Content appears, in a reasonable, responsible, and professional
manner, in accordance with applicable industry standards, and in a manner that
reflects credit on DMS/DCMS.
2.2. DKC will be responsible for all technical aspects of displaying Dartmouth
Content on its websites and elsewhere as permitted by this Agreement, including
without limitation
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transformation of Dartmouth-provided text and graphics into electronic formats
capable of being displayed on websites. DKC will provide remote administrative
support to assist Dartmouth in the efficient management of its content
preparation and submission. It is understood and agreed that content preparation
is under the direction of Dartmouth, and that DKC shall not have any
responsibility to provide on-site administrative or clerical support for the
title management teams other than as stated in Section 2.3 below, or as mutually
agreed upon by the parties.
2.3. DKC administrative personnel, and, from time to time, other individuals
such as physicians and experts in specific content fields, may be invited by
DKC, with approval of Dartmouth, to participate in the planning of Dartmouth
Content; such approval not to be unreasonably withheld or delayed;
2.4. DKC will have sole responsibility for dealing with customers, advertisers,
and technical issues relating to drkoop.com.
2.5. Except with Dartmouth's prior approval or at Dartmouth's specific request,
all displays of Deliverable Content in full (excluding, for example, excerpts
and headlines), whether by DKC on its website, or by a sublicensee, shall
include the names of the authors as well as the DMS/DCMS name and logo and the
drkoop.com name and logo; the parties may mutually agree on style guidelines for
use with sublicensees that permit deviation from this standard.
2.6. All displays of Deliverable Content, whether by DKC on its website, or by a
sublicensee, shall separate graphically the Deliverable Content from all
advertising, promotions, or other material of a commercial nature in order to
avoid any inference that Dartmouth is endorsing any product, service, or
company. The parties agree that the graphic separation included in DKC's mock
up of a Graves Disease article prepared by Dr. Donald St. Germain in February of
1999 is an acceptable example. DKC will use reasonable efforts to maintain a
non-commercial look and feel to the drkoop.com website; provided that this shall
in no way prohibit DKC from including advertising on the drkoop.com website.
2.7. All displays of Deliverable Content, whether by DKC on its website or by a
sublicensee, shall have the following disclaimers or a mutually agreed upon
alternatives:
(i) "Dartmouth Medical School does not endorse or approve products or
services, and therefore this article is not intended to be, and should not be
regarded as, an endorsement or approval of any product or service."
(ii) "Advice received from this article should not be relied upon for
personal, medical, legal, or financial decisions; consumers of health care
should consult an appropriate professional for specific advice tailored to their
situation. This information is not intended to be a substitute for professional
medical advice. You should not use this information to diagnose or treat a
health problem or disease without consulting with a qualified health care
provider. Please consult your health care provider with any questions or
concerns you may have regarding your condition."
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ARTICLE III.
MUTUAL RESPONSIBILITIES
3.1. DKC and Dartmouth will jointly identify and define additional product
development projects of mutual interest to expand the application of Internet
technologies to Health care.
3.2. DKC and Dartmouth will define a co-branding strategy that uses the
strengths of both Dr. C. Everett Koop's name and the established reputation of
Dartmouth. However, each party must obtain the prior written consent of the
other party before using such other party's name, symbols, trade names,
trademarks, service marks, or logos (collectively "Marks") other than as
specifically contemplated by this Agreement. Other than as specifically set
forth in this Agreement, neither party shall use, publish or make any reference
to the name, symbols, trade names, trademarks, service marks or logos of the
other party or its affiliates, or any derivation thereof, in any form of print,
publicity, promotional or advertising material, or over any broadcast media
without the other party's prior written consent to the specific contemplated
use, which consent shall not be unreasonably withheld. It is understood and
agreed that if DKC has the right to, or obtains consent from Dartmouth to,
include Dartmouth Marks on content on the drkoop.com website, it shall have the
right to sublicense such Dartmouth Marks in conjunction with the related content
to Content Users without requiring further consent from Dartmouth.
3.3. Dartmouth and DKC agree herein that Dartmouth will have no responsibility
for any Content presented on DKC's website, DRKOOP.COM other than as set forth
in Section 1 above.
3.4. DKC will have the right to create subcommunities within Dr. Koop's
Community at the request of healthcare organizations that may want to use
Dartmouth Content for their own purposes. One or more articles of Dartmouth
Content may be selected from the remainder of the DRKOOP.COM website content for
use in these subcommunities. However, in the absence of prior permission from
Dartmouth, each article of Dartmouth Content so selected must appear intact and
may not be edited or changed in any way without prior consent of Dartmouth, and
the names of authors and the DMS/DCMS names and logos must remain displayed with
the Dartmouth Content.
3.5. Intellectual Property Rights
----------------------------
(a) Ownership.
---------
(i) Dartmouth shall assert no rights to any content other than
Deliverable Content and Dartmouth News Content. Any updates or revisions made
by Dartmouth to Existing Content shall be considered "works made for hire" under
the United States Copyright Act, and all rights to said updates or revisions
shall belong to DKC.
(ii) Dartmouth shall own all Deliverable Content, subject to the
license granted in Section 3.5(b) below.
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(iii) In the event DKC enhances Deliverable Content in a manner
permitted by this Agreement, DKC shall own said enhancements, but shall not
thereby obtain any additional rights to the Deliverable Content itself.
(b) License. Dartmouth hereby grants DKC a sole, worldwide license,
-------
including the right to sublicense as provided for in Section 3.5 (b)(ii) below,
to reproduce, have reproduced, use, display, distribute, and perform the
Dartmouth Content. Dartmouth shall grant no other licenses to use the
Deliverable Content, and the license shall be exclusive except that Dartmouth
shall retain for itself and its academic affiliates the right to use the
Deliverable Content in connection with non-commercial academic, patient care,
and research activities.
Said license is subject to the following terms and conditions:
(i) No use of Dartmouth Content by DKC may conflict with Dartmouth's
research, academic, or patient care mission or threaten or damage the reputation
or integrity of Dartmouth or any of its constituent parts (including DMS);
(ii) DKC may sublicense Dartmouth Content subject to the following
conditions:
(A) No use of Dartmouth Content by DKC sublicensees may conflict
with Dartmouth's research, academic, or patient care missions or threaten or
damage the reputation or integrity of Dartmouth or any of its constituent parts
(including DMS).
(B) DKC shall monthly provide Dartmouth with a list identifying
all sublicensees; all such information shall be considered DKC Highly
Confidential Information; DKC shall pay the website access fees charged by any
Sublicensee for any publicly accessible website on which Dartmouth Content is
displayed; provided that DKC shall only be obligated to pay for one single user
license and only to the extent the license fees for any such website do not
exceed one thousand dollars per year. In the event DKC sublicenses the
Deliverable Content for use on a non-publicly accessible website, DKC shall
either i) obtain for Dartmouth access to such website, ii) provide to
Dartmouth, in hard copy or electronic form, an accurate representation of the
presentation of Deliverable Content on such website; or iii) require the removal
of the DMS/DCMS name and logo from the Deliverable Content on any such site.
(C) All sublicenses shall include restrictions on use of
Dartmouth Content at least as restrictive as those set forth in this Agreement;
(D) Unless otherwise agreed to or otherwise directed by
Dartmouth under subsection E below, DKC shall require that all sublicensees
displaying Deliverable Content in full include with said Content the authors'
names and the DMS/DCMS name and logo and attribution to drkoop.com;
(E) Dartmouth may request that DKC remove the DMS and/or DCMS
names and logos from Dartmouth Content displayed on any website should Dartmouth
determine
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that its best interests are inconsistent with such use, and DKC agrees to use
reasonable efforts to have such names and logos removed within fifteen (15)
business days of notice from Dartmouth.
(iii) The rights granted to DKC above shall include the right to
create abstracts/excerpts of DMS Owned Content, and to enhance the DMS Owned
Content as necessary. Any other modifications to the DMS Owned Content shall
require DMS' prior written approval.
(c) Exclusivity. Dartmouth agrees that during the term of this Agreement
-----------
and for 1 year after its expiration or termination:
(i) Dartmouth will not establish a website competing with
drkoop.com;
(ii) Dartmouth will not provide Deliverable Content to any website
that competes with drkoop.com;
(iii) Dartmouth will not provide HCDCA's having the "look and feel"
of Deliverable Content to any website that competes with drkoop.com.
3.6. Staffing. Each party shall hire and maintain adequate competent staff
--------
necessary to carry out its obligations under this agreement.
ARTICLE IV.
FEES AND PAYMENT
4.1. For the license granted hereunder, DKC shall pay Dartmouth royalty fees as
follows:
(a) Year 1: * * *, payable as follows: Five payments of * * * each, with
the first payment due and payable sixty (60) days from the Anniversary Date (as
defined in Section 1.3 above), and each additional payment due and payable every
sixty (60) days thereafter.
(b) Year 2: * * *, payable as follows: Five payments of * * * each, with
the first payment due and payable sixty (60) days from the first Anniversary
Date (as defined in Section 1.3 above), and each additional payment due and
payable every sixty (60) days thereafter.
(c) Year 3: * * *, payable as follows: Five payments of * * * each, with
the first payment due and payable sixty (60) days from the second Anniversary
Date (as defined in Section 1.3 above), and each additional payment due and
payable every sixty (60) days thereafter.
____________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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4.2. The parties shall mutually agree to the amount and payment schedule for the
fourth and fifth years of the agreement not less than 120 days prior to the
third Anniversary Date.
ARTICLE V.
INSURANCE
5.1. DKC and Dartmouth shall each obtain and maintain during the term of this
Agreement, at each Party's own expense, the following insurance coverage:
(a) Professional liability insurance coverage on behalf of itself and its
respective officers, directors, trustees, and employees in the minimum amounts
required by law, or in the absence of such legally required amounts, in the
minimum amount of Two Million Dollar ($2,000,000) per claim and Three Million
Dollars ($3,000,000) in the annual aggregate.
(b) Comprehensive general liability insurance with broad form property
damage endorsement, with such policy to afford protection in amounts not less
than Two Million Dollars ($2,000,000) with respect to bodily injury or death of
any one person, on a combined single limit basis, and One Million Dollars
($1,000,000) with respect to damage of the property of any one owner from one
occurrence; and
(c) Workers compensation insurance in amounts required by law, covering
its officers, directors, trustees, employees and agents who are in any way
engaged or connected with the performance of this Agreement, and Employers
Liability Insurance in an amount of not less than One Hundred Thousand Dollars
($100,000).
5.2. All Insurance coverage required under this Agreement shall be provided
under either (1) valid and enforceable policies issued by insurance companies
legally authorized to do business; or (2) a program of self insurance with
comparable coverage and supported by funded reserves as determined by the
recommendation of an independent actuary. Each party shall provide certificates
of insurance to the other, upon request, evidencing such coverage.
ARTICLE VI.
INDEMNIFICATION
6.1. DKC agrees to indemnify and hold harmless Dartmouth, including its
trustees, directors, officers, faculty, and employees, and their successors and
assigns, from and against any and all claims, demands, actions, charges,
liabilities and damages, including reasonable attorneys fees and costs (the
"Claims"), whether known or unknown, present or future, brought against
Dartmouth, to the extent that (i) such Claims pertain to content other than
Dartmouth Content found on any websites owned or operated either by DKC or by
Sublicensees pursuant this agreement, or (ii) such Claims arise from or relate
to the operation of any websites owned or operated by DKC except as set forth in
Section 6.2 below, or (iii) such claims arise from or relate to the operation of
any websites owned or operated by the Sublicensees identified in this Agreement
except as set forth in 6.2 below.
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6.2. Dartmouth shall indemnify and hold DKC, its Sublicensees, directors,
officers, and employees, and their successors and assigns harmless from all
Claims brought against DKC alleging that: (i) any of the Dartmouth Content
infringes upon any trade secret, patent, copyright, right of privacy, right of
publicity, right of confidentiality, or other proprietary right of a third
party, or (ii) any Dartmouth Content contains material errors and/or omissions.
The indemnifying Party's obligations hereunder shall only apply to the extent
that the particular Claim is not the result of the negligence, or the
intentional or willful misconduct of the other Party hereto.
6.3. The above obligations to indemnify shall only apply if (i) the indemnified
party provides the indemnifying party prompt notice of any covered Claim, (ii)
the indemnifying party is given sole control of the defense and settlement of
the Claim or threatened Claim, and (iii) the indemnified party agrees to
cooperate in the defense of the Claim or threatened Claim at its own cost and
expense.
ARTICLE VII.
TERM
7.1. The term of the Agreement shall be for a period of five (5) years from the
Anniversary Date of this Agreement, unless sooner terminated as provided in this
Agreement.
7.2. Unless otherwise specified by the Parties, the termination of this
Agreement shall not affect the terms or provisions of any separate agreement
entered into by the Parties.
ARTICLE VIII.
TERMINATION
8.1. This Agreement may only be terminated as follow:
(a) If Dr. C. Everett Koop terminates his relationship with DKC for any
reason, or if Dr. C. Everett Koop suffers a disability that materially impairs
his ability to participate substantially in the DKC website project, DKC must
provide immediate notice of such event to Dartmouth. At its discretion,
Dartmouth may terminate this Agreement upon receipt of such notice.
(b) DKC and Dartmouth may mutually agree in writing to terminate this
Agreement at any time.
(c) Either party may terminate this Agreement, without cause, upon any
anniversary of the Anniversary Date of this Agreement, by providing written
notice of such termination, at least one hundred and twenty days (120) prior to
such Anniversary Date, or within ten (10) days if the parties fail to agree on a
Schedule A within the thirty day period set forth in Section 1.1.
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(d) Either DKC or Dartmouth may terminate this Agreement at any time upon
the material breach of the Agreement by the other Party; provided, that the
terminating Party provided thirty (30) days written notice of the breach and
intent to terminate and the breaching Party does not cure the breach within the
thirty (30) day notice period.
(e) Either DKC or Dartmouth may terminate this agreement immediately upon
written notice in the event the other Party has the insurance coverage required
under Section 5 above canceled or reduced (voluntarily or involuntarily).
8.2. Upon termination or expiration of this Agreement, DKC will do the
following: (i) within thirty (30) days remove authors' names and the DMS and/or
DCMS names and logos from all Dartmouth Content displayed on DKC websites or
Sublicensee websites; and (ii) within one (1) year, DKC and its Sublicensees
shall cease using the Deliverable Content and the Dartmouth News Content. Not
later than the end of the one-year period set forth immediately above, all DKC
rights under the license granted in Section 3.5(b) and all sublicenses granted
thereunder, shall terminate.
ARTICLE IX.
CONFIDENTIALITY AND ADVERTISING
9.1. Each Party agrees to maintain confidentiality concerning the other Party's
confidential information. For purposes of this Agreement, Confidential
Information means information in whatever form furnished to a Party by or on
behalf of the other Party and designated as confidential by the furnishing
party, including but not limited to patient care, business, strategic planning,
financial, technical, trade secrets or other proprietary information, written or
oral, acquired, shared, developed or provided under this Agreement.
Confidential Information does not include information which is not designated
Confidential by the furnishing Party or which the Party receiving such
information can demonstrate (i) is generally available to or known by the public
other than as a result of disclosure by such Party, or (ii) was obtained by the
Party receiving such information from a source other than the Party furnishing
such information, provided that such source is not bound by a duty of
confidentiality to the Party furnishing such information or another person or
entity with respect to such information. Each Party agrees not to use,
disclose, distribute or allow access to such Confidential Information by any
other person or organization, other than those who have a need to know of the
information in order to perform their obligations under this Agreement. Nothing
contained in this Section 9 shall prevent either party from disclosing any
Confidential Information of the other party to:
(i) regulatory agencies, however, that all reasonable steps are
taken to maintain the confidentiality of such Confidential Information to be
disclosed;
(ii) accountants, banks, or another financing source (or their
advisors) or in connection with a merger, acquisition or securities offering; or
(iii) third parties as required by law or regulation to be disclosed;
provided, however, that the party subject to such disclosure requirement has
provided written notice to the other party promptly upon receiving notice of
such requirement in order to enable the other party
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<PAGE>
to seek a protective order or otherwise prevent disclosure of the other party's
Confidential Information.
9.2. Upon request by either Party, at any time, the other Party shall promptly
return to the Party furnishing such Confidential Information the original and
all copies of all non-oral Confidential Information furnished by such Party.
Each Party shall, upon request of the other Party, certify its compliance with
this Paragraph 9.2.
9.3. Dartmouth agrees that in additional to the obligations set forth in this
Section 9, it will protect DKC Highly Confidential Information by keeping such
information in a locked desk with restricted access, on a stand-alone, non-
networked workstation, and shall keep, and make available to DKC, a log of all
employees given access to Highly Confidential Information. Dartmouth agrees to
provide DKC Highly Confidential Information only to those employees with a need
to know, which in no event shall exceed four (4) employees.
ARTICLE X.
RESTRICTIVE COVENANTS
Non-Solicitation: So long as this Agreement is in effect, and for twelve (12)
- ----------------
months following termination of the Agreement, for any reason, neither DKC or
Dartmouth nor any of their employees or agents shall, directly or indirectly,
solicit, hire, or attempt to solicit or hire, any employees of the other, unless
otherwise approved by the other Party.
ARTICLE XI.
EQUITABLE REMEDIES
DKC and Dartmouth acknowledge that the restrictions contained in Sections 9 and
10 are reasonable and necessary to protect the legitimate business interests of
the Parties, and that any violation of such restrictions would result in
irreparable injury to such Party. The Parties acknowledge that damages alone
shall not be an adequate remedy for breach of such covenants. Accordingly, each
Party agrees that, in addition to any other rights or remedies which the other
Party may have at law or in equity, the non-breaching Party shall be entitled to
specific performance and injunctive relief in any court of competent
jurisdiction for any breach or threatened breach of any such covenants by the
other Party.
ARTICLE XII.
DATE SENSITIVE TECHNOLOGY
DKC shall ensure that date sensitive technologies for all products shall be
capable of correctly performing all functions, calculations, comparisons,
sequencing, displays and other processing of calendar dates and date related
data before, during, and after the year 2000 without error or degradation of
performance.
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<PAGE>
ARTICLE XIII.
MISCELLANEOUS
13.1. Independent Contractors: DKC and Dartmouth hereby agree that their
-----------------------
relationship is that of independent contractors, and nothing in this Agreement
shall create nor be deemed to create, a joint venture, partnership,
principal/agent, employer/employee, or any other form of relationship other than
that of independent contractors.
13.2. Assignment. Neither party may assign or delegate this Agreement or any
----------
of its licenses, rights or duties under this Agreement without the prior written
consent of the other, except that either party may assign this Agreement to a
person or entity into which it has merged or which has otherwise succeeded to
all or substantially all of its business, stock, or assets, and which has
assumed in writing or by operation of law its obligations under this Agreement.
Each party agrees that in any merger in which it is not the surviving company,
the surviving company will assume, in writing or by operation of law, such
party's obligations under this Agreement. Subject to the foregoing, the
provisions of this Agreement shall apply to and bind the successors and
permitted assigns of the parties.
13.3. Amendment: This Agreement may only be amended in a writing signed by an
----------
authorized representative of DKC and Dartmouth.
13.4. Waiver: The failure of either Party to enforce any provision hereof at
-------
any time shall not be construed to be a waiver of such provision nor of the
right of that Party thereafter to enforce each and every provision of this
Agreement.
13.5. Notices: All notices or other communications required or permitted under
--------
this Agreement shall be deemed duly given if in writing and delivered personally
or sent by overnight mail, certified or registered mail:
If to DKC;
To: drkoop.com, Inc.
8920 Business Park Drive
Suite 200
Austin, Texas 78759
Attention: President
If to Dartmouth:
To: John Baldwin, M.D.
Dean
Dartmouth Medical School
1 Medical Center Drive
Lebanon, N.H. 03756
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13.6. Entire Agreement: This Agreement constitutes the entire Agreement
-----------------
between the Parties and supersedes all previous agreements or understandings
with respect to the development of this collaborative Agreement.
13.7. Governing Law: This Agreement shall be construed and enforced in
--------------
accordance with the laws of the state of Delaware as applied to agreements
entered into and to be performed entirely within the State of Delaware between
Delaware residents.
13.8. Survival: The following sections of this Agreement shall survive any
---------
termination of this Agreement: 3.5(a), 3.5(b) (for the period of one year from
the Effective Date), 3.5(c) (only to the extent set forth in 3.6(c)), 6 (for the
period of one year from the Effective Date), 8, 9, 10, 11 and 13.
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13.9. Counterparts: This Agreement may be executed in one or more counterpart
-------------
copies, each of which shall be deemed an original and all of which shall
together be deemed to constitute one agreement.
13.10. Limitation of Liability. EXCEPT FOR BREACHES OF SECTION 3.5 OR 9, OR
-----------------------
FOR LIABILITY ARISING OUT OF A PARTY'S OBLIGATIONS UNDER SECTION 6, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES, (INCLUDING WITHOUT LIMITATION LOST DATA, LOST
PROFITS, LOST SAVINGS, OR LOSS OF GOODWILL) OF ANY KIND OR NATURE ARISING OUT OF
THIS AGREEMENT, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT,
TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY), OR OTHERWISE, EVEN IF THE PARTY
HAS BEEN WARNED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE IN ADVANCE.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and
year first above written:
Trustees of Dartmouth College drkoop.com, Inc.
By: /s/ John C. Baldwin By: /s/ Donald W. Hackett
---------------------------------- --------------------------------
Print Name: John C. Baldwin Print Name: Donald W. Hackett
-------------------------- -------------------------
Title: Dean, Dartmouth Medical School Title: CEO/President
-------------------------------- ------------------------------
Date: March 29, 1999 Date: 3/30/99
--------------------------------- -------------------------------
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SCHEDULE A
DELIVERABLE CONTENT
[TO BE PROVIDED BY DKC ON OR BEFORE APRIL 1, 1999]
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SCHEDULE B
EXISTING PENN CONTENT
Dartmouth will provide a review for all content found on drkoop.com
originally produced by University of Pennsylvania. This review of existing
content will cover fact-checking to ensure medical accuracy and re-writing of
this content.
Health Topics to be included in Dartmouth Review in order of importance:
First 10:
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Epilepsy
Allergies Lower Back Pain
Arthritis Lyme Disease
Asthma Macular Degeneration
Cancer (all) Medications
Alzheimer's Fibroids
Coronary Artery Disease Multiple Sclerosis
Depression Ear, Nose and Throat
Diabetes Osteoporosis
Hepatitis C Pregnancy and Birth
Stroke
Second 10: Remaining:
- ---------- ---------
GERD Psoriasis
Osteoarthritis Sexual Health
Hepatitis C Skin Care
Hypertension Sleep Apnea
Hyperthyroidism Anorexia and Bulimia
Menopause Cataracts
Stress Cold and Flu
Endometriosis Dyspepsia
Hypertension Insomnia
Headache/Migraine
Third 10:
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EXHIBIT 10.13
SOFTWARE SALE, LICENSE AND DEVELOPMENT AGREEMENT
This is a Software Sale, License and Development Agreement ("Agreement") dated
as of January 20, 1999, (the "Effective Date") by and between Empower Health
Corporation ("EHC"), a Texas corporation having a place of business at 8920
Business Pass Drive, Austin, Texas 78759 and HealthMagic, Inc. ("HMI"), a
Delaware corporation having a principal place of business at 1444 Wazee Street,
Suite 210, Denver, Colorado 80202 (individually a "party" and collectively, the
"parties").
In consideration of the obligations stated in this Agreement, and other
good and valuable consideration received by each of the parties, the parties
agree as follows:
- --------------------------------------------------------------------------------
PART I. PURPOSE AND SCOPE OF AGREEMENT; DEFINITIONS
1. PURPOSE AND SCOPE OF AGREEMENT
A. HMI is a corporation engaged in developing, marketing and providing
innovative Internet-enabled health information technology systems and
applications including, without limitation, the Lifelong Health Record or "LHR"
(as further defined below). EHC is a corporation engaged in the business of
developing, marketing and maintaining an integrated suite of Internet enabled
consumer oriented software applications and services including, but not limited
to, Dr. Koop's Personal Medical Record System or "PMR" (as further defined
below), Dr. Koop's Community and advertising and promotional services on the
Internet at the web site http://www.drkoop.com (the "EHC Web Site"). The
---------------------
parties have entered into this Agreement under which: (i) EHC will sell Dr.
Koop's Personal Medical Record System to HMI; (ii) HMI will further develop its
existing Web-Based LHR and develop a Client-Based LHR using PMR as a starting
point; (iii) HMI will grant EHC the right to "frame" or "embed" the Web-Based
LHR into the EHC Web Site; (iv) HMI will grant EHC the right to use certain
software tools; and (v) HMI will grant EHC the right to use and distribute LHR
in association with EHC Web Site.
The execution, delivery and effectiveness of this Agreement are contingent
upon the simultaneous execution and delivery of: (i) that certain Investment
Agreement by and among Adventist Health System Sunbelt Healthcare Corporation
("Adventist"), EHC and HMI dated January 20, 1999; and (ii) that certain Master
Community Partner Program Agreement by and between Adventist and EHC dated
January 20, 1999.
2. DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings given
below or in the context in which the term is used, as the case may be.
______________________
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated * * *. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
1
<PAGE>
A. "Affiliate" shall mean, with respect to a party to this Agreement, any
entity that directly or indirectly controls, or is under common control with, or
is controlled by, such party. As used above, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
B. "Acquired Assets" shall mean the Acquired Product, the Acquired
Documentation and the Acquired Intellectual Property Rights in such Acquired
Assets.
C. "Acquired Documentation" shall mean any and all documentation relating to
or associated with the Acquired Product that EHC owns, to the best of EHC's
knowledge, on the Effective Date.
D. "Acquired Intellectual Property Rights" shall mean all of the following as
they relate to the Acquired Assets:
(1) All right, title and interest, under the laws of any country, in
patents and applications for patents and any other government-issued indicia of
invention ownership;
(2) All right, title and interest in all trade secret rights arising under
the laws of any country;
(3) All rights of copyright and all other literary property and author
rights (including moral rights) whether or not copyrightable, under the laws of
any country, and all right, title and interest in all copyright registrations or
applications for copyright registration;
(4) All right, title and interest in all technical data (excluding data of
EHC end users), whether or not protectable by patent, copyright or trade secret
laws; and
(5) All right, title and interest in all causes of action arising under
the patent, copyright, trade secret or other laws of any jurisdiction, which
causes of action have not been asserted as of the Effective Date.
E. "Acquired Product" shall mean Dr Koop's Personal Medical Record System
("PMR") (including all present and predecessor versions thereof and all works in
progress relating to its correction, enhancement or modification), including
both source code and object code versions and all supplements, enhancements and
modifications thereto created by EHC or otherwise, and all audio and/or visual
elements. In addition, Acquired Product includes the framework used for the
development of PMR, whether stand-alone or web based. HMI hereby acknowledges
that the PMR has not been completed and is not a fully functional software
program.
F. "Certifying Authority" shall mean HMI or such other trusted third-party
central administrator: (i) willing to verify the identities of those to whom it
issues certificates and their association with a given key; (ii) that have a
trustworthy public key (that is either publicized or provided with a certificate
from a higher level Certifying Authority attesting to the validity of its public
key); (iii) whose subject identification requirements (e.g., driver's license,
notarized form, fingerprints) engender a high level of confidence to the
certified name-key binding; and (iv) that are capable of issuing Digital
Certificates (including, without limitation, signing the Digital Certificate) to
authenticate the binding between the subject (end user's) name and the subject's
public key.
2
<PAGE>
G. "Client-Based Lifelong Health Record" or "Client-Based LHR" shall mean
HMI's proprietary client-based version of LHR made up of: (i) proprietary
interactive web-browser compatible pages, or other programs, which are installed
and executed locally on an end user's computer and contain functionality
enabling end users to retrieve, document, track and populate their own personal
health information; and (ii) a local "Repository" that is installed and executed
locally on the end user's computer and stores that end user's health data and
such other information as mutually agreed upon by the parties within ninety (90)
days of the Effective Date (or failing mutual agreement through the binding
arbitration procedure described in Part VII.11.D). The Client-Based LHR
includes any Updates, Releases, new Versions, modifications or derivative works
of the Client-Based LHR produced by HMI or on HMI's behalf.
H. "Digital Certificate" shall mean a digital certificate as defined by the
International Telecommunications Union ("ITU-T") X.509 standard, version 3. As
a general matter, a Digital Certificate: (i) is a document attesting to the
binding of a public key to an individual or other entity; (ii) enables the
verification of a claim that a specific public key does in fact belong to a
specific individual; and (iii) contains information including version, serial
number, signature algorithm ID, issuer name (i.e., the Certifying Authority that
issued the Digital Certificate), validity period, subject (user) name, subject
public-key information, issuer unique identifier, subject unique identifier,
extensions and the signature of the Certifying Authority that issued the Digital
Certificate on the foregoing. Digital Certificates are stored on the subject's
(end user's) computer.
I. "Dr. Koop's Personal Medical Record" or "PMR" shall mean EHC's proprietary
desktop application which includes, but is not limited to the Electronic Medical
Record module.
J. "End Users" shall mean any hospitals, insurance companies or other entities
(including their consumers) and individuals visiting the EHC Web Site.
K. "End-User Data" shall mean the information provided by end users or on
behalf of end users, with their authorization, in the process of using LHR.
Ownership of End-User Data shall in no way be altered by this Agreement.
L. "Health Talk Tool" shall mean HMI's proprietary underlying infrastructure
that supports the construction of secure health applications that enable the
sharing of sensitive information on the public Internet and World Wide Web. Key
features enable a trusted identity for every person accessing sensitive
information, the specification of security policies independent of the
application, the optional generation of the applications that enforce the
security policies, and the decentralized assignment of roles to employees of
providers and health plans. Software deliverables include: (i) the Visual
HealthTalk Studio that enables the entry of meta-data; (ii) the generator
itself; (iii) a tool for building implementations; (iv) Test Suite 98; (v) an
Administration Console; (vi) Charter Editor; and (vii) a Batch Enroller. The
Health Talk Tool includes any and all Updates, Releases, new Versions,
modifications or derivative works of the Health Talk Tool produced by HMI or on
HMI's behalf.
M. "Health Vectors" shall mean, for any particular LHR end user, collections
of health-related data that profiles such end user in his or her role as a
health care consumer which data is generated through the use of the Health
Vector software embedded in the LHR. Different kinds of Health Vectors include,
but are not limited to: (i) health and illness data (e.g., health status,
symptoms, important diagnoses, most recent encounters, medications, recent
treatments); (ii) interests and needs data (i.e., information used and requested
by the consumer); (iii) demographic data (e.g., name, mailing address, gender,
age, race); (iv) registration data (e.g., plan identification, member
identification and enrollment information);
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and (v) transaction data (i.e., a summary of the transactions encountered within
the service by the end user).
N. "Health Vectors Tool" shall mean HMI's proprietary software development
tool which enables the tailoring of user/computer interactions based on the
user's profile. As of the Effective Date the profile includes age, gender and
health interests but the Health Vectors Tool is architected to profile many
different dimensions each called a vector. Based on the specific health profile
that is comprised of various health data, screens are assembled that contain
articles, Weblinks and Preventive Guidelines tailored to the individual for
various sections of a Web service. Software deliverables include: (i) Content
Attribute Studio; (ii) Active X DLL that represents the application; (iii)
Health Vector Publisher; and (iv) the associated data base schema. The Health
Vectors Tool includes any and all Updates, Releases, new Versions, modifications
or derivative works of the Health Vectors Tool produced by HMI or on HMI's
behalf.
O. "Health Tool Application" shall mean any application created using the
Health Talk Tool or the Health Vectors Tool.
P. "Lifelong Health Record" or "LHR" shall mean the Web-Based LHR, EHC LHR (as
defined in Part IV.3.B) and the Client-Based LHR.
Q. "Personal Medical Record" shall have the meaning provided in Exhibit D to
this Agreement.
R. "Release Number" shall mean the second decimal place in the number assigned
to any software by the supplier of such software (e.g., the Release Number of
XYZ 6.1.23 would be 1). A new "Release" means a software upgrade that adds new
features, corrects bugs or defects and in which the Release Number is
incremented while the Version Number remains unchanged (e.g., XYZ 6.2.0 would be
a new Release as compared to XYZ 6.1.23).
S. "Update Number" shall mean the third decimal place in the number assigned
to any software by the supplier of such software (e.g. the Update Number of XYZ
6.2.23 would be 23). A new "Update" means a software upgrade that provides bug
fixes or other minor corrections in which the Version Number and Release Number
remain unchanged and, if the number assigned to the software by the supplier,
the Update Number is incremented (e.g. XYZ 6.1.24 would be a New Update as
compared to XYZ 6.2.23).
T. "Version Number" shall mean the first decimal place in the number assigned
to any software by the supplier of such software (e.g., the Version number of
XYZ 6.2.23 would be 6). A new "Version" means a major software upgrade that
adds substantial new features or other significant changes in which the Version
Number is incremented (e.g., XYZ 7.0.0 would be a new Version as compared to XYZ
6.2.23).
U. "Web-Based Lifelong Health Record" or "Web-Based LHR" shall mean: (i) HMI
proprietary interactive Internet-enabled pages which reside on HMI servers, that
are accessible from HMI licensed web sites containing links to such pages
through a digital certification process ("LHR Enabled Sites") (the EHC Web Site
will be an example of such a web site), and contain functionality enabling end
users to retrieve, document, track and populate their own personal health
information in a secure fashion from any LHR Enabled Site; and (ii) HMI's
proprietary database or "Repository", housed on HMI's servers, that stores each
end user's Health Vectors. The Web-Based LHR includes any and all Updates,
Releases, new Versions, modifications or derivative works of the Web-Based LHR
produced by HMI or on HMI's
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behalf. Supported Versions (as defined in Part IV.3.C(3)) of Web-Based LHR shall
reside on servers specifically designated to HMI at a Third-Party Secured Site
(as defined in Part IV.2.B).
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PART II. SALE OF ACQUIRED ASSETS
1. SALE, ASSIGNMENT AND TRANSFER OF ACQUIRED ASSETS TO HMI
A. EHC hereby irrevocably sells, assigns and transfers to HMI all of EHC's
right, title and interest in and to the Acquired Assets. This exclusive grant
of rights shall include, but is not limited to, the rights to (i) offer, market,
publish, reproduce, distribute, transmit, adapt, maintain, prepare derivative
works, sell, license or otherwise make use of the Acquired Assets (including,
without limitation, all subsequent editions, revisions, supplements to, and
versions of the Acquired Assets, regardless of length, nature or state of
development) throughout the world in any form or medium and in any language, and
(ii) to license or otherwise transfer to others the rights commensurate herewith
in connection with the Acquired Assets.
B. As of the Effective Date, HMI shall have the right to obtain and hold in
its own name any intellectual property rights in and to the Acquired Assets and
all copies and derivative works made therefrom (which shall include, but not be
limited to, the right to file patent, copyright and trademark applications in
the U.S. and throughout the world for the Acquired Assets in the name of HMI).
EHC hereby agrees that HMI may act as attorney-in-fact to execute any documents
that HMI deems necessary to record this grant with the U.S. Patent and Trademark
Office, the U.S. Copyright Office or elsewhere. EHC agrees that it will execute
any documents or take any other actions as may reasonably be necessary, or as
HMI may reasonably request, to establish, confirm and defend HMI's ownership of,
and intellectual property rights in and to, the Acquired Assets and all copies
and derivative works made therefrom. The cost of recording and registering
ownership rights in the Acquired Assets shall be borne solely by HMI.
C. As of the Effective Date, EHC shall deliver to HMI a complete set of all
complete and partial copies of the Acquired Assets in all forms (including,
without limitation, source code and object code for software components). The
source code for the Acquired Product delivered shall contain such code,
libraries and other source components so that, when compiled, linked and
otherwise manipulated to create the runtime/executable image for the Acquired
Product, creates a complete and fully operational run-time/executable version of
the Acquired Product. Notwithstanding the foregoing, EHC shall not be required
to deliver any third party software development tools and third party components
used in the creation of the Acquired Assets.
D. EHC reserves the right to request HMI to complete development of PMR in a
commercially reasonable manner, pursuant to a client opportunity. In the event
HMI elects to complete development of PMR pursuant to EHC's request, upon
completion of development of PMR, HMI shall license use of PMR to EHC under the
same terms as LHR under this Agreement (including, without limitation, the
revenue sharing provisions set forth in Part VI which shall apply to PMR in the
same manner as they apply to LHR). In the event HMI elects not to accept EHC's
request, then HMI shall grant a license in and to PMR to EHC under commercially
reasonable terms to complete PMR and use PMR, provided that such license shall
be subject to revocation in the event EHC does not proceed in a commercially
reasonable manner to meet the client opportunity.
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2. REPRESENTATIONS AND WARRANTIES BY EHC
Except as otherwise disclosed in Exhibit C. EHC represents and warrants to
HMI, as of the Effective Date, as follows:
A. EHC is the sole and exclusive legal and equitable owner of and holds good,
clear and marketable right and title to the Acquired Product and Acquired
Documentation including, without limitation, all Acquired Intellectual Property
Rights in the Acquired Product and Acquired Documentation. The Acquired Assets
are not subject to a license (other than the licenses contained in this
Agreement) and are not subject to any lien, security interest, royalty
obligation or other interest or claim of any kind. EHC has the sole right to
bring actions for infringement of any Acquired Intellectual Property Rights in
the Acquired Product and Acquired Documentation. Except for this Agreement,
neither the Acquired Product, nor any Acquired Documentation are subject to any
escrow.
B. EHC is a corporation duly organized and validly existing under the laws of
Texas and the execution of this Agreement by EHC and the transactions
contemplated by this Agreement have been authorized by all necessary corporate
action on the part of EHC and neither the execution of this Agreement by EHC,
nor the transactions contemplated by this Agreement, nor compliance by EHC with
any of its provisions, violates any judgment or order of any court, arbitrator,
or administrative agency applicable to EHC or any of its properties or assets.
C. To the best of EHC's knowledge, there are no pending or threatened disputes
or controversies with EHC's suppliers, customers, consultants, distributors and
others having business relations with EHC relating to the Acquired Assets, nor
any valid basis for a dispute.
D. To the best of EHC's knowledge, there are no suits, proceedings, or
investigations pending or threatened against EHC before any court, arbitrator or
agency based upon or challenging the ownership or use of the Acquired Assets,
including claims for breach of warranty or products liability. There is no
judgment or order entered against EHC which might have a material adverse effect
on the value of the Acquired Assets to HMI. No third party is asserting the
invalidity of this Agreement or seeking to prevent any of the transactions
contemplated by this Agreement.
E. Neither the execution by EHC of this Agreement, nor compliance by EHC with
its terms and conditions will (a) conflict with, or result in a breach or
violation of any provision in the documents under which EHC is incorporated, any
award of any arbitrator in a matter as to which EHC is a party, or any other
agreement or U.S. Government regulations relating to prohibitions on transfer or
export of technology to which EHC is subject, or (b) result in the creation of
any lien upon the Acquired Assets. EHC is not a party to, or otherwise subject
to any provision contained in any agreement which restricts or otherwise limits
the transfer of the Acquired Assets (including, but not limited to, any loan
agreement). EHC is not a party to any license (other than the licenses
contained in this Agreement), joint venture or similar affiliation involving the
Acquired Assets.
F. To the best of EHC's knowledge: (a) The Acquired Assets (including all
Acquired Intellectual Property Rights) and the marketing, reproduction or use of
the Acquired Assets do not infringe upon any patent, copyright, trademark, trade
secret or other proprietary right of any third party; (b) no proceedings have
been instituted, are pending or are threatened which challenge the rights of EHC
under or the validity of the Acquired Intellectual Property Rights; (c) none of
the Acquired Intellectual Property Rights is being infringed upon by others; and
(d) without regard to EHC's knowledge, none of the Acquired Intellectual
Property Rights is subject to any outstanding order or judgment. EHC has taken
all steps reasonably necessary to protect the Acquired Intellectual Property
Rights in the Acquired Assets,
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including, but not limited to, utilization of the proper statutory form of
copyright notice on all copies of the Acquired Product and Acquired
Documentation commercially distributed prior to the Effective Date. The
representations and warranties set forth in this Part II.2.F (a) shall survive
termination or expiration of this Agreement for injuries which arose prior to
termination or expiration.
G. (a) No source code included in the Acquired Product or Acquired
Documentation has been disclosed to any third party by EHC or any EHC
representative, agent or partner; and (b) any EHC employee, who has been
directly involved in the development of the Acquired Product and Acquired
Documentation has executed a confidentiality and nondisclosure agreement
covering the source code and other non-public information contained in the
Acquired Product and Acquired Documentation.
H. The set of materials provided to HMI by EHC pursuant to Part II.1.C
constitutes a complete set of all full and partial copies of the Acquired Assets
in all forms (including, without limitation, source code and object code for
software components) that EHC owns, to the best of EHC's knowledge, as of the
Effective Date.
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PART III. LICENSE TO HMI PRODUCTS
1. LICENSE
A. Except as set forth in Part VI.1, HMI hereby grants EHC a * * *,
nonexclusive, nontransferable, world-wide and fully paid-up right and license
commencing on the Effective Date: (i) to use, copy, as well as offer and
distribute to End Users under HMI's standard license, solely in conjunction and
integrated with EHC's software medical applications and services, the Client-
Based LHR (including the Client-Based EHC LHR and upon their initial release);
(ii) to use, copy and display in a manner "framed" by or "embedded" within the
EHC Web Site content, as well as offer and distribute to End Users under HMI's
standard license terms, solely in conjunction and integrated with EHC's Web
Site, the Web-Based LHR (including the Web-Based EHC LHR and upon their initial
release); and (iii) to use internally in its own business, copy, (as well as use
to develop, offer and distribute, under EHC's standard license, Health Tool
Applications), the Health Talk Tool and the Health Vectors Tool; provided,
however, EHC may not develop or contract for the creation of Health Tool
Applications that, in the reasonable discretion of HMI, compete with the Health
Talk Tool or the Health Vectors Tool. HMI hereby grants to EHC the same
licenses to the manuals related to LHR, solely for use with the LHR (the "LHR
Documentation"). This license includes any and all Updates, Releases and new
Versions of LHR, Health Talk Tool and Health Vector Tool that may be provided to
EHC from time to time.
B. HMI shall submit the standard licenses for EHC End Users referenced in Part
III.1.A (i) and (ii) to EHC for review and approval, which approval shall be not
unreasonably withheld or delayed. EHC shall submit its standard license
referenced in Part III.1.A (iii) to HMI for review and approval, which approval
shall be not unreasonably withheld or delayed.
C. EHC acknowledges and agrees that HMI represents that the LHR, Health Talk
Tool, Health Vectors Tool, and related materials ("HMI Materials") are owned by
and shall remain the sole property
__________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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of, HMI, that the HMI Materials contain, embody and are based on patented or
patentable inventions, trade secrets, copyrights and other intellectual property
rights (collectively, "IP Rights") owned or controlled by HMI and that HMI shall
continue to be the sole owner of all IP Rights in and to the HMI Materials,
including, without limitation, any derivative works of the HMI Materials
produced by HMI or on HMI's behalf. EHC agrees that it will provide all
reasonable cooperation and assistance to HMI, at HMI's expense, in taking any
action necessary or appropriate to establish, confirm and defend HMI's IP
Rights, including, without limitation, the preparation, filing and prosecution
of patent, copyright and trademark applications and the offering of testimony
and other support in connection with any legal proceedings brought by or against
HMI relating to HMI's IP Rights.
D. EHC agrees not to modify, translate, reverse engineer, decompile,
disassemble or extract, as applicable, any ideas, algorithms or procedures from
the whole or any part of the HMI Materials for any reason and shall include this
restriction in all relevant agreements with third parties, (including but not
limited to license agreements and consulting agreements) relating to the HMI
Materials.
E. EHC agrees to reproduce and include HMI's copyright, trademark, and other
proprietary rights notices on any copies of the HMI Materials and the LHR
Documentation, including partial copies and copied materials in derivative
works.
2. HMI WARRANTIES AND REMEDIES FOR BREACH OF WARRANTY
A. HMI represents and warrants to EHC, as of the Effective Date, as follows:
(1) HMI is a corporation duly organized and validly existing under the
laws of Delaware; and the execution of this Agreement by HMI, and the
transactions contemplated by this Agreement have been authorized by all
necessary corporate action on the part of HMI and neither the execution of this
Agreement by HMI, nor the transactions contemplated by this Agreement, nor
compliance by HMI with any of its provisions violates any judgment or order of
any court, arbitrator, or administrative agency applicable to HMI or any of its
properties or assets.
(2) To the best of HMI's knowledge, there are no pending or threatened
disputes or controversies with HMI's suppliers, customers, consultants,
distributors and others having business relations with HMI relating to the LHR,
Health Talk Tool and Health Vectors Tool, nor any valid basis for a dispute.
(3) To the best of HMI's knowledge, there are no suits, proceedings, or
investigations pending or threatened against HMI before any court, arbitrator or
agency based upon or challenging the ownership or use of the LHR, Health Talk
Tool and Health Vectors Tool, including claims for breach of warranty or
products liability. There is no judgment or order entered against HMI which
might have a material adverse effect on the value of the license rights granted
to EHC pursuant to this Agreement. No third party is asserting the invalidity
of this Agreement or seeking to prevent any of the transactions contemplated by
this Agreement.
(4) Neither the execution by HMI of this Agreement, nor compliance by HMI
with its terms and conditions will (a) conflict with, or result in a breach or
violation of any provision in the documents under which HMI is incorporated, any
award of any arbitrator in a matter as to which HMI is a party, or U.S.
Government regulations relating to prohibitions on transfer or export of
technology to which HMI is subject.
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B. Subject to Part III.2.E below, HMI warrants that, during the thirty (30)
days immediately following the delivery of LHR (the "Warranty Period"): (i)
performance of LHR as delivered will not deviate materially from its
specifications as set forth in the LHR Documentation (the "LHR Specifications");
and (ii) any date sensitive software components (i.e., software components the
functionality of which includes processing, providing and/or receiving date
data) of LHR will be year 2000 compliant (i.e., will, when used in accordance
with associated documentation be capable of correctly processing, providing
and/or receiving date data from, into, within or between the twentieth and
twenty-first centuries). For purposes of Part III.2.A (ii) the Warranty Period
shall be from the initial delivery of LHR until December 31, 2000. If EHC
believes there has been a breach of this warranty and so notifies HMI in writing
within the Warranty Period, then HMI will promptly investigate the matter to
determine the nature of the suspected breach. If it is determined that there
has been a breach of this warranty, then HMI's sole obligation, and EHC's
exclusive remedy, will be for HMI to correct or modify LHR to make it perform as
warranted. With respect to the year 2000 warranty, HMI will additionally use
commercially reasonable efforts to reconstitute and/or repair any LHR-stored
data files damaged as a result a year 2000 compliance failure caused by LHR.
C. Subject to Part III.2.E below, HMI warrants that LHR shall not: (a)
constitute, or contain material that would constitute, libel, defamation or
slander; or (b) constitute, or contain material that would constitute, an
invasion of the rights to publicity of any third party or other similar right.
Except as set forth in Part VII.2.C, to the extent the breach of this Part
III.2.C is due to content not developed or owned by HMI, HMI's exclusive
liability and EHC's sole remedy for breach of this Part III.2.C shall be for HMI
to remove any content which is the subject of the warranty claim in a
commercially reasonable timely fashion.
D. Subject to Part III.2.E below, HMI warrants that the LHR, Health Talk Tool
and the Health Vectors Tool do not infringe any third party copyrights, patents
or trademark or misappropriate any trade secrets rights of a third party. If a
third party brings an action against EHC making allegations which, if true,
would constitute a breach of this warranty for which HMI is responsible, or if
HMI anticipates such an action, HMI shall have the option, at its expense, to:
(i) modify the infringing item(s) to be noninfringing without materially
changing the functionality of such item(s); or (ii) obtain for EHC a license to
continue using such item(s). This Part III.2.D and Part VII.2.C state HMI's
entire obligation to EHC and EHC's sole remedy with respect to any claim of
intellectual property infringement with respect to LHR, the Health Talk Tool and
the Health Vectors Tool.
E. HMI is not responsible for any claimed breaches of the foregoing warranties
set forth in Part III.2 caused by: (i) Acquired Assets furnished to HMI by EHC
pursuant to Part II.1.C of this Agreement, (ii) modifications made to the HMI
Materials by anyone other than HMI and its authorized personnel working at HMI's
direction; (iii) the combination, operation or use of the HMI Materials with any
third-party equipment or software or other items that HMI did not supply to EHC
(including, without limitation, any EHC provided or developed equipment or
software); or (iv) failure to use any new or corrected versions of HMI
Materials made available by HMI.
F. HMI does not warrant that the HMI Materials will be error-free or that its
operation will be uninterrupted. The obligations set forth in this Part III.2.C
and Part III.2.D (and related other sections) shall survive termination or
expiration of this Agreement for injuries which arose prior to termination or
expiration.
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3. ENGAGING APPLICATIONS
A. EHC Engaging Applications.
--------------------------
(1) EHC may create applications that are designed to engage the consumer
in the management of their health that utilize LHR, and that are separate from
LHR, but which interact with LHR, provide data or other input to LHR, or use
data or other output generated by LHR ("Engaging Applications"). HMI
acknowledges that the Engaging Applications created by EHC are owned by and
shall remain the sole property of EHC. * * * EHC shall, subject to Part
III.3.A (2) below, and in consideration of the revenue sharing scheme set forth
in Part VI.1.F, offer to HMI * * *, nonexclusive, nontransferable, world-wide
right and license to copy, reproduce, modify, translate and distribute
(including sublicensing and marketing) copies of, and to prepare, have prepared,
* * *, and to perform, display and use such EHC Engaging Applications * * * for
HMI's internal use and in conjunction with LHR. This license includes any and
all Updates, Releases and new Versions of the Engaging Applications that may be
provided to LHR from time to time. EXCEPT FOR THE WARRANTY PROVIDED IN PART
III.3.C, EHC PROVIDES THE EHC ENGAGING APPLICATIONS SOLELY ON AN "AS-IS" BASIS.
(2) During each twelve (12) month period following the Effective Date, EHC
shall, with respect to any EHC Engaging Application the development of which is
completed during such twelve (12) month period, and at the time of such
completion, be entitled to designate to HMI (via a written notice) * * *;
provided that EHC has not already, during such twelve (12) month period,
designated more than one (1) other EHC Engaging Application as a Protected
Engaging Application. EHC shall deliver any such EHC Engaging Applications which
are not Protected Engaging Applications to HMI within six (6) months from its
general release to EHC customers.
(3) Should HMI create any Engaging Applications for general release to
HMI's customers ("HMI Engaging Applications"), (i) EHC acknowledges that the
Engaging Applications created by HMI are owned by and shall remain the sole
property of HMI; * * * HMI shall, in consideration of the revenue sharing scheme
set forth in Part VI.1.F, offer to EHC a * * *, nonexclusive, nontransferable,
world-wide right and license to use and copy, as well as offer and distribute to
End Users under HMI's standard license terms (pursuant to Part III.1.B), such
HMI Engaging Applications solely for EHC's internal use and in conjunction with
EHC's Web Site. In addition, EHC may sublicense HMI Engaging Applications to
third parties under commercially reasonable terms; provided that such terms will
be at least as protective of HMI's intellectual property (and intellectual
property and other proprietary rights therein) as is the license to LHR granted
to EHC in Part III.1 above. Should HMI be permitted to sublicense any third-
party Engaging Applications to EHC, HMI may offer EHC the opportunity to
purchase a sublicense to such third-party Engaging Applications. HMI shall
deliver any such HMI Engaging Applications to EHC upon such HMI Engaging
Applications general release to other HMI customers.
B. The license grant set forth in Part III.3.A(3) includes any and all
Updates, Releases and new Versions of the HMI Engaging Applications that may be
provided to EHC from time to time. EXCEPT FOR THE WARRANTY PROVIDED IN PART
III.3.C, HMI PROVIDES THE HMI ENGAGING APPLICATIONS SOLELY ON AN "AS-IS" BASIS.
____________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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C. Each party warrants that its Engaging Applications licensed to the other
party do not infringe any third party copyrights, patents or trademarks or
misappropriate any trade secrets rights of a third party. If a third party
brings an action against the licensee party making allegations which, if true,
would constitute a breach of this warranty, or if the licensor party anticipates
such an action, the licensor party shall have the option, at its expense, to:
(i) modify the Engaging Application to be noninfringing; or (ii) obtain for the
licensee party a license to continue using the Engaging Application. This Part
III.3.C and Part VII.2.C (in the case of HMI) and Part VII.2.B (in the case of
EHC) state the licensor party's entire obligation to the licensee party and the
licensee party's sole remedy with respect to any claim of intellectual property
infringement for Engaging Applications. The obligation of each party set forth
in this Part III.3.C (and related other sections) shall survive termination or
expiration of this Agreement for injuries arising prior to termination or
expiration.
4. SOURCE CODE ESCROW
A. HMI agrees that it will deliver (subject to the terms and conditions of
this Part III.4) within thirty (30) days after (i) the delivery of PMR to HMI,
one (1) copy of the source code, (if any) for PMR (the "PMR Source Code"); (ii)
the Effective Date, one (1) copy of the source code for each of such Tools (the
"Health Tools Source Code"); (iii) the initial release of the Web-Based LHR or
(with respect to Web-Based LHR) within 180 days of the Effective Date (whichever
is shorter), one (1) copy of the source code for the Web-Based LHR, including
the EHC version thereof; and (iv) the initial release of the Client-Based LHR,
one (1) copy of the source code for the Client-Based LHR, including the EHC
version thereof (the source code for Web-Based LHR and Client-Based LHR are
collectively referred to as the "LHR Source Code") to Data Securities
International, Inc. ("DSI"), 9555 Chesapeake Drive, Suite 200, San Diego, CA
92123. HMI and the EHC shall, promptly following the Effective Date, negotiate
and execute a three party Technology Escrow Agreement with DSI governing the
terms of the escrow arrangement and such Technology Escrow Agreement shall be
attached and incorporated as Exhibit F to this Agreement. The source code
delivered into escrow under this Part III.4.A means a copy of the code,
libraries and other source components so that, when compiled, linked and
otherwise manipulated to create the runtime/executable image for the delivered
software, creates a complete and fully operational run-time/executable version
of the delivered software.
B. The Technology Escrow Agreement shall provide the events under which EHC
may exercise its rights to obtain access to all or any part of the Health Tools
Source Code, the PMR Source Code and/or the LHR Source Code, however such
conditions shall be limited as follows:
(1) EHC may exercise its rights under the Technology Escrow Agreement and
obtain access to Web-Based LHR Source Code, including the EHC version thereof,
upon, subject to Part III.4.B(5) below: * * *
(2) EHC may exercise its rights under the Technology Escrow Agreement and
obtain access to Client-Based LHR Source Code, including the EHC version
thereof, upon, subject to Part III.4.B(5) below: * * *
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*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
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(3) EHC may exercise its rights under the Technology Escrow Agreement and
obtain access to the PMR Source Code upon termination of this Agreement for
cause by EHC, subject to Part III.4.B(5) below, pursuant to Part VII.10.A,
pursuant to Part VII.10.B or termination of this Agreement by HMI pursuant to
Part VII.5.
(4) EHC may exercise its rights under the Technology Escrow Agreement and
obtain access to the Health Tools Source Code upon, subject to Part III.4.B(5)
below: (i) termination of this Agreement for cause by EHC pursuant to Part
VII.10.A based upon a breach of Part III.2.B, Part III.4.A, Part III.4.C, Part
IV.4.B, Part IV.4.C, Part IV.3.C(1) or (3), or Part VII.6; (iii) breach by HMI
of the document which shall be developed pursuant to Part VII.7.A; (iv)
termination of this Agreement by EHC pursuant to Part VII.10.B; or (v)
termination of this Agreement by HMI pursuant to Part VII.5.
(5) EHC may not exercise its rights, for any reason, under this Part
III.4.B, except under Part III.4.B(3), with respect to a specific Source Code,
for a period of * * * after the initial deposit of such Source Code into escrow.
After such * * * period, EHC's exercise of its rights under pursuant to items
(1) through (4) of this Part III.4.B, and access to the applicable Source Code,
shall be subject to HMI first being provided commercially reasonable time to
resolve * * * issues, as defined by the parties under Part IV.3.C(1), plus an
additional * * * cure period in which to resolve the condition triggering
EHC's exercise of rights under this Part III.4.B, during which the applicable
Source Code will not be released from escrow and at the end of which the
applicable source code shall remain in escrow if the condition has been
resolved.
C. If and to the extent HMI makes available Updates, Releases or new Versions
of LHR, the Health Talk Tool or the Health Vectors Tool, HMI shall: (i) deposit
with DSI source code of such Updates or Releases on a semi-annual basis; and
(ii) deposit with DSI source code of such new Versions within ten (10) days of
the release of such new Versions, so the escrow account remains current. All
account renewal costs shall be borne by HMI, except that EHC will be responsible
for paying the annual beneficiary fee.
D. License to Source Code Upon Release.
-----------------------------------
(1) Upon EHC obtaining access to the Web-Based LHR Source Code pursuant to
Part III.4.B, HMI grants EHC a non-terminable, worldwide, non-exclusive, fully
paid-up right and license to use such LHR Source Code for any purposes relating
to maintaining, enhancing, preparing derivative works of and supporting Web-
Based LHR and finishing development of Web-Based LHR if initial release has not
yet been achieved. All right, title and interest in and to derivative works
made by EHC pursuant to this Part III.4 shall vest in EHC.
(2) Upon EHC obtaining access to the Client-Based LHR Source Code pursuant
to Part III.4.B, HMI grants EHC a non-terminable, worldwide, non-exclusive, full
paid up right and license to use such LHR Source Code for any purposes relating
to maintaining, enhancing, preparing derivative works of and supporting Client-
Based LHR and finishing development of Client-Based LHR if initial release has
not yet been achieved. All right, title and interest in and to derivative works
made by EHC pursuant to this Part III.4 shall vest in EHC.
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(3) Upon EHC obtaining access to the PMR Source Code pursuant to Part
III.4.B, HMI grants EHC a non-terminable, worldwide, non-exclusive right, fully
paid up and license to use such PMR Source Code for any purposes relating to
maintaining, enhancing, preparing derivative works of and supporting PMR, and
finishing development of an initial release of PMR if not yet achieved. All
right, title and interest in and to derivative works made by EHC pursuant to
this Part III.4 shall vest in EHC.
(4) Upon EHC obtaining access to the Health Tools Source Code pursuant to
Part III.4.B, HMI grants EHC a non-terminable, worldwide, non-exclusive, fully
paid up right and license to use such PMR Source Code for the any purposes
relating to maintaining, enhancing, preparing derivative works of and supporting
the Health Talk Tool and the Health Vectors Tool. All right, title and interest
in and to derivative works made by EHC pursuant to this Part III.4 shall vest in
EHC.
E. EHC acknowledges that the LHR Source Code, the PMR Source Code and the
Health Tools Source Code constitute highly sensitive HMI Confidential
Information. If EHC obtains access to the LHR Source Code, the PMR Source Code
or the Health Tools Source Code as provided herein, it agrees to treat such
Source Code as HMI Confidential Information pursuant to Part VII.6 and otherwise
with at least the same degree of care as it treats the source code to its own
proprietary programs, and further agrees that:
(1) Such Source Code will be used solely for EHC's internal purposes as
expressly permitted in Part III.4.D(1), and will not be made available to third
parties for any reason;
(2) Access to the such Source Code shall be strictly limited to employees
of EHC who have a need to access such Source Code and who have been advised of
the confidential proprietary nature of the such Source Code;
(3) In the event EHC's access to such Source Code occurs outside of a
termination of this Agreement by EHC pursuant to Part VII.10.A (for cause) or
pursuant to Part VII.10.B or by HMI pursuant to Part VII.5, HMI's ongoing
obligations under this Agreement with respect to such Source Code and the
products such Source Code underlies (i.e., LHR, PMR or Health Talk Tool and the
Health Vectors Tool, as applicable) shall cease. Without limiting the
generality of the foregoing, such obligations include: (i) in the case of LHR,
those contained in Part III.4, Part IV.1, Part IV.2.A, Part IV.2.B (if breach of
Part IV.2.B was the event upon which EHC exercised its right to obtain access to
the Web-Based LHR Source Code) and Part IV.3; and (ii) in the case of the Health
Talk Tool and the Health Vectors Tool, those contained in Part IV.4.
(4) In the event EHC's access to such Source Code occurs in the context of
a termination of this Agreement by EHC pursuant to Part VII.10.A (for cause) or
pursuant to Part VII.10.B or by HMI pursuant to Part VII.5, EHC shall continue
to be bound by the terms of Part III.1 of this Agreement with respect to any
copies of LHR, PMR and the Health Talk Tool and the Health Vectors Tool in EHC's
possession for as long as such products are in EHC's possession.
(5) The revenue sharing provisions set forth in Part VI.1 shall cease to
apply with respect to the products such Source Code underlies.
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(6) The * * * provisions set forth in Part V.2 shall cease to apply with
respect to the products such Source Code underlies.
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PART IV. DEVELOPMENT AND MAINTENANCE OF LHR
1. EHC SERVICES
A. In conjunction with this Agreement, EHC shall provide to HMI a project
manager on a full time basis and an architect, Mr. Lou Scalpati, on a half-time
basis (the "EHC Employees"). Such EHC Employees shall provide consulting,
software development and other professional services to HMI for the purposes of
assisting in developing, maintaining and enhancing the Acquired Product, the
Client-Based LHR and the Web-Based LHR consistent with the EHC Employees roles
as an architect and project manager (collectively, "Services").
B. The EHC Employees shall execute HMI standard consulting agreement, a copy
of which is attached hereto as Exhibit A (except that no payment shall be due to
EHC or the EHC Employees under such agreement) and the HMI standard
confidentiality agreement, a copy of which is attached hereto as Exhibit B.
2. COMPLETION OF WEB-BASED LHR
A. Process. The currently existing Web-Based LHR will be further developed by
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HMI with the assistance of the EHC Employees. HMI shall assign the equivalent
of two full time employees (the "HMI EHC Resources") to assist in the
development of the EHC LHR, including EHC Features (as defined below); provided
that during the period before the initial release of the Web-Based LHR, the HMI
EHC Resources shall assist in the development of such initial release of the
Web-Based LHR. Furthermore, as agreed by the parties, during the period before
the initial release of the Web-Based LHR, EHC and HMI shall meet to review the
direction (technical and otherwise) of the Web-Based LHR. During the Term of
this Agreement, EHC shall have a reasonable opportunity to provide comment on
and approve, (such approval shall not be unreasonably withheld), the direction
of the Web-Based LHR, in a timely manner, during the course of such meetings and
during the development of the Web-Based LHR; however, HMI will retain final
control over all aspects of the Web-Based LHR.
B. Third Party Secured Site.
(1) Before the release of the initial Web-Based LHR to EHC, HMI and EHC
will mutually select a commercially reasonable third-party secured site provider
(the "Third-Party Secured Site"), and HMI shall enter into a commercially
reasonable agreement with such Third-Party Secured Site, at which to host LHR on
HMI servers (i.e., servers specifically designated for HMI). Within sixty (60)
days of LHR first being hosted at such Third-Party Secured Site, the parties
shall negotiate in good faith a set of commercially reasonable service levels
(e.g., availability of LHR on the host server) ("Service Levels") which shall be
incorporated into this Agreement in the form of Exhibit E attached to this
Agreement. HMI shall be responsible for all costs associated with the Third
Party Secured Site.
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(2) Should a breach of this Agreement by HMI * * * occur that would not
have occurred but for: (i) the hosting of LHR at the Third-Party Secured Site;
or (ii) the associated services ancillary to the hosting of LHR at the Third-
Party Site (e.g., telecommunications to and from the Third-Party Secured Site),
then HMI shall have a reasonable period of time (not to exceed thirty (30) days)
in which to work with the Third-Party Secured Site to identify and resolve the
factors contributing to such breach. If such breach persists (or in HMI's
opinion is likely to persist) following such period, HMI's sole obligation to
EHC * * * under this Agreement shall be * * *.
3. FUTURE DEVELOPMENTS AND MAINTENANCE OF LHR
A. Future Development of LHR. HMI, at its sole discretion may provide
-------------------------
Updates, Releases or new Versions of LHR. As agreed by the parties, EHC and HMI
shall meet to review the direction (technical and otherwise) of LHR. After the
initial release of LHR, EHC shall have a reasonable opportunity to provide
comment on and approve, (such approval shall not be unreasonably withheld), the
direction of such Updates, Releases or new Versions of EHC's version of LHR, in
a timely manner, when HMI seeks input during the development process; however,
HMI will retain final control over all aspects of LHR.
B. EHC LHR. After the initial release of Web-Based LHR EHC may request that
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certain EHC Features (as defined herein) be added to LHR to create a "Web-Based
EHC LHR" (the EHC versions of the Web-Based LHR and the Client-Based LHR are
collectively referred to as the "EHC LHR"). Upon the initial release of Web-
Based LHR, and at EHC's request, the EHC Employees and the HMR Resources shall
be used to assist in the creation of the EHC LHR as well as future Updates,
Releases or new Versions of the EHC LHR. The EHC LHR and all EHC Features shall
be and remain the property of HMI. "EHC Features" means a feature, data element
or function not part of the then-current Version of LHR (or the EHC LHR, as
applicable): (i) which is an original concept suggested by EHC; or (ii) which
is a feature or function which HMI does not agree to incorporate as a Suitable
Priority as part of LHR pursuant to this Part IV.3.B.
EHC shall provide its requested features and functions for LHR during the normal
course of project planning for LHR. HMI shall in a reasonably timely manner
decide to reject or incorporate such suggested features and functions into the
next Version of LHR, or assign such features and functions a priority level for
incorporation into the a future Version of LHR. If a feature or function is of
a priority level which, in EHC's reasonable judgment, is too low for
incorporation into LHR, the feature and function will be not of "Suitable
Priority", for purposes of Part IV.3.B (ii). Notwithstanding the foregoing, HMI
shall not have the right to reject an EHC Feature which will be incorporated
into the EHC LHR, unless the EHC Feature, in HMI's reasonable discretion would
result in a breach of any of the warranties contained in Part III.2, and HMI may
also limit the programming resources used to develop an EHC Feature to the HMI
EHC Resources. If the parties cannot agree that an EHC Feature is an "original
concept" under of Part IV.3.B (i), then the parties shall resolve this issue
through the binding arbitration procedures described in Part VII.11.D.
(1) The parties shall use commercially reasonable efforts to maintain as
much compatibility as is practicable between LHR and the EHC LHR.
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(2) For a period of * * * following such time as any EHC Feature has been
incorporated, but in no event longer than * * * after the EHC Feature has been
made available for incorporation, into any new Update, Release or Version of the
EHC LHR ("EHC Exclusivity Period"), * * *. By way of clarification, this
provision in no way restricts HMI from offering, licensing/distributing or
otherwise providing a Client-Based LHR or Web Based LHR (or any new Updates,
Releases or Versions thereof) to the extent that the Client-Based LHR or Web
Based LHR does not include any EHC Features that are still within their EHC
Exclusivity Period.
C. Support.
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(1) The parties shall mutually agree to support provisions, subject to
Part IV.3.C(3), relating to LHR that HMI will provide to EHC during the term of
this Agreement and commencing upon the initial release of the LHR, or failing
mutual agreement, the parties shall define such support provisions through the
binding arbitration procedure described in Part VII.11.D.
(2) HMI agrees that it will offer to EHC's end users, commercially
reasonable end user support for the EHC LHR, subject to Part IV.3.C(3), at a
commercially reasonable price. HMI shall offer the terms of such end user
support for EHC's approval, which approval shall not be unreasonably withheld or
delayed.
(3) At any given time during the term of this Agreement, HMI shall, with
respect to any particular Version of EHC LHR, provide support to EHC for such
Version if and to the extent * * * have elapsed since the time such Version was
the current (i.e., most recent)Version of the EHC LHR (each such Version for
which HMI will provide support to EHC are hereinafter referred to as a
"Supported Version").
4. FUTURE DEVELOPMENTS, TRAINING AND TECHNICAL SUPPORT FOR THE HEALTH TALK AND
HEALTH VECTOR TOOLS
A. HMI, at its sole discretion may provide Updates, Releases or new Versions
of the HealthTalk Tool and/or the Health Vector Tool.
B. HMI shall provide to EHC, at no cost to EHC, a total of three (3) days of
training on the HealthTalk Tool and the Health Vector Tool at HMI's facilities,
which may be used by EHC up to one (1) year after the Effective Date. HMI shall
provide additional training as reasonably requested by EHC; provided that EHC
will reimburse HMI for the direct costs incurred by HMI in providing such
training to EHC (along with any reasonable out-of-pocket expenses incurred by
HMI in providing such training to EHC).
C. HMI shall provide technical support to EHC for the current Versions of the
Health Talk Tool and the Health Vectors Tool (and for the prior Version of such
Tools for a commercially reasonable period of time following the release of the
current Version of such Tools). EHC will reimburse HMI for the direct costs
incurred by HMI in providing such technical support to EHC (along with any
reasonable out-of-pocket expenses incurred by HMI in providing such technical
support to EHC).
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PART V. MARKETING AND QUALITY CONTROL; NONCOMPETITION; TRADEMARKS
1. MARKETING AND GENERAL QUALITY CONTROL
A. Marketing of LHR. EHC shall use commercially reasonable efforts to
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advertise, promote and market the LHR to its end users and potential customers.
B. General Quality Control.
-----------------------
(1) It is anticipated that EHC will "frame" or "embed" LHR in the EHC Web
Site as a mechanism for accessing LHR. EHC warrants that any non-HMI content
displayed or appearing to the end user in a "frame" or other similar mechanism
including, without limitation, advertisements and the content accessed by
selecting such advertisements, in conjunction with EHC's use of LHR shall not:
(a) constitute, or contain material that would constitute, libel, defamation or
slander; (b) constitute, or contain material that would constitute, an invasion
of the rights to publicity of any third party; or (c) infringe upon the IP
Rights of any third party. Except as set forth in Part VII.2.B, EHC's exclusive
liability and HMI's sole remedy for breach of this Part V.1.B(1) shall be for
EHC to remove any content which is the subject of the warranty claim in a
commercially reasonable timely fashion.
(2) EHC shall not modify, edit, abbreviate, censor or limit LHR's content
transmitted to EHC for display on the EHC Web Site through the LHR user
interface, including HMR Marks in LHR, except for the specific "framing"
contemplated in this Agreement.
(3) Each party shall conduct its business in a fair and ethical manner,
reflecting favorably upon the other party's software and the reputation,
goodwill, image and the credibility of the other party.
2. ***
A. HMI agrees * * *
B. Within the United States and within any other country in which HMI does
business and/or in which LHR (or any portion thereof) is marketed and/or
licensed, EHC shall * * *.
C. Within the United States and any within any other country in which EHC does
business and/or in which the EHC Web Site is marketed and/or licensed, HMI shall
* * *
D. ***
E. ***
F. Each party acknowledges and agrees that the * * * covenants placed on such
party in this Part V.2 are reasonable and necessary to protect the legitimate
interests of the other party and that any violation of such * * * covenants will
result in irreparable injury to the other party. Each party hereby
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irrevocably waives any right to challenge or otherwise attempt to invalidate any
of the restrictive covenants that such party is subject to, or any part(s)
thereof. Each party agrees that, in the event it violates any of the restrictive
covenants to which it is subject, the other party shall be entitled to
preliminary and permanent injunctive relief as well as an equitable accounting
of all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which such other party may be entitled at law or in equity. If it is determined
that any of the * * * covenants set forth in this Part V.2, or any part(s)
thereof, are illegal or unenforceable, it is the parties' intent that the scope
of the covenant be reduced to conform to the requirements of law.
For so long as EHC remains a licensee of LHR and/or PMR in any form, and except
as expressly set forth in this Agreement, both parties' obligation under this
Part V.2 shall survive the termination of this Agreement for any reason.
3. HMI TRADEMARKS
A. Trademark License Grant.
-----------------------
(1) HMI is the owner of the "Health Magic" trade name, "Health Talk" mark,
U.S. Trademark Application Number 75/323223, the "Compass Man Design", U.S.
Trademark Application Number 75/459701, as well as the rights to marks
associated with the LHR developed by HMI specifically for use with LHR as LHR is
presented on a customer's web site, whether a word, graphic, animated or sound
mark (the "HMI Marks"). During the Term of this Agreement, HMI grants to EHC a
non-exclusive license to use the HMI Marks in conjunction and integrated with
EHC's software medical applications and services (the "Licensed Activities").
EHC will use the HMI Marks solely in connection with the Licensed Activities.
HMI does not grant EHC the right to use the HMI Marks in connection with any
products, services and/or business other than the Licensed Activities.
(2) EHC will always use the HMI Marks on and in connection with the
Licensed Activities in a style or size of print distinguishing it from
accompanying wording or text. EHC will display the symbol "TM" to the right and
slightly above the last letter of the HMI Marks identified by HMI as requiring a
"TM" when displayed on promotional and other materials used in advertising and
rendering the Licensed Activities.
(3) Except as contemplated by this Agreement, the license to use the HMI
Marks granted by Part V.3.A(1) of this Agreement may not be assigned or
otherwise transferred by EHC. HMI does not grant, and nothing in this Agreement
will be construed as granting, EHC the right to license, sublicense or authorize
others to use the HMI Marks.
B. Quality Control.
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(1) EHC's use of the HMI Marks and the nature and quality of the Licensed
Activities promoted and marketed by EHC under the HMI Marks will at all times
comply with HMI's written standards and specifications as provided to EHC. EHC
will permit HMI to reasonably inspect any
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materials used by EHC in the promotion and marketing of the Licensed Activities
under the HMI Marks and all other records relating to the quality of such
activities.
(2) EHC will provide HMI with "proofs" or draft "web pages" of all
materials used in the identification and or promotion of the Licensed Activities
under the HMI Marks for approval by HMI prior to their use which approval shall
not be unreasonably withheld or delayed. Materials used in the identification
and/or promotion of the Licensed Activities will include, but are not limited
to, business cards, stationery, letterhead, web pages and promotional materials.
(3) If HMI notifies EHC in writing that the Licensed Activities and/or any
materials used by EHC in the promotion and marketing of the Licensed Activities
do not meet the quality standards of HMI as reasonably determined by HMI, EHC
will cease use the HMI Marks in any manner or in connection the Licensed
Activities and materials in question. If, within sixty (60) days after
receiving the above written notification from HMI, EHC cures or otherwise
corrects to HMI's reasonable satisfaction the failure to meet the quality
standards of HMI, EHC will be entitled to resume its use of the HMI Marks in
connection with the promotion and marketing of the Licensed Activities.
C. Trademark Ownership.
-------------------
(1) EHC acknowledges that, as between HMI and EHC, that HMI's rights in
the HMI Marks are valid, that each is the exclusive property of HMI, and can
lawfully be used only with the express license or consent of HMI. Specifically,
as between HMI and EHC, EHC acknowledges HMI's common law rights in the HMI
Marks. EHC will not at anytime do, or cause to be done any act or thing
contesting or in any way impairing or intending to impair the validity of and/or
HMI's rights, title and interest in and to the HMI Marks.
(2) EHC will not in any manner represent that it owns the HMI Marks. EHC
will not register or apply to register the HMI Marks either alone or in
combination with any other word(s) and/or design(s), in any country, state or
jurisdiction.
(3) EHC acknowledges that its use of the HMI Marks will not create any
rights, title, or interest in or to said mark in EHC's favor, but that all use
of the HMI Marks by EHC will inure to the benefit of HMI.
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PART VI. FINANCIAL STRUCTURE
1. REVENUE SHARING
Revenues shall be shared in accordance with the allocations described
below, or as mutually agreed to by the parties from time to time. As used
herein, "Revenue" shall mean gross revenue less reasonable amounts paid for
commissions reasonable in light of industry standards and consistent with
industry standards for third-party commissions (EHC's current internal sales
commission is * * *), and other reasonable direct costs.
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A. Advertising. Any advertising Revenue generated by the EHC Web Site's use
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of the LHR pages, including without limitation, advertisements framing LHR, or
"pop-up" advertising, shall be shared between EHC and HMI with * * * of such
Revenues allocated to EHC and * * * of such Revenues to HMI. Such advertising
can be sold either by HMI and shared with EHC or it can be part of EHC's
advertising inventory and shared with HMI.
B. Sponsorship. Any Revenues generated through sponsorship related to LHR or
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LHR pages shall be shared between EHC and HMI with * * * of such Revenues
allocated to EHC and 70% of such Revenues to HMI.
C. Electronic Data Interchange (EDI). Any Revenues generated through EDI
---------------------------------
agreements reasonably related to LHR shall be shared between EHC and HMI with
* * * of such Revenues allocated to EHC and * * * of such revenues to HMI. The
Revenue split for EDI shall be equitably adjusted to the extent that HMI
maintains and administers less than all of the additional programs, services and
support required to connect to the EDI exchange partner. As used herein, "EDI"
shall mean any arrangements which causes data to be transmitted in or out of LHR
repository to a third party (other than a consumer) without the use of the
consumer-oriented LHR front-end application.
D. Clinical Research Organizations (CRO). Any Revenues generated through CRO
-------------------------------------
Transaction reasonably related to LHR shall be shared between EHC and HMI with
* * * of such Revenues allocated to EHC and * * * of such Revenues to HMI. As
used herein, a "CRO Transaction" shall occur where any individual selects a
study (research) offer on the EHC Web Site where the study offer was directed to
the individual based on information found in the individual's LHR record.
E. Electronic Commerce (EC). The parties agree to negotiate in good faith the
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sharing of revenues generated through EC opportunities reasonably related to LHR
as such opportunities arise.
F. Engaging Applications. Any revenues generated by either party through an
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HMI or EHC Engaging Application shall be shared between EHC and HMI with * * *
of such revenues allocated to the party who developed the Engaging Application
and * * * of such revenues to the other party; provided, however, that HMI shall
not be required to share revenue pursuant to this Part VI.1.F for HMI Engaging
Applications if HMI was responsible for generating such revenue; provided that
the HMI Engaging Application is not a derivative work of an EHC Engaging
Application. If and to the extent revenues generated by an EHC Engaging
Application are subject to sharing pursuant to this Part VI.1.F and any other
revenue sharing provisions in this Part VI.1, such revenues shall be shared
pursuant to such other revenue sharing provisions, with the sharing of any
revenues generated by such EHC Engaging Application which are not subject to
such other revenue sharing provisions being determined by this Part VI.1.F.
G. Health Tool Applications. EHC shall, with respect to any Health Tool
------------------------
Application created by EHC which is not reasonably related to LHR and which is
not "framed" by or "embedded" within any EHC web site content, pay to HMI a
portion of the revenue received by EHC pursuant to any transaction of which the
licensing of such Health Tool Application to a third party is a part, in a
manner and to an extent that equitably reflects the relative value of each
party's contribution to the transaction (with
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HMI's contribution being the extent to which the Health Vectors Tool and/or the
Health Talk Tool enabled the development of such Health Tool Application). In
light of the foregoing, such portion shall be as mutually agreed upon by the
parties.
H. * * *
2. AUDITS
Each party shall maintain sufficient records to track the revenues
generated under Part VI.1. Either party shall have the right to audit, on a
reasonable basis, the other party's records and agreements to confirm the
accuracy of the revenues reported by such party and compliance with the other
terms and conditions of this Agreement. Such audits shall be at the requesting
party's expense, unless the audit reflects a discrepancy of * * * percent or
more in favor of the other party , in which case, the audited party shall
reimburse the other party for the costs of the audit. In the event of a
underpayment, the audited party, within a reasonable period of time, shall pay
the discrepancy together with interest at a rate of the lesser of (i) one-and-
one-half percent (1 1/2%) per month from the date the discrepancy occurred; or
(ii) the maximum amount allowed by applicable law. In the event of an
overpayment, the auditing party shall, within a reasonable period of time,
refund the amount over paid.
3. OPPORTUNITIES FOR REVENUE SHARING
In instances where EHC derives revenue from any product or services it
markets, offers or provides in which there is a component made up entirely or in
part of products or services (or a group of products or services) for which
revenue sharing applies under this Part VI.1, if a group of such products and
services are priced together, or if one or more of the products and services are
given to an End User free of charge (or at a significant discount) as part of a
deal where the End User buys some products or services and gets some products or
services for free (or at a significant discount), then the portion of the
revenue received by EHC that is allocated to the revenue sharing product or
service will be determined by looking at EHC's separate suggested retail prices
of all products and services that are "bundled" together, and determining what
proportion the suggested retail price of each revenue sharing product or service
bear to the total suggested retail prices of all the products or services
bundled together; and then that proportion of the total amount received would be
allocated to such revenue sharing product or service.
4. REVENUE SHARING PROCEDURES
The procedures for the reporting, invoicing and payment of revenues shall
be mutually agreed to by the parties under commercially reasonable terms and
conditions.
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5. * * * STATUS
* * *
6. * * * REVENUES TO HMI
Until HMI has received a cumulative amount of * * * in Revenues from the
revenue sharing opportunities under Part VI.1, HMI shall receive * * * from such
opportunities* * *
7. BINDING ARBITRATION FOR RESOLUTION OF REVENUE SHARING DISPUTES
Should the informal dispute resolution procedure fail to resolve a dispute
between the parties with regard to the provisions of this Part VI, including
without limitation the amount and character of such revenue sharing, such
dispute shall be resolved by binding arbitration as described in Part VII.11.D.
8. COST OF PERFORMANCE
Except as otherwise set forth herein, neither party shall be obligated to
pay any taxes of the other or any other expenses which the other party may be
liable for based upon or in connection with the transactions contemplated by
this Agreement.
9. SURVIVAL OF REVENUE SHARING
A. For so long as EHC remains a licensee of LHR and/or PMR in any form, and
except as expressly set forth in this Agreement, both parties' obligations
under this Part VI shall survive the termination of this Agreement for any
reason.
________________________________________________________________________________
PART VII. COMMON TERMS AND CONDITIONS
1. WARRANTY DISCLAIMER
A. THE WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT BY EACH PARTY ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
AND ANY IMPLIED WARRANTIES ARISING FROM STATUTE, COURSE OF DEALING, COURSE OF
PERFORMANCE OR USAGE OF TRADE.
2. GENERAL INDEMNIFICATION
A. If, as a result of HMI's negligence or intentional tortious conduct, EHC
or EHC's employees suffer personal injury or damage to tangible property, HMI
will reimburse EHC for that portion of any claims EHC actually pays for which
HMI is legally liable. If, as a result of EHC's negligence or intentional
tortious conduct, HMI or HMI's employees suffer personal injury or damage to
tangible
__________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
22
<PAGE>
property, EHC will reimburse HMI for that portion of any claims HMI actually
pays for which EHC is legally liable.
B. EHC agrees that, in the event a third party brings an action against HMI
based upon a: (i) claimed breach of any of the representations and warranties
being provided by EHC in Part II.2 of this Agreement; (ii) breach of its
obligations pursuant to Part V.1.B of this Agreement; (iii) breach of its
security and other obligations with respect to End User Data pursuant to Part
VII.7; (iv) breach of its confidentiality obligations pursuant to Part VII.6 of
this Agreement or (v) breach of the warranties being provided by EHC in Part
III.3.C or Part V.1.B (to the extent that content developed and owned by EHC is
responsible for the breach of Part V.1.B) of this Agreement, EHC will indemnify,
hold harmless, and defend HMI from and against any and all damages, costs,
losses, claims, causes of action and lawsuits and expenses, including reasonable
attorneys' fees. * * *
C. HMI agrees that, in the event a third party brings an action against EHC
based upon a: (i) claimed breach of any of the representations and warranties
being provided by HMI in Part III.2.A of this Agreement; (ii) claim that the
execution by HMI of this Agreement or compliance by HMI with its terms and
conditions conflicts with or causes a breach or violation of any other
agreement; (iii) an error or omission in LHR; (iv) breach of its security and
other obligations with respect to End User Data pursuant to Part VII.7; (v)
breach of its confidentiality obligations pursuant to Part VII.6 of this
Agreement; or (vi) breach of the warranties being provided by HMI in Part
III.2.C, (to the extent that content developed and owned by HMI is responsible
for the breach of Part III.2.C), Part III.2.D or Part III.3.C of this Agreement,
HMI will indemnify, hold harmless, and defend EHC from and against any and all
damages, costs, losses, claims, causes of action and lawsuits and expenses,
including reasonable attorneys' fees.
3. INDEMNIFICATION PROCEDURES
A. Notice. Promptly after receipt by any entity entitled to indemnification
------
under this Agreement of notice of the commencement or threatened commencement of
any civil, criminal, administrative, or investigative action or proceeding
involving a claim in respect of which the indemnitee will seek indemnification
pursuant to the appropriate provision of this Agreement, the indemnitee shall
promptly notify the indemnitor of such claim in writing. No failure to so
notify an indemnitor shall relieve it of its obligations under this Agreement
except to the extent that it can demonstrate damages attributable to such
failure. Within fifteen (15) days following receipt of written notice from the
indemnitee relating to any claim, but no later than ten (10) days before the
date on which any response to a complaint or summons is due, the indemnitor
shall notify the indemnitee in writing if the indemnitor elects to assume
control of the defense and settlement of that claim (a "Notice of Election").
The indemnitor shall reimburse the indemnitee for all costs and expenses
incurred by the indemnitee in responding to such action or proceeding during the
period between when the indemnitee has notified the indemnitor of the claim in
writing and when the indemnitor delivers a Notice of Election in response or the
expiration of the required notice period for the Notice of Election to be
delivered, whichever comes first.
B. Procedure Following Notice of Election. If the indemnitor delivers a
--------------------------------------
Notice of Election relating to any claim within the required notice period, the
indemnitor shall be entitled to have sole control over
___________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
23
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the defense and settlement of such claim; provided that (i) the indemnitee shall
be entitled to participate in the defense of such claim and to employ counsel at
its own expense to assist in the handling of such claim, and (ii) the indemnitor
shall obtain the prior written approval of the indemnitee before entering into
any settlement of such claim or ceasing to defend against such claim. After the
indemnitor has delivered a Notice of Election and has assumed its obligations
under this Part VII.3 relating to any claim in accordance with the preceding
paragraph, the indemnitor shall not be liable to the indemnitee for any legal
expenses incurred by the indemnitee in connection with the defense of that
claim. In addition, the indemnitor shall not be required to indemnify the
indemnitee for any amount paid or payable by the indemnitee in the settlement of
any claim for which the indemnitor has delivered a timely Notice of Election if
such amount was agreed to without the written consent of the indemnitor.
C. Procedure Where No Notice of Election Is Delivered. If the indemnitor
--------------------------------------------------
does not deliver a Notice of Election relating to any claim within the required
notice period, the indemnitee shall have the right to defend the claim in such
manner as it may deem appropriate, at the cost and expense of the indemnitor.
The indemnitor shall promptly reimburse the indemnitee for all such costs and
expenses.
4. LIMITATION OF LIABILITY
To the maximum extent permitted by applicable law, each party's entire
liability and the other party's exclusive remedy for damages from any event or
claim arising under or relating to this Agreement, for any cause whatsoever, and
regardless of the form of action, whether in contract or in tort or any other
theory of liability (including, without limitation, breach of warranty and
negligence), will be limited as follows:
A. Each party will be liable for direct damages only, * * *
B. In no event will either party be liable for any lost profits, loss of
business, loss of use, lost savings or other consequential, special, incidental,
indirect, exemplary or punitive damages, even if advised of the possibility of
such damages.
C. The foregoing limitations shall not apply to: (i) claims that are the
subject of indemnification pursuant to Part VII.2; or (ii) claims arising out of
the breach of Part V.2, Part VI.1 (but only to the extent of unpaid revenues
plus accrued interest), or Part VII.6.
D. Each party shall have a duty to mitigate damages for which the other
party is responsible.
E. The remedies expressly stated in this Agreement are the sole and
exclusive remedies of either party. The limitations of liability set forth in
this Part VII.4 will survive the failure of any limited or exclusive remedy set
forth in this Agreement and the expiration or termination of this Agreement.
5. FORCE MAJEURE
Neither party will be deemed in default of this Agreement to the extent
that performance of its obligations, or attempts to cure any breach, are delayed
or prevented by reason of any act of God, cause
______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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outside of the party's reasonable control or other force majeure; provided that,
such party promptly gives to the other party written notice of the condition and
undertakes commercially reasonable efforts to circumvent the cause of the delay
or minimize the extent of the delay. In any such event, the time for performance
or cure will be extended for a period equal to the duration of the delay, not to
exceed four (4) weeks. If the notifying party does not resume performance of
such obligations or cure such breach before the end of such four (4) week
period, the other party will be entitled to terminate the Agreement immediately
without any obligation or liability to the delayed party for doing so.
6. NONDISCLOSURE
A. Each party acknowledges that it may be furnished with or may otherwise
receive or have access to non-public information which relates to past, present
or future research, development, improvements, inventions, processes, software,
techniques, designs or other technical data, contact lists or other compilations
for marketing or development, or regarding administrative, management, financial
or marketing activities of HMI, EHC or other third parties which have provided
information to HMI or EHC. "Confidential Information" is all information (i)
identified in written, graphic electronic or oral format by the Disclosing Party
as confidential, trade secret or proprietary information, or (ii) or by its
nature or the circumstances surrounding its disclosure should reasonably be
regarded as Confidential Information. "Disclosing Party" is the party
disclosing Confidential Information. "Receiving Party" is the party receiving
Confidential Information. Without limiting the generality of the foregoing,
Confidential Information shall be deemed to include End-User Data and data about
end users contained in Health Vectors, and the terms and conditions of this
Agreement.
B. All Confidential Information furnished or otherwise disclosed to either
party in the course of performing this Agreement shall remain the property of
and be deemed proprietary and confidential to the Disclosing Party (with the
exception of End-User Data which shall be deemed, for the purposes of protecting
the confidentiality of such End-User Data under this Agreement, to be
confidential to the Disclosing Party). Without limiting the foregoing, the
Receiving Party agrees: (a) to the extent permitted by applicable law, to hold
such Confidential Information in strict confidence and in trust for the
Disclosing Party; (b) to use the same degree of care in protecting the
Confidential Information for which it protects its own such confidential
information of like nature, but in no instance with less than reasonable care
to protect such Confidential Information against unauthorized use or disclosure;
and (c) to restrict disclosure of such Confidential Information to its employees
who (i) are directly participating in the performance of this Agreement; (ii)
have a need to know such Confidential Information; and (iii) have, upon the
request of the Disclosing Party as a prerequisite to the release of Confidential
Information, executed an employee nondisclosure agreement in a form mutually
acceptable to the Disclosing Party and the Receiving Party.
C. The Receiving Party further agrees that, with regard to Confidential
Information which it has received or itself generated, it will not disclose or
allow to be disclosed any such Confidential Information to any third party,
including, without limitation, any subsidiary, Affiliate, joint venture, any
other contractual, cooperative, or affiliated entity of the such third party, or
any independent entity without the express prior written consent of the
Disclosing Party, which consent the Disclosing Party may give or withhold in its
sole discretion unless disclosure of such Confidential Information is required
by applicable law. If a Disclosing Party consents to the disclosure of such
Confidential Information to any such third party, such disclosure shall not be
made until Receiving Party, the Disclosing Party and the third party have
entered into a non-disclosure agreement in a form acceptable to the Disclosing
Party.
25
<PAGE>
D. The Receiving Party shall not reproduce, disclose or use Confidential
Information, except for the sole purpose of performing its obligations under
this Agreement or in accordance with applicable law. Without limiting the
generality of the preceding sentence, the Receiving Party may not use
Confidential Information which it has received, collected or itself generated
for purposes other than performing its obligations under this Agreement without
the prior written consent of the Disclosing Party.
E. The limitations on reproduction, disclosure, or use of Confidential
Information shall not apply to, and neither party shall be liable for,
reproduction, disclosure, or use of any particular Confidential Information of
the other that:
(1) was developed independently by the Receiving Party prior to the
receipt of any Confidential Information under this Agreement, as evidenced by
written documents prepared or received by such party prior to the receipt of any
Confidential Information under this Agreement;
(2) was received without any obligation of confidentiality from a third
party that was rightfully in possession of such information and had the right to
disclose it to the Receiving Party without an obligation of confidentiality;
(3) has been published or otherwise disclosed to others by the
Disclosing Party without restrictions, or has come within the public knowledge
or become generally known to the public without breach of this Agreement;
(4) is a derivative of End-User Data (or data about end users contained
in Health Vectors) that is of a statistical/demographic nature and provided in
an anonymous form, as an aggregate of the similar information of multiple end
users that does not individually identify specific end users (e.g., the number
of LHR end users who are males between the ages of 25 and 40 reporting a
particular condition); or
(5) is legally required to be disclosed pursuant to a judicial order
(provided that, prior to such disclosure, the party ordered to make such a
disclosure promptly informs the other of the order).
The party seeking the protection of any of items (1) through (5) above shall
bear the burden of proof with respect to any such exception. Immediately upon
receipt by the Receiving Party of any request to release, disclose or use
Confidential Information, where such release, disclosure or use is required by
applicable law and is otherwise in contravention to the terms and conditions of
this Agreement, Receiving Party shall provide Disclosing Party written notice of
such request. Such notice shall be calculated to be sufficiently descriptive
and in advance of any such release, disclosure or use so as to allow Disclosing
Party the opportunity to raise any appropriate objections. Disclosing Party
shall be solely responsible for raising such objections and shall bear all
costs, including legal costs, associated with such objections. Confidential
Information may be disclosed on a need to know basis to the accountants and
attorneys of the Receiving Party without the consent of the Disclosing Party.
F. Should the Receiving Party receive information with uncertain status, the
Receiving Party agrees to treat such information as Confidential Information
until it receives written verification from the Disclosing Party that such
information is not Confidential Information.
G. Neither the execution of this Agreement, nor the furnishing of any
Confidential Information by the Disclosing Party or the Receiving Party shall be
construed as granting to either party expressly, by implication, by estoppel or
otherwise, any license under any trademark, copyright, invention or other
proprietary right now or hereafter owned or controlled by the party furnishing
such information.
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<PAGE>
H. Except as otherwise set forth in this Agreement, upon termination or
expiration of this Agreement for any reason, the Receiving Party shall, at the
Disclosing Party's option, either return or destroy all Confidential
Information, and shall destroy all analyses, compilations, forecasts, studies
and other documents based upon or derived from such Confidential Information,
and in each case shall retain no copies and shall cause an officer of the
Receiving Party to certify in writing that it has complied fully with its
obligations under this Part VII.6.H.
I. With regard to Confidential Information which either party has received
or itself generated, in the event either party becomes aware of any release,
disclosure or use of such Confidential Information which has not been authorized
by this Agreement, it will promptly, at its sole expense, (i) notify the
Disclosing Party in writing; (ii) take such actions as may be necessary or
reasonably requested by the Disclosing Party to minimize such unauthorized
release, distribution or use and any damage to the Disclosing Party resulting
therefrom; and (iii) to the extent permitted by applicable law, cooperate in all
reasonable respects with the Disclosing Party to minimize any such release,
distribution, use and damage. The Receiving Party shall be considered to have
cured its breach of this Part VII.6 provided that: (i) the Receiving Party has
taken commercially reasonable efforts to modify its nondisclosure procedures and
educate its personnel to reduce the likelihood of similar breaches of this Part
VII.6; and (ii) the Receiving Party has made commercially reasonable efforts to
limit further disclosures by the person(s) or entity(ies) to whom unauthorized
disclosure was made.
J. The provisions of this Part VII.6 shall survive the termination or
expiration of this Agreement for any reason for a period of five (5) years;
provided, however, that such provision shall continue to apply: (i) to End-User
Data; (ii) to the LHR Source Code, PMR Source Code, EHC Engaging Applications
Source Code and Health Tools Source Code; and (iii) as necessary to comply with
any applicable laws, regulations, ordinances and codes.
7. RIGHTS IN DATA; SECURITY
A. Within ninety (90) days of the Effective Date, the parties shall in good
faith commence negotiations to mutually agree upon a set of standards to govern:
(i) the location of particular elements or types of End-User Data, as between
LHR and the EHC Web Site; (ii) the presentation of derivatives of End-User Data
to third parties; (iii) physical and logical security measures to safeguard
against the unauthorized alteration of access to, or destruction or loss of, End
User Data; (iv) use of End-User Data that is specific to a particular end user
but provided in a "blinded" fashion that does not reveal identifying data about
such end user) and (v) other security policies related to HMI's and EHC's uses
of End User Data (items (i) through (iv) collectively, the "End-User Data
Standards"). Such Standards will be based on, or take into account standards or
guidelines promulgated by: (i) federal or applicable state or local
governmental organizations; and (ii) industry recognized groups/organizations.
If the parties are unable to agree upon the End-User Data Standards within a
reasonable time frame, the parties shall mutually agree on one expert to resolve
(in a binding manner) the differences between the parties preventing such
agreement. If the parties cannot agree on an expert, the expert shall be
nominated by the arbitration panel identified in Part VII.11.D.
B. Once established and agreed upon, each party shall be bound by and comply
with such End-User Data Standards.
C. Notwithstanding Part VII.7.A and Part VII.7.B above, HMI shall have: (i)
the right to provide market research or data analysis on the whole of LHR (i.e.,
on all End User Data contained in LHR including, without limitation, the EHC
Sourced End-User Data aggregated with end user data from other
27
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LHR customers) to third parties as specified in Part VI.1.H; and (ii) ongoing
access to EHC Sourced End-User Data as necessary to perform its obligations
under this Agreement including, without limitation, the ongoing maintenance,
support and enhancement of LHR (or the EHC LHR as the case may be).
8. DIGITAL SECURITY
To restrict access to LHR to authorized end users whose identity has been
verified, and to secure transmission of information over the Internet between
such end users and HMI, when using LHR, access to, and use of, LHR is protected
by a Digital Certificate based public-key encryption process. Accordingly,
prior to using LHR, end users shall be required to present a Digital Certificate
to HMI from an HMI approved Certifying Authority. Upon end user request, HMI
will serve as the Certifying Authority and issue an HMI Digital Certificate to
the end user. If the end user elects to obtain the Digital Certificate from an
HMI approved Certifying Authority (as opposed to HMI), the end user will be
responsible for any costs associated with acquiring such Digital Certificate.
9. INSURANCE
Each party will have and maintain in force the following insurance
coverages:
A. Comprehensive or Commercial General Liability Insurance, including
Products, Completed Operations Liability and Personal Injury, Blanket
Contractual Liability and Broad Form Property Damage Liability coverage for
damages to any property * * *
B. Employee Dishonesty and Computer Fraud coverage for loss arising out of
or in connection with any fraudulent or dishonest acts committed by the
employees or agents of the insured party, acting alone or in collusion with
others, including the property and funds of others in their care, custody or
control* * *
C. Errors and Omissions Liability Insurance covering the liability for
financial loss due to error, omission, negligence of employees and machine
malfunction * * *
D. Software Errors and Omissions Liability Insurance covering the liability
for financial loss due to software errors and omissions * * *
Each party shall cause its insurers to issue certificates of insurance
evidencing that the coverages and policy endorsements required under this
Agreement are maintained in force and that not less than thirty (30) days
written notice shall be given to the other party prior to any modification,
cancellation or non-renewal of the policies.
10. TERMINATION
A. If either party believes that the other party has failed in any material
respect to perform its obligations under this Agreement, then that party may
provide written notice to the breaching party
_____________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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describing the alleged failure in reasonable detail. If the breaching party does
not, within thirty (30) calendar days after receiving such written notice,
either (i) cure the material failure or (ii) if the breach is not one that can
reasonably be cured within thirty (30) calendar days, develop a plan to cure the
failure and diligently proceed according to the plan until the material failure
has been cured, then the non-breaching party may terminate this Agreement for
cause by providing written notice to the non-breaching party. Termination of
this Agreement will be in addition to, and not in lieu of, other remedies
available to the terminating party under this Agreement.
B. Either party may terminate this Agreement by giving the other party prior
written notice and designating a date upon which such termination shall be
effective if the notifying party makes a general assignment for the benefit of
creditors, files a voluntary petition of bankruptcy, suffers or permits the
appointment of a receiver for its business or assets, becomes subject to any
proceeding under any bankruptcy or insolvency law, whether domestic or foreign,
that is not dismissed within one hundred and twenty (120) days, or has wound up
or liquidated, voluntarily or otherwise.
C. Within thirty (30) days after the expiration or termination of this
Agreement for any reason: (i) EHC shall cease all use of and, at HMI's
election, return to HMI or destroy the original and all copies (including
partial copies) of all software, documentation, all HMI Confidential
Information, and any other products or materials licensed or otherwise provided
to EHC under this Agreement (including, without limitation, LHR, the Acquired
Assets, PMR, the Health Talk Tool and the Health Vectors Tool and HMI or third-
party Engaging Applications) for which EHC does not possess a valid license that
expressly by its terms survives the expiration or termination of this Agreement
("HMI Items"); (ii) all rights granted to EHC in and to such HMI items shall
terminate; (iii) HMI shall cease all use of and, at EHC's election, return to
EHC or destroy all EHC Engaging Applications licensed or otherwise provided to
HMI pursuant to this Agreement, as well as return to EHC or destroy the original
and all copies (including partial copies) of all EHC Confidential Information
and any other products or materials licensed or otherwise provided to HMI under
this Agreement; and (iv) all rights granted to HMI in and to such products shall
terminate. Each party shall certify in writing to the other party that it has
fully performed its obligations under this paragraph.
11. LAW AND DISPUTES
A. This Agreement will be governed by the laws of the State of Delaware,
without regard to any provision of Delaware law that would require or permit the
application of the substantive law of any other jurisdiction.
B. Informal Dispute Resolution.
---------------------------
(1) Prior to the initiation of formal dispute resolution procedures,
the parties shall first attempt to resolve their dispute informally, as follows:
a) Upon the written request of a party, each party shall appoint a
designated representative whose task it will be to meet for the purpose of
endeavoring to resolve such dispute.
b) The designated representatives shall meet as often as the
parties reasonably deem necessary in order to gather and furnish to the other
all information with respect to the matter in issue which the parties believe to
be appropriate and germane in connection with its resolution. The
representatives shall discuss the problem and attempt to resolve the dispute
without the necessity of any formal proceeding.
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c) During the course of discussion, all reasonable requests made
by one party to another for nonprivileged information, reasonably related to
this Agreement, shall be honored in order that each of the parties may be fully
advised of the other's position.
d) The specific format for the discussions shall be left to the
discretion of the designated representatives.
(2) Formal proceedings for the resolution of a dispute may not be
commenced until the earlier of:
a) the designated representatives concluding in good faith that
amicable resolution through continued negotiation of the matter does not appear
likely; or
b) thirty (30) days after the initial written request to appoint a
designated representative pursuant to Paragraph (a) above (this period shall be
deemed to run notwithstanding any claim that the process described in this Part
VII.11.B was not followed or completed).
(3) Part VII.11.B shall not be construed to prevent a party from
instituting, and a party is authorized to institute, formal proceedings earlier
to avoid the expiration of any applicable limitations period, or to preserve a
superior position with respect to other creditors.
C. Immediate Injunctive Relief.
---------------------------
The parties agree that the only circumstance in which disputes between
them shall not be subject to the provisions of Part VII.11.B is where a party
makes a good faith determination that a breach of the terms of this Agreement by
the other party is such that a temporary restraining order or other injunctive
relief is the only appropriate and adequate remedy. If a party files a pleading
with a court seeking immediate injunctive relief and this pleading is challenged
by the other party and the injunctive relief sought is not awarded in
substantial part, the party filing the pleading seeking immediate injunctive
relieve shall pay all of the costs and attorneys' fees of the party successfully
challenging the pleading.
D. Binding Arbitration.
-------------------
(1) Subject to Part VII.11.B above, and only where a particular part of
this Agreement calls for arbitration between the parties, such question or
dispute arising out of or relating to this Agreement will be determined by
binding arbitration in the location of the principal place of a business of the
party who does not make the initial claim for arbitration, under the American
Arbitration Association ("AAA") Commercial Arbitration Rules with Expedited
Procedures in effect on the date hereof, as modified by this Agreement.
(2) There will be one arbitrator selected by the parties within ten
(10) days of the arbitration demand or if not, by the AAA from its Large,
Complex Case Panel (or have similar professional credentials), who shall be an
attorney with at least fifteen (15) years commercial law experience. Any issues
about whether a claim is covered by this Agreement will be determined by the
arbitrator.
(3) As may be shown to be necessary to ensure a fair hearing: the
arbitrator may authorize limited discovery; and may enter pre-hearing orders
regarding, without limitation, scheduling, document exchange, witness disclosure
and issues to be heard. The arbitrator will not be bound by the rules of
evidence or of civil procedure, but may consider such writings and oral
presentations as reasonable people would use in the conduct of their day-to-day
affairs, and may require the parties to submit some or all of their case by
written declaration or such other manner of presentation as the arbitrator may
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determine to be appropriate. The parties intend to limit live testimony and
cross-examination to the extent necessary to ensure a fair hearing on material
issues.
(4) The parties agree that the arbitrator will be directed to use best
efforts to: (i) hold a private hearing within sixty (60) days after the initial
demand for arbitration; (ii) conclude the hearing within three (3) days; and
(iii) provide his or her written decision not later than fourteen (14) days
after the hearing. In making the decision and award, the arbitrator shall apply
the applicable substantive law. Absent fraud, collusion or willful misconduct by
the arbitrator, the arbitrator's award will be final, and judgment may be
entered in any court having jurisdiction thereof. The arbitrator will award
attorneys' fees and costs to the prevailing party but will have no authority to
award any damages that are excluded by the terms and conditions of this
Agreement. Either party will have the right to apply at any time to a judicial
authority for appropriate injunctive or other interim or provisional relief, and
will not by doing so be deemed to have breached its agreement to arbitrate or to
have affected the powers reserved to the arbitrator.
(5) Neither party nor the arbitrator may disclose the existence, content
or results of an arbitration without the prior written consent of both parties.
E. Both HMI and EHC agree to comply fully with all relevant export laws and
regulations of the United States to ensure that no information or technical data
provided pursuant to this Agreement is exported or re-exported directly or
indirectly in violation of law.
F. No proceeding, regardless of form, arising out of or related to this
Agreement may be brought by either party more than two (2) years after the
accrual of the cause of action, except that (i) proceedings related to violation
of a party's proprietary rights or any duty to protect Confidential Information
may be brought at any time within the applicable statute of limitations, and
(ii) proceedings for non-payment may be brought up to two (2) years after the
date the last payment was due.
12. GENERAL
A. Any notice or other communication required or permitted to be made or given
by either party pursuant to this Agreement will be in writing, and will be
deemed to have been duly given: (i) five (5) business days after the date of
mailing if sent by registered or certified U.S. mail, postage prepaid, with
return receipt requested; (ii) when transmitted if sent by facsimile, provided a
confirmation of transmission is produced by the sending machine and a copy of
such facsimile is promptly sent by another means specified in this section; or
(iii) when delivered if delivered personally or sent by express
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courier service. All notices will be sent to the other party at its address as
set forth below or at such other address as such party will have specified in a
notice given in accordance with this section:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
In the case of EHC: With a copy to:
----------------------------------------------------------------------------------
<S> <C>
Empower Health Corporation, Inc. Latham & Watkins
8920 Business Park Drive 135 Commonwealth Ave.
Austin, TX 78759 Menlo Park, Ca 94025
Attn: Chief Financial Attn: Anthony Richmond
Fax: Fax: 650 463-2600
----------------------------------------------------------------------------------
In the case of HMI: With a copy to:
----------------------------------------------------------------------------------
HealthMagic, Inc. Shaw, Pittman, Potts & Trowbridge
1444 Wazee Street, Suite 210 1501 Farm Credit Drive
Denver, Colorado 80202 McLean, Virginia 22102-0500
Attn: Calvin Wiese Attn: Steven Meltzer, Esq.
Fax: 407 975 1548 Fax: 703-821-2397
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
B. Each party will act in good faith in its performance of this Agreement
and will not unreasonably delay or withhold the giving of any consent, decision
or approval that is either requested by the other party or is reasonably
required by the other party in order to perform its responsibilities in
accordance with this Agreement.
C. Assignment/Change in Control.
-----------------------------
(1) Neither party may assign, delegate or otherwise transfer any right
or obligation set forth in this Agreement without the other party's prior
written consent, except (subject to Part VII.12.C(2)) that a party may assign
any right or obligation set forth in this Agreement to an Affiliate or to a
successor entity in the event of a merger, consolidation or sale of such party's
business or all or substantially all of such party's stock or assets, provided
the assignee agrees in writing to assume all of the assignor's obligations and
liabilities under this Agreement, and provided further that the substitution of
the rights of the assignee for the rights of the assignor does not materially
increase the scope of, in the case of EHC, EHC's use of HMI Materials and HMI or
third party Engaging Applications, or in the case of HMI, HMI's use of EHC
Engaging Applications, or materially increase the burden or risk imposed on the
other party by this Agreement. Any purported assignment in violation of the
preceding sentence will be void and of no effect. This Agreement will be binding
upon the parties' respective successors and permitted assigns.
(2) Immediately upon Control of HMI passing to an individual entity (or
a group of entities in the aggregate each of) whose main business is the
manufacture and/or sale of pharmaceuticals, tobacco products or insurance or to
a Direct Competitor of EHC, or Control of EHC passing to an entity who is a
Direct Competitor of HMI: * * * At the end of such transition period: (i) EHC
shall cease all
____________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
32
<PAGE>
use of and, at HMI's election, return to HMI or destroy all HMI products
licensed or otherwise provided to EHC pursuant to this Agreement (including,
without limitation, LHR, the Acquired Assets, PMR, the Health Talk Tool and the
Health Vectors Tool and HMI or third party Engaging Applications, including
source code); (ii) all rights granted to EHC in and to such products shall
terminate; (iii) HMI shall cease all use of and, at EHC's election, return to
EHC or destroy all EHC Engaging Applications, including source code, licensed or
otherwise provided to HMI pursuant to this Agreement; and (iv) all rights
granted to HMI in and to such products shall terminate. For the purposes of this
Agreement, "Control" shall mean the legal, beneficial, or equitable ownership,
directly or indirectly, of more than fifty percent (50%) of a class of the
capital stock of HMI ordinarily having voting rights. "Direct Competitor of EHC"
and "Direct Competitor of HMI" shall be defined by mutual agreement of the
parties, or failing mutual agreement through the binding arbitration procedure
described in Part VII.11.D.
D. Except as otherwise permitted by the terms of this Agreement, all media
releases, public announcements, and public disclosures by either party relating
to this Agreement or the subject matter of this Agreement, including promotional
or marketing material, but not including announcements intended solely for
internal distribution or disclosures to the extent required to meet legal or
regulatory requirements beyond the reasonable control of the disclosing party,
shall be coordinated with and approved by other party prior to release.
Notwithstanding the preceding sentence, HMI may identify Empower as a client and
generally state the nature of HMI's relationship with EHC provided that HMI
shall first obtain the written consent of EHC, which consent shall not be
unreasonably withheld or delayed.
E. There are no intended third party beneficiaries of any provision of this
Agreement.
F. EHC and HMI are and will remain independent contractors with respect to all
performance rendered pursuant to this Agreement. Neither EHC nor any employee or
agent of EHC will be considered an employee or agent of HMI for any purpose.
Neither HMI nor any employee or agent of HMI will be considered an employee or
agent of EHC for any purpose. Neither party, nor its employees, will have any
authority to bind or make commitments on behalf of the other party for any
purpose, nor will it or they hold itself or themselves out as having such
authority. Each party will be solely responsible for supervising, providing
daily direction and control, paying the salaries (including withholding of
income taxes and social security), worker's compensation, disability benefits
and the like of its personnel.
G. The provisions of this Agreement will be deemed severable, and the
unenforceability of any one or more provisions will not affect the
enforceability of any other provisions. In addition, if any provision of this
Agreement, for any reason, is declared to be unenforceable, the parties will
substitute an enforceable provision that, to the maximum extent possible in
accordance with applicable law, preserves the original intentions and economic
positions of the parties.
H. No failure or delay by either party in exercising any right, power or
remedy will operate as a waiver of such right, power or remedy, and no waiver
will be effective unless it is in writing and signed by the waiving party. If
either party waives any right, power or remedy, such waiver will not waive any
successive or other right, power or remedy the party may have under this
Agreement.
I. Any provisions of this Agreement that by their sense and context
contemplate continued performance or observance by one or both parties following
the expiration or termination for any reason of this Agreement will survive any
such expiration or termination.
33
<PAGE>
J. Headings used in this Agreement are for convenience of reference only,
and will not be used to interpret or construe this Agreement.
K. The Exhibits referred to in and attached to this Agreement are made a part
of it as if fully included in the text.
L. This Agreement constitutes the entire agreement between the parties, and
supersedes all other prior or contemporaneous communications between the parties
(whether written or oral) relating to the subject matter of this Agreement. This
Agreement may be modified or amended solely in a writing signed by both parties.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which shall constitute one and the same
instrument.
By signing below, each party acknowledges that it has read this Software Sale,
License and Development Agreement, understands it and, intending to be legally
bound by this Agreement, has caused its authorized representative to execute
this Agreement as of the date first written above.
HealthMagic, Inc. (HMI) Empower Health Corporation (EHC)
By: /s/ Calvin Wiese By: /s/ Donald Hackett
--------------------------- ------------------------------
Name: Calvin Wiese Name: Donald Hackett
------------------------- ----------------------------
Title: Chairman & President Title: CEO
------------------------ ---------------------------
34
<PAGE>
EXHIBIT A
TERMS AND CONDITIONS FOR EHC SERVICES
Please see the attached HMI consulting services agreement.
A-1
<PAGE>
EXHIBIT B
CONFIDENTIALITY AGREEMENT
Please see the attached HMI Confidentiality Agreement
B-1
<PAGE>
EXHIBIT C
WARRANTY DISCLOSURES BY EHC
2.A The following licenses can not be verified:
Pull-down calendar control
All Icons and graphic backgrounds
The following third party software toolkits are included in the PMR:
Stingray Software
Objective Grid
Objective Toolkit
Objective Chart
2.G Third parties involved in the development:
Superior Consultant
Microsoft Corporation
C-1
<PAGE>
EXHIBIT D
DEFINITION OF "PERSONAL MEDICAL RECORD"
"Personal Medical Record" means a repository of health information throughout
the life of the consumer or individual which includes all of the following:
(1) The medical records maintained by providers, health plans,
laboratories, nursing homes, home care enterprises, etc, as well as summaries of
such information;
(2) A place for the consumer to deposit health status information (so that
the information can be compared over time);
(3) A mechanism whereby providers, health plans and employers can monitor
compliance; and
(4) A Universal Patient Index Service containing demographic and
transactional information, as well as various identifiers about the individual.
D-1
<PAGE>
EXHIBIT E
SERVICE LEVEL AGREEMENT
This Exhibit E to be completed by the parties within sixty (60) days of LHR
first being hosted at the Third-Party Secured Site.
E-1
<PAGE>
EXHIBIT F
TECHNOLOGY ESCROW AGREEMENT
<PAGE>
EXHIBIT 10.14
@HOME NETWORK/DRKOOP.COM INC.
CONTENT LICENSE AND DISTRIBUTION AGREEMENT
At Home Corporation, a Delaware corporation with principal offices at 425
Broadway, Redwood City, CA 94063 ("@Home") and Empower Health Corporation, d.b.a
DrKoop.com, Inc., a Texas corporation with principal offices at 8920 Business
Park Drive, Austin, TX, 78759 ("DrKoop.com") hereby enter into this
@Home/DrKoop.com Content License and Distribution Agreement (this "Agreement")
as of March 10 (the "Effective Date") to establish DrKoop.com Content on the
@Home Service in accordance with the terms and subject to the conditions of this
Agreement.
In consideration of the representations, warranties and covenants contained
herein, and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree to be bound by the terms and conditions
of this Agreement.
At Home Corporation Empower Health Corporation
By /s/ David Bagshaw By /s/ Dennis Upah
---------------------------- -------------------------
Name: David Bagshaw Name: Dennis Upah
---------------------------- -------------------------
Title: S.V.P. @Home Network Title: Chief Operating Officer,
----------------------------
drkoop.com, Inc.
-------------------------
- ----------------------
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated * * *. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
@HOME NETWORK/DRKOOP.COM
CONTENT LICENSE AND DISTRIBUTION AGREEMENT
The parties agree as follows:
1. Definitions. Capitalized terms shall have the meanings set forth in this
-----------
Section 1 or as elsewhere defined in the body of the Agreement.
(a) "@Home Service" means the @Home Network broadband service offering
of Internet access for personal computers created by @Home and @Home's
Distribution Affiliates in connection with @Home's provision of Internet access
via the cable infrastructure and delivered to paying @Home residential PC
service subscribers at speeds in excess of 128kbs as of the Effective Date.
(b) "Above the Fold" means situated within that portion of a page that
is designed to be visible on a standard computer screen with a resolution of 800
pixels by 600 pixels without requiring the user to scroll horizontally or
vertically through the page.
(c) "Benchmark Subscriber Levels" means, the estimate of the total
number of paying @Home subscribers to the @Home Service by particular dates as
set forth in Attachment A hereto.
(d) "Contract Year" means a period beginning on the Effective Date or
any anniversary thereof, and ending one year later.
(e) "Cover Feature" means the portion of the Channel or Sub-Channel
Home Page that is produced daily by the @Home editorial staff.
(f) "Distribution Affiliates" means at any given time, @Home's then-
current domestic distribution affiliates who offer the @Home Service.
(g) "Impression" means a single viewing of a page. An Impression is
recorded whether or not the viewer acts on an advertisement located on that
page.
(h) "DrKoop.com Content" means a collection of web pages, or portion
thereof, on the @Home Service programmed by, and provided to @Home by,
DrKoop.com.
(i) "DrKoop.com" means the World Wide Web site with URL: Error!
Bookmark not defined.
(j) "LifeStyle Channel" means a collection of web pages on the @Home
Service that are grouped together by a persistent, dedicated navigation HTML
button currently labeled "LifeStyle", which is directly accessible from the main
navigation menu of the @Home Service.
(k) "LifeStyle Home Page" means the first page accessed when entering
the LifeStyle Channel.
(l) "Net Advertising Revenue" means the gross advertising and
sponsorship revenue collected by @Home which is directly attributable solely to
DrKoop.com Content, less third party
.Page 2
<PAGE>
agency commissions and seller sales costs to be computed as 15% of the gross
advertising and sponsorship revenue generated from DrKoop.com Content.
(m) "Net Transaction Revenue" means the gross transaction revenue
received by DrKoop.com from @Home Subscribers less direct cost of goods sold
(COGS).
(n) "Health Home Page" means the first page accessed when entering the
Health Sub-Channel.
(o) "Quarterly Period" means with respect to any Contract Year, a three
month period starting at either: (i) the beginning of such Contract Year; (ii)
three months after the beginning of such Contract Year; (iii) six months after
the beginning of such Contract Year; or (iv) nine months after the beginning of
such Contract Year.
(p) "Semiannual Period" means, with respect to any Contract Year, a six
month period starting at either: (i) the beginning of such Contract Year; or
(ii) six months after the beginning of such Contract Year.
2. @Home Channel Contribution.
--------------------------
(a) Persistent Channel Navigation. During the term of this Agreement,
------------------------------
@Home will provide one button in the LifeStyle Channel navigation bar dedicated
to accessing "Health" (the "Health Button"). The Health Button will: (i) receive
persistent placement, (ii) be accessible from any page within the LifeStyle
Channel area, and (iii) link to DrKoop.com Content. The button will appear Above
the Fold in a position that encourages use of the @Home Lifestyle Channel. In
addition, @Home may, in its sole discretion, add additional navigational
elements or links across the @Home Service which link to all or part of
DrKoop.com Content.
(b) Anchor Tenancy. @Home agrees that during the term of the Agreement,
--------------
DrKoop.com will be the Anchor Tenant content provider on @Home for the Health
Sub-channel. For purposes of this agreement, "Anchor Tenant" means:
(i) DrKoop.com Channel Branding. @Home will place the DrKoop.com
---------------------------
brand (as designated by the parties) on the Health Home Page and all subsequent
DrKoop.com co-created pages. The logo and branding shall be mutually agreed upon
and shall comply with @Home and DrKoop.com trademark usage guidelines and will
demonstrate that all Dr.Koop.com content is powered by Dr.Koop.com, and will
include, at a minimum, a hyperlinked tagline "Provided by drkoop.com" that links
to www.drkoop.com.
(ii) DrKoop.com Content Appearance on the Health Home Page.
-----------------------------------------------------
DrKoop.com Content from the within the Health sub-channel will receive
persistent and prominent placement on the Health Home Page. Both parties will
work together to determine the optimal mix of DrKoop.com Content to integrate
into the Health Home Page to provide the optimal user experience and to
encourage broad use of the Health sub-channel.
(iii) @Home will promote DrKoop.com Content on the Health Home Page
at a level greater than that given to other third party content providers that
are primarily engaged in the distribution of Health content in the Health Sub-
Channel.
.Page 3
<PAGE>
(iv) From time to time, @Home may create features based on Health
related stories. Where appropriate in @Home's discretion, @Home will
contextually link such features to the DrKoop.com Content offering.
(v) Where DrKoop.com Content beneficially supplements an @Home
Cover Feature, @Home will make reasonable efforts to link to such DrKoop.com
Content from the Cover Feature.
(c) Editorial Autonomy. Notwithstanding the provisions of Section 2(b)
------------------ ------------
above, DrKoop.com's status as an Anchor Tenant shall in no way affect @Home's
editorial discretion. Such discretion includes (by way of example only and
without limitation):
(i) Linkage to information sources within or outside of the
LifeStyle Channel or @Home Service on a basis which provides preferential
treatment to such other sources in cases where DrKoop.com Content provides only
tangentially related or less extensive coverage for a Cover Feature topic than
do such other sources.
(ii) Placement of @Home editorial features within the LifeStyle
Channel or other Channels or Sub-Channels across the @Home Service.
(iii) Local programming by the Distribution Affiliates.
(d) Product Development and Product Creation. All facets of the Health
----------------------------------------
Sub-Channel will be created, designed, and administered by the @Home Network
editorial and production staffs. DrKoop.com will play an integral role in the
product development and day-to-day editorial decisions but final discretion will
be in @Home.
(e) New Distribution Channels or Service Applications. If @Home creates
-------------------------------------------------
additional software or standalone desktop applications which supplement the
@Home Service and which contain content with a lifestyle or health focus, then
@Home agrees to make good faith efforts to assist DrKoop.com in gaining
premier/preferred positioning with such application.
(f) Right of First Refusal on Additional Content. @Home agrees to offer
--------------------------------------------
DrKoop.com first right of refusal to fulfill any health related content to be
implemented on the @Home Network for the term of this agreement. DrKoop.com will
have * * * days to respond to this request, stating intentions to provide or not
provide the requested content, services or otherwise. If DrKoop.com agrees to
provide this health content, @Home and DrKoop.com will negotiate in good faith
and mutually agree on an acceptable time frame for delivery of the content,
services or otherwise. If the parties cannot so agree or DrKoop.com does not
respond within such * * * day period, @Home will be free to negotiate with third
parties to fulfill any such health related content needs of @Home.
____________________
*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with the respect to the omitted portions.
.Page 4
<PAGE>
3. @Home Marketing Contribution
(a) Ad Inventory. At part of its consideration hereunder, @Home will
------------
provide DrKoop.com with * * * Above the Fold advertising Impressions in each
contract year at no additional cost to promote the DrKoop.com Content on @Home.
The advertisements will be cross-promoted across the @Home Channels (run of
site) such as "Finance", "LifeStyle", "Entertainment", and "Technology". @Home
will also provide creative services to assist the production of up to three
B*Box advertisements over the term of the agreement. In addition, @Home will
offer DrKoop.com additional b*box impressions at pricing based upon the most
favorable rate card currently provided to @Home's advertising customers.
(b) Outbound Marketing. Home will use reasonable efforts to encourage
------------------
its Distribution Affiliates to include DrKoop.com in any content-related
external marketing pieces. These marketing pieces may be expected, at a minimum,
to include the DrKoop.com logo but may also include the DrKoop.com descriptions,
screen shots, video of the @Home Service which includes DrKoop.com Content, etc.
Possible marketing avenues may include, but are not limited to, cable TV spots,
newspaper ads, bill stuffers, postcards, door hangers, direct mail, and take-one
brochures. Subject to DrKoop.com's pre-approval, DrKoop.com will provide @Home
with guidelines for how to describe/display DrKoop.com in @Home outbound
marketing efforts.
(c) Other Online Marketing. @Home and DrKoop.com will work together to
----------------------
include DrKoop.com in other appropriate online mechanisms for showcasing
DrKoop.com Content and other offerings as these mechanisms are developed.
(d) Usage Data. To the extent both parties are legally and contractually
----------
permitted, they will provide each other with aggregated usage data concerning
access (site visitation, videos downloaded, etc.) by visitors to the Health Sub-
Channel and Drkoop.com. This data will be used for internal use only. Usage data
reports will be provided quarterly and as reasonably requested by both parties.
The reports will be delivered in the format most commonly collected by each
party. All usage data will be considered Confidential Information of the
collecting party (as such term is defined in Section 17 below). Both parties
----------
agree that, unless each is previously legally or contractually otherwise
required, they will not provide usage data specific to the LifeStyle Channel or
DrKoop.com that has not been aggregated with other data to any third-party,
other than Distribution Affiliates, without the other party's prior consent.
(e) Links to DrKoop.com. @Home will provide hyperlinks to the
-------------------
DrKoop.com web site. These links will be contextually embedded in the content
served on the @Home Network, which will link the user to the relevant commerce,
interactive community or interactive tool located on the DrKoop.com web site.
The contextually relevant content may include, but is not limited to, the news
shelf, related sites, top stories, cover stories, and other pages or sub-
channels within the navigation menu.
_______________
*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with the respect to the omitted portions.
.Page 5
<PAGE>
4. @Home Network and Distribution Contribution.
-------------------------------------------
(a) @Home Distribution. @Home will distribute DrKoop.com Content through
------------------
all means by which it distributes its national content to subscribers using
personal computers as of the Effective Date.
(b) Channel Serving and Distribution. @Home will provide backbone
--------------------------------
transport, caching, and network management associated with the distribution of
DrKoop.com Content and any related content to @Home subscribers over the @Home
Network. Without limiting any rights @Home may have under applicable laws,
DrKoop.com agrees that @Home may promote (as contemplated by this Agreement),
transport (i.e. transmit and serve), cache on proxy servers, replicate on
replication servers and reproduce on related storage devices operated by @Home
and its Distribution Affiliates, the content provided by DrKoop.com to @Home for
the Health Sub-Channel.
5. DrKoop.com Contribution.
-----------------------
(a) DrKoop.com Content. DrKoop.com Content shall consist of Health
------------------
content that is rich in graphics, text, and video and will include, at a
minimum, Health data supplied by DrKoop.com to be redistributed on @Home as
follows:
1. Diseases and Conditions centers
2. Health Topics
3. Health and Wellness centers
4. Dr. Koop's Health Site Reviews (over 650 health sites)
5. Accredited Medical Institutional content (Dartmouth/Koop
Institute/ UPENN)
6. Medical Encyclopedia content (Expected 5/99)
7. Dr. Nancy Snyderman's daily health column and "Ask Dr. Nancy"
archives
8. Dr. Koop's Online Drugstore and Pharmacy
9. Dr. Koop's editorial health news
10. Interactive Community support groups
11. Access to Dr. Koop's Community Partner Program content
12. "In the Spotlight" events and transcripts
(b) Active Web Presence. During the term of this Agreement, DrKoop.com
-------------------
will maintain at all times an Active Web Presence. For the purpose of this
Agreement, "Active Web Presence" means the maintenance of the DrKoop.com World
Wide Web site at a level at least equal to the level of performance and
functionality as offered on the Effective Date (including breadth and depth of
offerings, services and suppliers).
(c) Quality of Services. If the quality of the primary features and
-------------------
functions of DrKoop.com Content (including, frequency of updates, breadth and
depth of coverage, usability, etc.) are not substantially equal to or better
than the analogous functions and features provided by DrKoop.com or by
DrKoop.com for their distribution partners, then @Home may so notify DrKoop.com
in writing of such deficiencies, including a description of how DrKoop.com
Content is deficient. Within thirty (30) days of receiving such notice
DrKoop.com will provide @Home with a reasonable plan for rectifying such
deficiencies. Such plan must be completed as soon as possible and in no event
later than ninety (90) days after the date DrKoop.com received the notice of
.Page 6
<PAGE>
deficiency. If DrKoop.com fails to provide such plan or to implement it within
such periods, or if such implementation does not rectify the specified
deficiencies, then @Home may terminate this Agreement in its entirety or may
terminate all or any portion of the rights granted to DrKoop.com pursuant to
Section 2 above.
(d) Customer Support. Customer support related to DrKoop.com Content
----------------
will be provided by DrKoop.com. DrKoop.com shall provide @Home with customer
support telephone numbers, e-mails and contacts and @Home agrees to forward any
requests for customer support to the designated personnel and email mailboxes.
(e) Link Back. DrKoop.com, Inc agrees to include on a "hot link" back
---------
to @Home from all DrKoop.com stories that @Home links to from the @Home service.
In other words, DrKoop.com will include a "link back" for those @Home
subscribers connecting to a DrKoop.com story on DrKoop.com via an @Home HTML
link.
6. Joint @Home/DrKoop.com Contribution.
-----------------------------------
(a) Technical Specifications. DrKoop.com and @Home will mutually agree
------------------------
upon the technical specifications for DrKoop.com Content. If @Home makes changes
in the applicable technical specifications, DrKoop.com will make good faith
efforts to promptly comply with such changes.
(b) User Interface and Content. @Home and DrKoop.com will mutually
--------------------------
agree on the user interface design (which shall be consistent with the @Home
look-and-feel) and on the types of content which appear in the Health Sub-
Channel. @Home and DrKoop.com will mutually agree upon the broadband content
specifications (e.g., video size, frame rate etc.) for DrKoop.com broadband
related content. If @Home makes changes in the applicable broadband content
specifications, DrKoop.com will make good faith efforts to promptly comply with
such changes.
(c) @Home User Interface Change. @Home reserves the right to make
---------------------------
changes to the @Home Service user interface at its discretion; provided that
@Home will give DrKoop.com reasonable prior notice of any change that is likely
to have a material impact on DrKoop.com promotional placements or advertising
Impressions (including, among other things, the size, functionality, prominence
or relative importance of such placements or advertisements). To the extent
commercially practicable, @Home will consult with DrKoop.com regarding
adjustments (if any) required by DrKoop.com in connection with such changes.
7. Cash Compensation.
-----------------
(a) Guaranteed Service Payments to @Home. The parties have agreed that
------------------------------------
the total value of the services provided by @Home for development, promotion,
and carriage during the term of the agreement (as outlined hereunder) are * * *
in Contract Year One and * * * in Contact Year Two.
_______________
*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with the respect to the omitted portions.
.Page 7
<PAGE>
(b) Payment Schedule. Service Payments shall be made in cash during the
----------------
Contract Year (the "Cash Payments") and such Cash Payments will become due in
quarterly installments. Each Cash Payment shall be paid within thirty (30) days
preceding the relevant Quarterly Period according to the following payment
schedule:
-------------- ------------------------ -------------------------
Quarter Contract Year One Contract Year Two
-------------- ------------------------ -------------------------
Q1 * * * * * *
-------------- ------------------------ -------------------------
Q2 * * * * * *
-------------- ------------------------ -------------------------
Q3 * * * * * *
-------------- ------------------------ -------------------------
Q4 * * * * * *
-------------- ------------------------ -------------------------
(c) Method of Payment. Cash Payments will be made by check or wire
-----------------
transfer to the following account: Silicon Valley Bank Santa Clara, Routing/
Transit # 121140399, For Credit of: At Home Corporation, Credit Account #
3300113199, By Order of: DrKoop.com, Inc.
8. Other Financial Considerations.
------------------------------
(a) Advertising Revenue. @Home has now and shall retain at all times
-------------------
during the Agreement the exclusive right to sell advertising inventory on the
LifeStyle Channel (including the Health Sub-Channel and any other Sub-Channels
which may be established now or in the future which feature DrKoop.com Content).
* * *
(b) Video News Content Inventory. DrKoop.com has the exclusive right to
----------------------------
sell sponsorships of DrKoop.com video content which are embedded directly in any
video that is shipped to @Home by DrKoop.com. DrKoop.com will retain all revenue
generated by such sponsorships embedded in DrKoop.com video content.
(c) Transaction Revenue. DrKoop.com will remit to @Home * * * of its
-------------------
Net Transaction Revenue generated from @Home subscribers on DrKoop.com.
(d) Payment Frequency. All Net Advertising Revenue and Net Transaction
-----------------
Revenue amounts owed from one party to the other shall be paid within thirty
(30) days following the end of each Semiannual Period of the Contract Year.
_______________
*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with the respect to the omitted portions.
.Page 8
<PAGE>
(e) Payment Adjustment. If, at the end of any Contract Year, the
------------------
actual @Home Subscriber level is greater than 120% or less than 80% of the
Benchmark Subscriber Levels, then the Cash Payment for the succeeding Contract
Year shall be increased or decreased, respectively, as follows:
(i) Subscriber Excess. If the actual @Home Subscriber Level is
-----------------
greater than 120% of the Benchmark Subscriber Level, then such succeeding year's
Cash Payment shall be increased by an amount equal to: the difference between
the actual Subscriber Level minus the Benchmark Subscriber Level divided by the
Benchmark Subscriber Level, multiplied by the Cash Payment for the preceding
Contract Year ("Excess Cash Payment"). In no event shall the Excess Cash Payment
exceed two times such preceding year's Cash Payment. Such increased amount will
be paid to @Home with the payment for the next Quarterly Period, or if such
preceding Contract Year is the final Contract Year then within thirty (30) days
of the end of such Contract Year.
(ii) Subscriber Shortfall. If the actual Subscriber Level is less
---------------------
than 80% of the Benchmark Subscriber Level, then such succeeding year's Cash
Payment shall be decreased by an amount equal to: the difference between the
Benchmark Subscriber Level and the actual Subscriber Level divided by the
Benchmark Subscriber Level, multiplied by the Cash Payment for the preceding
Contract Year. Such decreased amounts will be deducted by DrKoop.com from the
succeeding Contract Year's Cash Payment and if such amount is owed for the final
Contract Year, @Home will, at its option, refund such amount or extend the term
of this Agreement. The extension of the term (in days) shall be equal to {1
minus the (quotient of the Actual Subscriber Level and the Benchmark Subscriber
Level) multiplied by the number of days in a calendar year}.
9. Commencement. Both parties agree to use reasonable commercial efforts to
------------
launch the DrKoop.com Content on @Home on or before (30) days from the Effective
Date.
10. Term and Termination.
--------------------
(a) Initial Term. The initial term of this Agreement will begin on the
------------
Effective Date and will end *** unless otherwise terminated by the parties as
set forth in this Section 10.
----------
(b) Automatic Termination. This Agreement will terminate automatically
---------------------
if @Home no longer offers the Health Sub-Channel, or a practical equivalent, to
@Home subscribers.
(c) Contract * * * Option. Either party has the right to terminate the
---------------------
agreement * * * if * * *. The terminating party will provide 60 days written
notice to the other party. In the event of a termination by either party
pursuant to this Section 10(c), all Net Advertising, Net Transaction, and Net
Payments (per Section 7) revenues or fees owed from one party to the other will
be paid within thirty (30) days following the close of business on which such
termination occurs.
- -------------------
*** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
. Page 9
<PAGE>
(d) * * *
(e) Termination Due to Breach. Either party may terminate this Agreement,
-------------------------
effective upon thirty (30) days' written notice, if the other party fails to
cure any material breach of its obligations under this Agreement within thirty
(30) days following written notice to such party.
(f) No Liability for Termination. Neither @Home nor DrKoop.com will have
----------------------------
any liability to the other merely as a result of termination of this Agreement
in accordance with this Section 10, however all amounts earned but unpaid as of
such termination shall be due and payable to either party in accordance with the
terms set forth in this Agreement.
(g) Purge of DrKoop.com Content. Upon the termination of this Agreement
---------------------------
for any reason whatsoever, @Home shall promptly delete or purge from its systems
any and all DrKoop.com Content and all copies thereof and @Home immediately
shall cease using any and all DrKoop.com Content. Notwithstanding the foregoing,
@Home may retain the DrKoop.com Content in its archives to the extent necessary
for regulatory or other purposes related to the archiving of information and not
for redistribution or use of the content therein.
11. Public Announcement. Both parties will periodically promote the
-------------------
DrKoop.com/@Home relationship through mutually agreed upon (as to timing and
content) press releases and other announcements. Prior to the initial public
announcement about the relationship under this Agreement, the disclosing party
will obtain consent of the other party, which consent shall not be unreasonably
withheld.
12. Business Marks. @Home and DrKoop.com each will have the right, without
--------------
charge, to use in promoting the DrKoop.com Content and the @Home Service the
other's business name and any trade names, trademarks and service marks
(collectively, "MARKS") that @Home may adopt for use with the @Home Service and
that DrKoop.com may adopt for use with the DrKoop.com Content distributed and
used by @Home. However, any such use must be identical to use by the party that
owns the Mark, and as approved by the owner in writing in advance, or otherwise
in accordance with any Mark usage guidelines communicated by the owner. The
owner retains all goodwill and all other rights thereto, and the other party
obtains no goodwill or any other rights thereto as a result of the use of the
owner's Marks. Except as explicitly set forth herein, no other licenses or
rights are granted or implied.
13. Representatives and Warranties. Each party to this Agreement represents and
------------------------------
warrants to the other party that: (a) such party has the full corporate right,
power and authority to enter into this Agreement and to perform the acts
required of it hereunder; (b) the execution of this Agreement by such party, and
the performance by such party of its obligations and duties hereunder, do not
and will not violate any agreement to which such party is a party or by which it
is otherwise bound; and (c) when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms.
_________________
*** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
. Page 10
<PAGE>
14. Limitation Of Liability. @HOME, @HOME'S DISTRIBUTION AFFILIATES AND
-----------------------
DRKOOP.COM WILL NOT BE LIABLE TO ONE ANOTHER, UNDER ANY LEGAL OR EQUITABLE
THEORY, FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL OR INDIRECT DAMAGES OF ANY
KIND, SUFFERED BY OR OTHERWISE COMPENSABLE TO THE OTHER, ARISING OUT OF, UNDER
OR RELATING TO THIS AGREEMENT, WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO EVENT WILL @HOME OR @HOME'S DISTRIBUTION AFFILIATES HAVE ANY
LIABILITY OF ANY NATURE OR AMOUNT WHATSOEVER TO DRKOOP.COM ARISING OUT OF, UNDER
OR RELATING TO ANY FAILURE OF THE DISTRIBUTION OF THE CONTENT OR ANY PART
THEREOF OR ANY SOFTWARE PROGRAM, SOFTWARE OR WEB SITE LINK OR LINK MECHANISM, OR
OTHER MATERIAL OR ITEMS THROUGH THE @HOME NETWORK OR OTHERWISE (INCLUDING BUT
NOT LIMITED TO ANY SUCH FAILURE OF DISTRIBUTION RESULTING FROM A DISTRIBUTION
AFFILIATES' ELECTION NOT TO DISTRIBUTE MATERIAL OR ITEMS OR DUE TO TECHNICAL
DIFFICULTIES OR OTHERWISE).
15. Proprietary Rights Generally. @Home and DrKoop.com each retain any and all
right, title and interest in and to all intellectual property of any nature
(including patents, rights under patent applications and patents issuing on such
applications, trade secrets, copyrights, trademarks and other business names
(including goodwill in such marks), among others), subject to the rights granted
by the parties in SECTION 12 (concerning rights with respect to business marks)
----------
and SECTION 3(D) (concerning rights with respect to usage information) of this
------------
Agreement or as may be provided in the Attachments to this Agreement. @Home and
DrKoop.com each agree to reproduce, and agree not to remove or obscure
proprietary rights legends (such as copyright notices, among others) or license
terms and conditions included with any intellectual property deliverable
provided in connection with this Agreement. DrKoop.com agrees to ensure that the
DrKoop.com Content and the DrKoop.com Marks and their use, reproduction and
distribution (alone and not in combination with other material or items) do not
infringe the intellectual property rights of any third party. If, as a result of
any collaboration by @Home or DrKoop.com under this Agreement, they become joint
owners of intellectual property by operation of law, then they will cooperate,
subject to prudent business judgment, to establish, register, maintain and
protect such intellectual property.
16. Indemnification. Each party will indemnify the other party and its
---------------
customers and affiliates for, and hold them harmless from, any loss, expense
(including reasonable attorney's fees and court costs), damage or liability
arising out of any claim, demand or suit resulting from (a) a breach of any of
its respective covenants or warranties under this Agreement, (b) the failure of
such party to have all rights and authority necessary in order to fulfill or
perform its obligations pursuant to this Agreement in compliance with applicable
laws; (c) the infringement of intellectual property rights of any third party or
the violation of any law by such parties' contributions and/or performance
hereunder (e.g., in the case of DrKoop.com, the DrKoop.com Content, and in the
case of @Home, the @Home Service), and (d) the violation of any laws concerning
obscenity, defamation, infringement, rights of privacy or publicity, harassment
or export controls caused by the development, use, reproduction, publication or
distribution of such parties' respective contributions to the @Home Service. As
a condition to indemnification (a) the indemnified party will promptly inform
the indemnifying party in writing of any such claim, demand or suit and the
indemnifying party will fully cooperate in the defense thereof; and (b) the
indemnified party will not agree to the settlement of any such claim, demand or
suit prior to a final judgment thereon without the consent of the indemnifying
party.
. Page 11
<PAGE>
17. Confidential Information.
------------------------
(a) Definition. "Confidential Information" means all non-public
----------
confidential and proprietary information which the disclosing party identifies
in writing as confidential before or within thirty (30) days after disclosure to
the receiving party or which, under the circumstances surrounding disclosure,
the receiving party should have understood was delivered in confidence.
(b) Nondisclosure. Each party agrees (a) to hold the other party's
-------------
Confidential Information in strict confidence, (b) not to disclose such
Confidential Information to any third party, and (c) not to use the other
party's Confidential Information for any purpose other than to further this
Agreement. Each party may disclose the other party's Confidential Information to
its responsible employees, and, in the case of @Home, the employees of @Home's
Distribution Affiliates, with a bona fide need to know such information and
subject to a nondisclosure agreement, but only to the extent necessary to carry
out this Agreement. Each party agrees to instruct all such employees not to
disclose such Confidential Information to third parties, including consultants,
without the prior written permission of the disclosing party.
(c) Exceptions. Notwithstanding the foregoing, Confidential Information
----------
will not include information which (i) is now, or hereafter becomes, through no
act or failure to act on the part of the receiving party, generally known or
available to the public; (ii) was acquired by the receiving party before
receiving such information from the disclosing party and without restriction as
to use or disclosure; (iii) is hereafter rightfully furnished to the receiving
party by a third party, without restriction as to use or disclosure; (iv) is
information which the receiving party can document was independently developed
by the receiving party without use of the disclosing party's Confidential
Information; (v) is required to be disclosed by law, provided that the receiving
party uses reasonable efforts to give the disclosing party reasonable notice of
such required disclosure and to limit the scope of material disclosed; (vi) is
disclosed with the prior written consent of the disclosing party; or (vii) is
DrKoop.com Content provided by DrKoop.com pursuant to this Agreement.
(d) Return. Upon the disclosing party's request, the receiving party will
------
promptly return to the disclosing party all tangible items containing or
consisting of the disclosing party's Confidential Information.
(e) Injunctive Relief. Each party acknowledges that all of the disclosing
-----------------
party's Confidential Information is owned solely by the disclosing party (or its
licensors) and that the unauthorized disclosure or use of such Confidential
Information would cause irreparable harm and significant injury to the
disclosing party, the degree of which may be difficult to ascertain.
Accordingly, each party agrees that the disclosing party will have the right to
obtain an immediate injunction enjoining any breach of this SECTION 17, as well
----------
as the right to pursue any and all other rights and remedies available at law or
in equity in the event of such a breach.
18. Warranty Disclaimers. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT: (a)
--------------------
@HOME DOES NOT MAKE ANY WARRANTIES CONCERNING THE @HOME NETWORK OR THE @HOME
SERVICE, EXPRESS, IMPLIED OR OTHERWISE, (b) @HOME SPECIFICALLY DISCLAIMS THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT WITH RESPECT TO THIRD PARTY RIGHTS, AND (c) THE @HOME NETWORK,
THE @HOME SERVICE, AND ANY AND ALL
. Page 12
<PAGE>
CONTENT AND TOOLS AND RELATED DELIVERABLES PROVIDED BY @HOME IN CONNECTION WITH
THIS AGREEMENT ARE PROVIDED BY @HOME "AS IS".
19. General Provisions.
------------------
(a) Governing Law and Venue. This Agreement and any disputes arising
-----------------------
under, in connection with, or relating to this Agreement will be governed by the
laws of the State of California, excluding its conflicts of law rules. The state
and federal courts in San Mateo County, California will have exclusive venue and
jurisdiction for such disputes, and the parties hereby submit to personal
jurisdiction in such courts. The prevailing party in any such dispute will be
entitled to recover costs of suit (including the reasonable fees of attorneys
and other professionals).
(b) Notices. All notices or other communications to or upon @Home or
-------
DrKoop.com under this Agreement shall be by telecopy or in writing and
telecopied, mailed, or delivered to each party at its address set forth in the
introductory paragraph of this Agreement or such other address or telecopier
number as either party shall notify the other. All such notices and
communications: when sent by delivery service, shall be effective on the third
business day following the deposit with such service; when mailed, first class
postage prepaid and addressed as aforesaid in the mails, shall be effective upon
receipt; when delivered by hand, shall be effective upon delivery; and when
telecopied, shall be effective upon confirmation of receipt.
(c) Compliance with Laws. Subject to the express provisions of this
--------------------
SECTION 19(C), each party agrees to comply with applicable laws in connection
- -------------
with this Agreement. DrKoop.com agrees, in particular, Dr. Koop.com Content will
comply with all laws concerning obscenity, defamation, infringement, rights of
privacy, harassment and export controls, among others, and to ensure that the
use, reproduction and distribution of the DrKoop.com Content in and of itself,
does not violate such laws or related legal rights of third parties.
(d) Assignment. Neither party may assign or transfer its rights or
----------
obligations under Agreement without the prior written permission of the other
party (which permission shall not be unreasonably withheld or delayed); provided
--------
that either party may assign its rights and obligations under this agreement to
any commonly controlled affiliate or wholly-owned subsidiary without the consent
of the other party so long as the original party remains liable for its
obligations hereunder. Any transferee must agree to accept the burdens as well
as the benefits of this Agreement. Any attempt to transfer, sublicense or assign
any of the rights or duties hereunder in violation of this Section is hereby
prohibited and shall be null and void. Subject to the foregoing, this Assignment
shall inure to the benefit of and be binding upon the parties and their
successors and assigns.
(e) Relationship of Parties. Neither this Agreement nor the parties'
-----------------------
business relationship established hereunder will be construed as a partnership,
joint venture or agency relationship or as granting a franchise. Accordingly,
neither party shall have any right to act on behalf of the other party for any
purpose. The parties represent to one another that they have consulted legal
counsel in reviewing and/or negotiating this Agreement.
(f) Waiver. No waiver of any breach of any provision of this Agreement
------
will be considered to be a waiver of any prior, concurrent or later breach of
the same provisions or different provisions, and will not be effective unless
made in writing and signed by an officer of the waiving party.
. Page 13
<PAGE>
(g) Amendments. This Agreement may only be amended by a written agreement
----------
or addendum signed by duly authorized representatives of both parties.
(h) Survival. Sections 12, 14, 15, 16, 17, 18, and 19 of this Agreement,
-------- ---------------------------------------
along with any other provisions which by their nature extend beyond termination
of this Agreement shall survive termination. Termination shall not affect either
party's obligation to pay amounts due prior to termination or which (under the
terms of this Agreement) become due following termination.
(i) Force Majeure. Neither party will have liability to the other party
-------------
under, in connection with or for any reason relating to this Agreement as a
result of any failure of performance by or on behalf of such party as a result
of an event of "force majeure". For purposes of this Agreement, "force majeure"
means an event beyond a party's reasonable control whether or not foreseeable
and includes, in any case, the following events that may prevent or
significantly hinder such party from performing this Agreement or acting in
connection with this Agreement: armed conflicts, famine, floods, Acts of God,
labor strikes or shortages, governmental decree or regulation, court order,
severe weather, fire, earthquake, failure of suppliers, unavailability of
communications transport facilities and breakdowns in communications transport
facilities.
(j) Distribution Affiliates. Notwithstanding any other term of this
-----------------------
Agreement, DrKoop.com acknowledges and agrees that the Distribution Affiliates
will have the right under certain circumstances to elect not to distribute the
DrKoop.com Content and promotional material and that, pursuant to its agreement
with such Distribution Affiliates, @Home may be subject to restrictions
regarding the promotion or distribution of the DrKoop.com Content and
promotional materials. DrKoop.com agrees not to bring any action or threaten to
bring any action against the Distribution Affiliates or @Home in connection with
any such election, restriction or failure to distribute.
(k) Entire Agreement. This Agreement, including its Attachments,
----------------
constitutes the entire understanding of @Home and DrKoop.com with respect to its
subject matter and supersedes all prior agreements between @Home and DrKoop.com.
. Page 14
<PAGE>
ATTACHMENT A
BENCHMARK SUBSCRIBER LEVELS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Calendar Year Projected Benchmark Subscribers (Year End)
- ------------------------------------------------------------------------------
<S> <C>
1999 * * *
- ------------------------------------------------------------------------------
2000 * * *
- ------------------------------------------------------------------------------
</TABLE>
________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
. Page 15
<PAGE>
EXHIBIT 10.21
FIRST AMENDMENT TO LICENSE AGREEMENT
------------------------------------
THIS FIRST AMENDMENT (the "Amendment") dated as of this 25th day of
March, 1999, is made by and between drkoop.com, Inc, located at 8920 Business
Park Drive, Austin, Texas ("drkoop.com") and Multum Information Services, Inc.,
located at 3200 Cherry Creek South Drive, Suite 300, Denver, Colorado 80209
("Multum").
WHEREAS, drkoop.com, Inc. and Multum have entered into that certain
License Agreement dated as of July 13, 1998 (the "Agreement"). drkoop.com, Inc.
maintains a consumer oriented healthcare site on the Internet at the web site
www.drkoop.com or any replacement or successor URL (the "drkoop Site"); and
WHEREAS, drkoop.com and Multum desire to amend the Agreement as
provided herein.
NOW THEREFORE, in consideration of the premises, the mutual agreements
and covenants contained herein and other good, valuable and sufficient
consideration, drkoop.com and Multum agree as follows:
1. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Agreement.
2. Paragraph 1 of Section 2.A of the Agreement is deleted in its
entirety and the following is substituted in lieu thereof:
Multum hereby grants to DRKOOP.COM, INC. a non-exclusive non-transferable
license to use the Service in the United States during the Term of this
Agreement in the manner contemplated by this Agreement. This license shall
include but not be limited to the right to: (i) copy the Service for use
and distribution by DRKOOP.COM, INC. to End-Users, for the purpose of this
Agreement defined as consumers, solely as permitted by this Agreement; (ii)
use the Service for internal purposes in a non-clinical setting for backup,
archival, support, testing, training and demonstration purposes; (iii)
install the Service through the drkoop.com site for each drkoop.com Inc.
End-User; (iv) license/sublicense the Service to DRKOOP.COM, INC.'s End-
Users; (v) market and demonstrate the Service to End-Users or potential
End-Users of the drkoop.com site; and (vi) advise End-Users or potential
End-Users to the availability of the Service through drkoop.com site.
3. Section 2.C of the Agreement is deleted in its entirety and the
following is substituted in lieu thereof:
The parties agree that this license grant does extend for use of the
Service as part of a bundled package sold by DRKOOP.COM, INC. to any entity
where the ultimate End-User is defined as a Consumer, relative to the
drkoop.com Site co-branded web site affiliations (such as a bundled package
sale or wrapped for co-branding), or for distribution to 3rd party
websites. In the event that the Services are distributed through a third
party site, such Service shall be displayed with the drkoop.com brand, such
as the tag line "Provided by drkoop.com". DRKOOP.COM, INC. may not license
or distribute the Service to any Pharmaceutical Manufacturers for their
use. DRKOOP.COM, INC. may license or distribute the Service to any Retail
Drug Chains or Pharmacy Benefit Management companies for consumer usage via
the Internet.
4. The following will be added as Section 3.N of this Agreement in
its entirety.
Client agrees to direct all End-User traffic of the Service to Multum's
SubscribeRx service. The conversion to SubscribeRx will be completed
within 180 days of the effective date of this addendum, but may occur
sooner as long as both parties agree that the conversion is functioning.
___________________
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated * * *. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
5. Schedule II- Basic SDK Fees and Payments to the Agreement is
hereby deleted and replaced by the pages of the Schedule II of identical title
affixed to the back of this Amendment.
6. Exhibit A- Multum Information Services Basic SDK Software
Components to the Agreement is hereby deleted and replaced by the pages of the
Exhibit A of identical title affixed to the back of this Amendment.
7. The parties ratify the Agreement, as amended hereby, and confirm
that the Agreement, as amended by this Amendment, remains in full force and
effect. If any conflict shall arise between the terms and conditions of this
Amendment and the terms and conditions of the Agreement, this Amendment shall
govern with respect to the matters described herein.
8. This Amendment may be executed in one or more counterparts, each
of which may be executed by one or more of the parties hereto, but all of which,
when taken together, shall constitute one agreement binding upon each of the
parties hereto.
IN WITNESS WHEREOF, drkoop.com Inc. and Multum have executed this
Amendment as of the date first written above.
Executed on behalf of Executed on behalf of
DRKOOP.COM INC. MULTUM INFORMATION SERVICES, INC.
BY: /s/ Dennis Upah BY: ______________________
----------------------------
NAME: Dennis Upah NAME:_____________________
--------------------------
TITLE: Chief Operating officer TITLE: ___________________
-------------------------
2
<PAGE>
SCHEDULE II - BASIC SDK
-----------------------
FEES AND PAYMENTS
1. FEES
A. Basic SDK License Fees:
Based on the provision of Section 3.A herein, the license fees
for Drkoop.com Inc. (drkoop.com) will be as follows:
Year 1 (beginning January 1, 1999) Annual License fee of * * * .
Year 2 (beginning January 1, 2000) Annual License fee of * * *.
Year 3 (January 1, 2001 and July 13, 2001) Prorated Annual License Fee
of * * *.
B. Software Development Kit (SDK) Fee:
drkoop.com will pay a one-time SDK fee of * * * to Multum.
C. Annual Service and Support Fee:
drkoop.com will pay an annual service and support fee of * * * to
Multum plus such additional fees for service and support.
D. Optional Service and Support Package Fee:
If elected, drkoop.com will pay Multum a yearly service and support
fee of * * * per year for 20 hours of service and support.
E. Multum has the option to change the fee schedule upon renewal of this
Agreement with ninety (90) days prior written notice to drkoop.com.
F. Multum reserves the right to conduct an independent audit of
drkoop.com's invoices, Usage Data and billing records relating to the
Fees paid to or due to Multum under this Agreement for the sole
purpose of establishing that the Fees paid to Multum by drkoop.com are
accurate. Multum may conduct such audits no more than quarterly.
Each such audit shall be conducted during normal business hours upon
reasonable notice to and agreement by drkoop.com. Multum will be
responsible for all costs and expenses relating to each such audit.
drkoop.com will maintain records according to generally accepted
accounting principles. drkoop.com will provide Multum with monthly
usage reports.
2. PAYMENTS
A. Commencing January 1, 1999, Multum will invoice drkoop.com for
the annual license fees for use of the Service on a semi-annual basis
and two (2) equal payments will be due fifteen (15) days after the
invoice date during the Term of this Agreement.
B. SDK and support fee is due and payable upon execution of this
Amendment.
C. The Annual Service and Support fee will be billed annually and
due upon receipt.
If purchased, the Optional Corporate Service and Support Package fee
will be billed quarterly and due upon receipt.
_______________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
3
<PAGE>
EXHIBIT A
MULTUM INFORMATION SERVICES, INC.
BASIC SDK SOFTWARE COMPONENTS
FOR PURPOSES OF THIS AGREEMENT, THE SDK DRUG INFORMATION SERVICES (THE
"SERVICE") BEING OFFERED TO DRKOOP.COM INC. ARE:
The SDK (Software Development Kit) provides extremely powerful development tools
that offer drug knowledge bases and expert drug information to new or existing
clinical information systems. Multum Information Services, Inc. ("Multum") has
developed the SDK as a suite of flexible, modular components that can be
embedded into clinical systems as distinct, functional components. It may be
helpful to think of the SDK as a subsystem and the clinical information system
into which it can be embedded as a parent application.
Multum provides development interfaces that easily blend into the native
environment of the parent application. By designing subsystem components that
fit smoothly into an existing software development environment, Multum products
help to minimize the overall development costs. SDK comes equipped with fully
referenced documentation in several programming languages and databases; all
developed with a three-tiered distributed processing back-end. This API is
supplied in C++ Class Libraries or OLE Automation servers.
SDK - BASIC CLINICAL COMPONENTS
DRUG COMPONENT
. Provides clinician-friendly drug names.
. Allows customers to map external drug names to Multum knowledge bases.
INTERACTIONS - DRUG-DRUG & DRUG-FOOD
. Checks for drug-drug and drug-food interactions against a patient's current
medication regimen and against medications about to be ordered.
. Analyzes both active medications and those that might still be active in the
patient (based on the drug's elimination half-life).
. Provides a list of drugs involved when an interaction occurs, along with the
level of severity of the interaction (minor, moderate, severe), a textual
description of the interaction, and on-line references.
. Provides recommended courses of action when appropriate within the textual
information presented.
DRUG ALLERGY CROSS-REACTIVITY CHECKING
. Provides allergy information checked against the patient's current drug
regimen, against medications about to be ordered, and against the patient's
allergy history.
. Generates a cross-reaction warning for allergic cross-reactivities described
in the medical literature that includes the drug or drug category involved, a
textual description of the reaction, and one or more references for the
cross-reaction.
. Recognizes and supports both specific drug names and drug category names.
4
<PAGE>
SDK - BASIC CLINICAL COMPONENTS (CONT.)
PATIENT EDUCATION LEAFLETS
. Provides patient teaching information drug monographs in both 6th grade
English and North American Spanish.
. Adheres to the FDA's 1996 MedGuide recommendations.
. Provides the ability to print or display Patient Education Leaflets with each
drug order.
. Includes important side effect, drug interaction, and drug administration
instructions.
. Allows customization and formatting of leaflets by end-user site.
SUBSCRIBERX
Multum's SubscribeRx(TM) is designed to deliver drug-specific patient education
materials and other drug utilization services via the Internet backbone.
Multum will provide End-Users with access to SubscribeRx through discrete links
from CLIENT'S Web-server. Multum will serve up pages of drug-specific patient
education content based on requests from the CLIENT'S server for the contracted
services.
The drug-specific patient education content includes the following information:
. Description of the drug
. Important information about the drug
. How it should be taken
. What to do if you miss a dose
. What happens if you overdose
. What to avoid when taking the drug
. Possible interactions
. Other drugs that would affect the drug
. Reproductive information
Multum Information Services, Inc. retains all rights for determining what
modifications, amendments or alterations ("Product Changes") shall be made to
any or all of the Services. Any Product Changes shall be determined and made
at Multum Information Services' sole discretion. Multum reserves the right to
add a manufacturer or distributor message to the patient education leaflets.
5
<PAGE>
EXHIBIT 10.28
SPONSORSHIP AGREEMENT
This Sponsorship Agreement (the "Agreement") is entered into as of the
11th day of March, 1999 by and between drkoop.com, inc., a Delaware corporation,
located at 8920 Business Park Drive, Longhorn Suite, Austin, Texas 78759
("drkoop.com"), and Vitamin Shoppe Industries, Inc., a New Jersey corporation,
located at 4700 Westside Avenue, North Bergen, New Jersey 07047 ("Sponsor").
WHEREAS, drkoop.com develops, markets and maintains an integrated suite
of Internet enabled, consumer oriented software applications and services,
including but not limited to, drkoop.com. electronic data interchange services,
and advertising and promotional services on the Internet at the website
http://www.drkoop.com (together with any successor or replacement websites, the
"drkoop.com Website");
WHEREAS, Sponsor markets and sells vitamins and nutritional supplements
on the Internet at the website http://www.vitaminshoppe.com (together with any
successor or replacement websites, the "Sponsor Website"; and together with the
drkoop.com Website, the "Sites"); and
WHEREAS, Sponsor desires to have certain * * * rights with respect to
vitamins and nutritional supplements on the drkoop.com Website and to be the * *
* vitamin and nutritional supplement tenant in the E-Commerce area of the
drkoop.com Website and drkoop.com desires to promote Sponsor for vitamin and
nutritional supplements and to make Sponsor its' * * * vitamin and nutritional
supplement tenant pursuant to the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
____________________
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as * * *. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE>
ARTICLE I.
* * * VITAMIN SPONSOR
1.1. * * * VITAMIN SPONSOR. Throughout the Term (as defined below),
Sponsor shall be the * * * vitamin and supplement sponsor of, and the * * *
vitamin and supplement advertiser on, the drkoop.com Website * * *
1.2. SPONSOR PLACEMENTS. During the Term, in no way limiting the
foregoing in Section 1.1, Sponsor will receive the following sponsorship and
promotional placements on the drkoop.com Website:
(i) Sponsor shall be the * * * sponsor of the Nutrition Center
on the drkoop.com Website and each area (other than the "Daily Special" area,
the "Healthy Recipes" area and any other area which may be created in the future
which specifically relates to cooking or food recipes (collectively, the
"Excluded Areas")) within the Nutrition Center, including, the "Vitamins &
Supplements" area, the "Vitamins and Minerals" area, the "Nutrition News" area,
the "Nutrition for Healthy Living" area and the "Nutrition for your Condition"
area (collectively, the "Sponsor Areas"). * * *
(ii) * * *
(iii) From time to time, drkoop.com shall create content which
features vitamins and nutritional supplements. Sponsor's Advertising Content
shall be displayed on such pages which host vitamins and nutritional supplement
content to the same extent and subject to the same restrictions as such Sponsor
Advertising Content is displayed in the Sponsor Areas.
(iv) * * * Drkoop.com's obligations with respect to each area
of the drkoop.com Website set forth in this Section 1.2 shall also apply to all
areas which are successors or replacements to such areas and to all new vitamin
and nutrition areas on the drkoop.com Website launched on the drkoop.com Website
after the date of this Agreement. * * * Sponsor may promote the sale of vitamins
and supplements in the Sponsor Areas.
1.3. IMPRESSIONS. Not including any permanent Sponsor links, banners
or buttons pursuant to Section 1.2, drkoop.com shall, during the Initial Term
(as defined below) provide * * * advertising banner and e-commerce tile
impressions consisting of Sponsor Advertising Content* * * shall be delivered
during each month of the Initial Term. If by the end of the Initial Term
drkoop.com has not delivered the foregoing number of impressions, then, as
Sponsor's sole remedy for such breach, the Term of this Agreement shall be
extended until drkoop.com has satisfied its obligations under this Section.
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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1.4. DR. KOOP HEALTH LINKS. In addition to the fees specified in
Section 2.5.1, Sponsor shall pay * * * to drkoop.com and in exchange therefore
shall have the right to use as many Dr. Koop Health Links as Sponsor, in its
sole discretion, wishes to use, all in accordance with the terms of the
drkoop.com Healthlinks Agreement, the form of which is attached hereto as
Exhibit B.
- ---------
1.5. * * *
1.6. MODIFICATIONS.. Each party reserves the right to modify the
design, organization, structure, look and feel, navigation and other elements of
its Site, provided, that drkoop.com may not, without the prior written consent
of Sponsor, substantially alter, change or modify the look, feel or
functionality of the Sponsor Areas of the drkoop.com Website* * *.
ARTICLE II.
SPONSORSHIP POLICY
2.1. CONTENT. For each of the placements described in Section 1,
including all banner advertisements and e-commerce tiles, Sponsor shall provide
drkoop.com with all content including all trademarks, logos or banners (the
"Sponsor Advertising Content"), in accordance with the specifications set forth
on Exhibit C attached hereto, which will be displayed on the drkoop.com Website
and which will link, in Sponsor's discretion, to either the Sponsor Site or
Vitamin Buzz. The parties hereto agree to cooperate and work together in the
establishment of all links, buttons and banners placed pursuant to this
Agreement. Links from one party's Site to the other party's Site shall in no way
alter the look, feel or functionality of the linked Site.
2.2. CHANGES AND CANCELLATIONS. Any cancellations or change orders
must be made in writing and acknowledged by drkoop.com. Sponsor shall not be
required to change Sponsor Advertising Content more often than once per month.
Sponsor shall provide drkoop.com with Sponsor Advertising Content artwork at
least five business days in advance of the publication date.
2.3. STATISTICS. Drkoop.com shall provide Sponsor with Sponsor usage
reports on a monthly basis. Sponsor shall have the right to use such data for
its internal business purposes, but may not provide such data for use by third
parties. Such reports shall contain substantially the same types of information
delivered to other of drkoop.com's similarly situated partners, which reports
will include information regarding impressions, clickthroughs and any
information known about the users of such areas in aggregate form.
2.4. PUBLICATION ERROR. In the event of a publication error in the
Sponsor Advertising Content arising exclusively from the fault of drkoop.com,
Sponsor shall notify drkoop.com of such error and drkoop.com will use reasonable
efforts to promptly correct the error.
_____________________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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2.5. PAYMENT.
2.5.1. FEES. The fee for the placements and other rights
provided under this Agreement for the Initial Term (as defined below) is * * *
is payable within * * * of the date of this Agreement, with the balance of such
fee payable by Sponsor in * * * consecutive equal installments of * * * payable
by the * * * of the Initial Term commencing * * * following * * * the Launch
Date (as defined below).
2.5.2. TAXES. Sponsor shall be responsible for the collection
of any and all value added, consumption, sales, use or similar taxes and fees
payable with respect to all sales made on the Sponsor Website.
ARTICLE III.
OWNERSHIP OF DATA
3.1. USER DATA. Drkoop.com requests its users ("Individual Users"), to
provide personal information when they sign up for certain services including
requesting information on a specific disease, chat rooms and forums ("User
Data"). Such User Data is owned by each Individual User and drkoop.com does not
use or disclose any such User Data without the consent of the Individual User.
3.2. DATA RELEASE TO SPONSOR. Drkoop.com shall provide to Sponsor any
and all User Data for which the Individual User has specifically authorized
release to Sponsor. In the event that an Individual User grants rights to
Sponsor for use of his User Data, Sponsor shall use its best efforts to keep
User Data confidential and shall only use such data in an ethical manner.
Sponsor may use User Data for its owns purposes, but User Data may not be
disclosed, sold, assigned, leased or otherwise disposed of to third parties by
Sponsor.
3.3. DATA CONFIDENTIALITY. The User Data shall be drkoop.com
Confidential Information under Article 5 and shall in addition be subject to the
terms of this Article 3. Sponsor shall be liable for the conduct of its
employees, agents and representatives who in any way breach this Amendment.
Sponsor's obligations to treat the User Data as Confidential Information under
Article 5 and this Article 3 shall continue in perpetuity following termination
of this Amendment.
3.4. SPONSOR USER DATA. All users on the Sponsor Website, including,
users linked to the Sponsor Website from the drkoop.com Website, will be deemed
to be customers of Sponsor. Accordingly, all rules, policies and operating
procedures of Sponsor concerning customer orders, customer service and sales
will apply to those customers. Sponsor may change its policies and operating
procedures at any time. Sponsor will determine the prices to be charged for
products and other merchandise sold on the Sponsor Website in accordance with
its own pricing policies.
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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Prices and availability on the Sponsor Website may vary from time to time.
Notwithstanding Section 3.3, the parties hereto hereby agree that title to any
user information of any users on the Sponsor Website, including but not limited
to the name, address and e-mail address of users, obtained by Sponsor from such
users shall be owned by the Sponsor. The parties hereto agree that pursuant to
this Section 3 they may each collect and own similar information from and with
respect to individuals who visit each of their Sites.
ARTICLE IV.
LICENSES
4.1. LICENSES.
4.1.1. Subject to the terms and conditions hereof, Sponsor
hereby represents and warrants that it has the power and authority to grant, and
does hereby grant to drkoop.com a non-exclusive, non-transferable, royalty-free,
worldwide license to reproduce and display all logos, trademarks, trade names
and similar identifying material relating to Sponsor (the "Sponsor Marks")
solely in connection with the promotion, marketing and distribution of the
parties and the Sites in accordance with the terms hereof, provided, however,
that drkoop.com shall, other than as specifically provided for in this
Agreement, not make any specific use of any Sponsor Mark without first
submitting a sample of such use to Sponsor and obtaining its prior consent,
which consent shall not be unreasonably withheld. The foregoing license shall
terminate upon the effective date of the expiration or termination of this
Agreement.
4.1.2. Subject to the terms and conditions hereof, drkoop.com
hereby represents that it has the power and authority to grant, and does hereby
grant to Sponsor a non-exclusive, non-transferable, royalty-free, worldwide
license to reproduce and display all logos, trademarks, trade names and similar
identifying material relating to drkoop.com and, solely as allowed pursuant to
this Agreement, to the Dr. C. Everett Koop name (collectively, the "drkoop.com
Marks") solely in connection with the promotion, marketing and distribution of
the parties and the Sites in accordance with the terms hereof, provided,
however, that Sponsor shall, other than as specifically provided for in Section
4.4 of this Agreement, not make any specific use of any drkoop.com Marks without
first submitting a sample of such use to drkoop.com and obtaining its prior
consent, which consent shall not be unreasonably withheld. The foregoing license
shall terminate upon the effective date of the expiration or termination of this
Agreement.
4.2. INTELLECTUAL PROPERTY OWNERSHIP. Each party shall retain all
right, title, and interest (including all copyrights, patents, service marks,
trademarks and other intellectual property rights) in its Site. Except for the
license granted pursuant to this Agreement, neither party shall acquire any
interest in the other party's Site or any other services or materials, or any
copies or portions thereof, provided by such party pursuant to this Agreement.
4.3. REMOVAL OF MATERIALS. Each party reserves the right to reject or
remove any content, information, data, logos, trademarks and other materials
(collectively, "Materials") provided by the other from its servers at any time
if, in its reasonable opinion, it believes that any such Materials infringe any
third-party intellectual property right, are libelous or invade the privacy or
violate other rights of any person, violate applicable laws or regulations, or
jeopardize
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the health or safety of any person. Each party will use reasonable efforts to
contact the other prior to removing any of its Materials from its servers and
will work with the other to resolve the issue as quickly as possible.
4.4. USE OF NAME AND LIKENESS. Sponsor shall not have any right to use
the name and/or likeness of Dr. C. Everett Koop or to make any statements,
whether written or oral, which state or otherwise imply, directly or indirectly,
any endorsement from or affiliation with Dr. C. Everett Koop in any manner
whatsoever without the prior written consent of drkoop.com, which consent may be
withheld in drkoop.com's sole discretion. Notwithstanding the foregoing, Sponsor
is hereby authorized during the Term to use the logo and tag lines set forth on
Exhibit D, on its Site, in its catalogs and in its stores in connection with its
marketing and promotion efforts, in each case in accordance with the terms of
this Agreement and subject to the reasonable approval of drkoop.com. Sponsor is
hereby authorized to place such logo and any one of such tag lines on its Site,
in its stores and in its catalogs in accordance with the terms of this
Agreement.
ARTICLE V.
CONFIDENTIALITY
5.1. CONFIDENTIALITY. For the purposes of this Agreement,
"Confidential Information" means non-public information about the disclosing
party's business or activities that is proprietary and confidential, which shall
include, without limitation, all business, financial, technical and other
information of a party marked or designated "confidential" or by its nature or
the circumstances surrounding its disclosure should reasonably be regarded as
confidential. Confidential Information includes not only written or other
tangible information, but also information transferred orally, visually,
electronically or by any other means. Confidential Information will not include
information that (i) is in or enters the public domain without breach of this
Agreement, (ii) the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation or
(iii) the receiving party knew prior to receiving such information from the
disclosing party or develops independently.
5.2. EXCLUSIONS. Each party agrees (i) that it will not disclose to
any third party or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar importance.
5.3. EXCEPTIONS. Notwithstanding the foregoing, each party may
disclose Confidential Information (i) to the extent required by a court of
competent jurisdiction or other governmental authority or otherwise as required
by law, provided, however, that with respect to filing obligations under the
securities laws, each party will, to the extent that it is required to file this
Agreement, file this Agreement in redacted form reasonably approved by the other
party prior to such filing or (ii) on a "need-to-know" basis under an obligation
of confidentiality to its legal counsel, accountants, banks and other financing
sources and their advisors. Except as set forth in
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this Section 5.3, the terms and conditions of the Agreement will be deemed to be
the Confidential Information of each party and will not be disclosed without the
prior written consent of the other party.
5.4. SPONSOR ADVERTISING CONTENT. drkoop.com hereby confirms and
agrees that during the Term Sponsor shall be able to serve up its own
advertising using NetGravity software and tags, and that drkoop.com shall not do
anything which would interfere or hamper such serving. Notwithstanding anything
in this Agreement, all information regarding Sponsor Advertising Content
(including Sponsor banner advertisements and e-commerce tiles), including all
users viewing and clicking information with respect thereto, shall be deemed to
be Confidential Information of Sponsor (collectively, "Sponsor Confidential
Advertising Information"). To the extent that in connection with drkoop.com's
advertising efforts, or otherwise, any third party may or will receive any
Sponsor Confidential Advertising Information from or through drkoop.com,
drkoop.com agrees that prior to such third party receiving any such information
drkoop.com will enter into an agreement with such third party pursuant to which
such third party will agree to keep any such Sponsor Confidential Advertising
Information received by such third party confidential to the same extent as
drkoop.com is required to keep such information confidential under the
Agreement. To the extent that any third party breaches any such agreement of
confidentiality with drkoop.com, drkoop.com hereby agrees to enforce its rights
and pursue its remedies under such agreement to the fullest extent permitted by
law, including seeking equitable relief, * * *.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
6.1. SPONSOR WARRANTY. Sponsor represents and warrants for the benefit
of drkoop.com that the Sponsor Advertising Content and Sponsor Marks are true
and correct and do not and will not for the Term infringe upon or violate: (i)
any intellectual property rights, including any copyright or trademark rights,
of any third party and do not and will not constitute a defamation or invasion
of the rights of privacy or publicity of any kind of any third party, (ii) any
applicable law, regulation or non-proprietary third-party right. Sponsor further
represents and warrants for the benefit of drkoop.com that the Sponsor
Advertising Content does not contain any material which is unlawful, harmful,
abusive, hateful, obscene, threatening or defamatory and Sponsor is not an
entity or an affiliate of any entity which engages in the manufacture or
wholesale distribution of tobacco or tobacco products (such activities are
collectively referred to herein as "Tobacco Industry Affiliation").
6.2. DRKOOP.COM WARRANTY. Drkoop.com represents and warrants for the
benefit of Sponsor that the drkoop.com Marks are true and correct and do not and
will not for the Term infringe upon or violate: (i) any intellectual property
rights, including any copyright or
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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trademark rights, of any third party and do not and will not constitute a
defamation or invasion of the rights of privacy or publicity of any kind of any
third party, (ii) any applicable law, regulation or non-proprietary third-party
right. Drkoop.com further represents and warrants for the benefit of Sponsor
that the drkoop.com Marks do not contain any material which is unlawful,
harmful, abusive, hateful, obscene, threatening or defamatory, and drkoop.com
has the right to license the drkoop.com Marks, including the Dr. C. Everett Koop
name (to the extent licensed under this Agreement), in accordance with the terms
of this Agreement.
6.3. INDEMNIFICATION. Each party hereby agrees to indemnify and hold
harmless the other party and its subsidiaries and affiliates, and their
respective directors, officers, employees, agents, shareholders, partners,
members and other owners, against any and all claims, actions, demands,
liabilities, losses, damages, judgments, settlements, costs and expenses
(including reasonable attorneys' fees) (any or all of the foregoing hereinafter
referred to as "Losses") insofar as such Losses (or actions in respect thereof)
arise out of or are based on (i) the breach of any representation or warranty
set forth in Articles 4, 5 or 6, (ii) any breach by it of the licenses granted
by it hereunder; (iii) the use by it of any trademarks or Content other than in
accordance with the terms hereof; * * *. For purposes herein, "Content" shall
mean, with respect to each party, the proprietary content delivered by such
party to the other party pursuant to this Agreement, including, Sponsor
Advertising Content, but only to the extent that such content is not altered by
the receiving party, and the proprietary content contained on such party's Site,
and shall include only that content created by such party, its employees or
other persons contractually bound to such party to create such content. The
foregoing obligations are contingent upon the indemnified party: (i) promptly
notifying the indemnifying party of any claim, suit, or proceeding for which
indemnity is claimed; (ii) cooperating reasonably with the indemnifying party at
the latter's expense; and (iii) allowing the indemnifying party to control the
defense or settlement thereof. The indemnified party will have the right to
participate in any defense of a claim and/or to be represented by counsel of its
own choosing at its own expense.
ARTICLE VII.
LIMITATION OF LIABILITY
7.1. WARRANTY. Drkoop.com will use commercially reasonable efforts to
maintain the drkoop.com Website available and display the Sponsor Advertising
Content twenty four hours per day each day during the term of the Agreement.
Drkoop.com shall install and maintain a commercially acceptable system of
collecting information about impressions and other data relating to the use of
the Sponsor Advertising Content. Drkoop.com warrants to Sponsor that it will
make reasonable effort to perform under this agreement in a competent manner. *
* *
7.2. DISCLAIMER. Each party will be solely responsible for the
development, operation and maintenance of its Site and for all materials that
appear on its Site. Such
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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responsibilities include, but are not limited to: (i) the technical operation of
its Site and all related equipment; (ii) the accuracy and appropriateness of
materials posted on its Site; (iii) for ensuring that materials posted on its
Site do not violate any law, rule or regulation, including all FDA requirements,
or infringe upon the rights of any third party (including, for example,
copyright, trademarks, privacy or other personal or proprietary rights); and
(iv) for ensuring that materials posted on its Site are not libelous or
otherwise illegal. Each party disclaims all liability for all such matters with
respect to the other party's Site. Except for the foregoing, or as otherwise
specifically set forth in this Agreement, neither party makes any
representations, warranties or guarantees of any kind, either express or implied
(including, without limitation, any warranties of merchantability or fitness for
a particular purpose), with respect to their respective Sites, or the
functionality, performance or results of use thereof, or otherwise in connection
with this Agreement.
7.3. EXCLUSION OF WARRANTY. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY IN CONNECTION
WITH THE SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ANY
AND ALL WARRANTIES WITH REGARD TO ITS SITE AND SERVICES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF NONINFRINGEMENT AND THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN
PARTICULAR, AND NOT BY WAY OF LIMITATION, NEITHER PARTY WARRANTS THAT ITS SITE
WILL OPERATE ERROR-FREE OR WITHOUT INTERRUPTION.
7.4. DAMAGES. EXCEPT AS SET FORTH IN SECTION 6.3, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL
OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER
LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING NEGLIGENCE) STRICT LIABILITY
OR OTHERWISE AND IRRESPECTIVE OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. * * *
ARTICLE VIII.
TERM AND TERMINATION
8.1. TERM; TERMINATION.
8.1.1. The initial term (the "Initial Term"; and together with
all extensions and renewals, the "Term") will begin on the date set forth above
* * * (the "Launch Date") on which: (i) each of the Sponsor Areas of the
drkoop.com Website are operational in accordance with the terms of this
Agreement (other than the e-commerce tile placements); and (ii) the links to the
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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Sponsor Website or Vitamin Buzz contained in the Sponsor logos or the Sponsor
banner advertisements are established in accordance with the terms of this
Agreement, subject to earlier termination as set forth in this Agreement. If the
Launch Date has not occurred by August 31, 1999, Sponsor shall, in its sole
discretion, be entitled to terminate this Agreement without any liability and
receive a full refund of all amounts paid by Sponsor to drkoop.com pursuant to
this Agreement prior to the date of such termination.
* * *
8.2. TERMINATION FOR TOBACCO INDUSTRY AFFILIATION. Upon commencing any
activities relating to Tobacco Industry Affiliation (as defined in Section 6.1),
Sponsor shall promptly notify drkoop.com of its intent to undertake Tobacco
Industry Affiliation. Upon receipt of such notice or upon learning of any such
Tobacco Industry Affiliation from a third party, drkoop.com shall have the right
to terminate this Agreement immediately on written notice to Sponsor without
liability of any kind.
8.3. TERMINATION FOR GARNISHMENT. * * * Additionally, in the event
that either party undertakes any action or fails to undertake any action, which
the other party reasonably believes tarnishes the high quality of its name or
trademarks, including, with respect to drkoop.com, the "Dr. Koop" name, the
other party shall have the right to terminate this agreement upon ten (10) days'
written notice to the other party, provided that such action or inaction is not
cured to the reasonable satisfaction of the terminating party within such ten
day period.
8.4. TERMINATION FOR CAUSE. Either party may terminate this Agreement
upon thirty (30) days' written notice of a breach by the other party, provided
such breach is not cured within such thirty-day period.
8.5. TERMINATION BY INSOLVENCY. Either party may terminate this
Agreement by providing written notice to the other party if the other party
ceases to function as a going concern, becomes insolvent, makes an assignment
for the benefit of creditors, files a petition in bankruptcy, permits a petition
in bankruptcy to be filed against it, or admits in writing its inability to pay
its debts as they mature, or if a receiver is appointed for a substantial part
of its assets.
8.6. SURVIVAL. The following Sections shall survive termination of
this Agreement: Article 5 (Confidentiality), Article 6 (Representations,
Warranties and Indemnification), Article 7 (Limitation of Liability), and
Article 9 (General).
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
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ARTICLE IX.
GENERAL
9.1. PUBLICITY. Except as may be required by applicable laws and
regulations or a court of competent jurisdiction, or as required to meet credit
and financing arrangements, or as required or appropriate in the reasonable
judgment of either party to satisfy the disclosure requirements of an applicable
securities law or regulation or any applicable accounting standard, neither
party shall make any public release respecting this Agreement and the terms
hereof without the prior consent of the other party.
9.2. ARBITRATION. Any and all disputes, controversies and claims
arising out of or relating to this Agreement or concerning the respective rights
or obligations of the parties hereto shall be settled and determined by
arbitration in the defending parties home forum before one (1) arbitrator
pursuant to the Commercial Rules then in effect of the American Arbitration
Association. Each party shall have no longer than three (3) days to present its
position. Judgment upon the award rendered may be entered in any court having
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement. The parties agree that the arbitrators
shall have the power to award damages, injunctive relief and reasonable
attorneys' fees and expenses to any party in such arbitration.
9.3. ASSIGNMENT. Neither party may assign this Agreement, in whole or
in part, without the other party's written consent, which consent will not be
unreasonably withheld, except that: (a) a party's rights and obligation
hereunder may be transferred to a successor of all or substantially all of the
business and assets of the party regardless of how the transaction or series of
related transactions is structured, provided, that the successor party agrees to
be bound by all of the terms and conditions of this Agreement; and (b) Sponsor
may assign its rights and obligations under this Agreement to any entity (i)
which operates the Sponsor Website and (ii) which agrees to bound by all of the
terms and conditions of this Agreement.
9.4. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, but without giving effect to
its laws or rules relating to conflicts of laws.
9.5. NOTICE. All notices, statements and reports required or permitted
by this Agreement shall be in writing and deemed to have been effectively given
and received: (i) five (5) business days after the date of mailing if sent by
registered or certified U.S. mail, postage prepaid, with return receipt
requested; (ii) when transmitted if sent by facsimile, provided a confirmation
of transmission is produced by the sending machine and a copy of such facsimile
is promptly sent by another means specified in this section; or (iii) when
delivered if delivered personally or sent by express courier service. Notices
shall be addressed as follows:
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For drkoop.com: For Sponsor:
drkoop.com. Vitamin Shoppe Industries,
Inc.
Personal Medical Records, Inc. 4700 Westside Avenue
8920 Business Park Drive North Bergen, New Jersey 07047
Austin, TX 78759 Attn: Ms. Miriam Nesheiwat
Attn: Chief Financial Officer Fax: 201-583-1834
Fax: 512-726-5130 Email: [email protected]
Email: [email protected]
With a copy to:
H. Leigh Feldman
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
32nd Floor
New York, NY 10104
Fax: 212-541-1492
Email: [email protected]
Either party may change its address for the purpose of this paragraph by notice
given pursuant to this paragraph
9.6. NO AGENCY. The parties are independent contractors and will have
no power or authority to assume or create any obligation or responsibility on
behalf of each other. This Agreement will not be construed to create or imply
any partnership, agency or joint venture.
9.7. SEVERABILITY. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator, the remaining
portions of the Agreement will remain in full force and effect.
9.8. ENTIRE AGREEMENT. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both written and oral)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties.
9.9. COUNTERPARTS. This Agreement may be signed in counterparts which,
when signed, shall constitute one document.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
drkoop.com, inc.
By:______________________________
Name:
Title:
VITAMIN SHOPPE INDUSTRIES, INC.
By:______________________________
Name:
Title:
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SCHEDULE 1.2(I)
SCREEN SHOT MOCK-UPS
[ATTACHED]
<PAGE>
EXHIBIT A
DIRECT COMPETITORS
* * *
____________________
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE>
EXHIBIT B
FORM OF HEALTHLINKS AGREEMENT
[ATTACHED]
<PAGE>
EXHIBIT C
ADVERTISING SPECIFICATIONS
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EXHIBIT D
DRKOOP.COM CORPORATE LOGO
[LOGO ATTACHED]
"The Vitamin Shoppe is the proud exclusive vitamin sponsor of drkoop.com."
"The Vitamin Shoppe is a proud sponsor of drkoop.com, the Trusted Health
Network, led by Dr. C. Everett Koop."
The Vitamin Shoppe is a proud sponsor of drkoop.com, the Trusted Health Network,
led by Dr. C. Everett Koop."
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EXHIBIT 10.29
DRKOOP.COM, INC. AND SALON INTERNET, INC.
PREFERRED PARTNER AGREEMENT
This Preferred Partner Agreement (the "Agreement") is made and entered into
as of April 20, 1999 by and between drkoop.com, Inc. ("DKC"), with its
principal place of business at 8920 Business Park Drive, Suite 200, Austin,
Texas 78759, and Salon Internet, Inc. ("Salon"), with its principal place of
business located at 706 Mission Street, 3rd Floor, San Francisco, CA 94013
(individually a "party" and collectively, the "parties").
RECITALS
WHEREAS, DKC develops, markets and maintains an integrated suite of
Internet enabled, consumer oriented software applications and services,
including, but not limited to, Dr. Koop's Community, electronic commerce and
advertising and promotional services on the Internet at the web site located at
URL: http://www.drkoop.com or any replacement or successor URL (the "DKC Web
Site");
WHEREAS, Salon is an original content Internet magazine covering books, art
and ideas which provides, among other things, articles, advertising and
promotional services on the Internet at the web site located at URL:
http://www.salonmagazine.com or any replacement or successor URL (the "Salon Web
Site");
WHEREAS, Salon desires to create a section on the Salon Web Site dedicated
to healthcare and DKC desires to provide Salon with healthcare information and
health-related services for this section which shall be located at URL:
http://www.salonmagazine.health.com or a replacement or successor URL (the
"Salon Health Site") and which shall be accessible to Users (as defined below)
through links on the Salon Web Site and the DKC Web Site; and
WHEREAS, DKC desires to host a site at URL: http://www.
salonmagazine.drkoop.com or a replacement or successor URL (the "DKC/Salon
Site"), wherein Salon Users may purchase products on-line through a Storefront
(as defined below) on the Salon Health Site which is linked to the DKC/Salon
Site and Salon desires to have DKC provide such services.
AGREEMENT
NOW, THEREFORE, in consideration of the obligations set forth below, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
________________________
Confidential treatment has been requested for portions of this exhibit. the copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as * * *. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
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ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in the Agreement shall have the
meanings given below:
(a) EFFECTIVE DATE means the date first set forth above.
(b) DKC CONTENT means content used on the DKC Web Site owned by DKC
or which DKC has the right to sublicense to Salon as further described on
Exhibit A attached hereto.
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(c) HOME PAGE means the first page of a web site which is displayed
when accessing the associated URL.
(d) LINKS means text, banners, logos and contextual links (a
"Graphical Image") which permit a User to go from one party's web site to
another web site by clicking on the Graphical Image.
(e) PRODUCT(S) means prescription and over-the-counter medication and
other health related products, the sale of which is facilitated by DKC through
the DKC/Salon Site.
(f) QUALIFIED SALE means a sale in which a User followed a Link from
the Salon Health Site to the DKC/Salon Site and purchases a Product.
(g) SALON CONTENT means content on the Salon Web Site owned by Salon
or which Salon has the right to sublicense to DKC, including, without
limitation, Salon's Table Talk discussion groups and original stories appearing
on the Salon Web Site as further described on Exhibit B attached hereto.
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(h) STOREFRONT means the web page on the Salon Health Site which is
designed as a virtual store where Salon Users may shop for Products and, if so
desired, may purchase Products by clicking on a Link to the DKC/Salon Site where
such sales are facilitated.
(i) UNAUTHORIZED CODE means harmful program or data incorporated into
files which destroys, erases, damages or otherwise disrupts the normal operation
of the User's computer systems or allows for unauthorized access to the User's
computer systems.
(j) USER means any individual visiting the Salon Web Site, DKC Web
Site, Salon Health Site or DKC/Salon Site, as the case may be.
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ARTICLE 2.
LICENSE GRANT
2.1. LICENSE GRANT TO SALON. Pursuant to the terms and conditions of the
Agreement, DKC hereby grants to Salon and Salon hereby accepts a nonexclusive,
nontransferable, and fully paid-up right and license (without the right to
sublicense) to use, copy and display, in a manner "framed" by or "embedded"
within the Salon Health Web Site, as well as offer and distribute to Users
solely in conjunction and integrated with the Salon Health Site, the DKC
Content. Salon shall launch the Salon Health Site within one (1) month of the
Effective Date.
2.2. LICENSE GRANT TO DKC. Pursuant to the terms and conditions of the
Agreement, Salon hereby grants to DKC and DKC hereby accepts a nonexclusive,
nontransferable, and fully paid-up right and license (without the right to
sublicense) to use, copy and display, in a manner "framed" by or "embedded"
within the DKC/Salon Site, as well as offer and distribute to Users solely in
conjunction and integrated with the DKC/Salon Site, the Salon Content. DKC shall
launch the DKC/Salon Site within two (2) months of the Effective Date.
2.3. ON-LINE SERVICE AGREEMENT. Each party shall only distribute the other
party's Content to its Users pursuant to an on-line service agreement. The On-
line Service Agreement shall allow Users the right to reproduce one copy of the
Content for their personal, noncommerical use.
2.4. EDITING. Neither party shall modify, edit, abbreviate, censor or limit
the other party's Content, except for the specific "framing" or "embedding"
contemplated by the Agreement.
2.5. DKC AS EXCLUSIVE PROVIDER. Within the United States and within any
other country in which Salon does business and/or in which the Salon Web Site
and/or Salon Health Site are marketed, Salon shall not, without the prior
written consent of DKC, display any healthcare or related information or provide
any healthcare related services on the Salon Web Site and/or the Salon Health
Site, except for such content and services authorized or developed by Salon or a
freelance Writer/developer.
ARTICLE 3.
LINKING
3.1. LINKING.
(a) Salon shall establish and maintain at least one Link: (i) from
the Salon Web Site Home Page to the Salon Health Site, (ii) from the Salon
Health Site to the DKC/Salon Site Home Page, (iii) from the Salon Emporium e-
commerce area on the Salon Web Site to the Storefront, and (iv) in content on
the Salon Health Site to related resource information on the DKC/Salon Site.
(b) DKC shall establish and maintain one or more Links from the: (i)
DKC Web Site to the DKC/Salon Site, and (ii) DKC/Salon Site to the Salon Web
Site.
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3.2. SALON AS PREMIER PARTNER. When DKC implements a "Premier Partner
Section" (as defined below) on the DKC Web Site, DKC shall include a Link from
the Premier Partner Section on the DKC Web Site Home Page to the DKC/Salon Site.
"Premier Partner Section" means the section on the DKC Web Site used for
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advertising affiliates with whom DKC has a strategic relationship and who are in
the primary business of providing magazine style content on the Internet.
3.3. DKC AS EXCLUSIVE STOREFRONT.
(a) As soon as practicable from the Effective Date, Salon shall
implement a Storefront on the Salon Health Site, which shall be Linked from the
Salon Health Site to the DKC/Salon Site. Once a User follows a Link to the
DKC/Salon Site, DKC shall facilitate the purchase of Products by the User. The
Storefront shall be the exclusive on-line retail section for all prescription,
over-the-counter drug and other health related item sales on the Salon Web Site
and Salon Health Site. After the launch of the Storefront, Salon shall not
accept advertising which directly sells pharmaceutical and health related
products on-line within one hyperlink from the same site. As used herein,
`advertising which directly sells" means that a user may link to a HTML page on
which a product is for sale by within one hyperlink from such advertising.
(b) DKC shall enable Salon Users to purchase Products by Linking
Users to affiliated e-commerce web sites (the "Affiliated Partners"). The
Affiliated Partners shall process all Product orders and each Affiliated Partner
reserves the right to reject orders that do not comply with any requirements of
the Affiliated Partner. The Affiliated Partners will be responsible for all
aspects of order processing and fulfillment, including, without limitation,
preparing order forms; processing payments, cancellations and returns; and
handling customer service. If Salon so desires to include an Affiliated Partner
Product in the Storefront, Salon shall comply with any requirements of such a
Partner, as provided to it from time to time by DKC.
ARTICLE 4.
MARKETING AND PROMOTIONS
4.1. PROMOTION BY SALON.
(a) Salon shall place advertising banners on each page of the
Salon Health Site promoting the DKC/Salon Site, which shall include a minimum of
* * * banner advertisements, Linked to the DKC/Salon Site, pursuant to the
following schedule and terms:
(i) during the first successive year following the
Effective Date, a minimum of * * * impressions;
___________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
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(ii) during the second successive year following the
Effective Date, a minimum of * * * impressions;
(iii) during the third successive year following the
Effective Date, a minimum of * * * impressions; and
(iv) the banners shall be within at least three (3)
hyperlinks from the Salon Web Site Home Page and Salon Health Site Home
Page and shall be evenly distributed throughout the relevant period.
(b) Where appropriate and at Salon's discretion, Salon may
periodically feature the Salon Health Site and the DKC/Salon Site in its
newsletter and distribute it to its registered Users.
(c) Where appropriate and at Salon's discretion, Salon shall
prominently feature DKC in Salon promotional, sales and marketing materials,
including press coverage, where possible. Notwithstanding the foregoing, Salon
shall also conduct at least six (6) special promotions featuring the Salon
Health Site, which shall be mutually agreed to by the parties, and in no event
shall Salon conduct less than two (2) special promotions per year. Salon shall
obtain DKC's prior written consent before distributing any promotional materials
or undertaking any such promotional events.
4.2. PROMOTION BY DKC. Where appropriate and at DKC's sole discretion, DKC
may periodically feature Salon and the Salon Health Site in its drkoop.com
newsletter, on the DKC Web Site Home Page and in other DKC promotional, sales
and marketing materials, including press coverage, where possible. DKC shall
obtain Salon's prior written consent before distributing any promotional
materials.
4.3. ON-GOING EFFORTS.
(a) DKC and Salon shall participate in joint sales and marketing
discussions at mutually agreed times and locations to discuss how the parties
can participate in additional joint marketing and business development
opportunities.
(b) Salon and DKC agree to release a joint press release within
thirty (30) days of the Effective Date. From time to time thereafter, the
parties may issue joint press releases as mutually agreed upon.
__________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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ARTICLE 5.
PAYMENT AND FEES
5.1. PAYMENT. Pursuant to the terms and conditions set forth herein, DKC
shall pay to Salon a fee of $600,000 (the "Fee"), payable in accordance with the
following payment schedule:
(a) * * * payable on the earlier of (i) the Effective Date, or (ii)
March 12, 1999;
(b) * * * on or before March 31, 1999;
(c) * * * on or before January 31, 2000;
(d) * * * on or before August 31, 2000;
(e) * * * on or before February 28, 2001; and
(f) * * * on or before August 31, 2001.
5.2. TRANSACTION FEES FROM PRODUCT SALES.
(a) DKC shall pay to Salon a transaction fee of * * * of the Net
Proceeds on Qualified Sales of Products originating from the Storefront on the
Salon Health Site (the "Transaction Fee"). As used herein, "Net Proceeds" means
--------------- ------------
revenue actually received by DKC for any such sale from its Affiliated Partners.
(b) Transaction Fees are due and payable on the thirtieth (30th) day
after the calendar quarter following the calendar quarter in which the revenue
was received. If a Product that generated a Transaction Fee is returned, the
corresponding Transaction Fee will be deducted from the next quarter's payment.
Transaction Fee checks shall be accompanied by a report. The form, content and
frequency of the report may vary from time to time in DKC's discretion;
provided, however, that such reports shall be issued no less frequently than
once per calendar quarter and shall contain sufficient information to enable
Salon to determine if the appropriate Transaction Fees have been paid.
(c) If the Transaction Fees payable to Salon for any calendar quarter
are less than $100.00, DKC will hold such Transaction Fees until the total
amount due is at least $100.00 or until this Agreement is terminated, whichever
occurs first. If a Product generating a Transaction Fee is returned by the User,
DKC will deduct the corresponding Transaction Fee from the next quarterly
payment. If there is no subsequent payment, DKC will send Salon a bill for the
transaction fees, and Salon shall reimburse DKC.
5.3. ADVERTISING AND REVENUE SHARE.
(a) During the term of the Agreement, Salon shall have the first
right to sell advertising space on the Salon Health Site. DKC may sell any
excess advertising, subject to
____________________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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Salon's acceptance of such advertising. The Net Advertising Revenue (as defined
below) generated by Salon from such advertising shall be shared between the
parties with * * * of such Net Advertising Revenue allocated to Salon and * * *
of such Net Advertising Revenue allocated to DKC. In the event that DKC sells
such advertising, then DKC shall receive * * * of such Net Advertising Revenue
and * * * of such Net Advertising Revenue be allocated to Salon. Salon shall
provide monthly advertising reports to DKC for impressions delivered. As used
herein, "Net Advertising Revenue" means gross revenue of actual sales less costs
-----------------------
paid to acquire the advertising, not to exceed 20% of the total gross revenue.
(b) In addition to Section 5.3 (a), Salon shall pay DKC * * * of
Salon's actual rates charged for advertising which accrues to Salon during the
term of this Agreement from paid banner advertising ("Banner Advertising
Revenue") that both (i) appears on pages of the Salon Health Site and (ii)
prominently features DKC Content such that a majority of that page's content
(excluding advertisements, teasers and text links) is composed of DKC Content.
For purposes of this section, DKC Content excludes "teaser" content and
contextual links to the Salon Health Site.
(c) TIME OF PAYMENT. Net Advertising Revenue and Banner Advertising
Revenue due to DKC shall be due and payable on the thirtieth (30th) day after
the calendar quarter following the calendar quarter in which the revenue was
received. If the Net Advertising Revenue payable to the other party for any
calendar quarter is less than $100.00, the selling party will hold such Net
Advertising Revenue until the total amount due is at least $100.00 or until this
Agreement is terminated, whichever occurs first.
5.4. AUDIT. Each party shall maintain records of all activities subject to
payments pursuant to the Agreement. Each party shall permit a reputable
independent certified public accounting firm designated by the other party to
have access, at a mutually agreed upon time during normal business hours, to the
records and books of account which relate solely to the Agreement for the
purpose of determining whether the appropriate fees have been paid. Such audits
may not be required more often than once every year provided, however, that
either party may audit the other within six (6) months of any audit in which a
discrepancy of five percent (5%) or greater is discovered. If a discrepancy is
discovered, the party in whose favor the error was made will promptly pay the
amount of the error to the other. The party requesting the audit will pay the
cost of the audit, provided, however, that if a discrepancy is discovered of
five percent (5%) or greater, then the audited party will pay the cost of the
audit.
5.5. REPORTING AND SITE USAGE. Each party shall provide the other party
with monthly site usage reports within fifteen (15) days of the end of each
month.
____________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
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ARTICLE 6.
TRADEMARKS AND OTHER PROPRIETARY MATTERS.
6.1. DKC TRADEMARK LICENSE. Subject to the terms and conditions of the
Agreement, DKC hereby grants to Salon a limited license to use the DKC
trademarks as set forth on Exhibit D (the "DKC Marks") on the Salon Web and
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Salon Health Web Sites solely for purposes of using, marketing and promoting the
Salon Health and DKC/Salon Site during the Term of the Agreement. In the event
that Salon desires to use the DKC Marks outside of the Salon Web and Salon
Health Web Sites, Salon shall, in each instance, obtain DKC's written approval
for use of the DKC Marks in any such collateral marketing materials, which
consent shall not be unreasonably withheld or delayed.
6.2. USE OF NAME AND LIKENESS. Salon shall not have any right to use the
name and/or likeness of Dr. C. Everett Koop or to make any statements, whether
written or oral, which state or otherwise imply, directly or indirectly, any
endorsement from or affiliation with Dr. Koop in any manner whatsoever without
the prior written consent of DKC, which consent may be withheld in DKC's sole
discretion.
6.3. SALON TRADEMARK LICENSE. Subject to the terms and conditions of the
Agreement, Salon hereby grants to DKC a limited license to use the Salon
trademarks as set forth on Exhibit E (the "Salon Marks") on the DKC Web and
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DKC/Salon Web Sites solely for purposes of using, marketing and promoting the
Salon Health and DKC/Salon Sites during the Term of the Agreement. In the event
that DKC desires to use the Salon Marks outside the DKC Web and DKC/Salon Web
Sites, DKC shall, in each instance, obtain Salon's written approval for use of
the Salon Marks in any such collateral marketing materials, which consent shall
not be unreasonably withheld or delayed.
6.4. RESERVATION OF RIGHTS. The parties acknowledge and agree that (i) each
party's Marks are and shall remain the sole property of that party; (ii) nothing
in the Agreement shall convey to either party any right of ownership in the
other party's Marks; (iii) neither party shall now or in the future contest the
validity of the other party's Marks; and (iv) neither party shall in any manner
take any action that would impair the value of, or goodwill associated with,
such Marks. The parties acknowledge and agree that all use of the other party's
Marks by a party shall inure to the benefit of the party whose Marks are being
used.
6.5. QUALITY STANDARDS AND MAINTENANCE. The parties acknowledge and agree
that it is necessary for each party to maintain uniform standards governing all
facets of its web site in order to provide Users worldwide with high quality and
consistent levels of service, and to protect the reputation and goodwill
associated with its web site. Accordingly, the parties agree that the quality of
goods and services offered under each of their respective sites shall be at
least as high as the quality of the goods and services offered by the other
party. The parties agree to comply with such specific standards for use of the
respective Marks as each party may, in its discretion, establish and modify from
time to time.
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ARTICLE 7.
INTELLECTUAL PROPERTY
7.1. DKC USER DATA. DKC may request its Users, including Salon's Users, to
provide personal information when they sign up for certain services, including
requesting information on a specific disease, chat rooms and forums ("User
Data"). Such User Data is owned by each User and DKC does not use or disclose
any such User Data without the consent of the User. Nothing contained herein
shall be construed as an obligation of a party to provide User Data to the other
party.
7.2. SALON INTELLECTUAL PROPERTY RIGHTS. DKC agrees that all right, title
and interest in and to the Salon Content shall remain in Salon, including all
copyright and other intellectual property rights. DKC shall have no right, title
and interest in and to the Salon Content or any copyright or other intellectual
property rights therein, other than the rights to use and redistribute such
Content as granted by this Agreement.
7.3. DKC INTELLECTUAL PROPERTY RIGHTS. Salon agrees that all right, title
and interest in and to the DKC Content shall remain in DKC, including all
copyright and other intellectual property rights. Salon shall have no right,
title and interest in and to the DKC Content or any copyright or other
intellectual property rights therein, other than the rights to use and
redistribute such Content as granted by this Agreement.
ARTICLE 8.
REPRESENTATIONS AND WARRANTIES; LIMITATIONS
8.1. DKC WARRANTY. DKC represents and warrants for the benefit of Salon
that the DKC Content and DKC Marks do not and will not infringe any copyright,
trademark or trade secret of any third party and do not and will not constitute
a defamation or invasion of the rights of privacy or publicity of any kind of
any third party.
8.2. SALON WARRANTY. Salon represents and warrants for the benefit of DKC
that the Salon Content and Salon Marks do not and will not infringe any
copyright, trademark or trade secret of any third party and do not and will not
constitute a defamation or invasion of the rights of privacy or publicity of any
kind of any third party. Salon also represents and warrants that it is not an
entity or an affiliate of any entity which engages in the manufacture or
wholesale distribution of tobacco or tobacco products (such activities are
collectively referred to as "Tobacco Industry Affiliation").
8.3. INDEMNIFICATION BY DKC. DKC agrees to indemnify and hold harmless
Salon, its officers, directors, employees and agents from and against any
claims, demands, causes of action and judgments (including reasonable attorneys'
fees and court costs) (collectively, "Salon Claims") by any third party arising
out of any breach or alleged breach of any of DKC's representations and
warranties set forth in Section 8.1, provided that Salon gives DKC prompt
written notice of the assertion of any such Salon Claims. DKC shall have the
option to undertake and control the defense and settlement of any such Salon
Claims; provided, however, that Salon may participate in any such proceeding at
its own expense with counsel of its own choosing.
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8.4. INDEMNIFICATION BY SALON. Salon agrees to indemnify and hold harmless
DKC, its officers, directors, employees and agents from and against any claims,
demands, causes of action and judgments (including reasonable attorneys' fees
and court costs) (collectively, "DKC Claims") by any third party arising out of
any breach or alleged breach of any of Salon's representations and warranties
set forth in Section 8.2, provided that DKC gives Salon prompt written notice of
the assertion of any such DKC Claims. Salon shall have the option to undertake
and control the defense and settlement of any such DKC Claims; provided,
however, that DKC may participate in any such proceeding at its own expense with
counsel of its own choosing.
ARTICLE 9.
LIMITATION OF LIABILITY
9.1. WARRANTY. THE AGREEMENT IS AN AGREEMENT FOR SERVICES. NOTWITHSTANDING
THE FOREGOING AND EXCEPT AS SET FORTH IN ARTICLE 8, BOTH PARTIES SPECIFICALLY
DISCLAIM ALL WARRANTIES WITH REGARD TO THE SALON WEB, SALON HEALTH, DKC WEB AND
DKC/SALON SITES, CONTENT AND SERVICES PROVIDED THEREUNDER, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IN PARTICULAR, AND NOT BY WAY OF LIMITATION, THE PARTIES DO
NOT WARRANT THAT THE SALON WEB, SALON HEALTH, DKC WEB AND DKC/SALON SITES WILL
OPERATE ERROR-FREE OR WITHOUT INTERRUPTION OR THAT ANY FILES AVAILABLE FOR
DOWNLOAD FROM SUCH SITES ARE FREE OF INFECTION BY VIRUSES, WORMS OR OTHER
UNAUTHORIZED CODE.
9.2. DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING,
BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA, LOSS OF BUSINESS OR OTHER
LOSS ARISING OUT OR RESULTING FROM THE AGREEMENT, EVEN IF EITHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL APPLY REGARDLESS
OF THE NEGLIGENCE OR OTHER FAULT OF EITHER PARTY AND REGARDLESS OF WHETHER SUCH
LIABILITY SOUNDS IN CONTRACT, NEGLIGENCE, TORT OR ANY OTHER THEORY OF LIABILITY.
NOTWITHSTANDING THE FOREGOING, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR THE GREATER OF (i) THE CUMULATIVE AMOUNT ACTUALLY PAID BY EACH
PARTY TO THE OTHER PARTY, OR (ii) $50,000.
ARTICLE 10.
CONFIDENTIALITY
10.1. CONFIDENTIALLY OBLIGATIONS. Either party (the "Disclosing party") may
from time to time disclose Confidential Information to the other party (the
"Recipient"). "Confidential Information" is all nonpublic information
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concerning the business, technology, internal structure
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and strategies of the Disclosing party which is conveyed to the Recipient orally
or in tangible form and is either marked as "confidential" or which is
identified as "confidential" prior to disclosure. During the term of the
Agreement and for a period of two (2) years thereafter, Recipient will keep in
confidence and trust and will not disclose or disseminate, or permit any
employee, agent or other person working under Recipient's direction to disclose
or disseminate, the existence, source, content or substance of any Confidential
Information to any other person. Recipient will employ at least the same methods
and degree of care, but no less than a reasonable degree of care, to prevent
disclosure of the Confidential Information as Recipient employs with respect to
its own confidential user data, trade secrets and proprietary information.
Recipient's employees and independent contractors will be given access to the
Confidential Information only on a need-to-know basis, and only if they have
executed a form of non-disclosure agreement with Recipient which imposes a duty
to maintain the confidentiality of information identified or described as
confidential by Recipient and after Recipient has expressly informed them of the
confidential nature of the Confidential Information. Recipient will not copy or
load any of the Confidential Information onto any computing device or store the
Confidential Information electronically except in circumstances in which
Recipient has taken all necessary precautions to prevent access to the
information stored on such device or electronic storage facility by anyone other
than the persons entitled to receive the Confidential Information hereunder.
10.2. PERMITTED DISCLOSURES. The commitments in this Section 10 will not
impose any obligations on Recipient with respect to any portion of the received
information which: (i) is now generally known or available or which, hereafter,
through no act or failure to act on the part of Recipient, becomes generally
known or available; (ii) is rightfully known to Recipient at the time of
receiving such information; (iii) is furnished to Recipient by a third party
without restriction on disclosure and without Recipient having actual notice or
reason to know that the third party lacks authority to so furnish the
information; (iv) is independently developed by Recipient; or (v) is required to
be disclosed by operation of law or by an instrumentality of the government,
including, but not limited to, any court, tribunal or administrative agency.
ARTICLE 11.
TERM AND TERMINATION
11.1. TERM. The term of the Agreement shall commence upon the Effective
Date and shall continue for three (3) years (the "Initial Term"). The Agreement
may be renewed upon mutual agreement of the parties, but such agreement to renew
must be made not less than ninety (90) days before the expiration of the Initial
Term.
11.2. TERMINATION FOR LOW PAGE VIEWS. DKC has the right to terminate the
Agreement following the first anniversary of the Effective Date and, again, on
the second anniversary of the Effective Date of the Agreement, if the following
page views for the Salon Health Site are not met:
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(1) * * * page views by April 15, 2000
(2) * * * page views by April 15, 2001
Termination pursuant to this Section 11.2 shall be effective if given in writing
within thirty (30) days of the applicable anniversary of the Effective Date.
Salon shall not, or shall not cause others to, artificially inflate its page
views.
11.3. TERMINATION FOR BREACH. If either party is in default of any
material provision of the Agreement and such default is not cured within thirty
(30) days of receipt of written notice, the non-breaching party shall have the
right to terminate the Agreement.
11.4. TERMINATION FOR INSOLVENCY. Either party shall have the right to
terminate the Agreement in writing immediately if the other party (i)
voluntarily or involuntarily becomes the subject of a petition in bankruptcy or
of any proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors; or (ii) admits in writing its
inability to pay its debts as they become due.
11.5. TERMINATION FOR TOBACCO AFFILIATION. Upon commencing any activities
relating to Tobacco Industry Affiliation, Salon shall promptly notify DKC of its
intent to undertake Tobacco Industry Affiliation. Upon receipt of such notice or
upon learning of any such Tobacco Industry Affiliation from a third party, DKC
shall have the right to immediately terminate the Agreement without liability of
any kind.
11.6. SURVIVAL. The rights and obligations under Articles 7 (Intellectual
Property Rights), 8 (Representations and Warranties; Limitations), 9 (Limitation
of Liability), 10 (Confidentiality) and 13 (General Provisions) and Sections 5.2
(Transaction Fees) and 6.4 (Trademarks and Other Proprietary Matters) shall
survive after the expiration or earlier termination of the Agreement.
ARTICLE 12.
* * *
12.1. * * *
ARTICLE 7.
MISCELLANEOUS PROVISIONS
13.1. ASSIGNMENT. Neither party may sell, assign, transfer or otherwise
convey any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the other party, except that a party's
rights hereunder may be transferred to a successor of all or
____________________
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
12
<PAGE>
substantially all of the business and assets of the party (no matter how the
transaction or series of related transactions is structured).
13.2. ENTIRE AGREEMENT. The Agreement constitutes the entire understanding
and agreement between the parties, and supersedes all previous agreements
(whether written or oral) concerning the subject matter hereof. The Agreement
may not be amended or supplemented except by a written document executed by the
parties to the Agreement.
13.3. GOVERNING LAW. The Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, without giving effect to its
laws or rules relating to conflicts of law.
13.4. NOTICE. All notices, statements and reports required or permitted by
this Agreement shall be in writing and deemed to have been effectively given and
received: (i) five (5) business days after the date of mailing if sent by
registered or certified U.S. mail, postage prepaid, with return receipt
requested; (ii) when transmitted if sent by facsimile, provided a confirmation
of transmission is produced by the sending machine and a copy of such facsimile
is promptly sent by another means specified in this section; or (iii) when
delivered if delivered personally or sent by express courier service. Notices
shall be addressed as follows:
For DKC: For Salon:
drkoop.com, Inc. Salon Internet, Inc.
8920 Business Park Drive 706 Mission St., 3rd Floor
Austin, TX 78759 San Francisco, CA 94013
Attn: Chief Financial Officer Attn: Andrew Ross
Either party may change its address for the purpose of this paragraph by
notice given pursuant to this paragraph.
13.5. FORCE MAJEURE. Neither party hereto shall be in default hereunder by
reason of its delay in the performance or failure to perform any of its
obligations hereunder for any event, circumstance, or cause beyond its control
such as, but not limited to, acts of God, strikes, lock-outs, general
governmental orders or restrictions, war, threat of war, hostilities,
revolution, riots, epidemics, power shortages, fire, earthquake or flood. The
party affected by any such event shall notify the other party within a maximum
period of fifteen (15) days from its occurrence. The performance of the
Agreement shall then be suspended for as long as any such event shall prevent
the affected party from performing its obligations under the Agreement.
13.6. SEVERABILITY. The provisions of the Agreement are severable, and in
the event any provision hereof is determined to be invalid or unenforceable,
such invalidity or unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
13
<PAGE>
13.7. HEADINGS; COUNTERPARTS. The headings of the articles and several
paragraphs of the Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of the
Agreement. This Agreement may be signed in counterparts.
13.8. WAIVER. The waiver of a default hereunder by one party may be
effected only by a written acknowledgment signed by the other party and shall
not constitute a waiver of any other default. The failure of either party to
enforce any right or remedy for any one default shall not be deemed a waiver of
said right or remedy if the party persists in such default or commits any other
default, nor shall such failure in any way affect the validity of the Agreement
or any part hereof.
13.9. INDEPENDENT PARTIES. Nothing in the Agreement shall be deemed to
constitute, create, give effect to or otherwise recognize a partnership, joint
venture or formal business entity of any kind; and the rights and obligations of
the parties shall be limited to those expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be duly
executed as of the Effective Date.
drkoop.com, Inc. Salon Internet, Inc.
Signature: /s/ Ian Bagnall Signature: /s/ Andrew Ross
------------------------- ------------------------------
Name: Ian Bagnall Name: Andrew Ross
------------------------------ -----------------------------------
Title: Vice President, Business Title: Vice President, Business
Development Development
----------------------------- ----------------------------------
14
<PAGE>
EXHIBIT A
DKC CONTENT
15
<PAGE>
EXHIBIT B
SALON CONTENT
<PAGE>
EXHIBIT C
ON-LINE SERVICE AGREEMENT
<PAGE>
EXHIBIT D
DKC TRADEMARKS
TRADEMARKS:
[LOGO]
a drkoop.com
COMMUNITY
<PAGE>
EXHIBIT E
SALON TRADEMARKS
<PAGE>
EXHIBIT 10.32
EMPOWER HEALTH CORPORATION
COMMUNITY PARTNER PROGRAM AGREEMENT
This Community Partner Program Agreement (the "Agreement") is made and
entered into as of _________________________, 1999 (the "Effective Date") by and
between Empower Health Corporation ("EHC"), a Texas corporation with offices at
8920 Business Park Drive, Austin, Texas 78759, and [FULL HOSPITAL NAME], a
[STATE] corporation ("Customer") with its principal place of business located at
_____________________________.
RECITALS
WHEREAS, EHC develops, markets and maintains an integrated suite of
Internet enabled, consumer oriented software applications and services,
including but not limited to, Dr. Koop's Personal Medical Record System, Dr.
Koop's Community, electronic commerce and electronic data interchange services,
and advertising and promotional services on the Internet at the web site
http://drkoop.com (collectively, the "EHC Web Site");
WHEREAS, EHC offers a service to healthcare providers which enables
such healthcare providers to associate themselves with the EHC Web Site through:
(a) a series of co-branded pages located at a URL unique to the healthcare
provider, which web pages are customized for the healthcare provider, and (b)
the right to link from such co-branded pages to the EHC Web Site. Such
co-branded healthcare provider sites are referred to as Partner Communities
(individually, a "Partner Community"); and
WHEREAS, Customer is a healthcare provider who desires to establish a
Partner Community bearing its name (the "[HOSPITAL NAME] Partner Community") for
use by Customer and Customer's member physicians, providers and plan members
("Customer's Subscribers"); and EHC is willing to develop for Customer the
[HOSPITAL NAME] Partner Community and to grant to Customer the right for
Customer's Subscribers to access the EHC Web Site through the [HOSPITAL NAME]
Partner Community, in accordance with the terms and conditions this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the obligations set forth below,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.
EHC SERVICES
1.1. EHC SERVER. EHC will design, create, and host for Customer, for
the fees set forth in Article 6, the [HOSPITAL NAME] Partner Community which
incorporates Customer's Content (as defined below) and which has the features
and functions as set forth on Exhibit A attached hereto. The [HOSPITAL NAME]
---------
Partner Community shall consist of up to ten (10)
<PAGE>
HTML pages. While Customer and EHC shall collaborate on the "look and feel" of
the [HOSPITAL NAME] Partner Community, the [HOSPITAL NAME] Partner Community
will be designed to have substantially the same "look and feel" as the EHC Web
Site. During the term of this Agreement, EHC shall host such Partner Community
on a server or servers owned by EHC (the "EHC Server").
(a) EHC shall use commercially reasonable efforts to ensure
that the [HOSPITAL NAME] Partner Community is accessible at all times; provided,
however, that EHC shall not be responsible for downtime or other problems caused
by any public network, including the Internet or communications carrier; and
(b) Customer hereby acknowledges and agrees that access by
Customer and Customer's Subscribers to the [HOSPITAL NAME] Partner Community and
the EHC Web Site are subject to the terms and conditions of EHC's standard terms
and conditions of use, as set forth on Exhibit B attached hereto ("Standard
---------
Terms"). EHC may from time to time change its Standards Terms by providing
written notice to Customer and by posting such updated Standard Terms to the
[HOSPITAL NAME] Partner Community and EHC Web Site.
1.2. CUSTOMER CONTENT. Customer shall provide to EHC within ten (10)
days from the Effective Date the content for the HTML pages (the "Customer
Content") in a suitable electronic format to be incorporated into the [HOSPITAL
NAME] Partner Community. EHC reserves the right to reject any Customer Content
which EHC determines in its sole discretion is unsuitable for inclusion in the
[HOSPITAL NAME] Partner Community.
1.3. HTML PAGES APPROVAL PROCESS. Within twenty (20) days from EHC's
receipt of the Customer Content, EHC will design and make available to Customer
the [HOSPITAL NAME] Partner Community for Customer's review either by providing
a copy to Customer or by providing non-public (i.e., password protected) access
via the Internet or other means of remote access to the [HOSPITAL NAME] Partner
Community. Customer shall either accept (which acceptance shall not be
unreasonably withheld) the [HOSPITAL NAME] Partner Community or shall provide
written notice to EHC within five (5) business days describing in reasonable
detail any problems or deficiencies noted by Customer in the [HOSPITAL NAME]
Partner Community. If Customer does provides such written notice of deficiencies
within the five (5) business day period, EHC shall correct such deficiencies and
shall thereafter again submit the [HOSPITAL NAME] Partner Community to Customer
for acceptance as provided above. If EHC does not receive any notice of
deficiencies within the notice period, Customer shall be deemed to have given
constructive approval of the [HOSPITAL NAME] Partner Community. Upon Customer's
acceptance of the [HOSPITAL NAME] Partner Community, such Partner Community
shall be made publicly available. Thereafter, Customer may update the content on
a monthly basis by providing to EHC updated Customer Content and EHC shall
update the content of such HTML pages within ten (10) days after receipt of such
updated Customer Content.
1.4. OTHER SERVICES. EHC shall also provide to Customer, upon request,
the services described on the attached Exhibit C at the prices set forth on
---------
Exhibit C.
- ---------
<PAGE>
1.5. PROJECT MANAGER. Customer shall designate a project manager with
the responsibility and authority to carry out Customer's obligations under this
Agreement and who will be available to EHC as reasonably required.
ARTICLE 2.
TRADEMARKS AND OTHER PROPRIETARY MATTERS.
2.1. TRADEMARK LICENSE. Subject to the terms and conditions of this
Agreement, EHC hereby grants to Customer a limited license to use the EHC
trademarks as set forth on Exhibit D (the "EHC Marks") solely for purposes of
---------
using, marketing and promoting the [HOSPITAL NAME] Partner Community during the
Term (as defined below), provided that Customer shall, in each instance, obtain
EHC's written approval for use of the EHC Marks in any such collateral
materials, which consent shall not be unreasonably withheld.
2.2. RESERVATION OF RIGHTS. Customer acknowledges and agrees that (i)
the EHC Marks are and shall remain the sole property of EHC; (ii) nothing in
this Agreement shall convey to Customer any right of ownership in the EHC Marks;
(iii) Customer shall not now or in the future contest the validity of the EHC
Marks; and (iv) Customer shall not in any manner take any action that would
impair the value of, or goodwill associated with, such marks. Customer
acknowledges and agrees that all use of EHC Marks by Customer shall inure to the
benefit of EHC.
2.3. QUALITY STANDARDS AND MAINTENANCE. The parties acknowledge and
agree that it is necessary for EHC to maintain uniform standards governing all
facets of the EHC Web Site in order to provide users worldwide with high quality
and consistent levels of service, and to protect the reputation and goodwill
associated with the EHC Web Site. Accordingly, Customer agrees that the quality
of goods and services offered under the [HOSPITAL NAME] Partner Community shall
be at least as high as the quality of the goods and services offered by EHC with
respect to the EHC Web Site. Customer agrees to comply with such specific
standards for use of the EHC Marks as EHC may, in its discretion, establish and
modify from time to time.
2.4. USE OF NAME AND LIKENESS. Customer shall not have any right to
use the name and/or likeness of Dr. C. Everett Koop or to make any statements,
whether written or oral, which state or otherwise imply, directly or indirectly,
any endorsement from or affiliation with Dr. Koop in any manner whatsoever
without the prior written consent of EHC, which consent may be withheld in EHC's
sole discretion.
ARTICLE 3.
OWNERSHIP OF DATA
3.1. EHC requests its users, including Customer's Subscribers
(collectively "Individual Users"), to provide personal information when they
sign up for certain services including requesting information on a specific
disease, chat rooms and forums ("User Data"). Such User Data is owned by each
Individual User and EHC does not use or disclose any such User Data without the
consent of the Individual User.
<PAGE>
3.2. EHC shall provide to Customer any and all User Data for which the
Individual User has specifically authorized release to Customer. In the event
that an Individual User grants rights to Customer for use of his User Data,
Customer shall use its best efforts to keep User Data confidential and shall
only use such data in an ethical manner. Customer may use User Data for its owns
purposes, but User Data may not be disclosed, sold, assigned, leased or
otherwise disposed of to third parties by Customer.
3.3. The User Data shall be EHC Confidential Information under Article
7 and shall in addition be subject to the terms of this Article 3. Customer
shall afford the User Data the same level of protection as it affords its own
patient data. Customer shall be liable for the conduct of its employees, agents
and representatives who in any way breach this Amendment. Customer's obligations
to treat the User Data as Confidential Information under Article 7 and this
Article 3 shall continue in perpetuity following termination of this Amendment.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES; LIMITATIONS
4.1. EHC WARRANTY. EHC represents and warrants for the benefit of
Customer that the EHC Web Site and other content provided by EHC (the
"Information") does not and will not infringe any copyright of any third party
and does not and will not constitute a defamation or invasion of the rights of
privacy or publicity of any kind of any third party.
4.2. CUSTOMER WARRANTY. Customer represents and warrants for the
benefit of EHC that (i) the Customer Content shall not infringe any copyright of
any third party and does not and will not constitute a defamation or invasion of
the rights of privacy or publicity of any kind of any third party; (ii) Customer
and Customer's Subscribers use of the [HOSPITAL NAME] Partner Community and EHC
Web Site shall be in accordance with the Standard Terms; and (iii) that it is
not an entity or an affiliate of any entity which engages in the manufacture or
wholesale distribution of tobacco or tobacco products (such activities are
collectively referred to as "Tobacco Industry Affiliation"). Customer hereby
acknowledges that neither EHC nor its suppliers directly or indirectly practice
medicine or dispense medical services as part of EHC Web Site.
4.3. INDEMNIFICATION BY EHC. EHC agrees to indemnify and hold harmless
Customer, its officers, directors, employees and agents from and against any
claims, demands, causes of action and judgments (including reasonable attorneys'
fees and court costs) (collectively, "Customer Claims") by any third party
arising out of any breach or alleged breach of any of EHC's representations and
warranties contained in Section 4.1, provided that Customer gives EHC prompt
written notice of the assertion of any such Customer Claim. EHC shall have the
option to undertake and control the defense and settlement of any such Customer
Claim; provided, however, that Customer may participate in any such proceeding
at its own expense with counsel of its own choosing.
4.4. INDEMNIFICATION BY CUSTOMER. Customer agrees to indemnify and
hold harmless EHC, its officers, directors, employees and agents from and
against any claims, demands, causes of action and judgments (including
reasonable attorneys' fees and court costs)
<PAGE>
(collectively, "EHC Claims") by any third party arising out of: (i) any breach
or alleged breach of any of Customer's representations and warranties contained
in this Agreement; (ii) Customer Content and/or Customer's participation in the
EHC Web Site through its sponsorship of, without limitation, chat rooms, forums
and healthcare topics; and (iii) any representation or warranties made by
Customer to a third party with respect to the [HOSPITAL NAME] Partner Community
or EHC Web Site which representation or warranty by Customer is inconsistent
with the terms and conditions of this Agreement or the Standard Terms, provided
that EHC gives Customer prompt written notice of the assertion of any such EHC
Claim. Customer shall have the option to undertake and control the defense and
settlement of any such EHC Claim; provided, however, that (i) EHC may
participate in any such proceeding at its own expense with counsel of its own
choosing, and (ii) Customer shall not settle any such EHC Claim in a manner that
adversely affects EHC unless EHC agrees to such settlement in writing.
ARTICLE 5.
LIMITATION OF LIABILITY
5.1. WARRANTY. THIS AGREEMENT IS AN AGREEMENT FOR SERVICES.
NOTWITHSTANDING THE FOREGOING AND EXCEPT AS SET FORTH IN SECTION 4.1, EHC
SPECIFICALLY DISCLAIMS ALL WARRANTIES WITH REGARD TO THE [HOSPITAL NAME] PARTNER
COMMUNITY, EHC WEB SITE, INFORMATION AND SERVICES PROVIDED HEREUNDER, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY,
NONINFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. IN PARTICULAR, AND NOT BY
WAY OF LIMITATION, EHC DOES NOT WARRANT THAT THE [HOSPITAL NAME] PARTNER
COMMUNITY OR THE EHC WEB SITE WILL OPERATE ERROR-FREE OR WITHOUT INTERRUPTION OR
THAT ANY FILES AVAILABLE FOR DOWNLOAD FROM THE EHC WEB SITE WILL BE FREE OF
INFECTION BY VIRUSES, WORMS OR OTHER UNAUTHORIZED CODE. As used herein,
"Unauthorized Code" shall mean harmful program or data incorporated into files
which destroys, erases, damages or otherwise disrupts the normal operation of
the user's computer systems or allows for unauthorized access to the user's
computer systems.
5.2. DAMAGES. IN NO EVENT SHALL EHC BE LIABLE TO CUSTOMER FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING,
BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA, LOSS OF BUSINESS OR OTHER
LOSS ARISING OUT OR RESULTING FROM THIS AGREEMENT EVEN IF EHC HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL APPLY REGARDLESS OF THE
NEGLIGENCE OR OTHER FAULT OF EHC AND REGARDLESS OF WHETHER SUCH LIABILITY SOUNDS
IN CONTRACT, NEGLIGENCE, TORT OR ANY OTHER THEORY OF LIABILITY. Notwithstanding
the foregoing and except as set forth in Section 4.3, in no event shall EHC's
liability arising out of this Agreement exceed the total amount of fees actually
paid by Customer to EHC during the immediately proceeding six (6) month period.
<PAGE>
ARTICLE 6.
PAYMENT
[DELETE WHICH EVERY PAYMENT CLAUSE THAT DOES NOT APPLY]
6.1. FEES. In consideration of the license granted in Article 2, and
for the Services, Customer shall pay EHC the fee of $[AMOUNT] (the "Fees") as
follows. Such Fees shall be paid in twelve (12) consecutive monthly installments
of $[AMOUNT] with the first payment due and payable on the Effective Date.
FEES. In consideration of the license granted in Article 2, and for the
Services, Customer shall pay EHC the fee of $[AMOUNT] (the "Fees") on execution
of this Agreement.
6.2. INTEREST AND COLLECTION COSTS. Any payment not received within
thirty days of the due date as set forth on an invoice should be considered
delinquent. Interest shall accrue on delinquent payments at the rate of one and
one-half percent (1.5%) per month or the highest rate permitted by applicable
law, whichever is less.
6.3. TAXES. The Fees do not include local, state or federal sales,
use, excise, personal property or similar taxes or levies. Any and all such
taxes or levies, however designated, paid by EHC (other than taxes based on net
income of EHC) attributable to this Agreement shall be paid by Customer upon
invoice to Customer.
ARTICLE 7.
CONFIDENTIALITY
7.1. CONFIDENTIALLY OBLIGATIONS. Either party (the "Disclosing Party")
may from time to time disclose Confidential Information to the other party (the
"Recipient"). "Confidential Information" is all nonpublic information concerning
the business, technology, internal structure and strategies of the Disclosing
Party which is conveyed to the Recipient orally or in tangible form and is
either marked as "confidential" or which is identified as "confidential" prior
to disclosure. The parties acknowledge and agree that all User Data, and any
portions thereof, is deemed Confidential Information regardless of whether it is
identified as confidential. During the term of this Agreement and for a period
of two (2) years thereafter, Recipient will keep in confidence and trust and
will not disclose or disseminate, or permit any employee, agent or other person
working under Recipient's direction to disclose or disseminate, the existence,
source, content or substance of any Confidential Information to any other
person. Recipient will employ at least the same methods and degree of care, but
no less than a reasonable degree of care, to prevent disclosure of the
Confidential Information as Recipient employs with respect to its own
confidential patent data, trade secrets and proprietary information. Recipient's
employees and independent contractors will be given access to the Confidential
Information only on a need-to-know basis, and only if they have executed a form
of non-disclosure agreement with Recipient which imposes a duty to maintain the
confidentiality of information identified or described as confidential by
Recipient and after Recipient has expressly informed them of the confidential
nature of the Confidential Information. Recipient will not copy or load any of
the Confidential
<PAGE>
Information onto any computing device or store the Confidential Information
electronically except in circumstances in which Recipient has taken all
necessary precautions to prevent access to the information stored on such device
or electronic storage facility by anyone other than the persons entitled to
receive the Confidential Information hereunder.
7.2. PERMITTED DISCLOSURES. The commitments in this Section 7 will not
impose any obligations on Recipient with respect to any portion of the received
information which: (i) is now generally known or available or which, hereafter
through no act or failure to act on the part of Recipient, becomes generally
known or available; (ii) is rightfully known to Recipient at the time of
receiving such information; (iii) is furnished to Recipient by a third party
without restriction on disclosure and without Recipient having actual notice or
reason to know that the third party lacks authority to so furnish the
information; (iv) is independently developed by Recipient; or (v) is required to
be disclosed by operation of law or by an instrumentality of the government,
including but not limited to any court, tribunal or administrative agency.
7.3. USER DATA. User Data is subject to additional obligations of
confidentiality as described in Article 3 above.
ARTICLE 8.
TERM AND TERMINATION
8.1. TERM. The term of this Agreement shall commence upon the
Effective Date and shall continue for one year (the "Term"). Thereafter, this
Agreement shall may be renew for successive terms of one year by mutual
agreement of the parties.
8.2. TOBACCO AFFILIATION. Upon commencing any activities relating to
Tobacco Industry Affiliation, Customer shall promptly notify EHC of its intent
to undertake Tobacco Industry Affiliation. Upon receipt of such notice or upon
learning of any such Tobacco Industry Affiliation from a third party, EHC shall
have the right to immediately terminate this Agreement without liability of any
kind.
8.3. TERMINATION FOR BREACH. If either party is in default of any
material provision of this Agreement and such default is not corrected within
thirty (30) days of receipt of written notice, the other party shall have the
right to terminate this Agreement.
8.4. TERMINATION FOR INSOLVENCY. Either party shall also have the
right to terminate this Agreement by writing immediately if the other party (i)
voluntarily or involuntarily becomes the subject of a petition in bankruptcy or
of any proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (ii) admits in writing its
inability to pay its debts as they become due.
8.5. SURVIVAL. The rights and obligations under Articles 3, 4, and 7
and Sections 5.2 and 9.3 shall survive after the expiration or earlier
termination of this Agreement.
<PAGE>
ARTICLE 9.
MISCELLANEOUS PROVISIONS
9.1. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the parties, and supersedes all previous
agreements (whether written or oral) concerning the subject matter hereof. This
Agreement may not be amended or supplemented except by a written document
executed by the parties to this Agreement.
9.2. ASSIGNMENT. Customer may not assign this Agreement nor any
interest in this Agreement without the prior written consent of EHC.
9.3. ARBITRATION. Any and all disputes, controversies and claims
arising out of or relating to this Agreement or concerning the respective rights
or obligations of the parties hereto shall be settled and determined by
arbitration in Austin, Texas before a panel of one (1) arbitrator pursuant to
the Commercial Rules then in effect of the American Arbitration Association.
Each party shall have no longer than 3 days to present its position. Judgment
upon the award rendered may be entered in any court having jurisdiction or
application may be made to such court for a judicial acceptance of the award and
an order of enforcement. The parties agree that the arbitrators shall have the
power to award damages, injunctive relief and reasonable attorneys' fees and
expenses to any party in such arbitration.
9.4. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas, but without giving effect to its
laws or rules relating to conflicts of laws.
9.5. PUBLICITY. Except as may be required by applicable laws and
regulations or a court of competent jurisdiction, or as required to meet credit
and financing arrangements, or as required or appropriate in the reasonable
judgment of either party to satisfy the disclosure requirements of an applicable
securities law or regulation or any applicable accounting standard, neither
party shall make any public release respecting this Agreement and the terms
hereof without the prior consent of the other party.
9.6. NOTICE. All notices, statements, and reports required or
permitted by this Agreement shall be in writing and deemed to have been
effectively given and received five (5) days after the date of dispatch by
certified or registered mail, postage prepaid, to the party to whom any such
notice, statement, or report is to be given, addressed as follows:
<PAGE>
For EHC: For Customer:
Empower Health Corporation ___________________
Personal Medical Records, Inc. ___________________
8920 Business Park Drive ___________________
Austin, TX 78759 ___________________
Attn: Chief Financial Officer
Either party may change its address for the purpose of this paragraph by notice
given pursuant to this paragraph.
9.7. FORCE MAJEURE. Neither party hereto shall be in default hereunder
by reason of its delay in the performance or failure to perform any of its
obligations hereunder for any event, circumstance, or cause beyond its control
such as, but not limited to, acts of God, strikes, lock-outs, general
governmental orders or restrictions, war, threat of war, hostilities,
revolution, riots, epidemics, power shortages, fire, earthquake, or flood. The
party affected by any such event shall notify the other party within a maximum
period of fifteen (15) days from its occurrence. The performance of this
Agreement shall then be suspended for as long as any such event shall prevent
the affected party from performing its obligations under this Agreement.
9.8. SEVERABILITY. The provisions of this Agreement are severable, and
in the event any provision hereof is determined to be invalid or unenforceable,
such invalidity or unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
9.9. HEADINGS. The headings of the articles and several paragraphs of
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
9.10. WAIVER. The waiver of a default hereunder by one party may be
effected only by a written acknowledgment signed by the other party and shall
not constitute a waiver of any other default. The failure of either party to
enforce any right or remedy for any one default shall be deemed a waiver of said
right or remedy if the party persists in such default or commits any other
default, nor shall such failure in any way affect the validity of this Agreement
or any part hereof.
9.11. INDEPENDENT PARTIES. Nothing in this Agreement shall be deemed to
constitute, create, give effect to or otherwise recognize a partnership, joint
venture or formal business entity of any kind; and the rights and obligations of
the parties shall be limited to those expressly set forth herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
Empower Health Corporation: [FULL HOSPITAL NAME]:
Signature:________________________ Signature:_________________________
Name:_____________________________ Name:______________________________
Title:____________________________ Title:_____________________________
<PAGE>
EXHIBIT A
STANDARD OFFERING: $100K
EHC will:
. Host co-branded web pages at its facilities dedicated to Customer. This
will consist of a maximum of 10 distinct web pages.
. Co-Branding will be effected through banner space on the standard
headers and borders that establish the look and feel for the Dr. Koop's
Community web pages. These headers and borders will appear on all ten
pages of the [HOSPITAL NAME] Partner Community.
. Provide a web-based toolkit to assist the customer's webmasters in
adding links to the customer's primary web site (or the [HOSPITAL NAME]
Partner Community) that point into specific areas of the EHC Website as
needed by Customer.
. List the Customer's web site, in its appropriate geographic region, as
part of the EHC Web Site regional directory.
. Provide technical and administrative support for online chat rooms and
forums. Moderators and topics are to supplied by Customer.
<PAGE>
EXHIBIT B
STANDARD TERMS
<PAGE>
EXHIBIT C
OTHER SERVICES
OPTIONS:
SELF-ASSESSMENT APPLICATION: $50K, EHC AGREES TO WAIVE THE FIRST YEAR PAYMENT
EHC will provide a web-based medical self-assessment application. This
application will, after soliciting answers to important questions, return to the
user a medical narrative summarizing the results of the question and answer
session.
SECURE MESSAGING: $50K
EHC will provide a secure messaging service for use among all registered users
in EHC Web Site and the [HOSPITAL NAME] Partner Community. EHC will also provide
a look-up directory service to assist users in finding other users and medical
personnel to whom messages may be sent.
DIGITAL CERTIFICATES: $50K
EHC will provide digital certificates to those users in the [HOSPITAL NAME]
Partner Community who need an extra level of security and identification. EHC
will provide the long-term management of these certificates including
certificate re-issuing, certificate revocation, and certificate archiving.
<PAGE>
EXHIBIT D
TRADEMARKS, QUOTES
TRADEMARKS:
[LOGO]
A DRKOOP.COM
COMMUNITY
<PAGE>
EXHIBIT 10.33
INDEMNIFICATION AGREEMENT
This Agreement is made as of the _______ day of _____________ 1999, by and
between drkoop.com, Inc., a Delaware corporation (the "Company"), and the
undersigned prospective [OFFICER/DIRECTOR] of the Company, ___________________
(the "Indemnitee"), with reference to the following facts:
The Indemnitee is willing, under certain circumstances, to serve as an
[OFFICER/DIRECTOR] of the Company. The Indemnitee has indicated that he does
not regard the indemnities available under the Company's Bylaws as adequate to
protect him against the risks associated with his service to the Company. In
this connection, the Company and the Indemnitee now agree that they should enter
into this Indemnification Agreement in order to provide greater protection to
Indemnitee against such risks of service to the Company.
Section 145 of the General Corporation Law of the State of Delaware, under
which Law the Company is organized, empowers corporations to indemnify a person
serving as a director, officer, employee or agent of the Company and a person
who serves at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, and said Section 145 and the Bylaws of the Company specify that the
indemnification set forth in said Section 145 and in the Bylaws, respectively,
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any Bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
In order to induce the Indemnitee to serve as a[N] [OFFICER/DIRECTOR] of
the Company and in consideration of his continued service, the Company hereby
agrees, as of the date first set forth above, to indemnify the Indemnitee as
follows:
1. Indemnity. The Company will indemnify the Indemnitee, his executors,
---------
administrators or assigns, for any Expenses (as defined below) which the
Indemnitee is or becomes legally obligated to pay in connection with any
Proceeding. As used in this Agreement the term "Proceeding" shall include any
threatened, pending or completed claim, action, suit or proceeding, whether
brought by or in the right of the Company or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which the Indemnitee may be
or may have been involved as a party or otherwise, by reason of the fact that
Indemnitee is or was, or has agreed to become, a director or officer of the
Company, by reason of any actual or alleged error or misstatement or misleading
statement made or suffered by the Indemnitee, by reason of any action taken by
him or of any inaction on his part while acting as such director or officer, or
by reason of the fact that he was serving at the request of the Company as a
director, trustee, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise; provided,
that in each such case Indemnitee acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, in the case of a criminal proceeding, in addition had no
reasonable cause to believe that his conduct was unlawful. As used in this
Agreement, the term "other enterprise" shall include (without limitation)
employee benefit plans and administrative committees thereof, and the term
<PAGE>
"fines" shall include (without limitation) any excise tax assessed with respect
to any employee benefit plan.
2. Expenses. As used in this Agreement, the term "Expenses" shall
--------
include (without limitation) damages, judgments, fines, penalties, settlements
and costs, attorneys' fees and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. Enforcement. If a claim or request under this Agreement is not paid
-----------
by the Company, or on its behalf, within thirty days after a written claim or
request has been received by the Company, the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Indemnitee shall be
entitled to be paid also the Expenses of prosecuting such suit. The Company
shall have the right to recoup from the Indemnitee the amount of any item or
items of Expenses theretofore paid by the Company pursuant to this Agreement, to
the extent such Expenses are not reasonable in nature or amounts; provided,
however, that the Company shall have the burden of proving such Expenses to be
unreasonable. The burden of proving that the Indemnitee is not entitled to
indemnification for any other reason shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
5. Exclusions. The Company shall not be liable under this Agreement to
----------
pay any Expenses in connection with any claim made against the Indemnitee:
(a) to the extent that payment is actually made to the Indemnitee
under a valid, enforceable and collectible insurance policy;
(b) to the extent that the Indemnitee is indemnified and actually
paid otherwise than pursuant to this Agreement;
(c) in connection with a judicial action by or in the right of the
Company, in respect of any claim, issue or matter as to which the Indemnitee
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company unless and only to the extent that any
court in which such action was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, the Indemnitee is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper;
(d) if it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable to the Indemnitee's
in fact having gained any personal profit or advantage to which he was not
legally entitled;
2
<PAGE>
(e) for a disgorgement of profits made from the purchase and sale by
the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any state
statutory law or common law;
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the foregoing,
the Indemnitee shall be protected under this Agreement as to any claims upon
which suit may be brought against him by reason of any alleged dishonesty on his
part, unless a judgment or other final adjudication thereof adverse to the
Indemnitee shall establish that he committed (i) acts of active and deliberate
dishonesty, (ii) with actual dishonest purpose and intent, (iii) which acts were
material to the cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is prohibited
by applicable law from paying as indemnity or for any other reason.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
-----------------------------------------------
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses incurred in
connection therewith.
7. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion of such Expenses to
which the Indemnitee is entitled.
8. Advance of Expenses. Expenses incurred by the Indemnitee in
-------------------
connection with any Proceeding, except the amount of any settlement, shall be
paid by the Company in advance upon request of the Indemnitee that the Company
pay such Expenses. The Indemnitee hereby undertakes to repay to the Company the
amount of any Expenses theretofore paid by the Company to the extent that it is
ultimately determined that such Expenses were not reasonable or that the
Indemnitee is not entitled to indemnification.
9. Approval of Expenses. No Expenses for which indemnity shall be sought
--------------------
under this Agreement, other than those in respect of judgments and verdicts
actually rendered, shall be incurred without the prior consent of the Company,
which consent shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition precedent to his
---------------
right to be indemnified under this Agreement, shall give to the Company notice
in writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to the Company
shall be given at its principal office and shall be directed to the Corporate
Secretary (or such other address as the Company shall designate in writing to
the Indemnitee); notice shall be deemed received if sent by prepaid mail
properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the
3
<PAGE>
Company such information and cooperation as it may reasonably require and as
shall be within the Indemnitee's power.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one instrument.
12. Indemnification Hereunder Not Exclusive. Nothing herein shall be
---------------------------------------
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Certificate of Incorporation or
Bylaws of the Company and amendments thereto or under law.
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with Delaware law, without regard to the conflicts of law provisions
thereof.
14. Saving Clause. Wherever there is conflict between any provision of
-------------
this Agreement and any applicable present or future statute, law or regulation
contrary to which the Company and the Indemnitee have no legal right to
contract, the latter shall prevail, but in such event the affected provisions of
this Agreement shall be curtailed and restricted only to the extent necessary to
bring them within applicable legal requirements.
15. Coverage. The provisions of this Agreement shall apply with respect
--------
to the Indemnitee's service as a prospective [OFFICER/DIRECTOR] of the Company
prior to the date of this Agreement and with respect to all periods of such
service after the date of this Agreement, even though the Indemnitee may have
ceased to be a[N] [OFFICER/DIRECTOR] of the Company.
(Signature Page Follows)
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
DRKOOP.COM, INC.
By______________________________
Authorized Officer
"INDEMNITEE"
________________________________
Name:
5
<PAGE>
EXHIBIT 10.35
ADVENTIST HEALTH SYSTEM SUNBELT HEALTHCARE CORPORATION
HEALTHMAGIC, INC.
EMPOWER HEALTH CORPORATION
__________________________________________
INVESTMENT AGREEMENT
__________________________________________
January 29, 1999
<PAGE>
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (the "Agreement") is made as of January 29, 1999,
by and among Adventist Heath System Sunbelt Healthcare Corporation, a Florida
not-for-profit corporation ("Adventist"), HealthMagic, Inc., a Delaware
corporation ("HMI"), and Empower Health Corporation, a Texas Corporation
("Empower").
RECITALS
WHEREAS, Adventist owns a majority of the issued and outstanding common
stock, par value $.01 per share, of HMI ("HMI Common Stock");
WHEREAS, Adventist wishes to invest in 348,757 shares of Series C
Convertible Preferred Stock, par value $.01 per share, of Empower ("Series C
Preferred Stock") which, calculated on a Fully Diluted Basis currently
represents 10% of the Common Stock of Empower;
WHEREAS, Empower wishes to invest in 10% of HMI Common Stock, calculated on
a Fully Diluted Basis; and
WHEREAS, concurrently with the execution of this Agreement, Adventist, HMI
and Empower shall enter into the Related Agreements (as defined in Section
1.2(ii) hereof).
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties herein contained, and for other good, valid and
binding consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1. TERMS OF INVESTMENT
1.1. Cross Investment.
----------------
(i) Adventist Investment in Empower. At the Closing (as defined in
---------------------------------
Section 1.2 below) Empower shall tender to Adventist 348,757 shares of Series C
Preferred Stock (the "Empower Shares") which shall have the rights and
preferences specified in the Certificate of Designation attached hereto as
Exhibit A. As of the date of this Agreement, the Empower Shares are convertible
- ---------
into 348,757 shares of Empower Common Stock which, as of the date hereof,
represent 10% of the Common Stock of Empower calculated on a Fully Diluted
Basis. With respect to the shares of Empower Common Stock, "Fully Diluted Basis"
means taking into account (1) the number of shares of Empower Common Stock
currently outstanding, (2) the number of shares of Empower Common Stock issuable
upon conversion of all of the outstanding shares of Empower Series A Preferred
Stock and the Empower Series B Preferred Stock (as each is defined in Section
4.3 hereof), and the Series C Preferred Stock, (3) the number of shares of
Empower Common Stock issuable upon exercise of all outstanding options granted
under the Empower 1997 Stock Option Plan, and (4) the number of shares of
Empower Common Stock issuable upon exercise or conversion of all other
outstanding options, warrants and convertible
1
<PAGE>
securities except the shares of Empower Common Stock issuable upon exercise of
the outstanding option for the holder of the Empower Series B Preferred Stock to
acquire shares of Empower Common Stock or Series B Preferred Stock convertible
into shares of Empower Common Stock (the "Superior Option").
(ii) Empower Investment in HMI. In consideration for the Empower
-------------------------
Shares, at the Closing Adventist shall tender to Empower:
(a) 358,846 shares of HMI Common Stock (the "HMI Shares")
which, as of the date hereof, represent 10% of the issued and outstanding Common
Stock of HMI calculated on a Fully Diluted Basis. With respect to the Common
Stock of HMI, "Fully Diluted Basis" means taking into account (1) the number of
shares of HMI Common Stock currently outstanding, (2) the number of shares of
HMI Common Stock issuable on the exercise of all outstanding options to purchase
HMI Common Stock ("HMI Employee Options") under the HMI 1998 Omnibus Stock
Option and Incentive Plan or otherwise, (3) the 18,595 shares of HMI Common
Stock issuable upon the exercise of the Warrant granted to Ziegler Financing
Corporation on May 29, 1998 (the "Ziegler Warrant") for so long as outstanding,
and (4) the number of shares of HMI Common Stock issuable upon exercise or
conversion of all other outstanding options, warrants and convertible securities
except the 448,507 shares of HMI Common Stock issuable upon exercise of the
Stock Purchase Warrant and Agreement between HMI and Sabratek Corporation dated
November 18, 1998 (the "Sabratek Warrant").
(b) $3.5 Million by wire transfer of immediately available
funds or by certified or bank check payable to Empower.
1.2. Closing.
--------
(i) The Closing of the cross-investment (the "Closing") shall take
place at a mutually agreed upon time on January 29, 1999 (the "Closing Date")
simultaneously with the execution and delivery of this Agreement. At the
Closing:
(a) Empower shall deliver to Adventist a certificate
representing the Empower Shares issued in the name of Adventist, and
(b) Adventist shall deliver to Empower a certificate
representing the HMI Shares, and $3.5 Million by wire transfer of immediately
available funds or by certified or bank check payable to Empower.
(ii) The execution, delivery and effectiveness of this Agreement are
contingent upon the simultaneous execution and delivery of the following
Agreements (the "Related Agreements") of even date herewith:
(a) A Software Sale, License and Development Agreement (the
"PMR Sale and License") between HMI and Empower.
(b) The letter agreement ("Letter Agreement") between
Adventist, HealthMagic, Empower, Donald W. Hackett and Superior Consultant
Holdings Corporation ("Superior").
2
<PAGE>
(c) A registration rights agreement between HMI, Adventist,
Empower and Sabratek Corporation ("Sabratek") (the "HMI Registration Rights
Agreement").
(d) An amended and restated registration rights agreement
between Empower, Adventist and Superior (the "Empower Registration Rights
Agreement").
(e) A stock restriction agreement between HMI, Empower and
Adventist (the "HMI Stock Restriction Agreement").
(f) A stock restriction agreement between Empower, Adventist
and Donald W. Hackett, a shareholder of Empower (the "Empower Stock Restriction
Agreement" and collectively with the Letter Agreement the HMI Stock Restriction
Agreement, the Empower Registration Rights Agreement and the HMI Registration
Rights Agreement, the "Related Stock Agreements").
(iii) At the Closing, the parties shall provide the following
certificates:
(a) HMI shall provide to Empower an officer's certificate
certifying the charter and by-laws of HMI,
(b) Adventist shall provide to Empower an officer's
certificate certifying the charter and bylaws of Adventist; and
(c) Empower shall provide to HMI and Adventist an officer's
certificate certifying (i) the charter and by-laws of Empower, (ii) the
resolutions of the Board of Directors of Empower with respect to the approval of
this Agreement and the Related Agreements to which it is a party, and (iii) the
resolutions of its Board of Directors with respect the adoption of the
Certificate of Designation attached hereto as Exhibit A.
---------
(iv) At the Closing, all consents, approvals and other actions of
and notices and filings with all entities and persons as may be necessary or
required with respect to the execution and delivery by the parties of this
Agreement and any of the Related Agreements shall have been obtained or waived
in writing.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF HMI AND ADVENTIST
In order to induce Empower to enter into this Agreement and the PMR Sale
and License Agreement, HMI and Adventist jointly and severally represent and
warrant to Empower the following:
2.1. Organization and Corporate Power. HMI is a corporation duly
----------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, condition or results of operations of HMI. HMI
has all required corporate power and authority to carry on its business as
presently conducted, to enter into this Agreement and the Related Agreements to
which it is a party (the "HMI Related Agreements") and to carry out the
transactions contemplated hereby and thereby.
3
<PAGE>
HMI has made copies of the certificate of incorporation and bylaws of HMI, as
amended and restated to date (the "HMI Charter" and the "HMI Bylaws,"
respectively) available to Empower and said copies are correct and complete on
the date hereof.
2.2. Authorization and Non-Contravention. This Agreement and the HMI
-----------------------------------
Related Agreements are valid and legally binding obligations of HMI, enforceable
against HMI in accordance with their terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditors'
rights generally and to general principals of equity. The execution, delivery
and performance of this Agreement and the HMI Related Agreements, have been duly
authorized by all necessary corporate action of HMI. The Bylaws of HMI provide
the President of HMI with the authority to execute contracts on behalf of HMI.
Except as set forth in Schedule 2.2, the execution and delivery of this
------------
Agreement and the HMI Related Agreements, and the performance of any obligations
set forth in this Agreement and in the HMI Related Agreements will not (i)
violate, conflict with, or result in a default under any contract or obligation
to which HMI is a party or by which it or its assets are bound, or any provision
of the HMI Charter or HMI Bylaws, or cause the creation of any Encumbrance (as
defined in this Section 2.2) upon any of the assets of HMI; (ii) violate or
result in a violation of, or constitute a default (whether after the giving of
notice, lapse of time or both) under, any provision of any law, regulation or
role, or any order of, or any restriction imposed by, any court or other
governmental agency; (iii) require from HMI any notice to, declaration or filing
with, or consent or approval of, any governmental authority or other third party
(including any filings pursuant to any state securities laws); or (iv)
accelerate any obligation under, or give rise to a right of termination of,
constitute a material breach of, any agreement, permit, license or authorization
to which HMI is a party or by which HMI is bound, or require the issuance of
equity securities (including without limitation, by operation of any anti-
dilution adjustment). Encumbrance shall mean any security interest, mortgage,
lien, pledge, charge, easement, reservation, restriction or similar right of any
third party.
2.3. Capitalization.
---------------
(i) Immediately after the Closing: the authorized capital stock of
HMI will consist of 5,000,000 shares of HMI Common Stock, of which 3,475,242
shares (including the HMI Shares) shall be issued and outstanding, and held
beneficially and of record by the persons and entities identified in Schedule
--------
2.3(i) in the amounts indicated thereon.
- ------
(ii) Except for (a) the shares of HMI Common Stock reserved for
issuance under the HMI 1998 Omnibus Stock and Incentive Plan, (b) the shares of
HMI Common Stock issuable under the HMI Employee Options, (c) the shares of HMI
Common Stock issuable under the Ziegler Warrant, (d) the shares of HMI Common
Stock issuable under the Sabratek Warrant, and (e) as disclosed on Schedule
2.3(ii), as of the Closing, HMI shall not have issued or agreed to issue, and is
not obligated to issue any outstanding warrants, options or other rights to
purchase or acquire any HMI Common Stock, nor any outstanding securities
convertible into HMI Common Stock or any warrants, options or other rights to
acquire any such convertible securities. HMI's present intention is to issue
stock, warrants, options or other rights to purchase or acquire not more than
130,000 shares of HMI capital stock within thirty (30) days after the Closing
Date under the HMI 1998 Omnibus Stock and Incentive Plan.
4
<PAGE>
(iii) Except as set forth in Schedule 2.3(iii), as of the Closing,
-----------------
all of the outstanding shares of HMI Common Stock (including the HMI Shares)
will have been duly and validly authorized and issued, will be fully paid and
non-assessable and will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws and not subject to
any preemptive rights.
(iv) Other than as set forth in the HMI Registration Rights
Agreement, immediately after the Closing, there are no rights to have HMI Common
Stock registered for sale to the public in connection with the laws of any
jurisdiction.
(v) After the Closing, no agreements relating to the voting of HMI
Common Stock, irrevocable proxies or restrictions on the transfer of HMI Common
Stock exist except as provided under Federal and state securities laws and
except for (a) the HMI Stock Restriction Agreement, (b) the Stockholders
Agreement between Adventist and Sabratek Corporation dated as of November 18,
1998 relating to voting and transfer restrictions (the "Sabratek Agreement"),
(c) the restrictions on transfer set forth in Section 8.5 of the HMI Bylaws, (d)
the restrictions on transfer set forth in the HMI Employee Stock Option
Agreements for the HMI Employee Options and Restricted Stock Agreements for
stock issued to HMI employees and directors (tree and correct copies of the
forms of which have been provided to Empower), (e) the restrictions on transfer
set forth in certain HMI employment agreements, and (f) the first right of
refusal set forth in the Sabratek Warrant.
2.4. Subsidiaries; Investments. Except for 487,804 shares of Series B
--------------------------
preferred stock of Direct Medical Knowledge, Inc. (which, pursuant to a merger
with WebMd shall be converted into shares of WebMd), HMI has no subsidiaries and
has no equity interest in any corporation, joint venture, partnership or other
entity.
2.5. Reports and Financial Statements.
---------------------------------
(i) HMI has previously furnished to Empower complete and correct
copies, including exhibits, of its (a) audited balance sheets as of December 31,
1996 and December 31, 1997 and audited income statements for the period November
8, 1996 through December 31, 1996 and the twelve month period ended December 31,
1997 (the "HMI Audited Financial Statements"), and (b) unaudited balance sheet
as of November 30, 1998 and income statement for the period January 1, 1998
through November 30, 1998 (the "HMI Unaudited Financial Statements").
(ii) The HMI Audited Financial Statements were prepared in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis, are complete, correct and consistent in all material respects
with the books and records of HMI and fairly present, in all material respects,
the financial position of HMI as of the dates thereof and the results of
operations of HMI for the periods shown therein. The HMI Unaudited Financial
Statements were prepared in conformity with GAAP and fairly present, in all
material respects, the financial condition and the results of operations of HMI
as of the date and for the period indicated.
5
<PAGE>
(iii) Except as and to the extent reflected or reserved against in
the HMI balance sheet as of November 30, 1998 including the footnotes and
schedules thereto (the "HMI Base Balance Sheet"), HMI does not have (i) any
material accrued or contingent liability or liabilities arising out of any
transaction or state of facts existing on or prior to the date of the Base
Balance Sheet or (ii) any other material liabilities arising other than in the
ordinary course of business since the date of the Base Balance Sheet.
2.6. Absence of Certain Developments. Since the date of the HMI Base
---------------------------------
Balance Sheet there has not been any: (i) material adverse change in the
financial condition of HMI or in the assets, liabilities, properties, business
or prospects of HMI; (ii) declaration, setting aside or payment of any dividend
or other distribution with respect to, or any direct or indirect redemption or
acquisition of, any HMI Common Stock or any split, combination or other
reclassification of such stock; (iii) cancellation of any material debt or claim
held by HMI or the creation or assumption of any indebtedness for money borrowed
by HMI; (iv) loss, destruction or damage to any property which is a material
asset of HMI, whether or not insured; (v) acquisition or disposition of any
material assets (or any contract or arrangement therefor) or other transaction
by HMI other than in the ordinary course of business; or (vi) loss or
cancellation of any material contract of HMI.
2.7. Accounts Receivable. All of the accounts receivable of HMI, including
--------------------
but not limited to those shown or reflected on the HMI Base Balance Sheet,
represent bona fide sales made in the ordinary course of business, are valid and
enforceable claims and are fully collectible in the normal course of business
after deducting the reserve set forth in the Base HMI Balance Sheet and
reasonably adjusted since that date, which reserve, as adjusted, constitutes an
estimate of HMI's uncollectible accounts consistent with the past collection
history of HMI.
2.8. Title to Properties. HMI has good and valid title to all of its owned
-------------------
assets including without limitation all rights to those assets reflected on the
HMI Base Balance Sheet or acquired by it after the date thereof (except for
properties disposed of since that date in the ordinary course of business), free
and clear of all liens, claims or encumbrances of any nature. HMI has good and
valid leasehold interests in all of its leased personal property and all leases
to which HMI is a party are in full force and effect. HMI does not own, directly
or indirectly, any real property.
2.9. Tax Matters. HMI has filed all federal, state, local and foreign
------------
income, excise and franchise tax returns, real estate and personal property tax
returns, sales and use tax returns and other tax returns required to be filed by
it except where the failure to file such returns would not have a material
adverse effect on the assets, liabilities, properties, business or prospects of
HMI and has paid all taxes owing by it (whether or not showing on the tax
returns), except taxes which have not yet accrued or otherwise become due, for
which adequate provision has been made in the HMI Unaudited Financial
Statements. All such tax returns were correct and complete in all material
respects. Neither the Internal Revenue Service nor any other taxing authority is
now conducting any audit, examination or review of any tax return filed by HMI
or asserting against HMI any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith. All taxes that HMI is
required by law to withhold or collect for payment have been duly withheld and
collected, and have been paid or accrued in the HMI Unaudited Financial
Statements.
6
<PAGE>
2.10. Certain Contracts and Arrangements. Except as set forth in Schedule
---------------------------------- --------
2.10 hereto, HMI is not a party to, subject to or bound by:
- ----
(i) any contract, lease or agreement creating any obligation of
HMI to pay to any third party $100,000 or more with respect to any single such
contract or agreement which is not cancelable or terminable upon thirty days
notice without penalty;
(ii) any contract or agreement for the sale, license, lease or
disposition of products in excess of $100,000;
(iii) any contract containing covenants limiting the freedom of
HMI to compete in any line of business or with any person or entity;
(iv) any license agreement (as licensor or licensee) obligating
HMI or any third party to pay in excess of $100,000;
(v) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $100,000;
(vi) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $100,000 or
any pledge or security arrangement;
(vii) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of HMI (other than the
Letter Agreement and the Employee Options); or
(viii) any agreement pertaining to any joint venture, partnership
or other arrangement involving the sharing of expenses, revenues or profits.
All of HMI's contracts are in full force and effect and HMI is not in
default thereunder, except to the extent that any such default would not have a
material adverse effect on the assets, liabilities, properties, business or
prospects of HMI, and HMI has not received notice of any alleged default under
any such contract, agreement, understanding or commitment.
2.11. Intellectual Property Rights; Employee Restrictions.
----------------------------------------------------
As used herein, the term "Intellectual Property Rights" shall mean any and
all intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright applications,
computer programs and other computer software, inventions, designs, samples,
specifications, schematics, know-how, trade secrets, proprietary processes and
formulae, all source and object code, algorithms, architecture, structure,
display screens, layouts, development tools, promotional materials, data bases,
customer lists, supplier and dealer lists and marketing research, and all
documentation and media constituting, describing or relating to the foregoing,
including without limitation, manuals, memoranda and records.
7
<PAGE>
(i) Schedule 2.11(i) contains a list of all Intellectual Property
----------------
Rights registered in the name of HMI or of which HMI is the licensor or a
licensee or in which HMI has any right ("HMI IP Rights"). Except as set forth in
Schedule 2.11(i), all HMI IP Rights listed on Schedule 2.11(i) are in full
- ---------------- ----------------
force and effect and are sufficient for the conduct of HMI' s business as
presently conducted. All copyrightable works, inventions and know-how conceived
by employees of HMI within the scope of their employment and related to the
businesses of HMI are works made for hire and all right, title and interest
therein have been transferred or assigned to or vested in HMI. Any consultants
or independent contractors hired by HMI have assigned or transferred to HMI the
work product developed for HMI.
(ii) Except as set forth in Schedule 2.11(ii):
-----------------
(a) HMI has exclusive right to use, sell, license, dispose
of, and bring actions for infringement of, all HMI IP Rights;
(b) The business of HMI as presently conducted and the
development, marketing, licensing, use and servicing of any products of HMI do
not violate any agreements which HMI has with any third party, infringe any
patent, trademark, copyright or trade secret rights of any third parties or any
other Intellectual Property Rights of any third parties; and
(c) No claim is pending or, to HMI's knowledge, threatened
against HMI nor has HMI received any notice or other claim from any person
asserting that any of HMI's past, present or contemplated activities infringe or
may infringe any Intellectual Property Rights of such person, and HMI is not
aware of any infringement by any other person of any HMI IP Rights.
2.12. Litigation. Except as set forth in Schedule 2.12, there is no
---------- -------------
judgment, decree, injunction, or order of any governmental authority or any
litigation pending or to HMI's knowledge threatened and to HMI's knowledge there
is no governmental proceeding or investigation pending or threatened (i) against
HMI or affecting any of its properties or assets, or (ii) against any officer,
director or key employee of HMI in his capacity as an officer, director or
employee of HMI, or (iii) which may call into question the validity or hinder
the enforceability of this Agreement or the HMI Related Agreements or
transactions contemplated hereby or thereby.
2.13. Employee Benefit Plans. Except for HMI's 1998 Omnibus Stock and
----------------------
Incentive Plan and except as set forth on Schedule 2.13 hereto, HMI does not
-------------
maintain or contribute and has never maintained or contributed to any employee
benefit plan, stock option, bonus or incentive plan, health plan, severance pay
policy or agreement, deferred compensation agreement, or any similar plan or
agreement (an "Employee Benefit Plan"). Except as set forth on Schedule 2.13,
-------------
there are no unfunded obligations of HMI under any retirement, pension, profit-
sharing, deferred compensation plan or similar program. HMI is not required to
make any payments or contributions to any Employee Benefit Plan pursuant to any
collective bargaining agreement or any applicable labor relations law.
8
<PAGE>
2.14. Labor Laws. There are no controversies or union organization
-----------
activities pending or to HMI's knowledge threatened, between HMI and any of its
current or former employees. None of HMI's employees belongs to any union or
collective bargaining unit. HMI has complied with all applicable state and
federal equal employment opportunity and other laws related to employment, the
non-compliance with which would have a material adverse effect on HMI's business
or financial condition.
2.15. Environmental Matters. HMI is in compliance with all applicable
---------------------
laws relating to the environment (the "Environmental Laws"). HMI has not
knowingly handled, stored, released or exposed any hazardous substance or
materials as defined by any applicable Environmental Law ("Hazardous
Substance"). HMI has no liabilities for clean-up costs, remedial work or damages
in connection with the handling, storage, release or exposure by HMI of any
Hazardous Substance.
2.16. Business; Compliance with Laws. HMI has all necessary franchises,
------------------------------
permits, licenses and other rights and privileges ("Licenses") necessary to
permit it to own its property and to conduct its business as it is presently or
contemplated to be conducted except where the failure to obtain such Licenses
would not have a material adverse effect on the business, condition or results
of operations of HMI. HMI is, and since its incorporation has been, in
compliance with all federal, state, local and foreign laws and regulations
("Regulations") applicable in the jurisdictions which HMI does or has done
business except where the failure to comply with such Regulations would not have
a material adverse effect on the business, condition or results of operations of
HMI.
2.17. Investment Banking; Brokerage. No person or entity other than B.C.
------------------------------
Ziegler & Company is or will be entitled to investment banking fees, brokerage
commissions, finder's fees or similar compensation (exclusive of professional
fees to lawyers and accountants) from HMI in connection with the transactions
contemplated by this Agreement.
2.18. Insurance. Schedule 2.18 hereto lists all insurance policies and
---------- -------------
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers, and directors of HMI. HMI is not in default under any of
its insurance policies.
2.19. Transactions with Affiliates. Except as set forth on the HMI Base
----------------------------
Balance Sheet or Schedule 2.19, there are no loans, leases or other continuing
-------------
transactions between HMI or any officer or director of HMI, or any shareholder
who owns five percent or more of the Common Stock of HMI, calculated on a Fully
Diluted Basis, or any affiliate of the foregoing persons or entities.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ADVENTIST
In order to induce Empower to enter into this Agreement, Adventist
represents and warrants to Empower the following:
3.1. Organization and Corporate Power. Adventist is a not-for-profit
---------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. Adventist has all required corporate power and
authority to enter into this Agreement and the Related
9
<PAGE>
Agreements to which Adventist is a party ("Adventist Related Agreements") and to
carry out the transactions contemplated hereby and thereby.
3.2. Authorization and Non-Contravention. This Agreement and the
------------------------------------
Adventist Related Agreements are valid and legally binding obligations of
Adventist, enforceable against Adventist in accordance with their terms, subject
to applicable bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting creditors' rights generally and to general principals of equity.
Except as set forth in Schedule 3.2 hereto, the execution, delivery and
------------
performance of this Agreement and the Adventist Related Agreements, have been
duly authorized by all necessary corporate action of Adventist. Except as set
forth in Schedule 3.2 hereto, the execution and delivery of this Agreement and
------------
the Adventist Related Agreements, and the performance of any obligations set
forth herein or therein will not (i) violate, conflict with, or result in a
default under any contract or obligation to which Adventist is a party or by
which it or its assets are bound, or any provision of the charter or bylaws of
Adventist, or cause the creation of any Encumbrance upon any of the assets of
Adventist, (ii) violate or result in a violation of, or constitute a default
(whether after the giving of notice, lapse of time or both) under, any provision
of any law, regulation or role, or any order of, or any restriction imposed by,
any court or other governmental agency; (iii) require from Adventist any notice
to, declaration or filing with, or consent or approval of, any governmental
authority or other third party; or (iv) accelerate any obligation under, or give
rise to a right of termination of, or constitute a material breach of, any
agreement, permit, license or authorization to which Adventist is a party or by
which Adventist is bound.
3.3. Title to HMI Shares. Adventist is the lawful and record owner of,
--------------------
and has good and marketable title to, the HMI Shares and has the corporate power
and authority to transfer such shares to Empower as contemplated by this
Agreement, free and clear of all Encumbrances. Except for the right of first
refusal set forth in Section 8.5 of the HMI Bylaws, the HMI Stock Restriction
Agreement and the Sabratek Agreement, Adventist is not a party to, or bound by
any agreements or understandings with respect to the voting, sale or other
disposition of the HMI Shares and to Adventist's knowledge, no such agreements
or understandings exist. The obligations of Adventist under the Sabratek
Agreement are not applicable to the HMI Shares after such shares have been
transferred to Empower as contemplated by this Agreement.
3.4. Investment Representations.
---------------------------
(i) Adventist represents that it has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment contemplated by this Agreement and making an
informed investment decision with respect thereto.
(ii) Adventist is an "Accredited Investor" as that term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
(iii) Adventist has received, read carefully and is familiar with
this Agreement, the Related Stock Agreements and Empower's business, plans and
financial condition, and any other matters relating to the offering of the
Empower Shares; Adventist has received all materials
10
<PAGE>
which it has requested; has had a reasonable opportunity to ask questions of
Empower and its representatives; and Empower has answered all inquiries that
Adventist or its representatives have put to Empower. Adventist has had access
to all additional information necessary to verify the accuracy of the
information set forth in this Agreement and any other materials furnished
herewith, and has taken all the steps necessary to evaluate the merits and risks
of an investment as proposed hereunder. In making the decision to invest in the
Empower Shares, Adventist has relied upon an independent investigation made by
it and/or by its representatives and has not relied on any information or
representations made by third parties or on any oral or written representations
or assurances from Empower or any representative or agent of Empower, other than
as set forth in this Agreement.
(iv) Adventist understands the speculative nature and the various
risks of an investment in Empower as proposed herein and can afford to bear such
risks, including, without limitation, the risk of losing the entire investment.
(v) Adventist acknowledges that no market for the Empower Shares
presently exists and none may develop in the future and that Adventist may find
it impossible to liquidate the investment at a time when it may be desirable to
do so, or at any other time.
(vi) Adventist has been advised by Empower that the Empower Shares
have not been registered under the Securities Act, that the Empower Shares will
be issued on the basis of the statutory exemption provided by Section 4(2) of
the Securities Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering and under similar
exemptions under certain state securities laws, that this transaction has not
been reviewed by, passed on by or submitted to any federal or state agency or
self-regulatory organization where an exemption is being relied upon, and that
Empower's reliance thereon is based in part upon the representations made by
Adventist in this Agreement. Adventist acknowledges that Adventist has been
informed by Empower of, or is otherwise familiar with, the nature of the
limitations imposed by the Securities Act and the roles and regulations
thereunder on the transfer of the Empower Shares. In particular, Adventist
agrees that no sale, assignment or transfer of any of the Empower Shares shall
be valid or effective, and Empower shall not be required to give any effect to
such a sale, assignment or transfer, unless (i) the sale, assignment or transfer
of such Empower Shares is registered under the Securities Act, it being
understood that the Empower Shares are not currently registered for sale and
that Empower has no obligation or intention to so register the Empower Shares,
or (ii) such Empower Shares are sold, assigned or transferred in accordance with
all the requirements and limitations of Rule 144 under the Securities Act, it
being understood that Rule 144 is not available at the present time for the sale
of the Empower Shares, or (iii) such sale, assignment or transfer is otherwise
exempt from registration under the Securities Act. Adventist further understands
that Empower may require an opinion of counsel and other documents to transfer
the Empower Shares. Adventist acknowledges that the Empower Shares shall be
subject to a stop transfer order and the certificate or certificates evidencing
any Empower Shares shall bear the legend as specified on Schedule 3.4 hereto.
------------
(vii) Adventist will acquire the Empower Shares for Adventist's own
account for investment and not with a view to the sale or distribution thereof
or the granting of any
11
<PAGE>
participation therein in contravention with applicable law, and has no present
intention of distributing or selling to others any of such interest or granting
any participation therein.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF EMPOWER
To induce Adventist and HMI to enter into this Agreement, Empower
represents and warrants to Adventist and HMI the following:
4.1. Organization and Corporate Power. Empower is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Texas, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, condition or results of operations of Empower.
Empower has all required corporate power and authority to carry on its business
as presently conducted, to enter into this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby. Empower has made copies of the articles of
incorporation and bylaws of Empower, as amended and restated to date (the
"Empower Charter" and the "Empower Bylaws," respectively) available to Empower
and said copies are correct and complete on the date hereof.
4.2. Authorization and Non-Contravention. This Agreement and the Empower
-----------------------------------
Related Agreements are valid and legally binding obligations of Empower,
enforceable against Empower in accordance with their terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting creditors' rights generally and to general principals of equity. The
execution, delivery and performance of this Agreement and the Related Agreements
to which it is a party (the "Empower Related Agreements"), have been duly
authorized by all necessary corporate action of Empower. The execution and
delivery of this Agreement and the Empower Related Agreements, and the
performance of any obligations set forth in this Agreement and in the Empower
Related Agreements will not (i) violate, conflict with, or result in a default
under any contract or obligation to which Empower is a party or by which it or
its assets are bound, or any provision of the Empower Charter or Empower Bylaws,
or cause the creation of any Encumbrance upon any of the assets of Empower, (ii)
violate or result in a violation of, or constitute a default (whether after the
giving of notice, lapse of time or both) under, any provision of any law,
regulation or role, or any order of, or any restriction imposed by, any court or
other governmental agency; (iii) require from Empower any notice to, declaration
or filing with, or consent or approval of, any governmental authority (including
any filings pursuant to any state securities laws), other than the filing of a
Certificate of Designation with the Secretary of the State of Texas, or other
third party other than Superior; or (iv) accelerate any obligation under, or
give rise to a right of termination of, constitute a material breach of any
agreement, permit, license or authorization to which Empower is a party or by
which Empower is bound, or require the issuance of equity securities (including,
without limitation, by operation of any anti-dilution adjustment).
4.3. Capitalization.
---------------
(i) Immediately prior to the Closing: the authorized capital stock
of Empower will consist of 5,000,000 shares of Empower Common Stock and
5,000,000 of preferred stock, par value $.01 per share, (the "Empower Preferred
Stock"), of which (a) 100,000 shares have
12
<PAGE>
been designated as Series A 8% Convertible Preferred Stock, par value $.01 par
share (the "Empower Series A Preferred Stock"), and (b) 1,837,486 shares have
been designated as Series B Non-Voting Preferred Stock, par value $.01 per share
(the "Empower Series B Preferred Stock") and 400,000 shares have been designated
as Series C Preferred Stock. Immediately prior to the Closing, (y) 1,140,048
shares of Empower Common Stock shall be issued and outstanding, and held
beneficially and of record by the persons and entities identified in Schedule
--------
4.3(i) in the amounts indicated thereon; (z) 595,960 shares of Empower Preferred
- ------
Stock shall be shall be issued and outstanding, and held beneficially and of
record by the persons and entities identified in Schedule 4.3(i). The Series C
--------------
Preferred Stock shall have the rights and preferences set forth in the
Certificate of Designation set forth as Exhibit A hereto.
---------
(ii) Except (a) for shares of Empower Common Stock issuable upon
exercise of options granted under the Empower 1997 Stock Option Plan (the
"Empower Employee Options") as set forth on Schedule 4.3(ii), (b) shares of
----------------
Empower Common Stock issuable pursuant to the Letter Agreement, or (c) as
otherwise set forth in Schedule 4.3(ii), as of the Closing Empower has not
----------------
issued or agreed to issue, and is not obligated to issue any outstanding Empower
Common Stock, warrants, options or other rights to purchase or acquire any
shares of its capital stock, nor any outstanding securities convertible into
such shares or any warrants, options or other rights to acquire any such
convertible securities.
(iii) As of the Closing, all of the outstanding shares of Empower
Common Stock and Empower Preferred Stock (including the Empower Shares) will
have been duly and validly authorized and issued, will be fully paid and
nonassessable, and will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws and not subject to
any preemptive rights. Except as set forth in this Agreement and any Related
Agreement, immediately after the Closing, Adventist shall be the lawful and
record owner of, and shall have good and marketable title to the Empower Shares,
free and clear of all Encumbrances attributable to Empower, with full power and
authority to transfer such shares subject to applicable Federal and state
securities laws.
(iv) Other than as set forth in the Empower Registration Rights
Agreement of even date herewith or as set forth in Schedule 4.3(iv) hereto,
----------------
immediately after the Closing, there are no rights to have Empower Common Stock
registered for sale to the public in connection with the laws of any
jurisdiction.
(v) Except for the Empower Stock Restriction Agreement or as set
forth in Schedule 4.3(v) hereto, as of the Closing Empower is not a party to or
---------------
aware of any agreements relating to the voting of Empower Common Stock and no
restrictions on the ability of Empower to issue Empower Common Stock or Empower
Preferred Stock exist except as provided under Federal and state securities
laws.
4.4. Subsidiaries; Investments. Empower has no subsidiaries and has no
-------------------------
equity interest in any corporation, joint venture, partnership or other entity.
4.5. Reports and Financial Statements.
---------------------------------
13
<PAGE>
(i) Empower has previously furnished to Adventist complete and
correct copies, including exhibits, of its (a) audited balance sheet as of
December 31, 1997 and an audited income statement for the period from July 17,
1997 through December 31, 1997 (the "Empower Audited Financial Statements"), and
(b) unaudited balance sheet as of October 31, 1998 and income statement for the
period January 1, 1998 through October 31, 1998 (the "Empower Unaudited
Financial Statements").
(ii) Except as described on Schedule 4.5(ii), the Empower Audited
----------------
Financial Statements were prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis, are complete,
correct and consistent in all material respects with the books and records of
Empower and fairly present, in all material respects, the financial position of
Empower as of the dates thereof and the results of operations of Empower for the
periods shown therein. Except as disclosed on Schedule 4.5(ii) attached hereto,
----------------
the Unaudited Empower Financial Statements were prepared in conformity with GAAP
and fairly present, in all material respects, the financial condition and the
results of operations of Empower as of the date and for the period indicated.
(iii) Absence of Undisclosed Liabilities. Except as and to the
----------------------------------
extent reflected or reserved against in the Empower balance sheet as of October
31, 1998 including schedules thereto (the "Empower Base Balance Sheet"), Empower
does not have (i) any material accrued or contingent liability or liabilities
arising out of any transaction or state of facts existing on or prior to the
date of the Base Balance Sheet or (ii) any other material liabilities arising
other than in the ordinary course of business since the date of the Base Balance
Sheet.
4.6. Absence of Certain Developments. Except as set forth on Schedule
------------------------------- --------
4.6, since the date of the Empower Base Balance Sheet there has not been any:
- ---
(i) material adverse change in the financial condition of Empower or in the
assets, liabilities, properties, business or prospects of Empower; (ii)
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any Empower
Common Stock or any split, combination or other reclassification of such stock;
(iii) cancellation of any material debt or claim held by Empower or the creation
or assumption of any indebtedness for money borrowed by Empower; (iv) loss,
destruction or damage to any property which is a material asset of Empower,
whether or not insured; (v) acquisition or disposition of any material assets
(or any contract or arrangement therefor) or other transaction by Empower other
than in the ordinary course of business; or (vi) loss or cancellation of any
material contract of Empower other than the proposed termination of the
agreement between Empower and University of Pennsylvania Health System dated
April 29, 1998.
4.7. Accounts Receivable. All of the accounts receivable of Empower,
-------------------
including but not limited to those shown or reflected on the Empower Base
Balance Sheet, represent bona fide sales made in the ordinary course of
business, are valid and enforceable claims and are fully collectible in the
normal course of business after deducting the reserve set forth in the Empower
Base Balance Sheet and reasonably adjusted since that date, which reserve, as
adjusted, constitutes an estimate of Empower's uncollectible accounts consistent
with the past collection history of Empower.
14
<PAGE>
4.8. Title to Properties. Except as reflected on Schedule 4.8, Empower
------------------- ------------
has good and valid title to all of its owned assets including without limitation
all rights to those assets reflected on the Empower Base Balance Sheet or
acquired by it after the date thereof (except for properties disposed of since
that date in the ordinary course of business), free and clear of all liens,
claims or encumbrances of any nature. Empower has good and valid leasehold
interests in all of its leased personal property and all leases to which Empower
is a party are in full force and effect. Empower does not own, directly or
indirectly, any real property.
4.9. Tax Matters. Empower has filed all federal, state, local and foreign
-----------
income, excise and franchise tax returns, real estate and personal property tax
returns, sales and use tax returns and other tax returns required to be filed by
it except where the failure to file such returns would not have a material
adverse effect on the assets, liabilities, properties, business or prospects of
Empower and has paid all taxes owing by it (whether or not showing on the tax
returns), except taxes which have not yet accrued or otherwise become due, for
which adequate provision has been made in the Empower Unaudited Financial
Statements. All such tax returns were correct and complete in all material
respects. Neither the Internal Revenue Service nor any other taxing authority is
now conducting any audit or examination or review of any tax return filed by
Empower or asserting against Empower any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith. All taxes that
Empower is required by law to withhold or collect for payment have been duly
withheld and collected, and have been paid or accrued in the Empower Unaudited
Financial Statements.
4.10. Certain Contracts and Arrangements. Except as set forth in Schedule
---------------------------------- --------
4.10 hereto, Empower is not a party to, subject to or bound by'
- ----
(i) any contract, lease or agreement creating any obligation of
Empower to pay to any third party $100,000 or more with respect to any single
such contract or agreement which is not cancelable or terminable upon 30 days
notice without penalty;
(ii) any contract or agreement for the sale, license, lease or
disposition of products in excess of $100,000;
(iii) any contract containing covenants limiting the freedom of
Empower to compete in any line of business or with any person or entity;
(iv) any license agreement (as licensor or licensee) obligating
Empower or any third party to pay in excess of $100,000;
(v) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $100,000;
(vi) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $100,000 or
any pledge or security arrangement;
(vii) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of Empower (other than the
Letter Agreement and the Empower Employee Stock Options); or
15
<PAGE>
(viii) any agreement pertaining to any joint venture, partnership,
marketing or other arrangement involving the sharing of expenses, revenues or
profits.
All of Empower's contracts are in full force and effect and Empower is not
in default thereunder, except to the extent that any such default would not have
a material adverse effect on the assets, liabilities, properties, business or
prospects of Empower, and Empower has not received notice of any alleged default
under any such contract, agreement, understanding or commitment.
4.11. Intellectual Property Rights; Employee Restrictions.
----------------------------------------------------
(i) Schedule 4.11 (i) contains a list of all Intellectual Property
-----------------
Rights registered in the name of Empower or of which Empower is the licensor or
a licensee or in which Empower has any right ("Empower IP Rights"). Except as
set forth in Schedule 4.1 l(i), all Empower IP Rights listed on Schedule 4.11
----------------- -------------
(i) are in full force and effect and are sufficient for the conduct of Empower's
- ---
business as presently conducted. All copyrightable works, inventions and know-
how conceived by employees of Empower within the scope of their employment and
related to the businesses of Empower are works made for hire and all right,
title and interest therein have been transferred or assigned to or vested in
Empower. Any consultants or independent contractors hired by Empower have
assigned or transferred to Empower the work product developed for Empower.
(ii) Except as set forth in Schedule 4.11 (ii):
------------------
(a) Empower has exclusive right to use, sell, license, dispose
of, and bring actions for infringement of, all Empower IP Rights;
(b) The business of Empower as presently conducted and the
development, marketing, licensing, use and servicing of any products of Empower
do not violate any agreements which Empower has with any third party, infringe
any patent, trademark, copyright or trade secret rights of any third parties or
any other Intellectual Property Rights of any third parties; and
(c) No claim is pending or, to Empower's knowledge, threatened
against Empower nor has Empower received any notice or other claim from any
person asserting that any of Empower's past, present or contemplated activities
infringe or may infringe any Intellectual Property Rights of such person, and
Empower is not aware of any infringement by any other person of any rights of
Empower in connection with Empower IP Rights.
4.12. Litigation. Except as set forth on Schedule 4.12, there is no
---------- -------------
judgment, decree, injunction, or order of any governmental authority or any
litigation pending or to Empower's knowledge threatened, and to Empower's
knowledge there is no governmental proceeding or investigation pending or
threatened (i) against Empower or affecting any of its properties or assets, or
(ii) against any officer, director or key employee of Empower in his capacity as
an officer, director or employee of Empower, or (iii) which may call into
question the validity or hinder the enforceability of this Agreement or the
Empower Related Agreements or the transactions contemplated hereby or thereby.
16
<PAGE>
4.13. Employee Benefit Plans. Except for Empower's 1997 Stock Option Plan
-----------------------
and except as set forth on Schedule 4.13 hereto, Empower does not maintain or
-------------
contribute and has never maintained or contributed to any Employee Benefit Plan.
There are no unfunded obligations of Empower under any retirement, pension,
profit-sharing, deferred compensation plan or similar program. Empower is not
required to make any payments or contributions to any Employee Benefit Plan
pursuant to any collective bargaining agreement or any applicable labor
relations law.
4.14. Labor Laws. There are no controversies or union organization
-----------
activities pending or to Empower's knowledge, threatened, between Empower and
any of its current or former employees. None of Empower's employees belongs to
any union or collective bargaining unit. Empower has complied with all
applicable state and federal equal employment opportunity and other laws related
to employment, the non-compliance with which would have a material adverse
effect on Empower's business or financial condition.
4.15. Environmental Matters. Empower is in compliance with all applicable
---------------------
laws relating to the environment (the "Environmental Laws"). Empower has not
knowingly handled, stored, released or exposed any hazardous substance or
materials as defined by any applicable Environmental Law ("Hazardous
Substance"). Empower has no liabilities for clean-up costs, remedial work or
damages in connection with the handling, storage, release or exposure by Empower
of any Hazardous Substance.
4.16. Business; Compliance with Laws. Empower has all necessary Licenses
------------------------------
necessary to permit it to own its property and to conduct its business as it is
presently or contemplated to be conducted except where the failure to obtain
such licenses would not have material adverse effect on the business, condition
or results of operations of Empower. Empower is, and since its incorporation has
been, in compliance with all Regulations applicable in the jurisdictions in
which Empower does or has done business except where the failure to comply with
such Regulations would not have material adverse effect on the business,
condition or results of operations of Empower.
4.17. Investment Banking; Brokerage. No person or entity is or will be
-------------------------------
entitled to investment banking fees, brokerage commissions, finder's fees or
similar compensation (exclusive of professional fees to lawyers and accountants)
from Empower in connection with the transactions contemplated by this Agreement.
4.18. Insurance. In the reasonable judgment of the management of Empower,
---------
Empower has all appropriate and customary insurance policies and fidelity bonds
coveting the assets, business, equipment, properties, operations, employees,
officers, and directors of Empower and the coverage and amounts of such policies
are reasonably appropriate for the size and nature of the business of Empower.
Empower is not in default under any of its insurance policies.
4.19. Transactions with Affiliates. Except as set forth on Schedule 4.19,
----------------------------- -------------
there are no loans, leases or other continuing transactions between Empower or
any officer, director or shareholder of Empower, or any shareholder who holds
five percent or more of the Common Stock of Empower calculated on a Fully
Diluted Basis, or any affiliate of the foregoing persons or entities.
17
<PAGE>
4.20. Investment Representations.
---------------------------
(i) Empower represents that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment contemplated by this Agreement and making
an informed investment decision with respect thereto.
(ii) Empower is an "Accredited Investor" as that term is defined
in Rule 501 (a) of Regulation D promulgated under the Securities Act.
(iii) Empower has received, read carefully and is familiar with
this Agreement, the Related Stock Agreements and HMI's business, plans and
financial condition, and any other matters relating to the offering of the HMI
Shares; Empower has received all materials which it has requested; has had a
reasonable opportunity to ask questions of HMI and its representatives; and HMI
has answered all inquiries that Empower or its representatives have put to HMI.
Empower has had access to all additional information necessary to verify the
accuracy of the information set forth in this Agreement and any other materials
furnished herewith, and has taken all the steps necessary to evaluate the merits
and risks of an investment as proposed hereunder. In making the decision to
invest in the HMI Shares, Empower has relied upon an independent investigation
made by it and/or by its representatives and has not relied on any information
or representations made by third parties or on any oral or written
representations or assurances from HMI or Adventist or any representative or
agent of HMI or Adventist, other than as set forth in this Agreement.
(iv) Empower understands the speculative nature and the various
risks of an investment in HMI as proposed herein and can afford to bear such
risks, including, without limitation, the risk of losing the entire investment.
(v) Empower acknowledges that no market for the HMI Shares
presently exists and none may develop in the future and that Empower may find it
impossible to liquidate the investment at a time when it may be desirable to do
so, or at any other time.
(vi) Empower has been advised by Adventist and HMI that the HMI
Shares have not been registered under the Securities Act and that Adventist
sells the HMI Shares to Empower pursuant to the so-called "Section 4(11/2)"
exemption which has been recognized by the Securities and Exchange Commission as
an exemption available to an affiliate of an issuer not involving a public
offering (Sec. Act Release No. 6188 (Feb. 1, 1980), 1 Fed. Sec. L. Rep. (CCH)
para. 1051 at 2073-28 n. 178) and under similar exemptions under certain state
securities laws, that this transaction has not been reviewed by, passed on by or
submitted to any federal or state agency or self-regulatory organization where
an exemption is being relied upon, and that HMI's and Adventist's reliance
thereon is based in part upon the representations made by Empower in this
Agreement. Empower acknowledges that it has been informed by HMI and Adventist
of, or is otherwise familiar with, the nature of the limitations imposed by the
Securities Act and the rules and regulations thereunder on the transfer of the
HMI Shares. In particular, Empower agrees that no sale, assignment or transfer
of any of the HMI Shares shall be valid or effective, and HMI shall not be
required to give any effect to such a sale, assignment or transfer, unless (i)
the sale, assignment or transfer of such HMI Shares is registered under the
Securities
18
<PAGE>
Act, it being understood that the HMI Shares are not currently registered for
sale and that HMI has no obligation or intention to so register the HMI Shares,
or (ii) such HMI Shares are sold, assigned or transferred in accordance with all
the requirements and limitations of Rule 144 under the Securities Act, it being
understood that Rule 144 is not available at the present time for the sale of
the HMI Shares, or (iii) such sale, assignment or transfer is otherwise exempt
from registration under the Securities Act. Empower further understands that HMI
may require an opinion of counsel and other documents to transfer the HMI
Shares. Empower acknowledges that the HMI Shares shall be subject to a stop
transfer order and the certificate or certificates evidencing any HMI Shares
shall bear the legend as specified on Schedule 4.20 hereto.
-------------
(vii) Empower will acquire the HMI Shares for Empower's own account
for investment and not with a view to the sale or distribution thereof or the
granting of any participation therein in contravention of applicable law, and
has no present intention of distributing or selling to others any of such
interest or granting any participation therein.
ARTICLE 5. COVENANTS OF HMI AND ADVENTIST
5.1. Covenants of HMI. Unless otherwise consented to in writing by
----------------
Empower, HMI shall, beginning on the Closing Date, comply with the following
covenants until the first to occur of (i) the date on which Empower, or its
affiliates, no longer owns any of the HMI Shares and (ii) the closing date of
HMI's first Qualified Public Offering. A "Qualified Public Offering" shall mean
the first firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act coveting the offer and sale of
securities to the public in which the gross proceeds to be received by the
issuer equals or exceeds Thirty Million Dollars ($30,000,000).
(i) Financial Statements. HMI will deliver to Empower internally
---------------------
prepared unaudited quarterly financial statements and audited annual financial
statements. The quarterly. financial information will be provided to Empower
within 45 days after the end of each quarter. HMI will provide to Empower annual
financial statements within 90 days after each fiscal year end of HMI.
(ii) Conduct of Business. HMI will maintain all properties used or
--------------------
useful in the conduct of its business in good repair, working order and
condition, ordinary wear and tear excepted, as necessary to permit such business
to be properly and advantageously conducted. HMI will keep in full force and
effect its corporate existence.
(iii) Payment of Taxes, Compliance with Laws, Etc. HMI will pay and
-------------------------------------------
discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that HMI shall not be required to pay and
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by HMI in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
HMI will comply with all applicable laws and regulations in all material
respects in the conduct of its business, including, without limitation, all
applicable federal and state securities laws in connection with the issuance of
any securities.
19
<PAGE>
(iv) Material Adverse Change. HMI will promptly advise Empower of any
-----------------------
event which represents a material adverse change in the condition or business,
financial or otherwise, of HMI, and of each suit or proceeding commenced against
HMI which, if adversely determined, in the reasonable judgment of HMI, could
have a material adverse effect on HMI or its financial conditions, business or
prospects.
(v) Inspection. For so long as Empower or an affiliate of Empower owns
----------
50% or more of the HMI Shares, HMI will, upon reasonable prior notice to HMI and
so long as it is not unduly disruptive to HMI's business, permit authorized
representatives of Empower to visit and inspect any of HMI's books of account
(and to make copies thereof and take extracts therefrom) at its own cost.
(vi) Notice of Exercise. HMI will promptly notify Empower and Adventist in
------------------
the event the Sabratek Warrant is exercised or converted.
5.2. Covenant of HMI and Adventist. Within 30 days of the date of this
-----------------------------
Agreement, HMI and Adventist shall (i) complete such actions as are necessary to
cure the exceptions set forth in Schedules 2.2 and 2.(3)(iii) hereof, (ii) amend
HMI's Bylaws so as to remove Section 8.5, titled "Restriction of Transfer of
Shares," from the Bylaws, and upon such amendment cause HMI to replace the stock
certificate previously issued to Empower with a certificate that does not
reference such restriction, and (iii) provide a certified copy of the
resolutions of the Board of Directors of HMI as to the approval of this
Agreement and the Related Agreements to which HMI is a party. Within 45 days of
the date of this Agreement, Adventist shall complete such actions as are
necessary to cure the exceptions set forth in Schedules 3.2 hereof,
ARTICLE 6. COVENANTS OF EMPOWER
Unless otherwise consented to in writing by Adventist, Empower shall,
beginning on the Closing Date, comply with the following covenants until the
first to occur of (i) the date on which Adventist, or its affiliates no longer
owns any of the Empower Shares and (ii) the closing date of Empower's first
Qualified Public Offering.
6.1. Financial Statements. Empower will deliver to Adventist internally
--------------------
prepared unaudited quarterly financial statements and audited annual financial
statements. The quarterly financial information will be provided to Adventist
within 45 days after the end of each quarter. Empower will provide to Adventist
annual financial statements within 90 days after each fiscal year end of
Empower.
6.2. Conduct of Business. Empower will maintain all properties used or
-------------------
useful in the conduct of its business in good repair, working order and
condition, ordinary wear and tear excepted, as necessary to permit such business
to be properly and advantageously conducted. Empower will keep in full force and
effect its corporate existence.
6.3. Payment of Taxes, Compliance with Laws, Etc. Empower will pay and
-------------------------------------------
discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its
20
<PAGE>
property or any part thereof; provided, however, that Empower shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof is being contested by Empower in good faith by
appropriate proceedings and an adequate reserve therefor has been established on
its books. Empower will comply with all applicable laws and regulations in all
material respects in the conduct of its business, including, without limitation,
all applicable federal and state securities laws in connection with the issuance
of any securities.
6.4. Material Adverse Change. Empower will promptly advise Adventist of
-----------------------
any event which represents a material adverse change in the condition or
business, financial or otherwise, of Empower, and of each suit or proceeding
commenced against Empower which, if adversely determined, in the reasonable
judgment of Empower, could have a material adverse effect on Empower or its
financial conditions, business or prospects.
6.5. Inspection. For so long as HMI, or an affiliate of HMI, shall hold
----------
50% of the Empower Shares or, upon conversion of the Empower Shares, the common
stock or other securities into which the Empower Shares are converted, Empower
will, upon reasonable prior notice to Empower and so long as it is not unduly
disruptive to Empower's business, permit authorized representatives of Adventist
to visit and inspect any of Empower's books of account (and to make copies
thereof and take extracts therefrom) at its own cost.
6.6. Notice of Exercise. Empower will promptly notify Adventist in the
------------------
event that the Superior Option is exercised or converted.
ARTICLE 7. INDEMNIFICATION
7.1. Indemnification by HMI. HMI agrees to defend, indemnify and hold
----------------------
Empower and its affiliates and their respective direct and indirect partners,
members, stockholders, directors, officers, employees and agents and each person
who controls any of them (a "Controlling Person") within the meaning of Section
-------
15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934,
- -- ----------
as amended (the "Exchange Act") (parties receiving the benefit of the
indemnification agreement herein shall be referred to collectively as
"Indemnified Parties" and individually as an "Indemnified Party") harmless from
and against any and all losses, claims, damages, obligations, liens,
assessments, judgments, fines, liabilities, and other costs and actual, out-of-
pocket expenses (including without limitation interest, penalties and any
investigation costs, legal fees and other expenses in each case as reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, as the same are incurred) of any kind
or nature whatsoever ("Losses") which may be sustained or suffered by any such
Indemnified Party, based upon, arising out of, in respect of, or in connection
with (i) any inaccuracy in or breach of any representation or warranty made by
HMI in this Agreement or in any of the Related Stock Agreements or instrument or
other document delivered pursuant to this Agreement or any of the Related Stock
Agreements, and (ii) any breach of any covenant or agreement made by HMI in this
Agreement or in any of the Related Stock Agreements or instrument delivered
pursuant to this Agreement or any of the Related Stock Agreements.
7.2. Indemnification by Adventist. Adventist agrees to defend, indemnify
----------------------------
and hold Empower and its affiliates and their respective direct and indirect
partners, members,
21
<PAGE>
shareholders, directors, officers, employees and agents and each Controlling
Person harmless from and against any and all Losses which may be sustained or
suffered by any such Indemnified Party, based upon, arising out of, in respect
of, or in connection with (i) any inaccuracy in or breach of any representation
or warranty made by Adventist in this Agreement or in any of the Related Stock
Agreements or instrument or other document delivered pursuant to this Agreement
or any of the Related Stock Agreements, and (ii) any breach of any covenant or
agreement made by Adventist in this Agreement or in any of the Related Stock
Agreements or instrument delivered pursuant to this Agreement or any of the
Related Stock Agreements.
7.3. Indemnification by Empower. Empower agrees to defend, indemnify and
--------------------------
hold Adventist, HMI, their affiliates and their respective direct and indirect
partners, members, stockholders, directors, officers, employees and agents and
each Controlling Person of HMI or Adventist harmless from and against any and
all Losses which may be sustained or suffered by any such Indemnified Party,
based upon, arising out of, in respect of, or in connection with (i) any
inaccuracy in or breach of any representation or warranty made by Empower in
this Agreement or in any of the Related Stock Agreement or instrument or other
document delivered pursuant to this Agreement or any of the Related Stock
Agreements, and (ii) any breach of any covenant or agreement made by Empower in
this Agreement or in any of the Related Stock Agreements or instrument delivered
pursuant to this Agreement or any of the Related Stock Agreements.
7.4. Survival of Indemnification. The indemnification provided for in
---------------------------
this Article 7 shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Parties or any officer,
director, employee, agent or Controlling Person of the Indemnified Parties.
7.5. Settlement of Claims. An Indemnified Party may not settle any third
--------------------
party claim without the Indemnifying Party's prior written consent, which
consent the Indemnifying Party may not unreasonably withhold or delay.
7.6. Survival of Representations; Warranties and Covenants; Assignability
--------------------------------------------------------------------
of Rights. Except as otherwise provided in Article 5 and 6 of this Agreement,
- ---------
all covenants, agreements, representations and warranties (i) made herein and in
the certificates, lists, Exhibits, Schedules, Related Agreements, documents, or
other written information executed, delivered, or furnished in connection
herewith or therewith and (ii) to be performed hereunder and thereunder (a)
shall be deemed to have been relied upon by the parties; (b) shall survive the
delivery of the Empower Shares and the HMI Shares for a period of one year after
the Closing Date; and (c) shall bind the parties' successors and assigns,
whether so expressed or not, and, except as otherwise provided in this
Agreement, all such covenants, agreements, representations and warranties shall
inure to the benefit of the parties' successors and assigns and to transferees
of the HMI Shares or the Empower Shares, whether so expressed or not. For
purposes of this Agreement, the parties' successors shall include any
corporation into which a party is merged or consolidated.
7.7. Basket Limitation. The term "Indemnity Basket" shall mean $100,000.
-----------------
No claims for any Losses by a party or parties shall be made unless and until
such Losses exceed the Indemnity Basket in the aggregate, and then the
Indemnifying Party or Parties shall only be liable for the amount of the Losses
exceeding the Indemnity Basket.
22
<PAGE>
7.8. Limit on Indemnification. In no event shall the parties' liability
------------------------
for Losses hereunder exceed the following limitations:
(i) HMI's liability for Losses hereunder shall not exceed in the
aggregate $1,000,000.
(ii) Empower's liability for Losses hereunder shall not exceed in
the aggregate $12,500,000.
(iii) Adventist's liability for Losses hereunder shall not exceed in
the aggregate $12,500,000.
7.9. Applicability. The indemnification obligations set forth in Sections
-------------
7.1, 7.2 and 7.3 hereof are not applicable to the PMR Sale and License or any
instrument or other document delivered pursuant to the PMR Sale and License.
ARTICLE 8. GENERAL
8.1. Amendments, Waivers and Consents. The parties to this Agreement may,
--------------------------------
by written agreement, (i) amend this Agreement, (ii) extend the time for
performance of any of the obligations or other acts of the parties, (iii) waive
any inaccuracies in the representations or warranties contained in this
Agreement, or (iv) waive compliance with or modify any of the agreements
contained in this Agreement and waive or modify performance of any of the
obligations of any of the parties to this Agreement; provided, no failure or
delay on the part of any party to this Agreement in exercising any of its
respective rights under this Agreement upon any failure by any other party to
perform or observe any condition, covenant or provision shall operate as a
waiver thereof, nor shall any single or partial exercise of any such rights
preclude any other exercise thereof or the exercise of any other right.
8.2. Governing Law. This Agreement shall be deemed to be a contract made
-------------
under, and shall be construed in accordance with, the laws of the State of
Delaware, without giving effect to conflict of laws principles thereof.
8.3. Section Headings and Gender. The descriptive headings in this
---------------------------
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, as the context may
require.
8.4. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
8.5. Notices and Demands. Any notices, claims or demand or other
-------------------
communications hereunder shall be in writing and shall be deemed to be duly
given if personally given or if sent by telecopier, nationally-recognized
overnight courier or by registered or certified mail, return receipt required
and postage prepaid, addressed to such party in accordance herewith or as
23
<PAGE>
otherwise stated in any notice given in accordance herewith. Any such notice
shall be deemed to have been received (i) in the case or personal delivery or
delivery by telecopier, on the date of such delivery, (ii) in the case of a
nationally-recognized overnight courier, on the next business day after the date
sent and (iii) in the case of mailing, on the third business day following that
on which the piece of mail containing such communication is posted.
If to HMI or Adventist:
111 North Orlando Avenue
Winter Park, Florida 32789-3675
Attention: Calvin Wiese
407.975.1458 (facsimile)
With a copy to:
Steven L. Meltzer, Esquire
Shaw Pittman Potts & Trowbridge
1501 Farm Credit Drive
McLean, VA 22102-5000
703.821.2397 (facsimile)
If to Empower:
Empower Health Corporation
8920 Business Park Drive
Austin, Texas 78759
Attention: Donald Hackett, President
512.726.5130 (facsimile)
With a copy to
Anthony J. Richmond, Esquire
Harold R. DeGraff, Esquire
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
650.463.2600 (facsimile)
8.6. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement 'shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
8.7. Integration. This Agreement, including the exhibits, documents and
-----------
instruments and related agreement referred to herein or therein, constitutes the
entire agreement, and
24
<PAGE>
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
8.8. Expenses. Each party hereto shall bear its own costs and expenses
--------
incurred on its behalf in connection with the preparation, negotiation,
execution and delivery of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and therein.
25
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
HEALTHMAGIC, INC.:
By: /s/ Calvin W. Wiese
-------------------------------
Name: Calvin W. Wiese
--------------------------
Title: Chairman & President
-------------------------
ADVENTIST HEALTH SYSTEM SUNBELT HEALTHCARE
CORPORATION'
By: /s/ Calvin W. Wiese
-------------------------------
Name: Calvin W. Wiese
--------------------------
Title: Chairman & President
-------------------------
EMPOWER HEALTH CORPORATION:
By: /s/ Don Hackett
--------------------------------
Name: Don Hackett
---------------------------
Title: CEO/Pres.
--------------------------
26
<PAGE>
Exhibit A
Certificate of Designation
--------------------------
27
<PAGE>
EXHIBIT 10.36
EMPOWER HEALTH CORPORATION
8920 BUSINESS PARK DRIVE, SUITE 200
AUSTIN, TEXAS
78759
February 25, 1999
Superior Consultant Holdings Corporation
4000 Town Center Drive, Suite 1100
Southfield, Michigan 48075
Ladies and Gentlemen:
We make reference to (i) the Agreement For Issuance And Sale of Stock (the
"Stock Purchase Agreement"), dated as of April 28,1998, by and between Superior
------------------------
Consultant Holdings Corporation ("Superior") and Empower Health Corporation
--------
("Empower"), (ii) the Option and Put Agreement (the "Option Agreement"), dated
------- ----------------
April 28,1998, between Superior and Empower and (iii) the Service Agreement (the
"Service Agreement"), dated April 29, 1998, between Superior and Empower.
-----------------
Capitalized but undefined terms used in this letter agreement shall have the
meaning provided in the Purchase Agreement or the Option Agreement, as the case
may be.
The purpose of this letter agreement is to confirm our agreements reached
on certain specific provisions of the agreements identified above, as follows:
1. Definition of Public Equity Offering. For purposes of the Option
------------------------------------
Agreement, the definition of a Public Equity Offering shall be deleted and shall
be replaced with the following:
"PUBLIC EQUITY OFFERING" means a firm commitment underwritten sale of
Empower common stock to the public pursuant to an effective registration
statement under the 1933 Act (a) with an aggregate offering price (before
payment of underwriting discounts and commissions and the expenses of the
offering) of not less than $20 million and (b) after which the common
stock of Empower is listed on a national securities exchange or admitted
for quotation on the Nasdaq National Market (or any successor exchange or
automatic quotation system).
2. Automatic Conversion of Series B Non-Voting Preferred Stock.
------------------------------------------------------------
(a) General. Contemporaneous with the closing of a Public Equity
-------
Offering (as defined in paragraph 1 of this letter agreement), each outstanding
share of Series B Non-Voting Preferred Stock ("Preferred Stock") of Empower
---------------
shall automatically be converted into shares of Common Stock in accordance with
the terms of such shares of Preferred Stock and the
<PAGE>
related Certificate of Designation, Preferences and Rights of Preferred Stock
(the "Certificate of Designations"), In order mechanically to implement this
---------------------------
agreement, Superior, as the sole holder of all outstanding shares of Preferred
Stock, hereby agrees that Empower may treat this paragraph 2 as an express,
irrevocable election by it to voluntarily convert all outstanding shares of
Preferred Stock in accordance with Section 6.1 of the Certificate of
Designations contemporaneous with the closing of such a Public Equity Offering.
(b) Equal Treatment of all Convertible Preferred Stock Required. The
-----------------------------------------------------------
agreement made by Superior in paragraph 2(a) is conditioned on the same
treatment being imposed on all other classes and series of convertible preferred
stock of Empower, it being expressly understood that the Preferred Stock may not
be automatically converted in reliance on the consent granted in paragraph
2(a) unless all other classes and series of convertible preferred stock are
similarly converted at or prior to the closing of the Public Equity Offering.
(c) Binding on Superior and Successors. Superior will legend all
----------------------------------
share certificates representing shares of Preferred Stock to evidence the
agreements reached in this letter agreement and will not, directly or
indirectly, transfer in any manner any interest of any sort whatsoever in such
shares without first obtaining the written undertaking (in form and substance
reasonably satisfactory to Empower) of the transferee to be bound by this letter
agreement and providing an executed copy of such undertaking to Empower. Empower
will not be required to give effect to any transfer which does not comply with
this paragraph 2(c) and may, without limitation, enforce this requirement with
stop transfer instructions.
3. Revenue Commitment Satisfied. We agree that the period during which
----------------------------
Empower has agreed to purchase "Superior Services" resulting in not less than
$3,000,000 in recognized revenue to Superior as set forth in Section 1 (c) of
the Services Agreement shall be extended from April 29, 1999 to September 30,
1999. This extension of time shall also apply to Section 2(c) of the Services
Agreement and Section 2.3(b) of the Purchase Agreement, In the event that we
have not purchased Superior Services resulting in at least $3,000,000 in
recognized revenue to Superior by September 30, 1999, then Superior shall be
entitled only to a cash payment in an amount equal to the difference between
$3,000,000 and the resulting recognized revenue. In no event shall we be
required to issue additional securities to Superior.
4. Empower Voting Agreement: Board Composition. Contemporaneous with the
-------------------------------------------
closing of a Public Equity Offering (as defined in paragraph 1 of this letter
agreement), Section 2.3(c) of the Purchase Agreement will be deleted and
replaced with the following:
"(i) On the Closing Date and thereafter, the Buyer
shall be shall be entitled to appoint or have appointed, to Empower's
Advisory Council, one nominee designated by the Buyer.
(ii) For so long as Superior shall own not less than
10% of the outstanding Common Stock of Empower, there shall be included on
management's slate for the election of directors one designee of Buyer. If
the designee is other than Richard D. Heippic, Jr., such nominee shall be
subject to the approval of Empower's Board, which shall not be unreasonably
withheld."
2
<PAGE>
5. Hackett Voting Agreement. Contemporaneous with the closing of a Public
------------------------
Equity Offering (as defined in paragraph 1 of this letter agreement), the letter
agreement dated April 28, 1998 between Donald W. Hackett and Superior (the
"Voting Agreement") shall be amended by (i) deleting the first sentence of the
----------------
letter and (ii) deleting the numbered paragraphs one, and three through six,
contained in such Voting Agreement. A new paragraph one shall be added as
follows:
"1. The undersigned shall vote all voting securities of Empower owned
by him in favor of the designee of Superior, if any, duly nominated in
accordance with Section 2.3(c) of the Agreement For Issuance And Sale of
Stock dated April 28, 1998, as the same shall have been amended by the
letter agreement among the parties dated February 17, 1999."
6. Termination of Certain Covenants.
--------------------------------
(a) Section 2.3(d). The first clause of Section 2.3(d) of the
--------------
Purchase Agreement is hereby deleted and replaced with the following;
"Prior to completing a Public Equity Offering (as defined in the
Option and Put Agreement), Employment shall be prohibited from taking any
of the following actions without the consent of Buyer, which shall not be
unreasonably withheld:"
(b) Section 1(e). The following shall be appended to the end of
------------
Section 1(d) of the Purchase Agreement:
"This obligation shall terminate at any time that Buyer does not have
the right to appoint or nominate a designee to the Board of Directors of
Empower pursuant to Section 1(c), above. Notwithstanding the foregoing,
Empower shall cease to deliver such materials at any time that it shall be
so directed by Buyer."
7. No Violation of Contractual Preemptive Rights. Superior hereby
---------------------------------------------
confirms that the issuance of convertible promissory notes and related warrants
consistent with the board approval adopted at [each of] the December 30, 1998
meeting and February 24, 1999 meeting has been consented to by them and does not
violate Sections 1(d)(iii) and (v) of the Purchase Agreement, and the Superior
has waived ant right to purchase any of such securities that may have been
available to it pursuant to Section 6 of the Option Agreement.
8. Termination of Purchase Option.
------------------------------
(a) General. Contemporaneous with the closing of a Public Equity
-------
Offering (as defined in paragraph 1 of this letter agreement), the Purchase
Option contained in Section 3 of the Option Agreement shall be terminated. Upon
such termination, the sole obligation of Empower shall be promptly to issue to
Superior 158,491 shares of its Common Stock (the "Settlement Shares") without
-----------------
the payment of further consideration by Superior. The parties acknowledge and
agree that the Settlement Shares are intended to represent thirty percent (30%)
3
<PAGE>
of the number of shares issuable to Superior if it had exercised the Purchase
Option and, accordingly, the number of Settlement Shares shall be
proportionately adjusted for any stock split, stock dividend, merger,
reclassification or similar structural change in Empower effected from the date
of this letter agreement through the date of the closing of a Public Equity
Offering.
(b) "Make-Whole" Issuances. The parties acknowledge that the issuance
---------------------
of the Settlement will impose upon Empower the requirement to issue additional
shares to each of Superior and Adventist Health System Sunbelt Healthcare
Corporation ("Adventist") in accordance with the letter agreement dated January
---------
25, 1999 (the "Make-Whole Agreement"). Assuming that 158,491 shares are issued
--------------------
to Superior as Settlement Shares, then Empower would be obligated to issue an
additional 2,931 shares of Common Stock to Superior and 17,936 shares of Common
Stock to Adventist in accordance with the Make-Whole Agreement. As is the case
with the share amounts described in paragraph 8(b), above, such share amounts
are subject to proportionate adjustment for any stock split, stock dividend,
merger, reclassification or similar structural change in Empower effected from
the date of this letter agreement through the date of the closing of a Public
Equity Offering.
(c) Legal Matters. Upon issuance, Empower represents and warrants
-------------
that such shares of Common Stock will be (i) duly authorized, validly issued,
fully paid and nonassessable (ii) and subject to no legal restrictions except
those, if any, imposed by the federal and state securities laws due to the fact
that such shares will be issued without registration or qualification under such
laws. Superior conforms the representations made by it in Section 5.4 of the
Stock Purchase Agreement. Prior to issuance of the Settlement Shares, Superior
will, upon request, confirm in writing the matters set forth in Section
3(d)(iii) of the Option Agreement.
(d) Covenants. Upon issuance of the Settlement Shares to Superior in
---------
accordance with this letter agreement, Section 5 of the Option Agreement shall
be terminated.
(c) No Exercise. From the date hereof through the first to occur of
-----------
(i) June 30, 1999 or (ii) the filing by Empower with the Securities and Exchange
Commission of a request to withdraw a previously filed registration statement
for an initial public offering before any shares were sold under such
registration statement, Superior shall not exercise the Purchase Option without
the prior written consent of Empower.
9. Effectiveness of this Letter Agreement. The agreements is paragraphs
--------------------------------------
4,5 and 8 shall only be effective in the case of a Public Equity Offering (as
defined in paragraph 1) that is completed on or prior to June 30, 1999.
10. Miscellaneous.
-------------
(a) Incorporation From Stock Purchase Agreement. The miscellaneous
-------------------------------------------
provisions contained in Sections 10.1, 10.2 and 10.4 through 10.8 of the Stock
Purchase Agreement are incorporated into this letter agreement as if fully set
forth herein.
(b) Entire Agreement. This letter agreement, along with the written
----------------
agreement expressly referred to herein, the Arbitration Agreement dated April
28, 1998, and the
4
<PAGE>
agreements entered into among the parties in January 1999 in connection with the
transaction with Adventist Health System Sunbelt Healthcare Corporation
(including, without limitation, the amended and restated registration rights
agreement and the letter agreement relating to future share issuances under
certain call options), constitute the entire agreement of the parties, and
supersede any prior agreements or understandings, written or oral.
(c) Choice of Law. The corporate law of the state of organization of
-------------
Empower (or its successor, as appropriate) will govern all issues concerning
the internal governance of Empower and the relative rights of Empower and its
shareholders in connection therewith. All other matters concerning the
construction, validity and interpretation of this letter agreement shall be
governed by and construed in accordance with the laws of the State of Michigan,
without regard to choice of law principles which would require the application
of the law of any other jurisdiction.
(d) Specific Performance. The agreements made herein are unique and
--------------------
material to Empower. Accordingly, the parties agree that Empower shall be
entitled to specific performance of the agreements reached herein, in addition
to any other remedies at law or in equity. The parties agree that money damages
may not be an adequate remedy and that Empower may, in its sole discretion,
apply to any court of law or equity of competent jurisdiction (without the
requirement that any bond or other security be posted) for specific performance
or other injunctive or equitable relief in order to enforce or prevent violation
of the provisions of this letter agreement.
(e) Application to Successors. The parties acknowledge that Empower
-------------------------
has also recently obtained approval to reincorporate from Texas to Delaware.
This letter agreement shall remain in full force and effect after such
reincorporation merger.
(f) Further Assurances. Each party shall, upon request, take such
------------------
additional actions as shall reasonably requested to implement fully this letter
agreement.
(g) Rule of Construction. This letter agreement is the joint work
--------------------
product of the parties, each of whom was represented by counsel of its choice.
Any rule of construction interpreting this letter agreement in favor of or
against one party or another based on the alleged drafter or other similar rules
of legal construction are hereby waived, it being the intention of the parties
that this letter agreement be interpreted in a reasonable manner with the
objective of implementing the intentions of the parties.
(Signature page follows)
<PAGE>
If this letter agreement accurately reflects the agreement of the parties,
please so indicate by executing a counterpart to this letter agreement.
Very truly yours,
Empower Health Corporation
By: /s/ Donald W. Hackett
----------------------------
Donald W. Hackett
Chief Executive Officer
ACCEPTED AND AGREED:
Superior Consultant Holdings Corporation
By /s/ Richard Saslow
-------------------------------
Name: Richard Saslow
Title:
AS TO PARAGRAPH 5 ONLY:
/s/ Donald W. Hackett
- ----------------------------------
Donald W. Hackett
6
<PAGE>
EXHIBIT 10.37
January 29, 1999
Ladies and Gentlemen:
In connection with the execution of the Investment Agreement, dated as of
the date of this letter agreement, Empower Health Corporation ("Empower"),
Adventist Health System Sunbelt Healthcare Corporation ("Adventist"), Superior
Consultant Holdings Corporation ("Superior"), HealthMagic, Inc. ("HealthMagic")
and Donald W. Hackett agree and consent to the following:
1. In the event that Empower issues shares of either Empower Common Stock or
Empower Preferred Stock to Superior (the "Option Shares") in connection with the
Option and Put Agreement dated April 28, 1998 between Empower and Superior (the
"Option"), then Empower shall issue additional shares of Empower Common Stock to
both Superior and Adventist in accordance with the provisions set forth below.
(a) Empower shall issue to Superior the Superior New Shares (as defined
below),
where
"Superior New Shares" = [(New Total Shares) * (Superior %)] - 528,302
- Superior Option Shares.
"New Total Shares" = (2,610,509) / (1 - Superior % - 10%).
"Superior %" = (528,302 +Superior Option Shares) / (3,487,567 +
(1.0333 * Superior Option Shares)).
"Superior Option Shares" = the number of shares of Common Stock (on an
asconverted basis) issued to Superior, if any, in connection with the
Option.
(b) Empower shall issue to Adventist the Adventist New Shares,
where
"Adventist New Shares" = [(New Total Shares) * (Adventist %)] -
Adventist Shares.
"New Total Shares" = (2,610,509) / (1 - Superior % - 10%).
<PAGE>
"Adventist %" = 10%.
"Adventist Shares" = 348,757.
"Superior %" = (528,302 +Superior Option Shares) / (3,487,567 +
(1.0333 * Superior Option Shares)).
"Superior Option Shares" = the number of shares of Common Stock (on an
as-converted basis) issued to Superior, if any, in connection with the
Option.
(c) An example of the stock issuances described in this paragraph 1,
assuming the issuance to Superior of 528,301 shares of Common Stock in
connection with the Option, is set forth on Exhibit A attached hereto for
illustrative purposes.
(d) The Adventist New Shares, if issued, shall be deemed to be (a) Empower
Shares (as defined in the Investment Agreement), (b) Common Stock (as defined in
the Empower Health Corporation Stock Restriction of even date herewith), and (c)
Adventist Shares (as defined in the Empower Health Corporation Amended and
Restated Registration Rights Agreement of even date herewith) and shall be
entitled to the benefit of and subject to the terms and conditions set forth in
the Investment Agreement and the Related Agreements (as defined in the
Investment Agreement).
(e) The Superior New Shares, if issued, shall be deemed to be Superior
Shares (as defined in the Empower Health Corporation Amended and Restated
Registration Rights Agreement of even date herewith) and shall be entitled to
the benefit of and subject to the terms and conditions set forth in such
agreement.
2. Adventist shall transfer to Empower the number of shares of HealthMagic
Common Stock equal to the product of (i) the number of shares of HealthMagic
Common Stock issued to Sabratek Corporation ("Sabratek"), if any, in connection
with the Stock Purchase and Warrant Agreement between HealthMagic and Sabratek
dated as of November 18, 1998 and (ii) 0.10. Such shares of Common Stock, if
issued, shall be deemed to be (a) HMI Shares (as defined in the Investment
Agreement), (b) Common Stock (as defined in the HealthMagic Stock Restriction
Agreement of even date herewith), and (c) Empower Securities (as defined in the
HealthMagic Registration Rights Agreement of even date herewith), and shall be
entitled to the benefit of and subject to the terms and conditions set forth in
the Investment Agreement and the Related Agreements (as defined in the
Investment Agreement).
3. Each of the parties hereto agrees that the restrictions on transferability
of shares set forth in the Empower Stock Restriction Agreement and the
HealthMagic Stock Restriction Agreement of even date herewith shall not apply to
the transactions described in paragraphs 1 and 2 herein.
2
<PAGE>
4. Superior agrees that the provisions of Sections 2.3 and 6 of the Agreement
for Issuance and Sale of Stuck between Empower and Superior dated April 28. 1998
shall not apply to the transaction described in paragraph 1 herein.
5. Neither Empower nor Adventist shall transfer its rights hereunder without
the prior written consent of the other;, provided, however, if either party
shall merge with or into another entity and the shareholders or such party
immediately prior in the merger control the surviving entity, then the rights
and obligations of that party under this agreement shall transfer to the
surviving entity.
Yours very truly,
DONALD W. HACKETT EMPOWER HEALTH CORPORATION
By:__________________ By:_________________________
Name:
Title:
SUPERIOR CONSULTANT HOLDINGS
CORPORATION
By:_________________________
Name:
Title:
ADVENTIST HEALTH SYSTEM SUNBELT
HEALTHCARE CORPORATION
By: /s/ Calvin W. Wiese
-------------------------
Name: Calvin W. Wiese
Title: Senior Vice President
HEALTHMAGIC, INC.
By: /s/ Calvin W. Wiese
-------------------------
Name: Calvin W. Wiese
Title: Chairman & President
3
<PAGE>
SIGNATURE PAGE
Yours very truly,
EMPOWER HEALTH CORPORATION
By: /s/ D. Hackett
-----------------------
Name: Donald Hackett
Title: CEO
SUPERIOR CONSULTANT HOLDINGS CORPORATION
By: /s/ Richard P. Saslow
-----------------------
Name: RICHARD P. SASLOW
Title: VP & GENERAL COUNSEL
ADVENTIST HEALTH SYSTEM SUNBELT HEALTHCARE
CORPORATION
By: /s/ Calvin W. Wiese
_______________________
Name:
Title:
HEALTHMAGIC, INC,
By: /s/ Calvin W. Wiese
_______________________
Name:
Title:
DONALD W. HACKETT
By: /s/ D. Hackett
----------------------
4
<PAGE>
EXHIBIT 10.38
HEALTHMAGIC, INC.
ADVENTIST HEALTH SYSTEM SUNBELT HEALTHCARE CORPORATION
EMPOWER HEALTH CORPORATION
________________________________________
HEALTHMAGIC, INC. STOCK RESTRICTION AGREEMENT
________________________________________
January 29, 1999
<PAGE>
HEALTHMAGIC, INC. STOCK RESTRICTION AGREEMENT
This HEALTHMAGIC, INC. STOCK RESTRICTION AGREEMENT (the "Agreement") is
made as of January 29, 1999, by and among HealthMagic, Inc., a Delaware
Corporation (the "Corporation" or "HMI"), Adventist Health System Sunbelt
Healthcare Corporation, a Florida not-for-profit corporation ("Adventist"), and
Empower Health Corporation, a Texas Corporation ("Empower").
RECITALS
WHEREAS, the execution, delivery and effectiveness of the Investment
Agreement of even date herewith (the "Investment Agreement") among the
Corporation, Adventist, and Empower is contingent upon the simultaneous
execution and delivery of this Agreement;
WHEREAS, pursuant to the Investment Agreement, Empower acquired 10% of the
common stock of the Corporation, par value $0.01 per share (the "Common Stock"),
calculated on a Fully Diluted Basis, and Adventist presently owns a majority of
the issued and outstanding shares of the Common Stock; and
WHEREAS, Adventist and Empower (each, a "Stockholder" and collectively, the
"Stockholders") wish to make agreements regarding the voting and ability to
dispose of their respective shares of Common Stock all in accordance with the
provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, and for other good, valid and binding consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE 1. DEFINITIONS
The following terms have the following meanings:
Affiliate means any (i) corporation or other entity in which the subject
---------
person or entity owns, directly or indirectly, shares of capital stock or other
equity interests representing the right to elect a majority of the board of
directors or other governing body and (ii) any person or entity that through one
or more intermediaries controls, is controlled by, or is under common control
with the subject person or entity.
Bona Fide Offer means a legally enforceable offer in writing, setting forth
---------------
the name, address and business or other occupation of each offeror as well as
the price proposed to be paid for the Offered Shares, the form of the
consideration proposed by the offeror, and all other material terms and
conditions of purchase and payment, made and signed by an offeror which the
offeree desires to accept.
1
<PAGE>
Change of Control means (i) any consolidation or merger of the Corporation,
-----------------
other than a merger or consolidation resulting in the holders of the capital
stock of the Corporation entitled to vote for the election of directors
immediately prior to the transaction holding a majority of the capital stock of
the surviving or resulting entity entitled to vote for the election of
directors, (ii) any person or entity (including any Affiliates thereof), other
than a person or entity (or the Affiliates of the person or entity) who holds a
majority of the capital stock of the Corporation entitled to vote for the
election of directors immediately prior to the transaction, becoming the holder
of a majority of the capital stock of the Corporation entitled to vote for the
election of directors, or (iii) any sale or other disposition by the Corporation
of all or substantially all of its assets to a person or entity who is not an
Affiliate.
Fully Diluted Basis means taking into account at the time of the
-------------------
calculation (1) the number of shares of Common Stock currently outstanding; (2)
the number of shares of Common Stock issuable on the exercise of all outstanding
options to purchase Common Stock under the HMI 1998 Omnibus Stock Option and
Incentive Plan or otherwise; (3) the 18,595 shares of Common Stock issuable upon
exercise of the Warrant granted to Ziegler Financing Corporation on May 29,
1998, so long as outstanding; and (4) the number of shares of Common Stock
issuable upon exercise, exchange or conversion of all other outstanding options,
warrants and convertible securities; provided the 448,507 shares of Common Stock
issuable upon exercise of the Stock Purchase Warrant and Agreement between the
Corporation and Sabratek Corporation dated November 18, 1998 (the "Sabratek
Warrant") shall not be taken into account unless and until, and to the extent,
the Sabratek Warrant is exercised.
Qualified Public Offering means the first firm commitment underwritten
-------------------------
public offering pursuant to an effective registration statement under the
Securities Act of 1933 covering the offer and sale of Common Stock to the public
in which the gross proceeds to be received by the issuer equals or exceeds
Thirty Million Dollars ($30,000,000).
Registered Notice shall mean notice sent in accordance with Section 5.1
-----------------
below, which shall contain a true and complete copy of the Bona Fide Offer.
Transfer means to directly or indirectly sell, transfer, assign or
--------
otherwise dispose of, or to grant any option or other right to acquire, either
voluntarily or involuntarily, and with or without consideration.
ARTICLE 2. BOARD REPRESENTATION
2.1. Board Nominations and Removal.
-----------------------------
(i) For so long as Empower or any Affiliate shall own not less than
fifty percent (50%) of the shares of Common Stock (or any successor security)
acquired pursuant to the Investment Agreement, Empower shall be entitled (i) to
nominate one individual for election to the Corporation's Board of Directors
("Board") to serve as a director until his or her successor is elected and
qualifies, (ii) to nominate such successor, and (iii) in its sole discretion, to
propose the removal from the Board of such director nominated under the
foregoing clauses. Except for removal for cause, as between the Stockholders, no
Stockholder other than Empower may propose the removal of a director nominated
by Empower.
2
<PAGE>
(ii) The parties acknowledge that Adventist presently owns a
majority of the issued and outstanding Common Stock of the Corporation and that,
Adventist, as such, presently has the ability, subject to subsection 2.1(i)
above, (a) to nominate as many individuals for election to the Corporation's
Board as it in its sole discretion deems appropriate, to serve as directors
until their successors are elected and qualify, (b) to nominate such successors,
and (c) in its sole discretion, to propose the removal from the Board of the
directors nominated under the foregoing clauses (a) and (b). Except for removal
for cause, as between the Stockholders, no Stockholder other than Adventist may
propose the removal of a director nominated by Adventist.
2.2. Procedure for Nomination. Each nomination of any director, or any
------------------------
proposal to remove any director from the Board, shall be made by delivering to
the Corporation a notice signed by the party or parties entitled to such
nomination or proposal. As promptly as practicable after delivery of such
notice, the Corporation shall take or cause to be taken such corporate actions
as reasonably may be required to cause the election or removal proposed in such
notice. From and after delivery of such notice, no Board action shall be taken
unless and until the nominee is elected to the Board.
2.3. Voting. Each Stockholder shall vote all Common Stock held by such
------
Stockholder for the election to the Board of the individuals nominated in
accordance with Section 2.1 hereof. Each Stockholder shall use all reasonable
efforts to cause each director nominated by such Stockholder to vote for the
election to the Board of each individual nominated as a replacement director in
accordance with Section 2.1 hereof.
ARTICLE 3. RIGHT TO PURCHASE
3.1. Empower's Right to Participate in Certain Sales of Additional
-------------------------------------------------------------
Securities. The Corporation agrees that it will not sell or issue for cash any
- -----------
shares of Common Stock, or other securities convertible into or exchangeable for
Common Stock, or options, warrants or rights carrying any rights to purchase
Common Stock unless the Corporation first submits a written offer to Empower
identifying the terms of the proposed sale (including cash price, number or
aggregate principal amount of securities and all other material terms), and
offers to Empower the opportunity to purchase its Pro Rata Share (as hereinafter
defined) of the securities on terms and conditions, including price, no less
favorable to Empower than those on which the Corporation proposes to sell any
such securities to a third party. For purposes of this Section 3.1, Empower's
"Pro Rata Share" of such securities shall be based on the ratio which all of the
shares of Common Stock owned by Empower bears to all the issued and outstanding
shares of Common Stock, each calculated on a Fully Diluted Basis. The
Corporation's offer to Empower shall remain open and irrevocable for a period of
thirty (30) days. Any securities which Empower does not elect to purchase
pursuant to such offer may be sold by the Corporation but only on the terms and
conditions set forth in the initial offer to Empower, at any time within one
hundred and twenty (120) days following the termination of the above-referenced
thirty (30) day period, but may not be sold to any other person or entity or on
terms and conditions, including price, that are more favorable to the purchaser
than those set forth in such offer or after such one hundred and twenty (120)
day period without renewed compliance with this Section 3.1.
3.2. Exceptions to Empower's Right to Participate. Notwithstanding
--------------------------------------------
Section 3.1, the Corporation may without providing any right to Empower to
participate (i) issue shares of its
3
<PAGE>
Common Stock in connection with the acquisition of another company; (ii) issue
shares in any underwritten public offering registered under the Securities Act
of 1933; and (iii) issue options, warrants, or rights to subscribe for shares of
Common Stock to officers, employees and directors of and consultants to the
Corporation pursuant to the terms of any stock option or stock incentive plan
approved by the Board, and issue shares of its Common Stock upon the exercise of
any such stock options, or upon exercise of warrants outstanding as of the day
and year first above written or thereafter issued in compliance with this
Article 3.
ARTICLE 4. PROHIBITED TRANSFERS
Empower may not Transfer any shares of capital stock of the Corporation
held by Empower other than in accordance with Articles 5 and 6 below, and
Adventist may not Transfer any shares of capital stock of the Corporation held
by Adventist other than in accordance with Article 6 below. Any Transfer of
shares in violation of this Agreement shall be null and void and shall not be
recognized in the transfer books of the Corporation.
ARTICLE 5. RIGHT OF FIRST REFUSAL
5.1. Receipt of Bona Fide Offer; Registered Notice. In the event that
---------------------------------------------
Empower receives a Bona Fide Offer to purchase all or a portion of Empower's
Common Stock ("Offered Shares"), Empower shall promptly send Registered Notice
to Adventist and the Corporation, offering to sell the Offered Shares to the
Corporation and, upon the failure of the Corporation to purchase the Offered
Shares, to Adventist on the terms and conditions equal to the terms and
conditions contained in the Bona Fide Offer. All other terms and conditions
contained in Registered Notice shall conform to the terms and conditions of the
Bona Fide Offer. If all or any part of the offered consideration is other than
cash or payment of the purchase price in one or more installments of cash, then
the Corporation and Adventist may purchase all the Offered Shares, in accordance
with Sections 5.2 and 5.3 below, by paying on the same terms an amount of cash
equal to the fair market value of the consideration offered.
5.2. Corporation's Option. The Corporation shall have the right, for a
--------------------
period of thirty (30) days from its receipt of such Registered Notice, to
purchase all, but not less than all, of the Offered Shares. The Corporation may
exercise the right to purchase the Offered Shares by delivering a written notice
to Empower within thirty (30) days after receipt of the Registered Notice (which
shall constitute an unconditional obligation to buy the shares). Upon delivery
of such notice, the purchase of the Offered Shares shall be consummated on a
business day designated by Empower within forty-five (45) days after the date of
the Registered Notice (the "Consummation Period").
5.3. Adventist's Option. In the event that the Corporation does not
------------------
accept the offer or fails to purchase all of the Offered Shares within the
Consummation Period, then Adventist shall have the right, for a period of
fifteen (15) days after the expiration of Consummation Period, to exercise its
right to purchase all but not less than all of the Offered Shares by delivering
a written notice ("the Purchase Notice") to Empower. If Adventist delivers a
Purchase Notice, the purchase of the Offered Shares shall be consummated on a
business day designated by Empower within forty-five (45) days after the
expiration of the Consummation Period. If Adventist wishes
4
<PAGE>
to purchase some, but not all, of the Offered Shares, the Corporation and
Adventist together may purchase all, but not less than all, of the Offered
Shares in accordance with this Section 5.3.
5.4. Acceptance of Bona Fide Offer. In the event that: (i) the
-----------------------------
Corporation and Adventist do not purchase (for reasons other than the Empower's
default hereunder) all of the Offered Shares within the periods set forth above;
and (ii) Empower still desires to sell all (but not less than all) of the
Offered Shares pursuant to such Bona Fide Offer, then such sale by Empower must
be fully consummated within ninety (90) days after the expiration of the
Consummation Period; and, in the event that such sale is not fully consummated
within such period, the restrictions provided for in this Article shall again
become effective.
5.5. Limitation on Restriction. The restrictions contained in this
-------------------------
Article 5 shall not apply to a Transfer between Empower and an Affiliate of
Empower; provided, that prior to the Transfer of any Common Stock to an
Affiliate, such Affiliate must agree in writing to be bound by the terms of this
Agreement in the same manner as Empower and deliver a copy of such undertaking
to each party to this Agreement.
ARTICLE 6. CO-SALE RIGHTS
6.1. Take-Along Right. If Adventist proposes to Transfer any Common
----------------
Stock, Adventist shall deliver the Registered Notice to the Corporation and to
Empower as provided in Article 5 hereof. Empower may elect to participate in the
proposed Transfer by delivering to Adventist a notice (the "Participation
Notice") specifying the extent to which Empower exercises its rights under this
Article 6. Empower shall be entitled to Transfer, at the price and on the terms
and conditions applicable to the Transfer by Adventist, up to a number of shares
of Common stock equal to its Pro Rata Amount of the shares of Common Stock
subject to the proposed Transfer. For Purposes of this Section 6.1, "Pro Rata
Amount" shall mean the number of shares of Common Stock that Adventist proposes
to Transfer multiplied by the ratio which all of the shares of Common Stock
owned by Empower bears to the sum of the shares of Common Stock owned by Empower
and Adventist.
6.2. Limitation on Take-Along Right. The right set forth in this Article
------------------------------
6 shall not apply to a Transfer between Adventist and an Affiliate of Adventist;
provided, that prior to the Transfer of any Common Stock to an Affiliate, such
Affiliate must agree in writing to be bound by the terms of this Agreement in
the same manner as Adventist and deliver a copy of such undertaking to each
party to this Agreement.
6.3. Drag-Along Right. If Adventist proposes to Transfer all of its
----------------
shares of Common Stock to a person or entity that is not an Affiliate of
Adventist, Adventist may require Empower to Transfer to the same transferee, at
the same time, at the same price and on the same terms and conditions applicable
to the proposed Transfer by Adventist, all of its shares of Common Stock;
provided, however, that any related indemnification obligation shall be several
and not joint and limited to the consideration received.
5
<PAGE>
ARTICLE 7. GENERAL
7.1. Termination of Restriction. The agreements and restrictions set
--------------------------
forth in this Agreement shall terminate upon the earlier of (i) the consummation
of a Qualified Public Offering or (ii) a Change of Control, except that
Empower's Take-Along right provided in Section 6.1 above shall survive unless
the surviving entity in a Change of Control is a reporting entity under the
Securities Exchange Act of 1934, as amended.
7.2. Legend. Each certificate representing shares of Common Stock that
------
are subject to this Agreement shall bear a legend substantially in the
following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS. THESE SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS OF A STOCK RESTRICTION
AGREEMENT DATED AS OF JANUARY 29, 1999 AND A COMPLETE AND CORRECT COPY OF THIS
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE CORPORATION
AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
7.3. Amendments, Waivers and Consents. The parties to this Agreement may,
--------------------------------
by written agreement, (a) amend this Agreement, (b) extend the time for
performance of any of the obligations or other acts of the parties, or (c) waive
compliance with or modify any of the agreements contained in this Agreement and
waive or modify performance of any of the obligations of any of the parties to
this Agreement; provided, no failure or delay on the part of any party to this
Agreement in exercising any of its respective rights under this Agreement upon
any failure by any other party to perform or observe any condition, covenant or
provision shall operate as a waiver thereof, nor shall any single or partial
exercise of any such rights preclude any other exercise thereof or the exercise
of any other right.
7.4. Governing Law. This Agreement shall be deemed to be a contract made
-------------
under, and shall be construed in accordance with, the laws of the State of
Delaware, without giving effect to conflict of laws principles thereof.
7.5. Section Headings and Gender. The descriptive headings in this
---------------------------
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, as the context may
require.
6
<PAGE>
7.6. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
7.7. Notices and Demands. Any notices, claims or demand or other
-------------------
communications hereunder shall be in writing and shall be deemed to be duly
given if personally given or if sent by telecopier, nationally-recognized
overnight courier or by registered or certified mail, return receipt required
and postage prepaid, addressed to such party in accordance herewith or as
otherwise stated in any notice given in accordance herewith. Any such notice
shall be deemed to have been received (a) in the case or personal delivery or
delivery by telecopier, on the date of such delivery, (b) in the case of a
nationally-recognized overnight courier, on the next business day after the date
sent and (c) in the case of mailing, on the third business day following that on
which the piece of mail containing such communication is posted.
If to HMI or Adventist:
111 North Orlando Avenue
Winter Park, Florida 32789-3675
Attention: Calvin Wiese
407.975.1458 (facsimile)
With a copy to:
Steven L. Meltzer, Esquire
Shaw Pittman Potts & Trowbridge
1501 Farm Credit Drive
McLean, Virginia 22102-5000
703.821.2397 (facsimile)
If to Empower:
Empower Health Corporation
8920 Business Park Drive
Austin, Texas 78759
Attention: Donald W. Hackett, President
512.726.5130 (facsimile)
With a copy to:
Anthony J. Richmond, Esquire
Harold R. DeGraff, Esquire
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
650.463.2600 (facsimile)
7
<PAGE>
7.8. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.9. Integration. This Agreement constitutes the entire agreement, and
-----------
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
HEALTHMAGIC, INC.:
By: /s/ Calvin W. Wiese
_______________________________
Name: Calvin W. Wiese
________________________
Title: ________________________
ADVENTIST HEALTH SYSTEM SUNBELT HEALTHCARE
CORPORATION:
By: /s/ Calvin W. Wiese
_______________________________
Name: Calvin W. Wiese
________________________
Title: ________________________
EMPOWER HEALTH CORPORATION:
By: /s/ Donald W. Hackett
_______________________________
Name: Donald W. Hackett
________________________
Title: ________________________
9
<PAGE>
EXHIBIT 10.39
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of December 24, 1998 by and between Empower
Health Corporation, a Texas corporation (the "Company"), and the investor
-------
("Investor") whose name appears on the attached signature page.
- ----------
1. The Loan.
--------
1.1. The Loan. Investor agrees, on the terms of and subject to the
--------
conditions specified in this Agreement, to lend to the Company the sum set forth
opposite such Investor's name on the attached signature page. Investor's loan
shall be evidenced by a convertible promissory note (the "Note") in the form of
----
Exhibit A dated the Closing Date. The loan made in accordance with this Section
- ---------
1.1 shall be referred to herein as the "Loan."
----
1.2. The Warrants. Subject to the terms and conditions hereof, the
------------
Company agrees to issue to Investor a warrant, in substantially the form
attached hereto as Exhibit B (the "Warrant"), to purchase at an exercise price
--------- -------
per share equal to the price per share of the Next Financing, as such term is
defined in Section 4.1 hereof (such price hereinafter referred to as the
"Exercise Price"), a number of shares of the type of Equity Securities issued in
- ---------------
the Next Financing equal in value (based on the valuation of the Next Financing)
to 20% of the principal amount set forth opposite such Investor's name on the
attached signature page.
1.3. Place and Date of Closing. The closing of the transactions
-------------------------
provided for herein (the "Closing") will be held at the offices of the Company
-------
on December 24, 1998 or at such other time and place as the parties shall
mutually agree (the "Closing Date").
------------
1.4. Delivery. At the Closing, the Company will deliver to Investor a
--------
Note in the principal amount set forth opposite such Investor's name on the
attached signature page. Investor shall deliver to the Company the principal
amount set forth opposite such Investor's name on the attached signature page by
check or wire transfer.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Investor as follows:
2.1. Organization and Standing. The Company is a corporation duly
-------------------------
organized and validly existing under, and by virtue of, the laws of the State of
Texas and is in good standing under such laws. The Company has the requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted and as proposed to be conducted.
2.2. Corporate Power. The Company will have at the Closing all
---------------
requisite legal and corporate power to execute and deliver this Agreement, to
issue the Notes and the Warrants and to carry out and perform its obligations
under the terms of this Agreement.
2.3. Authorization. The execution, delivery and performance of this
-------------
Agreement by the Company has been duly authorized by all requisite corporate
action, and
<PAGE>
constitutes the valid and binding obligations of the Company
enforceable in accordance with its terms, subject as to enforcement of remedies
to applicable bankruptcy, insolvency, reorganization, or similar laws relating
to or affecting the enforcement of creditors' rights.
3. Representations and Warranties of the Investor and Restrictions on
------------------------------------------------------------------
Transfer Imposed by the Securities Act of 1933.
- ----------------------------------------------
3.1. Representations and Warranties of the Investor. Investor
----------------------------------------------
represents and warrants to the Company as of the Closing Date and upon
conversion of any Note as follows (the Notes and the securities issuable upon
conversion of the Notes and Warrants are collectively referred to as the
"Securities"):
----------
(a) All action on the part of the Investor for the authorization,
execution, delivery and performance by the Investor of this Agreement has been
taken, and this Agreement constitutes a valid and binding obligation of the
Investor, enforceable in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, or similar laws relating to
or affecting the enforcement of creditors' rights.
(b) The Investor is experienced in evaluating and investing in
new companies such as the Company. The Investor is a sophisticated investor with
such knowledge and experience in financial and business matters so as to be
capable of evaluating the merits and risks of a prospective investment in the
Securities and who is capable of bearing the economic risks of such investment.
(c) The Investor is acquiring the Securities for investment for
its own account and not with a view to, or for resale in connection with, any
distribution in contravention of applicable law. The Investor understands that
the Securities to be acquired have not been registered under the Securities Act
of 1933, as amended (the "Act"), by reason of a specific exemption from the
---
registration provisions of the Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein. Investor is an
"Accredited Investor" as such term is defined in Rule 501 under the Act.
(d) The Investor acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from such registration is available. The Investor is aware of the provisions of
Rule 144 promulgated under the Act which permits limited resale of securities
purchased in a private placement subject to the satisfaction of certain
conditions, including, in case the Investor has held the securities for less
than two years or is an affiliate of the Company, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
securities to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market maker," and the number of shares being sold
during any three-month period not exceeding specified limitations.
(e) The Investor understands that no public market now exists for
any of the securities issued by the Company and there has been and can be no
assurance that a public
2
<PAGE>
offering will be successfully completed by the Company or that a public market
will ever exist for the Securities.
(f) The Investor has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's senior management
and an opportunity to review the Company's facilities. The Investor understands
that such discussions, as well as the written information issued by the Company,
were intended to describe the aspects of the Company's business and prospects
which it believes to be material but were not necessarily a thorough or
exhaustive description.
3.2. Legends. Each certificate representing the Securities shall be
-------
endorsed with the following legend (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENT OF SAID ACT. COPIES OF THE AGREEMENT COVERING
THE ACQUISITION OF THESE SECURITIES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
The Company need not record a transfer of Securities, unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to record the transfer of any of the Securities unless
the conditions specified in the foregoing legends are satisfied.
4. Conversion of the Notes. Each Note shall be convertible according to
-----------------------
the following terms:
4.1. Definitions. The following terms shall have the meanings
-----------
assigned below:
"Equity Securities" means the Company's Common Stock or any
-----------------
securities conferring the right to purchase the Company's Common Stock
or securities convertible into, or exchangeable for (with or without
additional consideration), the Company's Common Stock, except any
security granted, issued and/or sold by the Company to any director,
employee or consultant in such capacity.
3
<PAGE>
"Next Financing" means the next sale (or series of related sales)
--------------
by the Company of its Equity Securities following the date of this
Agreement resulting in gross proceeds to the Company of $1,000,000 or
more;
"Optional Conversion" The principal and accrued interest of the
-------------------
Notes may, solely at the option of Investor, either (i) be converted,
in whole or in part, into the type of Equity Securities issued in the
Next Financing at any time or from time to time prior to the closing
of the Company's first firm commitment underwritten public offering of
its securities registered under the Securities Act of 1933, as amended
or (ii) be due and payable on December 24, 1999. The Company shall
notify the holder in writing prior to the date on which the Next
Financing will occur and shall include in such notice the most
favorable terms upon which any person is purchasing Equity Securities
of the Company in the Next Financing. The optional conversion of the
Notes into Equity Securities shall be on the terms and conditions of
the Equity Securities issued in the Next Financing.
"Fractional Shares" Upon the conversion of the Note into Equity
-----------------
Securities, in lieu of any fractional shares to which the holder of
the Note would otherwise be entitled, the Company shall pay cash equal
to such fraction multiplied by the issue price of such Equity
Securities.
"Registration Rights" Upon conversion of the Notes or exercise
-------------------
of the Warrant Shares, each Investor will be entitled to any
registration rights granted the other holders of securities issued in
the Next Financing.
5. Defaults and Remedies.
---------------------
5.1. Events of Default. The following events shall be considered
-----------------
Events of Default with respect to each Note:
(a) The Company shall default in the payment of any part of the
principal or accrued interest on the Note for more than thirty (30) days after
the same shall become due and payable, whether at maturity or at a date fixed
for prepayment or by acceleration or otherwise;
(b) The Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition for bankruptcy, or shall file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting the
material allegations of a petition filed against the Company in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company, or of all or any substantial
4
<PAGE>
part of the properties of the Company, or the Company or its respective
directors or majority shareholders shall take any action looking to the
dissolution or liquidation of the Company; or
(c) Within thirty (30) days after the commencement of any
proceeding against the Company seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed or, within thirty (30) days after the appointment without the
consent or acquiescence of the Company of any trustee, receiver or liquidator of
the Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.
5.2. Remedies. Upon the occurrence of an Event of Default under
--------
Section 5.1 hereof, at the option and upon the declaration of the holder of the
Note, (i) the entire unpaid principal and accrued interest on the Note held by
such holder shall, without presentment, demand, protest, or notice of any kind,
all of which are hereby expressly waived, be forthwith due and payable, and the
holder may, immediately and without expiration of any period of grace, enforce
payment of all amounts due and owing under such Note and exercise any and all
other remedies granted to it at law, in equity, or otherwise.
6. Miscellaneous.
-------------
6.1. Waivers and Amendments. With the written consent of the record
----------------------
holder of the Securities and the Company, the obligations of the Company and the
rights of the holders of the Securities under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely).
Neither this Agreement nor any provisions hereof may be changed, waived,
discharged or terminated orally, but only by a signed statement in writing.
6.2. Further Assurances; Subordination. Upon request of the Company,
---------------------------------
Investor will acknowledge in writing its subordination undertakings as set forth
in the Note.
6.3. Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Texas.
6.4. Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive for a period of one year following the
Closing Date.
6.5. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.6. Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
5
<PAGE>
6.7. Severability of this Agreement. In case any provision of this
------------------------------
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.8. Titles and Subtitles. The titles of the Sections and Subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.9. Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to the Investor, upon any breach or
default of the Company under this Agreement or the Notes, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach or default, or any acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character by the Investor of any breach or default under
this Agreement, or any waiver by the Investor of any provisions or conditions of
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in writing and that all remedies, either under this
Agreement, or by law or otherwise afforded to the Investor, shall be cumulative
and not alternative.
6.10. Notices. Any notices, claims or demand or other communications
-------
hereunder shall be in writing and shall be deemed to be duly given if personally
given or if sent by telecopier, nationally-recognized overnight courier or by
registered or certified mail, return receipt required and postage prepaid,
addressed to such party in accordance herewith or as otherwise stated in any
notice given in accordance herewith. Any such notice shall be deemed to have
been received (a) in the case or personal delivery or delivery by telecopier,
on the date of such delivery, (b) in the case of a nationally-recognized
overnight courier, on the next business day after the date sent and (c) in the
case of mailing, on the third business day following that on which the piece of
mail containing such communications is posted.
To the Company:
Empower Health Corporation
8920 Business Park Drive
Austin, Texas 78759
Copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Attention: Anthony J. Richmond, Esq.
To the Investor:
6
<PAGE>
At the address set forth on the signature page to this Agreement
6.11. Counterparts. This Agreement may be executed by facsimile and
------------
in any number of counterparts, each of which shall be deemed an original, and
all of which together shall constitute one instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be duly
executed and delivered as of the day and year first written above.
EMPOWER HEALTH CORPORATION
By: /s/ Donald W. Hackett
--------------------------
Chief Executive Officer
INVESTOR:
--------
/s/ Neal Longwill
_________________________________
Name: Neal Longwill
Address:_________________________
_________________________
Principal Amount of Notes
Purchased: $800,000
8
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENT OF SAID ACT. COPIES OF THE
AGREEMENT COVERING THE ACQUISITION OF THESE SECURITIES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE CORPORATION.
Date: December 24, 1998 $800,000
EMPOWER HEALTH CORPORATION
CONVERTIBLE PROMISSORY NOTE
Empower Health Corporation, a Texas corporation (the "Company"), for value
-------
received, promises to pay to Neal Longwill (the "Investor"), the principal sum
--------
of $800,000, in lawful money of the United States of America and in immediately
available funds, plus simple interest of 6% per annum on the principal amount
hereof. All principal and accrued interest shall be due and payable on December
24, 1999 (whether by acceleration or otherwise). Interest shall be computed on
the basis of a year of 365 days for the actual number of days elapsed.
Notwithstanding the foregoing, the principal and the accrued but unpaid interest
due hereunder shall, solely at the option of the Investor, and in accordance
with the terms set forth in the Loan Agreement, be converted, in whole or in
part, into the type of Equity Securities issued in the Next Financing provided
that the Next Financing occurs before December 24, 1999.
1. Definitions. Unless the context indicates otherwise, capitalized
-----------
terms used herein shall have the meanings given them in the Loan Agreement,
provided that the following terms used herein shall have the following meanings:
1.1. "Equity Securities" means the Company's Common Stock or any
-----------------
securities conferring the right to purchase the Company's Common Stock or
securities convertible into, or exchangeable for (with or without additional
consideration), the Company's Common Stock, except any security granted, issued
and/or sold by the Company to any employee or consultant in such capacity.
A-1
<PAGE>
1.2. "Investor" means the investor whose name appears on the
--------
signature page attached to the Loan Agreement.
1.3. "Loan Agreement" means the Loan Agreement dated as of December
--------------
24, 1998 between the Investor and the Company.
1.4. "Next Financing" means the next sale (or series of related
--------------
sales) by the Company of its Equity Securities following the date of the Loan
Agreement resulting in gross proceeds to the Company of $1,000,000 or more.
1.5. "Noteholder," "holder," or similar terms, when the context
---------- ------
refers to a holder of a Note, means any person who shall at the time be the
holder of this Note.
2. No Prepayment. The principal amount of this Note may not be paid by
-------------
the Company prior to maturity without the written consent of the holder of this
Note.
3. Subordination. The indebtedness represented by this Note is hereby
-------------
expressly subordinated in right of payment to the prior payment in full of all
of the Company's indebtedness for money borrowed to banks, insurance companies,
lease financing institutions or other lending institutions regularly engaged in
the business of lending money.
4. Attorneys' Fees and Costs. If any amount is not paid as and when due
-------------------------
hereunder, the Company promises to pay all costs of collection and reasonable
attorneys' fees which the Investors may incur.
5. Loan Agreement. This Note is the Note referred to in the Loan
--------------
Agreement and is entitled to all the benefits provided therein. Reference is
made to said Loan Agreement for the Events of Default and the rights of
acceleration of the maturity upon an Event of Default.
EMPOWER HEALTH CORPORATION
_______________________________________
Donald W. Hackett
Chief Executive Officer
A-2
<PAGE>
EXHIBIT B
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY
OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH ANY STATE SECURITIES
AUTHORITIES. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
Void after December 24, 2003
EMPOWER HEALTH CORPORATION
STOCK PURCHASE WARRANT
__________
THIS CERTIFIES THAT, for value received, Neal Longwill and its registered
assigns (hereinafter called the "Holder") is entitled to purchase from Empower
------
Health Corporation (the "Company"), at any time after the date specified in
-------
Section 1 hereof and ending at 5:00 p.m. Austin, Texas Time on the Expiration
Date, as such term is defined in Section 1 hereof, the shares of the Company's
Capital Stock determined by the schedule in Section 1 hereof (the "Warrant
Shares"). The Exercise Price per share of this warrant shall be the price per
share of the Next Financing, as such term is defined in Section 4.1 of the Loan
Agreement of even date herewith. This Warrant may be exercised in whole or in
part, at the option of the Holder and in accordance with the schedule in Section
1 hereof. Unless otherwise defined herein, defined terms in this Warrant shall
have the meanings ascribed to them in the Loan Agreement of even date herewith.
1. Term and Vesting Schedule. This Warrant shall be exercisable
-------------------------
through December 24, 2003 (the "Expiration Date") according to the following
---------------
schedule:
The Warrant shall be exercisable for a number of shares of the type of
Equity Securities issued in the Next Financing equal in value (based on the
valuation of the Next Financing)
B-1
<PAGE>
to 20% of the principal amount set forth opposite such Investor's name on the
signature page to the Loan Agreement.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
----------------------------------------------------
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the Holder, in whole or in part, by:
2.1. the surrender of this Warrant (with the notice of exercise form
attached hereto as Attachment A and the Investment Representation Statement
attached hereto as Attachment B duly executed) at the principal office of the
Company; and
2.2. the payment to the Company, by check or wire, of an amount equal
to the then applicable Warrant Price per share multiplied by the number of
Warrant Shares then being purchased.
If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by the Company of this Warrant and such
notice of exercise, together with, if applicable, the aggregate Warrant Price,
at its principal executive office, the Holder shall be deemed to be the holder
of record of the applicable Warrant Shares, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder. The Company shall pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of the Warrant Shares
to the registered owner of this Warrant.
2.3. Net Exercise. In addition to and without limiting the rights of
------------
the Holder under the terms of this Warrant, the Holder may elect to convert this
Warrant or any portion thereof (the "Conversion Right") into Warrant Shares, the
----------------
aggregate value of which Warrant Shares shall be equal to the value of this
Warrant or the portion thereof being converted. The Conversion Right may be
exercised by the Holder by surrender of this Warrant at the principal executive
office of the Company together with notice of the Holder's intention to exercise
the Conversion Right, in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
X = Y(A - B)
--------
A
B-2
<PAGE>
Where:
X - The number of Warrant Shares to be issued to the holder upon
exercise of Conversion Right.
Y - The number of Warrant Shares issuable under this Warrant.
A - The fair market value of one Warrant Share, as determined in good
faith by the board of directors of the Company, as at the time
the Conversion Right is exercised pursuant to this Section 2. If
the Warrant hares are traded on a national securities exchange or
the Nasdaq National Market (or any successor), the fair market
value of one Warrant Share shall equal the closing sale price of
a Warrant Share on the trading day immediately prior to the date
the related notice of exercise is delivered to the Company.
B - Exercise Price (as adjusted to the date of such calculations).
3. Stock Fully Paid; Reservation of Warrant Shares. All shares of stock
-----------------------------------------------
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. During the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved for the purpose of issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its stock to provide for the exercise of the rights represented by this
Warrant. In the event that there is an insufficient number of Warrant Shares
reserved for issuance pursuant to the exercise of this Warrant, the Company will
take appropriate action to authorize an increase in the capital stock to allow
for such issuance or similar issuance acceptable to the Holder.
4. Adjustment of Warrant Price and Number of Warrant Shares. The number
--------------------------------------------------------
and kind of Warrant Shares purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
4.1. Reclassification; Merger. In case of any reclassification or
------------------------
change of outstanding securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is a continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or any
other corporate reorganization in which the Company shall not be the continuing
or surviving entity of such consolidation, merger or reorganization, or any
transaction in which in excess of 50% of the Company's voting power is
transferred, or any sale of all or substantially all of the stock or assets of
the Company, the Company shall, as condition precedent to such transaction,
execute a new Warrant or cause such successor or
B-3
<PAGE>
purchasing corporation, as the case may be, to execute a new Warrant, providing
that the Holder shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of each share of stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or acquisition by a holder of one share of stock. Such new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions of
this Section 4.1 shall similarly apply to successive reclassifications, changes,
mergers and acquisitions.
4.2. Subdivision or Combination of Warrant Shares. If the Company at
--------------------------------------------
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its stock, the Warrant Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
4.3. Stock Dividends. If the Company at any time while this Warrant
---------------
is outstanding and unexpired shall pay a dividend with respect to stock payable
in, or make any other distribution with respect to stock (except any
distribution specifically provided for in the foregoing Sections 4.1 and 4.2)
of, stock, then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of stock outstanding immediately after such dividend or
distribution.
4.4. Adjustment of Number of Warrant Shares. Upon each adjustment in
--------------------------------------
the Warrant Price, the number of shares of stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
5. Fractional Warrant Shares. No fractional Warrant Shares will be
-------------------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
6. Compliance with Securities Act; Non-transferability of Warrant;
---------------------------------------------------------------
Disposition of Shares of Stock.
- ------------------------------
6.1. Compliance with Securities Act. The Holder, by acceptance
------------------------------
hereof, agrees that this Warrant and the Warrant Shares are being acquired for
investment and that he will not offer, sell or otherwise dispose of this Warrant
or any Warrant Shares except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon exercise
---
of
B-4
<PAGE>
this Warrant, the Holder hereof shall confirm in writing, in a form of
Attachment B, that the Warrant Shares so purchased are being acquired for
investment and not with a view toward distribution or resale. In addition, the
Holder shall provide such additional information regarding such Holder's
financial and investment background as the Company may reasonably request. This
Warrant and all Warrant Shares (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAW. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
6.2. Transferability of Warrant. This Warrant may not be transferred
--------------------------
or assigned in whole or in part without (i) the prior written consent of the
Company and (ii) compliance with applicable federal and state securities laws;
provided, however, that the Warrant may be transferred without the prior written
consent of the Company in the following transactions:
(a) A transfer of the Warrant in whole by a Holder who is a
natural person during such Holder's lifetime or on death by
will or intestacy to such Holder's immediate family or to
any custodian or trustee for the account of such Holder or
such Holder's immediate family. "Immediate family" as used
----------------
herein shall mean spouse, lineal descendant, father, mother,
brother, or sister of the Holder;
(b) A transfer of the Warrant in whole to the Company or to any
shareholder of the Company;
(c) A transfer of the Warrant in whole or in part to a person
who, at the time of such transfer, is or is an affiliate of
an officer or director of the Company;
(d) A transfer of the Warrant in whole pursuant to and in
accordance with the terms of any merger, consolidation,
reclassification of shares or capital reorganization of the
corporate shareholder or pursuant to a sale of all or
substantially all of the stock or assets of a corporate
shareholder;
(e) A transfer of the Warrant in whole to a parent, subsidiary
or affiliate of a Holder; or
B-5
<PAGE>
(f) A transfer of the Warrant in whole by a Holder which is a
limited or general partnership to any of its partners or
former partners.
6.3. Disposition of Warrant Shares. Upon exercise of the Warrant
-----------------------------
Shares, the Holder will be entitled to any registration rights granted the other
holders of securities issued in the Next Financing. With respect to any offer,
sale or other disposition of any Warrant Shares prior to registration of such
shares, the Holder and each subsequent Holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such Holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of such Warrant
Shares and indicating whether or not under the Act certificates for such shares
to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to ensure compliance with
the Act; provided, however, that no such opinion of counsel or no action letter
-------- -------
shall be necessary for a transfer without consideration by a Holder which is a
partnership to a partner of such partnership, so long as such transfer is made
pursuant to the terms of the partnership agreement, or to the transfer by gift,
will or intestate succession by the Holder to his or her spouse or lineal
descendants or ancestors or any trust for the benefit of any of the foregoing if
the transferee agrees in writing to be subject to the terms hereof to the same
extent as if he/she were an original Holder hereunder. Notwithstanding the
foregoing, such Warrant Shares may be offered, sold or otherwise disposed of in
accordance with Rule 144.
7. Rights of Shareholders. No Holder of this Warrant shall be entitled
----------------------
to vote or receive dividends or be deemed the holder of stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder of this Warrant, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant has been exercised and the Warrant Shares shall
have become deliverable, as provided herein.
8. Governing Law. The terms and conditions of this Warrant shall be
-------------
governed by and construed in accordance with the laws of the State of Texas.
9. Miscellaneous. The headings in this Warrant are for purposes of
-------------
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Company and the registered Holder. All notices and other communications
from the Company to the Holder shall be delivered by hand or mailed by first-
class registered or certified mail, postage prepaid, to the address furnished to
the Company in writing by the Holder.
B-6
<PAGE>
EMPOWER HEALTH CORPORATION
By:_____________________________________
Donald W. Hackett
Chief Executive Officer
B-7
<PAGE>
ATTACHMENT A
NOTICE OF EXERCISE
TO: Empower Health Corporation
1. The undersigned hereby elects to purchase ____________ shares of stock
of Empower Health Corporation pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full, together
with all applicable transfer taxes, if any.
1. The undersigned hereby elects to convert the attached Warrant into
Warrant Shares in the manner specified in Section 2.3 of the Warrant. This
conversion is exercised with respect to _______________________ of the Shares
covered by the Warrant.
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares of
stock in the name of the undersigned or in such other name as is specified
below:
Name: __________________________
Address: __________________________
__________________________
__________________________
3. The undersigned represents that the aforesaid shares of stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Attachment B.
___________________________________________________
WARRANTHOLDER
By:________________________________________________
Title:_____________________________________________
Date:_________________________
<PAGE>
ATTACHMENT B
INVESTMENT REPRESENTATION STATEMENT
-----------------------------------
PURCHASER :
COMPANY : EMPOWER HEALTH CORPORATION
SECURITY :
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities and underlying
stock (the "Securities"), I, the Purchaser, represent to the Company the
----------
following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
--------------
(b) I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that,
in the view of the Securities and Exchange Commission ("SEC"), the statutory
---
basis for such exemption may be unavailable if my representation was predicated
solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, I understand
that the certificate evidencing the Securities will be imprinted with a legend
which prohibits the transfer of the Securities unless they are registered or
such registration is not required in the opinion of counsel for the Company.
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale.
<PAGE>
(f) I further understand that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
_______________________________
WARRANTHOLDER
_______________________________
(signature)
_______________________________
(title)
Date:_________________, _______
<PAGE>
EXHIBIT 10.40
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of March 5,1999 by and between Empower
Health Corporation, a Texas corporation (the "Company"), and the investor
-------
("Investor") whose name appears on the attached signature page.
- ----------
1. The Loan.
--------
1.1. The Loan. Investor agrees, on the terms of and subject to the
--------
conditions specified in this Agreement, to lend to the Company the
aggregate amount of money set forth below such Investor's name on the
attached signature page (the "Sum"). The Company may, at any time or
from time to time, prior to the earlier of (i) a Liquidating Event (as
defined below), and (ii) March 5, 2000, borrow from Investor a
principal amount determined by the Company in accordance with this
Agreement (each such transaction a "Loan"); provided, however, that
the aggregate principal amount of the Loans outstanding shall not
exceed the Sum. Investor's Loans shall each be evidenced by a
convertible promissory note (each a "Note") in the form of Exhibit A
---- ---------
dated as of the applicable Closing Date.
1.2. Place and Date of Closing. The closing of this Loan Agreement will be
-------------------------
held at the offices of the Company on March 5, 1999 or at such other
time and place as the parties shall mutually agree. The closing of
each Loan provided for herein (each a "Closing") will be held at the
-------
offices of the Company within 15 days of receipt of notice (as defined
in accordance with Section 6. 10) by Investor of the Company's intent
to borrow funds pursuant to this Loan Agreement (each a "Closing Date.
------------
1.3. Delivery. At each Closing, the Company will deliver to Investor a Note
--------
in the principal amount requested in writing by the Company in
accordance with the terms of this Agreement. Investor shall deliver to
the Company the principal amount requested by the Company by check or
wire transfer.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Investor as follows:
2.1. Organization and Standing. The Company is a corporation duly organized
-------------------------
and validly existing under, and by virtue of, the laws of the State of
Texas and is in good standing under such laws. The Company has the
requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted and as
proposed to be conducted.
2.2. Corporate Power. The Company will have at the Closing all requisite
---------------
legal and corporate power to execute and deliver this Agreement, to
issue the Notes and to carry out and perform its obligations under the
terms of this Agreement.
<PAGE>
2.3. Authorization. The execution, delivery and performance of this
-------------
Agreement by the Company has been duly authorized by all requisite
corporate action, and constitutes the valid and binding obligations of
the Company enforceable in accordance with its terms, subject as to
enforcement of remedies to applicable bankruptcy, insolvency,
reorganization, or similar laws relating to or affecting the
enforcement of creditors' rights.
2.4. Litigation. There is no action, suit, proceeding or investigation
----------
pending or currently threatened against the Company that might result
in any material change in the assets, condition, affairs or prospects
of the Company, financially or otherwise, or any change in the current
equity ownership of the Company. There is no action , suit, proceeding
or investigation by the Company currently pending or which the Company
intends to initiate.
3. Representations and Warranties of the Investor and Restrictions on Transfer
---------------------------------------------------------------------------
Imposed by the Securities Act of 1933.
-------------------------------------
3.1. Representations and Warranties of the Investor. Investor represents
----------------------------------------------
and warrants to the Company as of the Closing Date and upon conversion
of any Note as follows (the Notes and the securities issuable upon
conversion of the Notes are collectively referred to as the
"Securities"):
----------
(a) All action on the part of the Investor for the authorization,
execution, delivery and performance by the Investor of this
Agreement has been taken, and this Agreement constitutes a valid
and binding obligation of the Investor, enforceable in accordance
with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, or similar laws relating
to or affecting the enforcement of creditors' rights.
(b) The Investor is experienced in evaluating and investing in new
companies such as the Company. The Investor is a sophisticated
investor with such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and
risks of a prospective investment in the Securities and who is
capable of bearing the economic risks of such investment.
(c) The Investor is acquiring the Securities for investment for its
own account and not with a view to, or for resale in connection
with, any distribution in contravention of applicable law. The
Investor understands that the Securities to be acquired have not
been registered under the Securities Act of 1933, as amended (the
"Act"), by reason of a specific exemption from the registration
---
provisions of the Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
Investor is an "Accredited Investor" as such term is defined in
Rule 501 under the Act.
2
<PAGE>
(d) The Investor acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or
unless an exemption from such registration is available. The
Investor is aware of the provisions of Rule 144 promulgated under
the Act which permits limited resale of securities purchased in a
private placement subject to the satisfaction of certain
conditions, including, in case the Investor has held the
securities for less than two years or is an affiliate of the
Company, among other things: the availability of certain current
public information about the Company, the resale occurring not
less than one year after a party has purchased and paid for the
securities to be sold, the sale being through a "broker's
transaction" or in transactions directly with a "market maker,"
and the number of shares being sold during any three-month period
not exceeding specified limitations.
(e) The Investor understands that no public market now exists for any
of the securities issued by the Company and there has been and
can be no assurance that a public offering will be successfully
completed by the Company or that a public market will ever exist
for the Securities.
(f) The Investor has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
senior management and an opportunity to review the Company's
facilities. The Investor understands that such discussions, as
well as the written information issued by the Company, were
intended to describe the aspects of the Company's business and
prospects which it believes to be material but were not
necessarily a thorough or exhaustive description.
3.2. Legends. Each certificate representing the Securities shall be
-------
endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENT OF SAID ACT. COPIES OF THE AGREEMENT COVERING THE
ACQUISITION OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
TIES CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
3
<PAGE>
The Company need not record a transfer of Securities, unless the
conditions specified in the foregoing legends are satisfied. The
Company may also instruct its transfer agent not to record the
transfer of any of the Securities unless the conditions specified in
the foregoing legends are satisfied.
4. Conversion of the Notes. Each Note shall be convertible according to the
-----------------------
following terms:
4.1. Conversion. The principal and accrued interest of each Note shall,
----------
contemporaneously with the closing of a Liquidating Event and solely
at the option of Investor, either (i) be converted into the number of
shares of Common Stock determined by dividing the sum of such
principal and interest by the Conversion Price in effect at the time
of such conversion or (ii) be due and payable immediately upon the
closing of a Liquidating Event. In the event the closing of a
Liquidating Event does not occur before March 5, 2000, the principal
and accrued interest of each Note shall be due and payable on March 5,
2000.
4.2. Conversion Price. The initial Conversion Price shall be $18.57. The
----------------
Conversion Price is subject to proportionate adjustment for any stock
split, stock dividend, merger, reclassification or similar structural
change in the Company effected from the date of this loan agreement
through the date of conversion as set forth above.
4.3. Fractional Shares. Upon the conversion of each Note into shares of
-----------------
Common Stock, in lieu of any fractional shares to which the holder of
the Note would otherwise be entitled, the Company shall pay cash equal
to such fraction multiplied by $18.57.
4.4. Liquidating Event. A Liquidating Event shall mean a (i) firm
-----------------
commitment underwritten public offering of the Company's securities
under the Securities Act of 1933, as amended, (ii) transaction or
series of transactions in which the Company consolidates or merges
with any other business entity, after which the holders of the
company's outstanding equity securities immediately before such
consolidation or merger do not, immediately after such consolidation
or merger, retain stocks or other equity interests representing a
majority of the voting power of the surviving business entity or (iii)
sale of all or substantially all of the assets or capital stock of the
Company.
5. Defaults and Remedies.
---------------------
5.1. Events of Default. The following events shall be considered Events of
-----------------
Default with respect to each Note:
(a) The Company shall default in the payment or conversion of any
part of the principal or accrued interest on any Note for more
than thirty (30) days
4
<PAGE>
after the same shall become due and payable, whether at maturity
or at a date fixed for prepayment or by acceleration or
otherwise;
(b) The Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its
debts as they become due, or shall file a voluntary petition for
bankruptcy, or shall file any petition or answer seeking for
itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer
admitting the material allegations of a petition filed against
the Company in any such proceeding, or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or
liquidator of the Company, or of all or any substantial part of
the properties of the Company, or the Company or its respective
directors or majority shareholders shall take any action looking
to the dissolution or liquidation of the Company; or
(c) Within thirty (30) days after the commencement of any proceeding
against the Company seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation,
such proceeding shall not have been dismissed or, within thirty
(30) days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or
liquidator of the Company or of all or any substantial part of
the properties of the Company, such appointment shall not have
been vacated.
5.2. Remedies. Upon the occurrence of an Event of Default under Section 5.1
--------
hereof, at the option and upon the declaration of the holder of the
Note, (i) the entire unpaid principal and accrued interest on the Note
held by such holder shall, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived, be
forthwith due and payable, and the holder may, immediately and without
expiration of any period of grace, enforce payment of all amounts due
and owing under such Note and exercise any and all other remedies
granted to it at law, in equity, or otherwise.
6. Miscellaneous.
-------------
6.1. Waivers and Amendments. With the written consent of the record holder
----------------------
of the Securities and the Company, the obligations of the Company and
the lights of the holders of the Securities under this Agreement may
be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of
time or indefinitely). Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally, but
only by a signed statement in writing.
6.2. Further Assurances; Subordination. Upon request of the Company,
---------------------------------
Investor will acknowledge in writing its subordination undertakings as
set forth in the Note.
5
<PAGE>
6.3. Governing Law. This Agreement shall be governed in all respects by
---------
the laws of the State of Texas.
6.4. Survival. The representations and warranties made herein shall
--------
survive for a period of one year following the Closing Date.
6.5. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
6.6. Entire Agreement. This Agreement and the other documents delivered
----------------
pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and
thereof.
6.7. Severability of this Agreement. In case any provision of this
------------------------------
Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
6.8. Titles and Subtitles. The titles of the Sections and Subsections of
--------------------
this Agreement are for convenience of reference only and are not to
be considered in construing this Agreement.
6.9. Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to the Investor, upon
any breach or default of the Company under this Agreement or the
Notes, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach or default, or any
acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character by the Investor
of any breach or default under this Agreement, or any waiver by the
Investor of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set
forth in writing and that all remedies, either under this Agreement,
or by law or otherwise afforded to the Investor, shall be cumulative
and not alternative.
6.10. Notices. Any notices, claims or demand or other communications
-------
hereunder shall be in writing and shall be deemed to be duly given if
personally given or if sent by telecopier, nationally-recognized
overnight courier or by registered or certified mail, return receipt
required and postage prepaid, addressed to such party in accordance
herewith or as otherwise stated in any notice given in accordance
herewith. Any such notice shall be deemed to have been received (a)
in the case of personal delivery or delivery by telecopier, on the
date of such delivery, (b) in the case of a nationally-recognized
overnight courier, on the next business day after the date sent and
(c) in the case of mailing, on the third business day following that
on which the piece of mail containing such communications is posted.
6
<PAGE>
To the Company:
Empower Health Corporation
8920 Business Park Drive
Austin, Texas 78759
Copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Attention: Anthony J. Richmond, Esq.
To the Investor:
At the address set forth on the signature page to this
Agreement
6.11. Counterparts. This Agreement may be executed by facsimile and in any
------------
number of counterparts, each of which shall be deemed an original,
and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be duly
executed and delivered as of the day and year first written above.
EMPOWER HEALTH CORPORATION
By: _____________________________
Chief Executive Officer
INVESTOR:
---------
_________________________________
Name:
Address: ________________________
________________________
Principal Amount: $
7
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENT OF SAID ACT. COPIES OF THE
AGREEMENT COVERING THE ACQUISITION OF THESE SECURITIES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF TIES CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE CORPORATION.
Date: _______________________ $ __________________
EMPOWER HEALTH CORPORATION
CONVERTIBLE PROMISSORY NOTE
Empower Health Corporation, a Texas corporation (the "Company"), for value
-------
received, promises to pay to __________________ (the "Investor"), the principal
--------
sum of $________, in lawful money of the United States of America and in
immediately available funds, plus simple interest of 7% per annum on the
principal amount hereof. Interest shall be computed on the basis of a year of
365 days for the actual number of days elapsed. The principal and accrued but
unpaid interest due hereunder shall, contemporaneously with the closing of a
Liquidating Event and solely at the option of Investor, either be converted into
shares of Common Stock or be due and payable immediately upon the closing of a
Liquidating Event in accordance with Section 4 of the Loan Agreement. In the
event the closing of a Liquidating Event does not occur before March 2000, the
principal and accrued interest of this Note shall be due and payable on March
2000.
1. Definitions. Unless the context indicates otherwise, capitalized terms used
-----------
herein shall have the meanings given them in the Loan Agreement, provided
that the following terms used herein shall have the following meanings:
1.1. "Investor" means the investor whose name appears on the signature page
--------
attached to the Loan Agreement.
1.2. "Loan Agreement" means the Loan Agreement dated as of March ___, 1999
--------------
between the Investor and the Company.
1.3. "Noteholder," "holder," or similar terms, when the context refers to a
---------- ------
holder of a Note, means any person who shall at the time be the holder
of this Note.
A-1
<PAGE>
2. No Prepayment. The principal amount of this Note may not be paid by the
-------------
Company prior to maturity without the written consent of the holder of this
Note.
3. Subordination. The indebtedness represented by this Note is hereby
-------------
expressly subordinated in right of payment to the prior payment in full of
all of the Company's indebtedness for money borrowed to banks, insurance
companies, lease financing institutions or other lending institutions
regularly engaged in the business of lending money.
4. Attorneys' Fees and Costs. If any amount is not paid as and when due
-------------------------
hereunder or if the Note is not converted in accordance with the Loan
Agreement promptly after the closing of the EPO, as applicable, the Company
promises to pay all costs of collection and enforcement and reasonable
attorneys' fees which the Investor may incur.
5. Loan Agreement. This Note is subject to the provisions of the Loan
--------------
Agreement and is entitled to all the benefits provided therein. Reference
is made to the Loan Agreement for the Events of Default and the fights of
acceleration of the maturity upon an Event of Default.
6. Governing Law. This Agreement shall be governed in all respects by the laws
-------------
of the State of Texas.
EMPOWER HEALTH CORPORATION
____________________________
Donald W. Hackett
Chief Executive Officer
A-2
<PAGE>
March 5, 1999
Empower Health Corporation ("Empower") hereby consents and agrees with
Investor that promptly following the closing of the transactions contemplated
under the Loan Agreement of even date herewith Empower shall use its best
efforts to obtain registration rights for Investor such that upon Conversion of
the Loan the Investor will be entitled to registration rights commensurate with
the holders of the Company's Series B or Series C Preferred stock.
The parties acknowledge that the foregoing action will be taken in
consideration of Investor's agreement on this date to execute and deliver the
Loan Agreement of even date herewith.
Empower Health Corporation Investor
By: _________________________ By: ______________________
Name: Name:
Title:
<PAGE>
EXHIBIT 10.41
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of March 3rd, 1999 by and between Empower
Health Corporation, a Texas corporation (the "Company"), and the investor
-------
("Investor") whose name appears on the attached signature page.
-------
1. The Loan.
--------
1.1. The Loan. Investor agrees, on the terms of and subject to the
--------
conditions specified in this Agreement, to lend to the Company the
aggregate amount of money set forth below such Investor's name on the
attached signature page (the "Sum"). The Company may, at any time or
from time to time, prior to the earlier of (i) a Liquidating Event (as
defined below), and (ii) February 26, 2000, borrow from Investor a
principal amount determined by the Company in accordance with this
Agreement (each such transaction a "Loan"); provided, however, that
the aggregate principal amount of the Loans outstanding shall not
exceed the Sum. Investor's Loans shall each be evidenced by a
convertible promissory note (each a "Note") in the form of Exhibit A
---- ---------
dated as of the applicable Closing Date.
1.2. Place and Date of Closing. The closing of this Loan Agreement will be
-------------------------
held at the offices of the Company on February 26, 1999 or at such
other time and place as the parties shall mutually agree. The closing
of each Loan provided for herein (each a "Closing") will be held at
-------
the offices of the Company within 15 days of receipt of notice (as
defined in accordance with Section 6. 10) by Investor of the Company's
intent to borrow funds pursuant to this Loan Agreement (each a
"Closing Date").
------------
1.3. Delivery. At each Closing, the Company will deliver to Investor a Note
--------
in the principal amount requested in writing by the Company in
accordance with the terms of this Agreement. Investor shall deliver to
the Company the principal amount requested by the Company by check or
wire transfer.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Investor as follows:
2.1. Organization and Standing. The Company is a corporation duly organized
-------------------------
and validly existing under, and by virtue of, the laws of the State of
Texas and is in good standing under such laws. The Company has the
requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted and as
proposed to be conducted.
2.2. Corporate Power. The Company will have at the Closing all requisite
---------------
legal and corporate power to execute and deliver this Agreement, to
issue the Notes and to carry out and perform its obligations under the
terms of this Agreement.
<PAGE>
2.3. Authorization. The execution, delivery and performance of this
-------------
Agreement by the Company has been duly authorized by all requisite
corporate action, and constitutes the valid and binding obligations of
the Company enforceable in accordance with its terms, subject as to
enforcement of remedies to applicable bankruptcy, insolvency,
reorganization, or similar laws relating to or affecting the
enforcement of creditors' rights.
2.4. Litigation. There is no action, suit, proceeding or investigation
----------
pending or currently threatened against the Company that might result
in any material change in the assets, condition, affairs or prospects
of the Company, financially or otherwise, or any change in the current
equity ownership of the Company. There is no action , suit, proceeding
or investigation by the Company currently pending or which the Company
intends to initiate.
3. Representations and Warranties of the Investor and Restrictions on Transfer
---------------------------------------------------------------------------
Imposed by the Securities Act of 1933.
-------------------------------------
3.1. Representations and Warranties of the Investor.Investor represents and
----------------------------------------------
warrants to the Company as of the Closing Date and upon conversion of
any Note as follows (the Notes and the securities issuable upon
conversion of the Notes are collectively referred to as the
"Securities"):
----------
(a) All action on the part of the Investor for the authorization,
execution, delivery and performance by the Investor of this
Agreement has been taken, and this Agreement constitutes a valid
and binding obligation of the Investor, enforceable in accordance
with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, or similar laws relating
to or affecting the enforcement of creditors' rights.
(b) The Investor is experienced in evaluating and investing in new
companies such as the Company. The Investor is a sophisticated
investor with such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and
risks of a prospective investment in the Securities and who is
capable of bearing the economic risks of such investment.
(c) The Investor is acquiring the Securities for investment for its
own account and not with a view to, or for resale in connection
with, any distribution in contravention of applicable law. The
Investor understands that the Securities to be acquired have not
been registered under the Securities Act of 1933, as amended (the
"Act"), by reason of a specific exemption from the registration
---
provisions of the Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
Investor is an "Accredited Investor" as such term is defined in
Rule 501 under the Act.
2
<PAGE>
(d) The Investor acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or
unless an exemption from such registration is available. The
Investor is aware of the provisions of Rule 144 promulgated under
the Act which permits limited resale of securities purchased in a
private placement subject to the satisfaction of certain
conditions, including, in case the Investor has held the
securities for less than two years or is an affiliate of the
Company, among other things: the availability of certain current
public information about the Company, the resale occurring not
less than one year after a party has purchased and paid for the
securities to be sold, the sale being through a "broker's
transaction" or in transactions directly with a "market maker,"
and the number of shares being sold during any three-month period
not exceeding specified limitations.
(e) The Investor understands that no public market now exists for any
of the securities issued by the Company and there has been and
can be no assurance that a public offering will be successfully
completed by the Company or that a public market will ever exist
for the Securities.
(f) The Investor has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
senior management and an opportunity to review the Company's
facilities. The Investor understands that such discussions, as
well as the written information issued by the Company, were
intended to describe the aspects of the Company's business and
prospects which it believes to be material but were not
necessarily a thorough or exhaustive description.
3.2. Legends. Each certificate representing the Securities shall be
-------
endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENT OF SAID ACT. COPIES OF THE AGREEMENT COVERING THE
ACQUISITION OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
TIES CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
3
<PAGE>
The Company need not record a transfer of Securities, unless the
conditions specified in the foregoing legends are satisfied. The
Company may also instruct its transfer agent not to record the
transfer of any of the Securities unless the conditions specified in
the foregoing legends are satisfied.
4. Conversion of the Notes. Each Note shall be convertible according to the
-----------------------
following terms:
4.1. Conversion. The principal and accrued interest of each Note shall,
----------
contemporaneously with the closing of a Liquidating Event and solely
at the option of Investor, either (i) be converted into the number of
shares of Common Stock determined by dividing the sum of such
principal and interest by the Conversion Price in effect at the time
of such conversion or (ii) be due and payable immediately upon the
closing of a Liquidating Event. In the event the closing of a
Liquidating Event does not occur before March 3, 2000, the principal
and accrued interest of each Note shall be due and payable on March 3,
2000.
4.2. Conversion Price. The initial Conversion Price shall be $55.70. The
----------------
Conversion Price is subject to proportionate adjustment for any stock
split, stock dividend, merger, reclassification or similar structural
change in the Company effected from the date of this loan agreement
through the date of conversion as set forth above.
4.3. Fractional Shares. Upon the conversion of each Note into shares of
-----------------
Common Stock, in lieu of any fractional shares to which the holder of
the Note would otherwise be entitled, the Company shall pay cash equal
to such fraction multiplied by $55.70.
4.4. Liquidating Event. A Liquidating Event shall mean a (i) firm
-----------------
commitment underwritten public offering of the Company's securities
under the Securities Act of 1933, as amended, (ii) transaction or
series of transactions in which the Company consolidates or merges
with any other business entity, after which the holders of the
company's outstanding equity securities immediately before such
consolidation or merger do not, immediately after such consolidation
or merger, retain stocks or other equity interests representing a
majority of the voting power of the surviving business entity or (iii)
sale of all or substantially all of the assets or capital stock of the
Company.
5. Defaults and Remedies.
---------------------
5.1. Events of Default. The following events shall be considered Events of
-----------------
Default with respect to each Note:
(a) The Company shall default in the payment or conversion of any
part of the principal or accrued interest on any Note for more
than thirty (30) days
4
<PAGE>
after the same shall become due and payable, whether at maturity
or at a date fixed for prepayment or by acceleration or
otherwise;
(b) The Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its
debts as they become due, or shall file a voluntary petition for
bankruptcy, or shall file any petition or answer seeking for
itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer
admitting the material allegations of a petition filed against
the Company in any such proceeding, or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or
liquidator of the Company, or of all or any substantial part of
the properties of the Company, or the Company or its respective
directors or majority shareholders shall take any action looking
to the dissolution or liquidation of the Company; or
(c) Within thirty (30) days after the commencement of any proceeding
against the Company seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation,
such proceeding shall not have been dismissed or, within thirty
(30) days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or
liquidator of the Company or of all or any substantial part of
the properties of the Company, such appointment shall not have
been vacated.
5.2. Remedies. Upon the occurrence of an Event of Default under Section 5.1
--------
hereof, at the option and upon the declaration of the holder of the
Note, (i) the entire unpaid principal and accrued interest on the Note
held by such holder shall, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived, be
forthwith due and payable, and the holder may, immediately and without
expiration of any period of grace, enforce payment of all amounts due
and owing under such Note and exercise any and all other remedies
granted to it at law, in equity, or otherwise.
6. Miscellaneous.
-------------
6.1. Waivers and Amendments. With the written consent of the record
----------------------
holder of the Securities and the Company, the obligations of the
Company and the lights of the holders of the Securities under this
Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified
period of time or indefinitely). Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or terminated
orally, but only by a signed statement in writing.
6.2. Further Assurances; Subordination. Upon request of the Company,
---------------------------------
Investor will acknowledge in writing its subordination undertakings as
set forth in the Note.
5
<PAGE>
6.3. Governing Law. This Agreement shall be governed in all respects by the
---------
laws of the State of Texas.
6.4. Survival. The representations and warranties made herein shall survive for
--------
a period of one year following the Closing Date.
6.5. Successors and Assigns. Except as otherwise expressly provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto.
6.6. Entire Agreement. This Agreement and the other documents delivered
----------------
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
6.7. Severability of this Agreement. In case any provision of this Agreement
------------------------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
6.8. Titles and Subtitles. The titles of the Sections and Subsections of this
--------------------
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.9. Delays or Omissions. It is agreed that no delay or omission to exercise
-------------------
any right, power or remedy accruing to the Investor, upon any breach or
default of the Company under this Agreement or the Notes, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of
any such breach or default, or any acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of
any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character by the
Investor of any breach or default under this Agreement, or any waiver by
the Investor of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth
in writing and that all remedies, either under this Agreement, or by law
or otherwise afforded to the Investor, shall be cumulative and not
alternative.
6.10. Notices. Any notices, claims or demand or other communications hereunder
-------
shall be in writing and shall be deemed to be duly given if personally
given or if sent by telecopier, nationally-recognized overnight courier or
by registered or certified mail, return receipt required and postage
prepaid, addressed to such party in accordance herewith or as otherwise
stated in any notice given in accordance herewith. Any such notice shall
be deemed to have been received (a) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (b) in the case of a
nationally-recognized overnight courier, on the next business day after
the date sent and (c) in the case of mailing, on the third business day
following that on which the piece of mail containing such communications
is posted.
6
<PAGE>
To the Company:
Empower Health Corporation
8920 Business Park Drive
Austin, Texas 78759
Copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Attention: Anthony J. Richmond, Esq.
To the Investor:
At the address set forth on the signature page to this
Agreement
6.11. Counterparts. This Agreement may be executed by facsimile and in any
------------
number of counterparts, each of which shall be deemed an original, and
all of which together shall constitute one instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be duly
executed and delivered as of the day and year first written above.
EMPOWER HEALTH CORPORATION
By: /s/ D. Hackett
------------------------------------------
Donald W. Hackett, Chief Executive Officer
INVESTOR:
---------
______________________________________________
Name: Adventist Health System
Address: 111 North Orlando Avenue
------------------------------------
Winter Park, FL 32789
------------------------------------
/s/ Mardian J. Blair
----------------------------------------------
Mardian J. Blair, Chief Executive Officer
Principal Amount: $2,000,000
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENT OF SAID ACT. COPIES OF THE AGREEMENT
COVERING THE ACQUISITION OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF TIES
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE CORPORATION.
Date: March 26, 1999 $ 2,000,000
EMPOWER HEALTH CORPORATION
CONVERTIBLE PROMISSORY NOTE
Empower Health Corporation, a Texas corporation (the "Company"), for value
-------
received, promises to pay to Adventist Sunbelt Health System (the "Investor"),
--------
the principal sum of $2,000,000, in lawful money of the United States of America
and in immediately available funds, plus simple interest of 7% per annum on the
principal amount hereof. Interest shall be computed on the basis of a year of
365 days for the actual number of days elapsed. The principal and accrued but
unpaid interest due hereunder shall, contemporaneously with the closing of a
Liquidating Event and solely at the option of Investor, either be converted into
shares of Common Stock or be due and payable immediately upon the closing of a
Liquidating Event in accordance with Section 4 of the Loan Agreement. In the
event the closing of a Liquidating Event does not occur before March 5, 2000,
the principal and accrued interest of this Note shall be due and payable on
March 5, 2000.
1. Definitions. Unless the context indicates otherwise, capitalized terms used
-----------
herein shall have the meanings given them in the Loan Agreement, provided
that the following terms used herein shall have the following meanings:
1.1. "Investor" means the investor whose name appears on the signature page
--------
attached to the Loan Agreement.
1.2. "Loan Agreement" means the Loan Agreement dated as of March 3, 1999
--------------
between the Investor and the Company.
1.3. "Noteholder," "holder," or similar terms, when the context refers to a
---------- ------
holder of a Note, means any person who shall at the time be the holder
of this Note.
2. No Prepayment. The principal amount of this Note may not be paid by the
-------------
Company prior to maturity without the written consent of the holder of this
Note.
A-1
<PAGE>
3. Subordination. The indebtedness represented by this Note is hereby
-------------
expressly subordinated in right of payment to the prior payment in full of
all of the Company's indebtedness for money borrowed to banks, insurance
companies, lease financing institutions or other lending institutions
regularly engaged in the business of lending money.
4. Attorneys' Fees and Costs. If any amount is not paid as and when due
-------------------------
hereunder or if the Note is not converted in accordance with the Loan
Agreement promptly after the closing of the EPO, as applicable, the Company
promises to pay all costs of collection and enforcement and reasonable
attorneys' fees which the Investor may incur.
5. Loan Agreement. This Note is subject to the provisions of the Loan
--------------
Agreement and is entitled to all the benefits provided therein. Reference
is made to the Loan Agreement for the Events of Default and the fights of
acceleration of the maturity upon an Event of Default.
6. Governing Law. This Agreement shall be governed in all respects by the laws
-------------
of the State of Texas.
EMPOWER HEALTH CORPORATION
/s/ Susan M. Georgen-Saad
--------------------------------
Susan M. Georgen-Saad
Chief Finance Officer
A-2
<PAGE>
EXHIBIT 10.42
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY
OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
STRATEGIC PARTNER WARRANTS
WARRANT TO PURCHASE
250,000 SHARES OF COMMON STOCK
OF
DRKOOP.COM, INC.
A DELAWARE CORPORATION
ISSUED
APRIL 9, 1999
THIS CERTIFIES THAT, for value received, Infoseek Corporation (the
"WARRANTHOLDER") is entitled to purchase, on the terms hereof, two hundred fifty
thousand (250,000) shares of common stock (subject to adjustment), par value
$.001 per share (the "COMMON STOCK"), of drkoop.com, Inc., a Delaware
corporation (the "COMPANY"), at a purchase price and upon the terms and
conditions as set forth herein.
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised and the
shares of Common Stock covered hereby (the "WARRANT STOCK") may be purchased,
are as follows:
1.1. Exercise. This warrant may be exercised in whole or in part as
--------
follows:
(a) this Warrant may be exercised with respect to 150,000 shares
of Common Stock at any time on or after April 9, 2000; and
(b) this Warrant may be exercised with respect to the remaining
100,000 shares of Common Stock at any time on or after April 10, 2001 if
(but only if) neither party has exercised its right to terminate the
Distribution Agreement between the Company and the Warrantholder dated even
herewith (the "DISTRIBUTION AGREEMENT") pursuant to Section 6.1 thereof on
the second anniversary of the Effective Date of such agreement, and the
Distribution Agreement remains effective and in full force and effect as of
such second anniversary.
<PAGE>
Notwithstanding the foregoing, this Warrant may not be exercised under any
circumstances after the first to occur of (1) the termination of the
Distribution Agreement for failure to complete the "Financing" under paragraph
A(1) of Appendix F to the Distribution Agreement, or (2) after 5:00 p.m., San
Francisco, California time on April 9, 2003 (the "TERMINATION DATE"), after
which time this Warrant shall terminate and shall be void and of no further
force of effect.
1.2. Exercise Price. The purchase price for the shares of Common Stock to
--------------
be issued upon exercise of this Warrant shall be $21.50 per share, subject to
adjustment as set forth herein (the "EXERCISE PRICE").
1.3. Method of Exercise. The exercise of the purchase rights evidenced by
------------------
this Warrant shall be effected by (a) the surrender of this Warrant, together
with a duly executed copy of the form of Election to Purchase attached hereto,
to the Company at its principal office and (b) the delivery of the Exercise
Price multiplied by the number of shares for which the purchase rights hereunder
are being exercised, payable (x) by certified check, corporate check of Infoseek
Corporation, or wire transfer of immediately available funds payable to the
Company's order or (y) on a net basis, such that, without the exchange of any
funds, the Warrantholder receives that number of shares otherwise issuable (or
other consideration payable) upon exercise of this Warrant less that number of
shares of Warrant Stock having an aggregate fair market value (as defined below)
at the time of exercise (i.e., the date a duly executed Election to Purchase is
delivered to the Company) equal to the aggregate Exercise Price that would
otherwise have been paid by the Warrantholder for the shares of the Warrant
Stock issuable. In connection with such exercise the holder shall, if requested
by the Company, include confirmation of the accuracy of the representations set
forth in Section 12 and otherwise as reasonably requested by the Company to
evidence compliance with any applicable securities laws as of the date of
exercise. For purposes of the foregoing, "FAIR MARKET VALUE" of the Warrant
Stock on any date shall be the average of the Quoted Prices of the Common Stock
of the Company for 20 consecutive trading days ending the trading day prior to
such date (if, during such 30-day period, there is a day in which no trades are
reported, such date shall be discarded and the 20-day period extended). The
"QUOTED PRICE" of the Common Stock as reported by Nasdaq or, if the principal
trading market for the Common Stock is then a securities exchange, the last
reported sales price of the Common Stock on such exchange which shall be
consolidated trading if applicable to such exchange, or if neither so reported
or listed, the last reported bid price of the Common Stock. In the absence of
quotation or listing, such determination as to "Quoted Price" shall be made in
good faith by the Board of Directors of the Company.
1.4. Issuance of Shares. In the event that the purchase rights evidenced
------------------
by this Warrant are exercised in whole or in part in accordance with the terms
of this Warrant, a certificate or certificates for the purchased shares shall be
issued to the Warrantholder as soon as practicable. The Warrant Stock shall be
stamped or imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. NO SALE OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT THE
PRIOR WRITTEN CONSENT OF THE
-2-
<PAGE>
COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT."
In the event the purchase rights evidenced by this Warrant are exercised in
part, the Company will also issue to the Warrantholder a new warrant
representing the unexercised purchase rights.
1.5 Exercise of Warrants on Termination Date. If as of the Termination
----------------------------------------
Date the Warrants are in the money based on the cash or other property to be
received, such exercise shall take place automatically with respect to all then
outstanding and exercisable (but not exercised) Warrants (the "TERMINATION DATE
EXERCISE"), on a net exercise basis, immediately prior to the Termination Date;
provided, however, that the Company may condition such exercise on the delivery
by the Warrantholder of a duly completed Election to Purchase and the reasonable
satisfaction of the Company that all applicable securities laws have been
complied with, which the Company shall give notice to the Warrantholder of
within ten (10) days prior to the Termination Date. No such Termination Date
Exercise shall take place if such issuance would not comply with applicable
securities laws, whereupon the Termination Date shall occur as scheduled.
2. CERTAIN ADJUSTMENTS.
-------------------
2.1. Stock Dividends. If at any time while this Warrant remains
---------------
outstanding and unexpired, the Company pays a dividend or makes a distribution
with respect to the Common Stock payable in shares of Common Stock, then the
Exercise Price shall be adjusted, as of the record date of stockholders
established for such purpose (or if no such record is taken, as at the date of
such payment or distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or distribution by a
fraction (A) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(B) the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. The Warrantholder
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the nearest
whole share) obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. The
provisions of this Section 2.1 shall not apply under any of the circumstances
for which an adjustment is provided under Sections 2.2, 2.3 or 2.4.
2.2. Mergers, Consolidations or Sale of Assets. If at any time while this
-----------------------------------------
Warrant remains outstanding and unexpired, there shall be a capital
reorganization of the shares of the Company's capital stock (other than a
combination, reclassification, exchange or subdivision otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation (collectively,
a "CORPORATE
-3-
<PAGE>
TRANSACTION"), then lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive, upon exercise of this Warrant, during
the period specified in this Warrant and upon payment of the Exercise Price then
in effect, the number of shares of stock or other securities or property of the
successor corporation resulting from such Corporate Transaction to which a
holder of the securities deliverable upon exercise of this Warrant would have
been entitled under the provisions of the agreement in such Corporate
Transaction if this Warrant had been exercised immediately prior to such
Corporate Transaction. Appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Warrantholder after the Corporate Transaction to the end that the provisions of
this Warrant (including adjustment of the purchase price then in effect and the
number of shares of securities issuable under this Warrant) shall be applicable
after the Corporate Transaction, as near as reasonably may be, in relation to
any shares or other property deliverable after the Corporate Transaction upon
exercise of this Warrant.
2.3. Reclassification. If the Company at any time shall, by subdivision,
----------------
combination or reclassification or securities or otherwise, change any of the
securities issuable under this Warrant into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as a result of such change with respect to the securities issuable
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
2.4. Subdivision or Combination of Shares. If at any time while this
------------------------------------
Warrant remains outstanding and unexpired, the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock, then the Exercise Price shall be proportionately increased in the case of
a combination of such shares, or shall be proportionately decreased in the case
of a subdivision of such shares, and the number of shares of Common Stock
issuable upon exercise of the Warrant shall thereafter be adjusted to equal the
product obtained by multiplying the number of shares of Common Stock purchasable
under this Warrant immediately prior to such Exercise Price adjustment by a
fraction (A) the numerator of which shall be the Exercise Price immediately
prior to such adjustment, and (B) the denominator of which shall be the Exercise
Price immediately after such adjustment.
2.5. Liquidating Dividends, Etc. If the Company at any time while the
---------------------------
Warrant remains outstanding and unexpired makes a distribution of its assets to
the holders of its Common Stock as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
Sections 2.1 through 2.4), the holder of this Warrant shall be entitled to
receive upon the exercise hereof, in addition to the shares of Common Stock
receivable upon such exercise, and without payment of any consideration other
than the Exercise Price, an amount in cash equal to the value of such
distribution per share of Common Stock multiplied by the number of shares of
Common Stock which, on the record date for such distribution, are issuable upon
exercise of this Warrant (with
-4-
<PAGE>
no further adjustment being made following any event which causes a subsequent
adjustment in the number of shares of Common Stock issuable upon the exercise
hereof), and an appropriate provision therefor should be made a part of any such
distribution. The value of a distribution which is paid in other than cash shall
be determined in good faith by the Board of Directors.
2.6. Notice of Adjustments. Whenever any of the Exercise Price or the
---------------------
number of securities purchasable under the terms of this Warrant at that
Exercise Price shall be adjusted pursuant to Section 2 hereof, the Company shall
promptly notify the Warrantholder in writing of such adjustment, setting forth
in reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares of Common Stock or other securities purchasable at
that Exercise Price after giving effect to such adjustment. Such notice shall
be mailed (by first class and postage prepaid) to the registered Warrantholder.
In the event of:
(a) The taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right for which no
adjustment is required by the operation of this Section 2,
(b) Any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all of the assets of the Company to any other person or any
consolidation or merger involving the Company for which no adjustment is
required by the operation of this Section 2, or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company, the Company will mail to the Warrantholder, at its
last address at least ten (10) days prior to the earliest date specified therein
as described below, a notice specifying:
(i) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and
(ii) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining
shareholders entitled to vote thereon.
Failure to give any notice required under this Section 2.6, or any defect
in such notice, shall not affect the legality or validity of the underlying
corporate action taken or transaction entered into by the Company.
-5-
<PAGE>
3. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined under Section 1.3.
4. RESERVATION OF COMMON STOCK.
---------------------------
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, a sufficient number of shares of Common
Stock to effect the exercise of the entire Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the entire Warrant, in addition to such other remedies as
shall be available to the holder of this Warrant, the Company will use its
reasonable efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
5. PRIVILEGE OF STOCK OWNERSHIP.
----------------------------
Prior to the exercise of this Warrant and the issuance to the Warrant
Holder of certificates representing the resulting shares of Common Stock, and
except as otherwise provided herein, the Warrantholder shall not be entitled, by
virtue of holding this Warrant, to any rights of a Stockholder of the Company,
including (without limitation) the right to vote, receive dividends or other
distributions or be notified of Stockholder meetings, and such holder shall not
be entitled to any notice or other communication concerning the business or
affairs of the Company, except as required by law.
6. LIMITATION OF LIABILITY.
-----------------------
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the securities issuable under this Warrant, and no mere
enumeration herein of the rights of privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price or as a Stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFERS AND EXCHANGES.
-----------------------
This Warrant may be transferred or assigned in whole or in part provided
such transfer complies with applicable federal and state securities laws and the
requirements of any legend on this Warrant.
8. PAYMENT OF TAXES.
----------------
-6-
<PAGE>
The Company shall pay all stamp or similar issue or transfer taxes payable
in respect of the issue or delivery of the securities issuable under this
Warrant. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of the securities issuable under this Warrant in any name
other than that of the Warrantholder, and in such case, the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the Company's satisfaction
that no such tax or other charge is due.
9. NO IMPAIRMENT OF RIGHTS.
-----------------------
The Company hereby agrees that it will not, through the amendment of its
Certificate of Incorporation or otherwise, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Warrantholder against impairment.
10. SUCCESSORS AND ASSIGNS.
----------------------
The terms and provisions of this Warrant shall be binding upon the Company
and the Warrantholder and their respective successors and assigns.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
-------------------------------------------------
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, upon receipt of an indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
12. SECURITIES LAW MATTERS.
----------------------
Warrantholder represents to the Company as follows:
(a) the Warrants and Common Stock to be acquired by Warrantholder
pursuant hereto will be acquired for its own account and not with a view to, or
intention of, distribution thereof in violation of the Securities Act of 1933
(the "SECURITIES ACT") or any applicable state securities laws, and such
securities will not be disposed of in contravention of the Securities Act of any
applicable state securities laws;
(b) the Warrantholder understands that (a) the Warrants and Common
Stock issuable on exercise have not been registered under the Securities Act,
nor qualified under the securities laws of any other jurisdiction, (b) such
securities cannot be resold unless they subsequently are registered under the
Securities Act and qualified under applicable state securities laws, unless the
Company determines that exemptions from such registration and
-7-
<PAGE>
qualification requirements are available, and (c) the Warrantholder has no right
to require such registration or qualification;
(c) Warrantholder is familiar with the term "accredited investor" as
defined in Rule 501 under the Securities Act and investor is an "accredited
investor" within the meaning of such term in Rule 501 under the Securities Act;
(d) Warrantholder is sophisticated in financial matters and the market
for Internet companies and is able to evaluate the risks and benefits of the
investment in the Warrants and Common Stock issuable on exercise;
(e) Warrantholder is able to bear the economic risk of its investment
in the Warrants and the Common Stock issuable on exercise for an indefinite
period of time; and
(f) Warrantholder has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of securities and
has had full access to such other information concerning the Company as investor
has requested.
13. SATURDAYS, SUNDAYS, HOLIDAYS.
----------------------------
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or Sunday or shall
be a legal holiday, then such action may be taken or such right may be exercised
on the next succeeding day not a legal holiday.
14. GOVERNING LAW.
--------------
This Warrant shall be construed, interpreted, and the rights of the Company
and the Warrantholder determined in accordance with the internal laws of the
State of Delaware, without regard to the conflict of laws provision thereof.
15. BENEFITS OF THIS WARRANT.
-------------------------
Nothing in this Warrant shall be construed to give any person other than
the Company and the registered Warrantholder any legal or equitable right,
remedy or claim.
16. COUNTERPARTS.
-------------
This Warrant may be exercised in counterpart with each constitution; an
original and together constituting but one and the same Warrant.
(signature page follows)
-8-
<PAGE>
IT WITNESS WHEREOF, drkoop.com, Inc. has caused this Warrant to be duly
executed and delivered to the Warrantholder identified below on the date first
set forth above.
drkoop.com, Inc.
By: /s/ Donald W. Hackett
-------------------------
Donald W. Hackett
Chief Executive Officer
Dated: April 9, 1999
Acknowledged and Accepted:
- --------------------------
Infoseek Corporation
By:/s/ Harry Motro
_____________________________
Name: Harry Motro
Title: CEO
Address for Notice:
1399 Moffett Park Drive
Sunnyvale, CA 94089
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<PAGE>
ELECTION TO PURCHASE
--------------------
drkoop.com, Inc.
________________
________________
Ladies and Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions of
the Warrant dated April 9, 1999 held by the undersigned, _________ shares of the
Common Stock of drkoop.com, Inc., a Delaware corporation.
Payment of the per share purchase price required under such Warrant
[accompanies this Election to Purchase.][shall be made pursuant to the net
exercise provision contained in Section 1.3 of the Warrant.
The undersigned hereby confirms the representations made in Section 12 of
the Warrant are true and correct as of the date of this Election to Purchase.
Dated: ___________________, 200_
________________________________
Print Name of Warrantholder
By______________________________
Address: _______________________
________________________________
<PAGE>
EXHIBIT 10.43
AGREEMENT FOR ISSUANCE AND SALE OF STOCK
This Agreement made as of April 28, 1998, by and between Superior Consultant
Holdings Corporation, a Delaware corporation ("the Buyer) and Empower Health
Corporation, a Texas corporation ("Empower").
RECITALS
A. Empower desires to secure additional working capital by issuing the
Shares and selling the same to the Buyer.
B. Buyer desires to purchase the Shares upon issuance by Empower upon the
terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
provisions herein contained, the parties agree as follows:
ARTICLE ONE
DEFINITIONS
-----------
As used herein, the following capitalized terms shall have the following
meanings:
1.1 "1933 ACT" means the Securities Act of 1933, as amended.
1.2 "AGREEMENT" means this Agreement for Issuance and Sale of Stock.
1.3 "AFFILIATE" of a person means a person who controls, is controlled by,
or is under common control with such person. For purposes of this definition,
"control" means the ability to control the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
1.4 "BALANCE SHEET" means the reviewed balance sheet of Empower as at
December 31, 1997, including the notes thereto, if any.
1.5 "BENEFIT PLANS" means all "employee benefit plans," within the meaning
of Section 3(3) of ERISA (other than any plan which is exempt from Title I of
ERISA), for the employees or former employees of Empower or their dependents,
survivors or beneficiaries, (a) which are currently maintained by Empower, (b)
which were previously maintained by Empower within the six (6) year period
preceding the Closing Date or (c) in which Empower is or was, within such six
year period, a participating employer.
1.6 "BUYER" means Superior Consultant Holdings Corporation, a Delaware
corporation.
1.7 "CLOSING" means the consummation of the purchase and sale of the
Shares pursuant to this Agreement.
<PAGE>
1.8 "CLOSING DATE", means April 28, 1998, or such other date as may be
mutually agreed upon by the Buyer and Empower.
1.9 "COMMON STOCK" means the general class of common stock, par value $.01
per share authorized under Empower's Articles of Incorporation.
1.10 "CONSULTING AGREEMENT" means a five year Services Partner Agreement
between Empower and the Buyer, in the form attached hereto as Exhibit 1.10.
1.11 "CONTINGENT PAYMENT" means the payment of One Million Five Hundred
Thousand ($1,500,000.00) Dollars representing a portion of the Purchase Price,
payment of which is contingent upon the satisfaction of the conditions set forth
in Section 2.2(b).
1.12 "EVALUATION MATERIAL" means all documents and records obtained by the
Buyer from Empower or its agents or representatives under Section 6.4 of this
Agreement.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (29 U.S.C. (S) 1001 et seq.)
------
1.14 "FAIR MARKET VALUE PER SHARE" means the value of Empower shares as of
the last day of the calendar month preceding any notice of the need to determine
such value given by either Party ("Notice of the Need to Determine FMV Per
Share"). Empower and the Buyer shall use reasonable efforts to agree on Fair
Market Value Per Share within five days after the Notice of the Need to
Determine FMV Per Share. If such value cannot be agreed by both parties, they
shall use reasonable efforts to jointly select and engage a national investment
banking firm ("Qualified Appraiser") to determine such value. If Empower and the
Buyer fail to appoint a Qualified Appraiser ten days after a Notice of the Need
to Determine FMV Per Share, each party shall appoint a Qualified Appraiser and
together such appraisers shall appoint a third Qualified Appraiser who will
determine the value of Empower shares on the given date. The Qualified Appraiser
shall be instructed to determine the Fair Market Value Per Share based on a
weighted analysis, including a possible zero weighting, of (a) discounted cash
flow of Empower and (b) equity values of comparable companies, assigning weights
to each method of valuation as are reasonable in the circumstances. Empower and
the Buyer shall share equally all costs, including legal costs, associated with
the appraisal process described in this paragraph 1.14.
1.15 "FULLY DILUTED BASIS" means that for purposes of determining the
number of Empower equity or voting securities (as the case may be) outstanding
as of any date, there shall be deemed to be outstanding, in addition to all such
securities which have been issued and remain outstanding on that date, all of
the following which are outstanding on, have been declared as of or otherwise
exist on or as of the Closing Date: (i) options, warrants or other rights to
acquire Empower equity or voting securities; (ii) securities or other
instruments convertible into equity or voting securities of Empower; (iii)
securities issuable with respect to any dividend payable in shares of Empower
equity or voting securities; and (iv) any other shares of equity or voting
securities which Empower has made any commitment to issue, sell or distribute.
<PAGE>
1.16 "GAAP" means generally accepted accounting principles in the United
States consistently applied and consistent with Empower's historical accounting
policies and procedures.
1.17 "INTELLECTUAL PROPERTY" means discoveries, trade secrets, processes,
formulae, know-how, patents, patent rights, patent applications, patent
licenses, copyrights copyright registrations, copyright registration
applications, software licenses, trade secrets, ,trademarks, trade dress,
service marks, trademark registrations, trademark registration applications or
trade names, in each case which are used in Empower's business, and all licenses
and other agreements to which Empower is a party (as licensor or licensee) or by
which Empower is bound relating to any of the foregoing kinds of property or
rights.
1.18 "INITIAL PAYMENT" means Four Million Five Hundred Thousand
($4,500,000) Dollars.
1.19 "KNOWLEDGE" or "to the knowledge" of any person, or words of similar
import, mean the actual knowledge of such person subject to the duty to make due
inquiry of employees and other officers or directors of Empower who would
reasonably be expected to know the matters within the scope of the
representation or warranty in question.
1.20 "MATERIAL ADVERSE EFFECT" means a material adverse effect (a) on the
business, assets or financial condition of Empower or (b) on the ability of
Empower to carry on its business as it is being conducted.
1.21 "OPTION AND PUT AGREEMENT" means the Option and Put Agreement
attached hereto as Exhibit 1.21
1.22 "PERMITS" means all governmental or other licenses, permits
certificates, approvals, authorizations and orders material to the ability of
Empower to carry on its business as it is presently being conducted, other than
those relating to the Benefit Plans.
1.23 "EMPOWER" means Empower Health Corporation, a Texas corporation.
1.24 "PREFERRED STOCK" means Empower's Series B Convertible Preferred
Stock, par value $.01 per share.
1.25 "PREVIOUSLY OWNED PROPERTY" means all real estate relating to or
used in the operation of Empower's business owned or leased by Empower at any
time prior to the Closing Date, including but not limited to any facilities
formerly operated by Empower.
1.26 "PURCHASE PRICE" means the amount to be paid by the Buyer to
Empower as consideration for the sale and issuance of the Shares, consisting of
the following:
(a) the Initial Payment; plus
(b) the Contingent Payment, to the extent the conditions set forth in
Sections 2.2(b) are satisfied.
<PAGE>
1.27 "REAL PROPERTY" means all real estate relating to or used in the
operation of Empower's business owned or leased by Empower on the Closing Date.
1.28 "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement attached hereto as Exhibit 1.28.
1.29 "REPRESENTATIONS AND WARRANTIES" means the representations and
warranties of Empower or the Buyer, as applicable, contained in this Agreement,
including but not limited to the information contained in any certificate or
schedule delivered pursuant to this Agreement.
1.30 "SHARES" means 513,413 shares of Empower's duly authorized Preferred
Stock.
1.31 "TASK ORDER" means a task order given by Empower to the Buyer
pursuant to the Consulting Agreement, in form and substance satisfactory to the
Buyer, irrevocably committing Empower to utilize the services of the Buyer
yielding service revenues to Buyer of $750,000
ARTICLE TWO
PURCHASE AND SALE OF SHARES
---------------------------
2.1 PURCHASE OF SHARES. Subject to the terms and conditions herein
contained, including the conditions set forth in Section 7.2 hereof, Empower
agrees to issue and sell to the Buyer, and the Buyer agrees to purchase from
Empower, on the Closing Date, the Shares, free and clear of any lien,
encumbrance, equity or adverse claim.
2.2 PURCHASE PRICE. As consideration for the issuance and sale of the
Shares, the Buyer shall pay the Purchase Price to Empower as follows:
(a) At the Closing, the Buyer shall pay in immediately available funds
the Initial Payment.
(b) At such time following the Closing Date as Empower shall sign and
deliver a Task Order, the Buyer shall become obligated to deliver the Contingent
Payment to Empower. The parties specifically acknowledge and agree that if no
Task Order is executed and delivered by Empower within the six-month period
following the Closing Date, no Contingent Payment shall be owed to Empower and
the Initial Payment shall constitute the full and final Purchase Price. In no
event will the Buyer be obligated to deliver Contingent Payments in an mount of
more than $1,500,000 in the aggregate to Empower under this Agreement.
2.3. RIGHTS OF THE BUYER. In connection with the purchase of the Shares,
the Buyer shall have the following rights:
(a) The Shares, when they are finally delivered in whole, shall be
convertible into a number of shares of Common Stock representing nineteen (19%)
percent of the aggregate equity interest in Empower outstanding on a Fully
Diluted Basis as of the Closing Date.
(b) The Buyer shall have and is hereby granted an option to purchase,
exercisable if and only if Empower does not utilize the services of the Buyer to
the extent necessary to cause
<PAGE>
aggregate billings by the Buyer to Empower or its customers or affiliates of not
less than Three Million ($3,000,000) Dollars within the twelve (12) month period
commencing on the Closing Date, as contemplated by the Consulting Agreement, to
acquire 13,511 additional Shares for each $50,000 or portion thereof by which
actual aggregate billings for that period are less than $3,000,000. The exercise
price per share upon exercise of the option shall be equal to the par value per
share of the Preferred Stock. The option granted herein may be exercised at any
time following the first anniversary of the Closing Date and ending one year
thereafter. The option granted herein maybe exercised and the sale and purchase
of shares shall be completed, in the same manner as specified in the Option and
Put Agreement with respect to the Purchase Option (as therein defined).
(c) On the Closing Date and thereafter the following shall apply:
(i) The Buyer shall be entitled to elect or have elected, to
Empower's Board of Directors, one nominee designated by the Buyer for each
four directors sitting on the Board who are not nominees of the Buyer. On the
Closing Date and thereafter, the Buyer further shall be entitled and to
appoint or have appointed, to Empower's Advisory Council, one nominee
designated by the Buyer.
(ii) If, pursuant to the exercise of the Purchase Option (as defined
in the Option and Put Agreement), the Buyer acquires additional Empower
securities constituting at least an additional 10% of the outstanding equity
interest in Empower, the Buyer shall be entitled to elect or have elected one
nominee to Empower's Board of Directors in addition to the number which the
Buyer is otherwise entitled to have elected pursuant to Section 2.3(c)(i).
(iii) If the put option set forth in the Option and Put Agreement is
exercised by the Buyer to require Empower to purchase the Shares and Empower
fails (whether due to statutory restrictions or otherwise) to complete the
purchase of the Shares in accordance with the terms thereof within thirty days
after delivery of notice of exercise, the Buyer shall be entitled to have
elected to Empower's Board of Directors nominees representing a majority of
the Directors.
(iv) The parties acknowledge that the Buyer's initial nominee for
Empower's Board of Directors is Richard D. Helppie, Jr. Any other nominee of
the Buyer pursuant to the foregoing provisions shall be subject to the
approval of Empower's Board, which shall not be unreasonably withheld.
(v) Empower shall take all steps necessary to ensure that the
number of directors which it is authorized to have is sufficient to
accommodate the Buyer's nominees as set forth in this Section 2.3(c). Empower
further shall cause the foregoing provisions to be included in an agreement,
effective no later than the Closing Date, among holders of Empower voting
securities having not less than the minimum number of votes necessary to cause
the foregoing conditions to be satisfied and the foregoing actions to be
taken.
(d) Prior to completing an Initial Public Offering (as defined in the
Registration Rights Agreement), Empower shall be prohibited from taking any of
the following actions without the consent of the Buyer, which shall not be
unreasonably withheld.
<PAGE>
(i) Entering into an agreement for, or consummating, any merger or
consolidation except for those in which (A) Empower is the surviving entity
and (B) each share of Empower's stock outstanding immediately prior to the
transaction continues to represent an outstanding share of Empower's stock
after the transaction, other than a transaction at fair market value as
supported by a fairness opinion of an independent investment banking firm
reasonably acceptable to the Buyer.
(ii) Entering into an agreement for, or consummating, the sale of
all or substantially all of its assets outside of the ordinary course of
business, other than a transaction at fair market value as supported by a
fairness opinion of an independent investment banking firm reasonably
acceptable to the Buyer.
(iii) Authorizing the creation of any class of securities, or issuing
any securities of an existing class, which has rights preferential to those of
the Shares with respect to the payment of dividends or receipt of other
distributions, whether upon liquidation or otherwise.
(iv) Entering into any new line of business requiting any material
capital or other expenditure or commitment.
(v) Issuing a material mount of additional equity securities
(except (A) in connection with an Initial Public Offering or 03) for a price
which :is not less than Fair Market Value Per Share nor less than the
equivalent per share mount paid by the Buyer in the acquisition of the Shares
hereunder) or incurring material additional indebtedness for borrowed money or
material contingent liability or as a guarantor or surety.
(e) The Buyer as holder of the Shares shall be entitled to receive
monthly financial statements of Empower, not later than the twentieth day of
each month with respect to the immediately preceding month. To the extent that
Empower shall regularly prepare financial statements or reports of operations
more frequently than monthly, the Buyer shall be entitled to receive copies
thereof.
ARTICLE THREE
THE CLOSING
-----------
3.1 TIME AND PLACE OF CLOSING. Unless this Agreement is earlier terminated
as hereinafter provided, the Closing shall be held at the offices of the Buyer
at 10:00 a.m. on the Closing Date or at such other place and at such other time
as may be mutually agreed upon by the Buyer and Empower.
3.2 ACTION TO BE TAKEN. The following action shall be taken at the
Closing:
(a) Empower shall deliver to the Buyer a certificate duly authorized and
executed in the Buyer's name, representing the Shares.
<PAGE>
(b) Empower shall cause to be delivered to the Buyer such certificates of
Empower's officers and such other documents, evidencing satisfaction of the
conditions specified in this Agreement as the Buyer shall reasonably request
(c) The Initial Payment shall be paid to Empower by the Buyer in
immediately available funds.
(d) The parties shall execute and deliver the Option and Put Agreement
and the Registration Rights Agreement.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
Empower represents and warrants to the Buyer that the representations and
warranties set forth herein are true and correct as of the date of this
Agreement and will be true and correct on the Closing Date as if made on that
date. Empower further represents and warrants that neither this Article 4 nor
any other section of this Agreement which contains any representation or
warranty of Empower, nor any information required to be furnished to the Buyer
pursuant to this Agreement by Empower, in a certificate or otherwise, contains
or will contain as of the Closing Date any untrue statement of a material fact
or fails or will fail to state any material fact necessary to make the
statements contained therein not misleading.
4.1 TITLE TO SHARES. Empower has full right, power and authority to issue,
sell, transfer and deliver the Shares to the Buyer and upon the payment of the
Purchase Price and delivery of the Shares at Closing, (a) Empower will have
transferred to the Buyer valid and full legal rifle to the Shares, free and
clear of any liens, encumbrances, equities and adverse claims of any kind or
nature and (b) the Shares will be validly issued and nonassessable.
4.2 NECESSARY AUTHORIZATION OR APPROVALS.
(a) Empower has full power, authority and legal capacity to execute and
deliver this Agreement and the other agreements and instruments to be executed
and delivered by such Seller pursuant hereto and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Empower and constitutes the legal, valid and binding obligation of each of them
enforceable in accordance with its terms.
(b) All acts and other proceedings required to be taken by or on the part
of Empower to authorize any Seller to carry out this Agreement and the
transactions contemplated hereby have been duly and properly taken.
4.3 ORGANIZATION, POWERS AND CAPITALIZATION OF EMPOWER.
(a) Empower is a corporation duly incorporated and organized, validly
existing and in good standing under the laws of the State of Texas and has the
corporate power to carry on its business, as such business is now being
conducted and to own, lease or operate the properties and assets it now owns,
leases or operates.
<PAGE>
(b) The Company's Articles of Incorporation authorize Empower to issue
an aggregate 5,000,000 shares of common stock, of which 1,008,021 are validly
issued and outstanding, and 5,000,000 shares of preferred stock, of which
81,323.47 of Series A 8% Convertible Preferred Stock are validly issued and
outstanding. All shares of such stock issued and outstanding are fifty paid and
nonassessable. Except as set forth on Schedule 4.3(b), there are no existing
options, warrants, contracts, calls, commitments, demands or other agreements of
any character to which Empower is a party which could require the purchase or
sale of any shares (whether or not currently outstanding) of Empower's stock as
of the Closing Date.
(c) There is included on Schedule 4.3(c) hereto a list of any voting
trust, voting agreement, shareholder agreement or other agreement to which
Empower or any of its shareholders is a party relating to the voting or sale,
transfer or other disposition of any of the issued and outstanding shares of
capital stock of Empower, copies of which have been provided to the Buyer.
4.4 QUALIFICATION OR LICENSING TO CARRY ON BUSINESS
(a) Empower is qualified to transact business as a foreign corporation in
the state of Pennsylvania. Empower has not failed to qualify to do business in
any jurisdiction where such qualification is required and where the failure to
be so qualified would or is reasonably likely to have a Material Adverse effect
(b) Since the date of incorporation of Empower, no claim has been made by
any governmental authority that the nature of the business conducted by Empower,
the character of the property presently owned by Empower or any other state of
facts makes qualification of Empower to do business as a foreign corporation
necessary in any jurisdiction other than those in which Empower is presently
qualified.
4.5 SUBSIDIARIES AND JOINT VENTURES. Empower has no subsidiaries. Empower
has no stock or equity interest in, or any commitment to acquire any such
interest in, any corporation, firm, partnership or organization and is not a
party to any joint venture or similar affiliation.
4.6 FINANCIAL STATEMENTS; NET ASSETS.
(a) Empower has delivered to the Buyer the Balance Sheet and the related
statements of income and retained earnings and changes in financial position of
Empower for 1997o Such financial statements present fairly the financial
position of Empower as of the respective dates thereof and the results of
operations and retained earnings and the changes in its respective financial
positions for the respective periods covered thereby, in accordance with GAAP.
(b) Empower has delivered to the Buyer the unaudited balance sheet of
Empower as at February 28, 1998, and the related statements of income and
retained earnings and changes in financial position of Empower for the two
months then ended. To the knowledge of Empower, such financial statements
present fairly the financial position of Empower as of February 28, 1998 and the
results of operations and retained earnings and the changes in its respective
financial positions for the period covered thereby, in accordance with GAAP,
subject to year-end adjustments which would not have a Material Adverse Effect
and the absence of notes.
<PAGE>
4.7 BOOKS AND RECORDS. The books and records of Empower fairly reflect
the assets, liabilities and operations of Empower and the financial statements
referred to in Section 4.6 in are in conformity in all material respects with
the books and records of Empower.
4.8 LIABILITIES.
(a) Since the date of the Balance Sheet, the only additional liabilities
which have been incurred by Empower are of such a nature as are comparable to
those normally incurred in the ordinary course of business during a comparable
period of operations, and expenses associated with the transactions contemplated
thereby.
(b) Except as reflected on the Balance Sheet, Empower is subject to no
material liability or obligation, whether absolute or contingent, accrued or
prospective, fixed or variable, and whether or not required to be reflected on
the Balance Sheet.
(c) Empower is not a party to or subject to, and no property or asset of
Empower is subject to, any judgment order, decree, stipulation or consent of or
with any court, governmental body or agency which does or will have a Material
Adverse Effect
(d) Except as set forth on Schedule 408, Empower is not a party to or
subject to, and no property or asset of Empower is subject to, any contracts or
commitments requiring performance by Empower of obligations thereunder beyond a
one-year term following the Closing, nor is Empower negotiating or discussing
any such contracts or commitments with any party.
4.9 COMPLIANCE WITH LAW AND PERMITS. To the knowledge of Empower (a) the
business of Empower has been at all times prior to the date hereof, and is
currently being operated, and the products and services of Empower have been and
are currently being produced, provided and sold, in compliance with all
applicable governmental and regulatory laws, rules, regulations and ordinances,
the non-compliance with which is reasonably likely to or would have a Material
Adverse Effect, (b) all Permits, if any, have been obtained and are in full
force and effect, (c) no claim has been made by any governmental or regulatory
authority (and no such claim is anticipated), to the effect that the business
conducted by Empower fails to comply with any law, rule, regulation or ordinance
or that a Permit is necessary with respect thereto (without such Permit having
been obtained promptly after receipt of notice of any such claim).
4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Balance
Sheet, the business of Empower has been conducted in the ordinary course and,
except for a change in its corporate name requiring an amendment to its Articles
of Incorporation and the options issued after the date of the Balance Sheet as
set forth on Schedule 4.3(b), Empower has not entered into any material
transaction which is not in the usual and ordinary course of business, including
but not limited to:
(a) mortgaging, pledging or subjecting to lien, charge or other
encumbrance any of its assets, or entering into any agreement resulting in the
imposition of any such mortgage, lien or charge.
<PAGE>
(b) selling or purchasing, assigning or transferring any of its
intangible property;
(c) suffering any casualty losses, whether intoned or uninsured, and
whether or not in the control of Empower or Empower, in excess of $25,000 in the
aggregate, or waiving any rights of any value unless such loss or waiver is
reflected in the Balance Sheet;
(d) receiving notice of any litigation, warranty claim or products
liability claims relating to the Business.
(e) including any indebtedness for money borrowed or any noncurrent
indebtedness for the purchase price of any fixed or capital asset;
(f) except as required by this Agreement, making any change in its
Articles of Incorporation or By-laws;
(g) except as required by this Agreement, (i) increasing the number of
its shares of capital stock authorized for issuance, (ii) issuing any shares of
its previously authorized but unissued shares of capital stock, (iii) granting
or issuing any option or warrant for the purchase of its capital stock, or made
any commitment relating thereto or (iv) purchasing, redeeming or otherwise
acquiring any outstanding shares of its capital stock;.
(h) Since the date of the Balance Sheet, there has been no material
adverse change in the results of operations, revenues, manner-of conducting
business, condition (financial or otherwise) or prospects of Empower or any
material adverse change in any material asset (including, without limitation,
accounts receivable) of Empower since Such date, and no event has occurred which
has resulted, or which Empower reasonably believes is likely to result, in a
Material Adverse Effect. Empower is not aware of any event, circumstance or
condition which is reasonably likely to be expected to result in any such
Material Adverse Effect. This section shall not be deemed to concern Material
Adverse Effects caused by general economic conditions.
4.11 TAX RETURNS AND LIABILITIES. Empower has (i) filed all tax returns
required to be filed by all federal, state and local jurisdictions to which it
is or has been subject, (ii) paid in full all taxes due and all taxes claimed to
be due by each such jurisdiction,, and any interest and penalties with respect
thereto, subject to audit by the taxing authority of such jurisdiction (iii)
fully accrued on its books all taxes for any period which are not yet due and
(iv) made timely payments of the taxes required to be deducted and Withheld from
the wages paid to its employees. All federal, state and local tax returns,
schedules, declarations and other tax related documents filed by Empower
correctly reflect income, expense, deductions, credits, loss carryovers and
other required items and information of Empower and the taxes due and are
otherwise accurate and complete and have not been mended. Empower has not
received any notice of deficiency or assessment or proposed deficiency or
assessment from any federal, state, local or foreign taxing authority which has
not been paid. There are no agreements, consents or waivers by Empower for the
extension of the time for the assessment of any taxes or deficiencies against
Empower or with respect to its operations or assets, and no power of attorney
granted by Empower with respect to any matter relating to taxes is currently in
force. Empower is not a party to any agreement providing for the allocation or
sharing
<PAGE>
of taxes. The federal, state and local income tax returns of Empower have not
been audited by the Internal Revenue Service or similar state or local authority
during the previous five years.
4.12 TITLE TO AND USE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES,
ETC.
(a) Empower owns all of the properties and assets, real and personal, it
purports to own which form a part of the business of Empower, including, without
limitation, the properties and assets reflected in the Balance Sheet (other than
such properties and assets as shall have been sold or otherwise disposed of in
the ordinary course of business subsequent to the date of the Balance Sheet)
free and clear of any agreement or understanding with respect to the use or
possession thereof or any rights thereto and of all liens, mortgages, pledges,
encumbrances, security interests, conditional sales agreements or charges of any
kind or character except (i) as reflected in the Balance Sheet, (ii)
encumbrances incurred in the ordinary course of business subsequent to the date
of the Balance Sheet, (iii) liens for current taxes and assessments not yet due
and payable and (iv) encumbrances which, are minor in mount and do not
materially impair the value or proposed use of the assets affected thereby.
(b) Empower has the right to use all real and personal properties
presently utilized in the business of Empower which are not owned by Empower and
Empower is not in default with respect to any lease material to such business
and, to the knowledge of Empower, there exists no event, occurrence, condition
or act which, with the giving of notice or the lapse of time, or both, would
become a default under any such lease.
(c) Neither the whole nor any portion of any Real Property nor any
interest therein has been condemned, requisitioned or otherwise taken by any
public authority, and, to the knowledge of Empower, no such condemnation
requisition or taking is threatened or contemplated.
4.13 INTELLECTUAL PROPERTY. Empower is the sole and exclusive owner,
free and clear of all liens, claims and restrictions or a licensee pursuant to a
valid and subsisting license, of all material Intellectual Property and all
designs, permits, labels and packages used on or in connection therewith.
Empower has not received notice of, and has no knowledge of any basis for, a
claim against Empower that any of its operations, activities, products or
publications used in connection with its business infringes on any patent,
trademark, trade name copyright or other property right of a third party, or
that it is illegally or otherwise using the trade secrets, formulae or any
property rights of others. Empower has taken all steps reasonably necessary to
protect its right, title and interest in and to all of its Intellectual
Property. There are no licenses relating to any material Intellectual Property
(a) which will expire within twenty-four months after the Closing Date or (b)
with respect to which Empower has received from the licensor any notice of
intent to cancel or terminate.
4.14 LITIGATION AND CLAIMS.
(a) Empower is not a party to, nor is any property or asset owned by
Empower subject to, any suit, action, or administrative, arbitration or other
proceeding (including, without limitation, proceedings concerning labor disputes
or grievances or union recognition or
<PAGE>
concerning condemnation, eminent domain or the like) or government investigation
or proceeding which is pending or, to the knowledge of Empower, which is
threatened, in any court or before any governmental agency.
(b) Empower is not now, nor at any time has been, a patty to or bound by,
nor is any property or asset owned by Empower subject to, any injunction, order
or decree which is currently in effect restricting the method of the conduct of
the business of Empower, nor to the knowledge of Empower has any governmental
agency investigated Empower or requested from Empower (other than on a routine
basis) information with respect to such methods of business;
(c) to the knowledge of Empower, no claim has been made by any agency of
government that Empower currently violates any federal, state or local law,
ordinance, rule or regulation.
4.15 CONTRACTS AND CONTRACTUAL COMPLIANCE
(a) Empower is not in default (nor has been notified to such effect) with
respect to any obligation to be performed under any material contract, lease,
guaranty, indenture, loan agreement, document or other agreement or arrangement
to which Empower or any of its assets are subject.
(b) Empower is not a party to, or in any way obligated under, and no
property or asset of Empower is subject to, any contract or commitment which, in
the opinion of Empower, is of a kind or character which is reasonably likely to
result in a Material Adverse Effect.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a default
under any contract involving Empower or impose any penalty upon Empower in the
performance of such contract, or accelerate the performance thereof, or result
in the creation of any lien, charge or encumbrance upon any of the properties or
assets of Empower or make any material contract to which Empower is a party
subject to termination or cancellation.
(d) Each party with which Empower has any material contractual
arrangement is, to the knowledge of Empower, in substantial compliance therewith
and is not in default (and to the knowledge of Empower no event has Occurred
which, with the passage of time, the giving of notice, or both, would constitute
a default) thereunder.
4.16 IMPROPER PAYMENTS. To the knowledge of Empower, neither it nor any of
its officers, directors or employees has made any bribes, kickbacks or other
improper payments on behalf of Empower or received any such payments from
vendors, suppliers or other parties contracting or dealing with, or acting as
agents or representatives for parties contacting or dealing with, the business
of Empower or made any payments or promises to pay anything of value to any
foreign official or other person for the purpose of influencing official acts in
order to obtain or retain business within the meaning of the Foreign Corrupt
Practices Act, as amended.
<PAGE>
4.17 ADDITIONAL INFORMATION SUPPLIED. Empower has delivered or made
available to the Buyer the following documents and schedules of information
relating to Empower and the business conducted by Empower, each of which, to the
knowledge of Empower, is true, correct and complete:
(a) ARTICLES AND BY-LAWS. Copies of the Articles of Incorporation, as
amended to date, of Empower, certified, by the Secretary of State of the State
of Texas, and the By-Laws of Empower, certified as true, correct and complete by
an appropriate officer of Empower (provided that if such items have not been
provided as of the date of execution of this Agreement they will be provided
prior to the Closing Date).
(b) RESOLUTIONS. Certified resolutions of the Board of Directors of
Empower authorizing the execution, delivery and performance of this Agreement.
(c) CERTAIN TRANSACTIONS. Schedule 4.17, which is a list of all
transactions since December 31, 1997 or any presently proposed transactions to
which both Empower and any of its directors, officers or shareholders (or any
relative or spouse of any director, officer or shareholder of Empower or any
relative of such spouse or any corporation, partnership, mint or other entity in
which any such director, officer, shareholder, relative or spouse had or has a
beneficial interest) was or is to be a party, other than basic Compensation
arrangements.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
The Buyer represents and warrants to Empower that the representations and
warranties set forth herein are true and correct as of the date of this
Agreement and will be true and correct on the Closing Date as if made on that
date. The Buyer further represents and warrants that neither this Article 5 nor
any other section of this Agreement which contains any representation or
warranty of the Buyer, nor any information required to be furnished to Empower
pursuant to this Agreement by the Buyer, in a certificate or otherwise, contains
or will contain as of the Closing Date any untrue statement of a material fact
or fails or will fail to state any material fact necessary to make the
statements contained therein not misleading.
5.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the full corporate power and authority to carry on its business as now being
conducted.
5.2 NECESSARY AUTHORIZATION AND APPROVAL. The Buyer has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All acts and other proceedings required to be
taken by or on the part of the Buyer to authorize it to carry out this Agreement
and the transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by the Buyer and constitutes the
legal, valid and binding obligation of the Buyer enforceable in accordance with
its terms.
<PAGE>
5.3 THIRD PARTY CONSENTS AND APPROVALS. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby is prohibited by, or requires the Buyer to obtain any
consent, authorization, approval or registration under, any law, rule or
regulation, other than as contemplated hereby, or any judgment order, writ,
injunction or decree, which is binding on the Buyer or the terms of any contract
to which the Buyer is a party.
5.4 INVESTMENT EXPERIENCE/PURCHASE FOR INVESTMENT. The Buyer (i) has such
knowledge, skill and experience in financial, business and investment matters
relating to an investment of this type that it is capable of evaluating the
merits and risks of the purchase of the Shares, (ii) is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D promulgated under the
1933 Act, and (iii) has the ability to bear the risk of losing its entire
investment in the Shares. The Buyer is acquiring the Shares pursuant to this
Agreement for its own account and for investment and not with a view to a public
distribution thereof and acknowledges that the Shares being so acquired have not
been registered under the 1933 Act The Buyer is aware that the Shares may
constitute "restricted" securities, and that, as such, they cannot be resold or
transferred without registration under the 1933 Act and the securities law of
any other applicable jurisdiction, unless an exemption from registration under
each such applicable act is available, that the Buyer cannot compel
registration, that Empower will not make available the type of information
specified in Rule 144 of the 1933 Act, and that resales in reliance on such Rule
may not be available until at least two years after the purchase of the Shares
hereunder. Notwithstanding the foregoing, Empower and the Buyer acknowledge that
the Buyer may transfer the Shares as well as its rights hereunder to a
subsidiary which is directly or indirectly wholly-owned by the Buyer, provided
that such subsidiary delivers to Empower representations and undertakings in
writing which are identical in all material respects to those made by the Buyer
in this Section 5.40 The Buyer acknowledges that the following legend will be
placed on certificates issued or distributed to evidence the Shares:
THESE SECURITIES ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES ACT. THEY MAY NOT BE TRANSFERRED UNLESS AND UNTIL THEY ARE
REGISTERED UNDER ALL SUCH APPLICABLE ACTS OR SUCH TRANSFER SATISFIES
APPLICABLE REGISTRATION EXEMPTIONS THEREUNDER. THE CORPORATION WILL NOT
TRANSFER THESE SECURITIES ON ITS BOOKS AND RECORDS WITHOUT AN OPINION OF
COUNSEL, SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE CORPORATION
THAT SUCH TRANSFER DOES NOT VIOLATE THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS.
ARTICLE SIX
AGREEMENTS OF THE SELLER AND THE BUYER
--------------------------------------
Empower and the Buyer agree that from the date of this Agreement to the
Closing Date, and thereafter to the extent provided below, they shall take the
following actions:
<PAGE>
6.1 CONSENTS; PRESERVATION OF BUSINESS. From the date hereof, Empower
shall use its best efforts to obtain the necessary consents, authorizations or
approvals of any governmental or other third party to the transactions
contemplated hereby. From the date hereof, Empower agrees to use its best
efforts to keep its business intact and to maintain or cause to be maintained
satisfactory relationships with suppliers, customers and others having business
relationships with Empower which are material to the success of its business.
6.2 REASONABLE EFFORTS. Empower and the Buyer agree to use all reasonable
efforts to facilitate the consummation of the transactions contemplated by this
Agreement so as to permit the Closing to take place on the date indicated.
6.3 COURSE OF CONDUCT. From the date hereof, pending the Closing Date,
Empower agrees that the business of, and all transactions by, Empower will be
conducted or entered into only in the usual and ordinary course and that Empower
shall not engage in any of the activities listed in Section 4.10 hereof, except
as may be first approved by the Buyer (which approval shall be promptly
confirmed in writing) or as is otherwise permitted or contemplated by this
Agreement.
6.4 ACCESS TO MANAGEMENT, PROPERTIES AND RECORDS. From the date of this
Agreement until the Closing Date, Empower shall afford the officers, attorneys,
accountants and other authorized representatives of the Buyer to conduct a full
and complete review and investigation, including legal and financial audits of
the business, assets and affairs of Empower and to obtain such information as
may be necessary or desirable to permit the Buyer to investigate Empower's
business and its relationship with its suppliers, clients, distributors,
independent contractors and employees. The Buyer shall have full access upon
reasonable notice coordinated with Empower's Chief Executive Officer or Chief
Financial Officer and during normal business hours to all management personnel,
offices, properties, books and records of Empower so that the Buyer may have
full opportunity to make such investigations and the Buyer shall be permitted to
make abstracts from, or copies of, all such books and records, including,
without limitation, leases and property rights, engagement agreements and
commitments with vendors and customers. Empower shall cause Empower to furnish
to the Buyer such financial and operating data and other information as to
Empower's assets and business as Buyer shall reasonably request.
6.3 CONFIDENTIALITY. No Evaluation Material shall be disclosed by the
Buyer except to those officers, employees, directors, attorneys, accountants or
financial advisers who need to know such information for the purpose of
assisting the Buyer in connection with the transactions hereby contemplated, or
except as may be required (upon advice of counsel) in compliance with applicable
law, including securities laws. The Buyer shall consult with Empower prior to
making any disclosure which may be required by law. The Buyer will use its
reasonable efforts to cause each person (including any Affiliate) to whom such
information is disclosed not to disclose any of such information to others in
violation of the foregoing restrictions. The obligations of this Section shall
not apply to any Evaluation Material which (a) at the time of disclosure or
thereafter is generally available to and known by the public (other than as a
result of a wrongful disclosure directly or indirectly by the Buyer), (b) was
available to or obtained by the Buyer from a source other than Empower, its
officers, employees, agents or attorneys, provided that such source is not and
was not bound by a confidentiality agreement or obligation with Empower, or (c)
has been independently
<PAGE>
developed by the Buyer without violation of any of their obligations hereunder,
or (d) is disclosed pursuant to legal requirement The Buyer agrees to cause the
Evaluation Material to be used only in connection with its analysis and review
of the transaction contemplated hereunder or, after the closing, for purposes
properly relating to its interest as a shareholder of Empower. In the event that
this Agreement is terminated prior to Closing, all Evaluation Material, whether
or not then in the Buyer's possession, and any copies thereof, or notes or
extracts therefrom, shall be returned to Empower, without retaining any copies
thereof, and the Buyer shall destroy, as soon as practicable, all copies of any
analyses, studies, compilations or other documents (including documents stored
in electronic media) prepared by it or any of its officers or employees to the
extent that they contain, reflect or are generated from any Evaluation Material.
The obligations set forth in this Section 6.5 shall ran-rive the Closing.
6.6 PUBLIC ANNOUNCEMENTS. The parties will cooperate in the issuance of
any press releases or otherwise in the making of-any public statements with
respect to the transactions contemplated hereby. The parties agree that prior to
the Closing Date, (except as otherwise required by law as a result of the
Buyer's status as a public company, in which case the Buyer will promptly
provide Empower with prior notice), any and all public announcements or other
public communications concerning this Agreement shall be subject to the approval
of all parties hereto, which approval shall not be reasonably withheld.
6.7 NO SHOPPING. Empower agrees that prior to the Closing or earlier
termination of this Agreement, it shall not, directly or indirectly, through any
director, officer, agent, financial adviser or otherwise, solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a portion of the assets of, or any equity
interest in, Empower or any business combination with Empower. Empower further
agrees that it shall (a) not participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing,
and (b) use its best efforts to cause all materials previously furnished to any
third party to be promptly returned to Empower and shall cease any negotiations
conducted in connection therewith or otherwise conducted with any such parties.
Seller shall promptly notify Buyer if any such proposal or offer, or any inquiry
or contract with any person with respect thereto is made and shall supply the
Buyer with a copy of any document it receives in connection therewith.
6.8 AUDITED FINANCIAL STATEMENTS. The parties acknowledge that Empower is
in the process of having prepared an audited balance sheet as of December 31,
1997 and will thereafter have prepared an audited statement of changes in
shareholders' equity, income statement and statement of cash flows for the year
ended December 31, 1997. Each of such statements, together with the notes
thereto and auditor's report thereon, will be delivered to the Buyer when
completed (whether before or after Closing) and, when delivered, shall be deemed
include Empower's representation and warranty that such statements present
fairly the financial position of Empower as of December 31, 1997 and the results
of operations and retained earnings and changes in financial position for the
year then ended, in accordance with GAAP.
<PAGE>
6.9 FURTHER ASSURANCES. Each party agrees at any time and from time to
time after the Closing, upon the request of the other party, to do, execute,
acknowledge and deliver, or to cause to be dome, executed, acknowledged and
delivered, all such further acts, assignments, transfers, powers of attorney and
assurances as may be reasonably necessary or appropriate to carry out the terms,
conditions and purposes of this Agreement.
ARTICLE SEVEN
CONDITIONS OF CLOSING
---------------------
7.l CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER HEREUNDER. The
obligations of the Buyer under this Agreement to consummate the purchase of the
Shares and the other transactions contemplated hereunder are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
except to the extent that the Buyer may waive any one or more thereof:
(a) Empower's Representations and Warranties shall be true on and as of
the Closing Date with the same effect as if said representations and warranties
had been made on and as of the Closing Date, Empower shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing, since the date of
the Balance Sheet, there shall have been no material adverse change in the
business, operations, results of operations or condition (financial or
otherwise) of Empower, and the Buyer shall have been furnished with a
certificate of Empower, dated the Closing Date, certifying in such detail as the
Buyer may reasonably request, to the extent of the foregoing conditions.
(b) Except as may otherwise have been approved by the Buyer in writing or
as otherwise disclosed to the Buyer, since the date hereof, pending the Closing
Date, the business of Empower shall have been conducted only in the ordinary
course and, without limiting the generality of the foregoing, shall have
complied in all material respects with the course of conduct described in
Section 6.3 hereof, and the Buyer shall have been fire, shed with a certificate
of Empower, dated the Closing Date, certifying in such detail as the Buyer may
request, to the fulfillment of the foregoing conditions. In this regard, Empower
shall deliver schedules supplementary to the schedules delivered pursuant to
Article Four hereof, which supplementary schedules shall be dated the Closing
Date and shall show the changes, if any, to the schedules delivered on or prior
to the date of execution of this Agreement, and indicate the authority for each
such change, if such change would otherwise be in violation of the course of
conduct described in Section 6.3 hereof.
(c) The Buyer shall be satisfied in its sole discretion with the results
of its due diligence investigation of Empower, including but not limited to its
examination of the assets and financial statements and the business of Empower,
clients and client engagements of Empower and Empower's rights and interests in
and to the Intellectual Property.
(d) Empower shall have obtained and delivered to the Buyer all necessary
consents to the transactions contemplated by this Agreement, including but not
limited to consents necessary to the transfer of applicable Permits where
required, which consents shall be in form and substance satisfactory to the
buyer.
<PAGE>
(e) On the Closing Date:
(i) there shall be no injunction, restraining order or order of any
nature issued by any court of competent jurisdiction which directs that this
Agreement or any material transaction contemplated hereby shall not be
consummated as herein provided, compels or would compel the Buyer to dispose of
or discontinue the business or a portion of the business of Empower as a result
of the consummation of any of the transactions contemplated hereby, or imposes a
fine, awards damages or imposes or awards any other monetary or non-monetary
penalty or relief based on the transactions hereby contemplated, and
(ii) there shall be no suit, action or other proceeding by any
person pending before any court or governmental agency, or threatened to be
filed or initiated, which, in the judgment of the Buyer, may result in the
restraint or prohibition of the consummation of any transaction contemplated
hereby or the obtaining of an mount in payment of damages from or other relief
against any of the parties hereto or against any director or officer of the
Buyer or any of its Affiliates, in connection with the consummation of any
transaction contemplated hereby.
(f) Empower shall have taken such steps as shall be necessary or
appropriate to name to its Board of Directors, the Buyer's nominee, Richard D.
Helppie, Jr., and to name to its Advisory Council, the Buyer's nominee which
shall be Joel F. French.
(g) The parties shall have received all third party and governmental
licenses, waivers, consents and approvals necessary to consummate the
transactions contemplated hereby.
(h) If required by the Securities and Exchange Commission, the Internal
Revenue Service, or deemed necessary by independent auditors, Empower shall have
delivered to the Buyer audited financial statements, prepared in accordance with
generally accepting accounting principles consistently applied, as of the end of
its most recent fiscal year, containing detailed financial information specific
to Empower in a form satisfactory to the Buyer. Empower shall also have
delivered its unaudited financial statements as of and for its most recently
ended fiscal quarter to the Buyer, to the extent available.
(i) The Buyer shall be satisfied with the results of its due diligence,
review and investigation of Empower and its business, including, without
limitation, Empower's clients and client engagements, and rights and interest in
and to the Intellectual Property which is necessary for or used in the operation
of Empower's present and prospective business.
(j) There shall be no pending or threatened litigation, which the Buyer
in its sole discretion deems may have a Material Adverse Effect or which would
materially impair the parties' ability to consummate the transactions proposed
in this Agreement.
(k) The Buyer and Empower shall have entered into and delivered the
Consulting Agreement.
<PAGE>
(l) The Buyer shall have received an opinion, reasonably satisfactory in
form and substance to counsel for the Buyer, dated the Closing Date and
addressed to the Buyer, from Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel
for Empower, in the form of Exhibit 7.1 (1) attached hereto.-
(m) Empower shall have amended its articles of incorporation to provide
that the Shares shall have the rights and attributes specified in Section 2.3
hereof.
(n) All proceedings, corporate or otherwise, to be taken by Empower in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to the Buyer and Empower shall have made available to counsel for the
Buyer all records and documents relating to the business and affairs of Empower
which such counsel may reasonably request in connection with its review as
aforesaid.
(o) Empower shall have taken such action, or shall have entered into such
agreements with the Buyer which shall be satisfactory to the Buyer and its legal
counsel to establish a compensation committee of Empower's Board of Directors
consisting of not more than three directors, one of whom will be a director
nominated by the Buyer.
(p) Since the date of the Balance Sheet, no change in the business or the
financial condition of Empower, or any material loss or casualty to its assets,
shall have occurred which in the opinion of the Buyer has or is reasonably
likely to have a Material Adverse Effect.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EMPOWER HEREUNDER. The
obligations of Empower under this Agreement to consummate the sale of the Shares
and the other transactions contemplated hereunder are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
except to the extent that Empower may waive any one or more thereof.
(a) The representations and warranties of the Buyer contained in this
Agreement shall be true on and as of the Closing Date with the same effect as if
said representations and warranties had been made on and as of the Closing Date,
the Buyer shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Closing, and Empower shall have been furnished with certificates of an
officer of the Buyer, dated the Closing Date, certifying in such detail as
Empower may reasonably request, to the fulfillment of the foregoing conditions.
(b) Empower shall have received an opinion, reasonably satisfactory in
form and substance to counsel for Empower, dated the Closing Date and addressed
to them, of Butzel Long, counsel for the Buyer, in the form of Exhibit 7.2(b)
attached hereto.
(c) The Buyer shall have delivered and Empower shall have received the
Initial Payment in accordance with Section 3.2(c) above.
(d) The Buyer shall have taken such steps as shall be necessary or
appropriate to name to its Board of Directors, Empower's nominee, Co Everett
Koop, M.D. (subject to approval of
<PAGE>
such nominee by the Buyer's Board of Directors), and to name to its Advisory
Council, Empower's nominee, which shall be Donald W. Hackett.
ARTICLE EIGHT
SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS
----------------------------------------------------
8.1 REPRESENTATIONS AND WARRANTIES.
(a) The Representations and Warranties of Seller, on the one hand, and
the Buyer, on the other, shall be deemed to be material to the other parties and
to have been relied upon by each of them notwithstanding any investigation
heretofore or hereafter made or omitted by the either of them and shall continue
in full force and effect through the third anniversary of the Closing Date, at
which time they shall terminate except with respect to any claim for a breach
thereof brought prior to that date.
(b) Notwithstanding the foregoing, any cause of action based on fraud,
fraudulent misrepresentation or fraudulent breach of warranty may be brought at
any time until the expiration of the relevant statute of limitations.
8.2 SURVIVAL OF COVENANTS. All covenants made in this Agreement which by
their terms arc to be performed after Closing shall survive the Closing until
they are performed or otherwise expire by their terms.
ARTICLE NINE
TERMINATION OF AGREEMENT PRIOR TO CLOSING DATE
----------------------------------------------
9.1 TERMINATION BY EITHER EMPOWER OR THE BUYER. This Agreement may be
terminated by either Empower or the Buyer if:
(a) any party or government agency shall institute any proceeding seeking
to enjoin or prevent consummation of the transactions contemplated hereby or
seeking any material mount of damages as a result thereof.
(b) the Closing shall not have occurred on or before April 30, 1998.
9.2 TERMINATION BY EMPOWER. This Agreement may be terminated by Empower
if.
(a) a material default shall be made by (i) Buyer with respect to the due
and timely performance of any of the covenants and agreements contained herein
which is applicable to k, or (ii) the Buyer with respect to clue compliance with
any of the representations and warranties made by it herein, and such default
shall not have been cured within ten (10) days after delivery of notice
specifying particularly such default; provided, however, that if such default
-------- -------
shall have been cured, but such ten (10) day period shall not have expired, on
or prior to the Closing Date, the Closing Date shall be extended accordingly; or
(b) any of the conditions set forth in Section 7.2 of this Agreement
shall not have been satisfied on or before the Closing Date or waived by Empower
on or before such date;
<PAGE>
9.3 TERMINATION BY THE BUYER. This Agreement may be terminated by the
Buyer if:
(a) a material default shall be made by Empower with respect to the due
and timely performance of any of its covenants and agreements contained herein,
or with respect to due compliance with any of Empower Representations and
Warranties contained here such default shall not have been cured within ten (10)
days after delivery of notice specifying particularly such default; provided,
--------
however, that if such default shall have been cured, but such ten (10) day
- -------
period shall not have expired, on or prior to the Closing Date, the Closing Date
shall be extended accordingly; or
(b) any of the conditions set forth in Section 7.1 of this Agreement
shall not have been satisfied by the Closing Date, or waived by the Bayer on or
before such date.
9.4 EFFECT OF TERMINATION. Upon any termination of this Agreement pursuant
to this Article 9, neither Empower nor the Buyer shall have any liability one to
the other, other than the obligations of the Buyer set forth in Section 6.5
hereof, provided, that the foregoing shall not relieve any party of liability
for any breach of its obligations hereunder. Notwithstanding the foregoing
provisions of this Article 9, no party hereto shall be entitled to exercise any
right to terminate and abandon this Agreement if such party has willfully and
intentionally defaulted under any provision of this Agreement or willfully and
intentionally taken any action which resulted in the nonfulfillment of any
condition to Closing hereunder unless such default shall have bean cured and
shall not he continuing at the time of the exercise of such right.
ARTICLE TEN
MISCELLANEOUS
-------------
10.1 EXPENSES. The Buyer and Empower will each pay their respective
expenses (including fees and expenses of legal counsel, accountants, financial
advisors, brokers or other representatives or consultants) in connection with
the transactions contemplated herein (whether consummated or not) except that
nothing herein shall relieve any party of liability for damages arising from its
breach of this Agreement.
10.2 AMENDMENT OR WAIVER. Either party to this Agreement may waive or
modify in writing any term or provision hereof existing for its benefit at any
time. No such waiver, and no amendment of this Agreement, shall be effective
unless contained in an instrument in writing signed by the party against whom
such waiver or amendment is sought to be enforced.
10.3 GOVERNING LAW. The corporate law of Texas will govern all issues
concerning the internal governance of Empower and the relative rights of Empower
and its shareholders in connection therewith. All other matters concerning the
construction, validity and interpretation of this Agreement and the exhibits and
schedules hereto shall be governed by and construed in accordance with the law
of the State of Michigan without regard to choice of law principles which would
require the application of the law of any other jurisdiction.
<PAGE>
10.4 FINDERS. Empower represents and warrants that it has not made any
commitment or done any other act which might result in the imposition of any
liability on the Buyer, or Empower for any brokerage, finder's or similar fee or
commission in connection with the transactions contemplated by this Agreement.
The Buyer represents and warrants that neither it nor anyone acting on its
behalf has made any commitment or done any other act which might result in the
imposition of any liability on any Seller for any brokerage, finder's or similar
fee or commission in connection with the transactions contemplated by this
Agreement.
10.5 NOTICES. Any and all notices and other communications hereunder shall
be in writing addressed to the parties at the addresses specified below or such
other addresses as either party may direct by notice given in accordance with
this section, and shall be delivered in one of the following manners: (i) by
personal delivery, in which case notice shall be deemed to have been duly given
when delivered; (ii) by certified mail, return receipt requested, with postage
prepaid, in which case notice shall be deemed to have been duly given on the
date indicated on the return receipt; (iii) by reputable delivery service
(including by way of example and not limitation Federal Express, UPS and DHL)
which makes a record of the date and time of delivery, in which case notice
shall be deemed to have been duly given on the date indicated on the delivery
service's record of delivery; or (iv) by fax transmission to the fax numbers
given below, with confirmation of good receipt and confirmed by letter to the
addresses set forth below, in which case notice shall be deemed to have been
duly given on the date indicated in the confirmation of fax transmission.
if to the Buyer, to
Superior Consultant Holdings Corporation
4000 Town Center, Suite 1100
Southfield, Michigan 48075
Attention: Richard D. Helppie, Jr., President
Fax: (248) 386-8459
with copies to:
Richard P. Saslow, Esq.
Joel F. French, Vice President, Strategic Development
4000 Town Center, Suite 1100
Southfield, Michigan 48075
Fax: (248) 386-8459
if to Empower, to
Empower Health Corporation
4008 River Place Blvd.
Austin, Texas 78730
Attention: Donald W. Hackett, President and CEO
Fax: (512) 832-0752
<PAGE>
with a copy to:
Alan Schoenbaum
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, TX 78205
Fax: (210) 224-2035
10.6 ARTICLE, SECTION AND PARAGRAPH HEADINGS. The article, section and
paragraph headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
10.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
10.8 SUCCESSORS AND ASSIGNS. The respective rights, and obligations of the
parties hereto shall not be assignable without the prior written consent of the
other parties, except that the Buyer may assign its rights and obligations
hereunder to any Affiliate of the Buyer. This Agreement shall be binding upon
and inure to the benefit of the heirs, distributees, successors and assigns of
the parties hereto. Nothing herein contained is intended to confer upon any
person, other than the parties hereto and their respective permitted successors,
assigns and nominees, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
10.9 ENTIRE AGREEMENT. This Agreement, including the Exhibits and Annexes
hereto and the Schedules referred to herein, together with the other agreements
contemplated by this Agreement, constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, representations, Warranties,
statements, promises, information, arrangements and understandings, whether oral
or written, express or implied with respect to the subject matter hereof. None
of the parties hereto shall be bound by or charged with any oral or written
agreements, representations, warranties, statements, promises, information,
arrangements or understandings not specifically set forth or referred to in this
Agreement, the Schedules, Exhibits and Annexes hereto, the schedules, documents
and instruments to be delivered on or before the Closing Date pursuant to this
Agreement or the other agreements contemplated by this Agreement. The parties
hereto further acknowledge and agree that, in entering into this Agreement and
in delivering the schedules, documents and instruments to be delivered on or
before the Closing Date they have not in any way relied, and will not in any way
rely, upon any oral or written agreements, representations, warranties,
statements, promises, information, arrangements or understandings, express or
implied, not specifically set forth in this Agreement or in such schedules,
documents or instruments.
(SIGNATURE PAGE FOLLOWS)
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE DULY EXECUTED THIS AGREEMENT AS
OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
EMPOWER HEALTH CORPORATION
By: /s/ Donald W. Hackett 4/29/98
--------------------------------
Donald W. Hackett, President
BUYER:
SUPERIOR CONSULTANT HOLDINGS
CORPORATION
By: /s/ James T. House
--------------------------------
Its: CFO
--------------------------------
<PAGE>
EXHIBIT 10.44
April 28, 1998
Superior Consultant Holdings Corporation
4000 Town Center, Suite 1100
Southfield, M148075
Ladies and Gentlemen:
The undersigned, Donald W. Hackett, is the owner of a majority of the
outstanding voting shares of Empower Health Corporation, a Texas corporation
("Empower"). This letter is intended to constitute a shareholder voting
agreement within the meaning of Article 2.30B of the Texas Business Corporation
Act.
On this date, Superior Consultant Holdings Corporation ("Superior") has
acquired 513,413 shares of the Series B Convertible Preferred Stock of Empower.
In connection therewith, the undersigned agrees that he shall vote all shares of
Empower's voting securities owned by him so that the following shall apply:
1. Superior shall be entitled to elect or have elected, to
Empower's Board of Directors, one nominee designated by Superior for each four
directors sitting on the Board who are not nominees of Superior.
2. Superior further shall be entitled and to appoint or have
appointed, to Empower's Advisory Council, one nominee designated by Superior.
3. If, pursuant to the exercise of the Purchase Option (as
defined in the Option and Put Agreement of even date herewith between Empower
and Superior), Superior acquires additional Empower securities constituting at
least an additional 10% of the outstanding equity interest in Empower, Superior
shall be entitled to elect or have elected one nominee to Empower's Board of
Directors in addition to the number which Superior is otherwise entitled to have
elected pursuant to paragraph 1 above.
4. If the put option set forth in the Option and Put Agreement
is exercised by Superior to require Empower to purchase the Shares and Empower
fails (whether due to statutory restrictions or otherwise) to complete the
purchase of the Shares in accordance with the terms thereof within thirty days
after delivery of notice of exercise, Superior shall be entitled to have elect
to Empower's Board of Directors nominees representing a majority of the
Directors.
5. The Buyer's initial nominee for Empower's Board of Directors
is Richard D. Helppie, Jr., who shall serve for a minimum of three years. Any
other nominee of the Buyer pursuant to the foregoing provisions shall be subject
to the approval of Empower's Board, which shall not be unreasonably withheld.
6. Empower shall take all steps necessary to ensure that the
number of directors which it is authorized to have is sufficient to accommodate
Superior's nominees as set forth in this letter agreement.
The undersigned further agrees that he will execute an agreement containing
the foregoing provisions among holders of Empower voting securities having not
less than the minimum number of votes necessary in the future to cause the
foregoing conditions to be satisfied and the foregoing actions to be taken.
Very truly yours,
/s/ Donald W. Hackett
Donald W. Hackett
President & CEO, EHC
<PAGE>
Agreed:
Superior Consultant Holdings Corporation
By: /s/ James T. House
------------------------
Its: CFO
------------------------
<PAGE>
EXHIBIT 10.45
OPTION AND PUT AGREEMENT
This Option and Put Agreement is made this 28th day of April, 1998 between
EMPOWER HEALTH CORPORATION, a Texas corporation ("Empower") and SUPERIOR
CONSULTANT HOLDINGS CORPORATION, a Delaware corporation ("Superior").
RECITALS
A. Empower and Superior are parties to a Agreement for the Issuance and
Sale of Stock of even date herewith (the "Sale Agreement") pursuant to which
Superior has agreed to purchase, and Empower has agreed to issue and sell, on
the terms and conditions set forth therein, certain shares of Empower's Series B
Convertible Preferred Stock.
B. Pursuant to the Sale Agreement, Empower has agreed to grant Superior the
right to cause the shares acquired thereunder to be repurchased by Empower under
certain terms and conditions and also has agreed to grant Superior the right to
acquire additional shares of Empower's capital stock under certain terms and
conditions. This Agreement is intended to create such rights and to set forth
the terms and conditions under which they may be exercised.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
provisions herein contained, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement and not otherwise
-----------
defined herein have the meaning ascribed to them in the Sale Agreement. In
addition, the following terms when capitalized have the following meanings:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "EXERCISE PRICE" means the price payable upon exercise of the
Purchase Option, which shall be (i) if the Purchase Option is exercised to
purchase Common Stock, a price per share equal to 70% of the Fair Market Value
Per Share of the shares of Common Stock being purchased and/or (ii) if shares of
Preferred Stock are being purchased, a price per share equal to 70% of the Fair
Market Value Per Share of the shares of Common Stock into which each share of
Preferred Stock is convertible.
(c) "EXERCISE NOTICE" means a written notice from Superior to Empower
exercising the Purchase Option, which specifies the number of shares with
respect to which the Purchase Option is being exercised.
(d) "FINANCIAL STATEMENTS" as of any date means a consolidated (with all
subsidiaries, if any) balance sheet and statement of shareholders' equity of
Empower as of the date specified and consolidated (with all subsidiaries, if
any) statements of Empower's income and cash flows for the fiscal year then
ended (in the case of annual audited statements) or the fiscal quarter and year-
to-date period then ended (in the case of unaudited quarterly statements).
<PAGE>
(e) "FIRST PUT PERIOD" means the 90 day period following the second
anniversary of the Closing Date.
(f) "NEW SECURITIES" means any capital stock, any rights, options or
warrants to purchase or subscribe for capital stock, and any securities or other
instruments of any type whatsoever that are, or may become, convertible into or
exchangeable for capital stock, which are issued for cash; provided, however,
that New Securities shall not include: (i) securities offered and sold by
Empower pursuant to a Public Equity Offering; (ii) shares of Empower's Common
Stock (or related options or rights) issued to Empower's employees and directors
pursuant to a plan adopted by the Board of Directors; (iii) shares of Empower's
capital stock issued in connection with any warrant, option or right listed on
Schedule 4.3(b) to the Sale Agreement; and (iv) shares issued pursuant to a
stock split or stock dividend. The exclusion of the foregoing items from the
definition of New Securities shall not affect the operation of Section 3(f),
relating to the adjustment of the number of shares covered by the Purchase
Option under certain circumstances, or Section 3(g), relating to the adjustment
of the Exercise Price under certain circumstances.
(g) "PRO RATA SHARE" means with respect to Superior, that portion of the
number of shares of New Securities proposed to be issued that equals the
proportion that (i) the number of shares of Common Stock held by Superior
immediately prior to the proposed issuance, plus the number of shares of Common
Stock that would then be issuable to Superior assuming that all securities of
Empower convertible into or exchangeable for Common Stock had been converted or
exchanged, bears to (fi) the total number of shares of equity securities issued
and outstanding on a Fully Diluted Basis immediately prior to the proposed
issuance.
(h) "PUBLIC EQUITY OFFERING" means a firm commitment underwritten sale of
Empower common stock to the public by Empower pursuant to an effective
registration statement under the 1933 Act (a) of a number of shares of its
common stock which, when added to any other outstanding shares then eligible for
public trading without registration or other restriction under the 1933 Act,
constitute at least 20% of the number of shares of common stock outstanding, on
a Fully-Diluted Basis, after completion of such offering and (b) for an
aggregate offering price (before payment of underwriters, or brokers,
commissions or discounts and the expenses of the offering)which, when added to
the aggregate offering price received by Empower from all other offerings of its
common stock pursuant to effective 1933 Act registration statements, equals not
less than $10 million.
(i) "PURCHASE PRICE" means a price equal to the Fair Market Value Per
Share as of the date of delivery of the Put Notice, multiplied by O) the number
of shares of Common Stock to be purchased and/or (ii) to the extent that Shares
are to be purchased prior to conversion into Common Stock, the number of shares
of Common Stock into which the Shares to be purchased are convertible.
(j) "PURCHASE OPTION" means Superior's right to acquire (i) up to 513,413
shares of Common Stock, constituting 19% of the issued and outstanding equity
securities of Empower outstanding on a Fully Diluted Basis on the date of this
Agreement and/or (ii) shares of
<PAGE>
Preferred Stock convertible into shares of Common Stock constituting up to 19%
of the issued and outstanding equity securities of Empower outstanding on a
Fully Diluted Basis on the date of this Agreement, in each case at the Exercise
Price. The Purchase Option shall entitle Superior to purchase Common Stock and
Preferred Stock in any combination so long as the number of shares of Common
Stock purchased thereunder, together with the number of shares of Common Stock
into which shares of Preferred Stock purchased thereunder are convertible, does
not exceed 19% of the issued and outstanding equity securities of Empower
outstanding on a Fully Diluted Basis on the date of this Agreement.
(k) "PUT OPTION" means Superior's right to require Empower, on the terms
and conditions set forth herein, to repurchase the Shares and/or shares of
Common Stock into which Shares may have been converted, in whole or in part.
(l) "PUT NOTICE" means a written notice from Superior to Empower
demanding that Empower purchase the number of Shares specified in the Put
Notice.
(m) "SALE AGREEMENT" means the Agreement for the Issuance and Sale of
Stock of even date herewith between Superior and Empower.
(n) "SECOND PUT PERIOD" means the 90 day period following the third
anniversary of the Closing provided
2. RIGHT TO PUT SHARES
-------------------
(a) GRANT OF RIGHT. Empower hereby grants Superior the Put Option.
(b) TIME OF EXERCISE. Superior may exercise the Put Option only during
the First Put Period or the Second Put Period.
(c) LIMITATION ON EXERCISE. The Put Option may not be exercised if, prior
to such exercise, Empower has filed a registration statement for a Public Equity
Offering; provided, however, that if a registration statement for a Public
Equity Offering has been filed but has been withdrawn, has become subject to any
stop order issued by the Securities and Exchange Commission which has not been
lifted, or has failed to become effective within 180 days after its initial
filing, Superior's right to exercise the Put Option shall be reinstated and the
Put Option shall be exercisable during each of the periods specified in Section
2(b) or, if any such period has lapsed, for a period of 90 days following the
occurrence of the event giving rise to the reinstatement.
(d) MANNER OF EXERCISE. Superior may exercise the Put Option by
delivering to Empower a Put Notice. Any Put Notice will be effective only if
delivered during the First Put Period, the Second Put Period or the additional
period specified in Section 2(c).
<PAGE>
(e) CLOSING OF PURCHASE. The closing of any purchase by Empower of Shares
pursuant to any exercise of the Put Option shall be held at the offices of
Empower on a date agreed to by Empower and Superior, but not later than the
later of (1) thirty days after delivery by Superior to Empower of the Put Notice
relating to the Shares to be purchased or (2) ten days after the determination
of the Fair Market Value Per Share pursuant to Article 4. At the closing:
(i) Superior will deliver to Empower the certificates representing
the Shares to be purchased, duly endorsed for transfer or accompanied by
stock powers.
(ii) Superior will provide Empower with certification in a form
acceptable to Empower's counsel that the Shares conveyed are free and clear
of all liens, encumbrances, charges and other claims.
(iii) Empower will deliver to Superior a certificate of an officer
certifying to Superior that immediately following the closing and the
payment of the purchase price, (i) Empower will not be insolvent and its
assets will exceed its liabilities, (ii) the Purchase Price does not exceed
Empower's surplus, (iii) Empower will be able to pay its debts as they
become due in the ordinary course and (iv) Empower will not have an
unreasonably small capital for the business intended to be conducted by it.
(iv) Empower will deliver the Purchase Price to Superior in
immediately available funds.
(f) CORPORATE ACTION. If Empower is unable to complete any purchase of
Shares in connection with any exercise of the Put Option because of restrictions
in its Articles of Incorporation or Bylaws, in agreements to which it is a party
or in applicable statutes, then Empower shall take such action as may be
necessary to permit it to make such purchases, including soliciting shareholder
approval of such action to the extent required under applicable law or Empower's
Articles of Incorporation or Bylaws.
(g) INABILITY TO COMPLETE PURCHASE. If Empower is legally prohibited at
the time of any sale by any statute, contract or otherwise from paying the full
Purchase Price for Shares specified in a Put Notice and such prohibition cannot
be removed by action pursuant to Section 2(f), then
(i) Superior may elect to rescind the sale and retain the Shares
specified in the Put Notice; or
(ii) Superior may elect, or have elected, nominees representing a
majority of the Empower Board of Directors.
3. PURCHASE OPTION.
---------------
(a) GRANT OF OPTION. Empower hereby grants to Superior the Purchase
Option.
<PAGE>
(b) TIME OF EXERCISE OF OPTION. The Purchase Option may be exercised in
whole or in part by Superior at any time or times through and including the
second anniversary of the date of this Agreement.
(c) METHOD OF EXERCISE. The Purchase Option shall be exercised by
delivery of an Exercise Notice to the Secretary of Empower-at its principal
place of business.
(d) CLOSING OF PURCHASE The closing of any purchase of shares pursuant to
exercise of the Purchase Option shall be held at the offices of Empower on a
date agreed to by Empower and Superior, but not later than the later of (1)
thirty days after delivery by Superior to Empower of the Exercise Notice
relating to the Shares to be purchased or (2) ten clays after the determination
of the Fair Market Value Per Share as set forth in Section 40 At the closing:
(i) Empower will deliver to Superior certificates representing the
Shares to be purchased, bearing (if applicable) the legend specified in
Section 3(h).
(ii) Superior will deliver the Exercise Price to Empower immediately
available funds.
(iii) If requested by Empower with respect to any shares which have
not been registered under the 1933 Act, Superior will deliver a written
statement that (A) it is purchasing the shares for investment and not with a
view toward its distribution or sale, (B) it is aware that the shares have not
been registered under Federal or state securities laws, and will constitute
"restricted stock" as that term is defined under Rule 144 promulgated under
the 1933 Act, and (C) it is aware that any restricted stock may not be sold,
transferred or otherwise disposed of by Superior without registration unless,
in the opinion of counsel acceptable to Empower, such registration is not
required under the 1933 Act or applicable state securities laws.
(e) RIGHTS AS SHAREHOLDER. Superior shall not be, or have any of the
fights or privileges of a shareholder of Empower in respect of any shares
issuable on exercise of the Purchase Option, unless and until the Exercise Price
for such shares shall have been paid in full and such shares shall have been
issued in accordance herewith.
(f) ADJUSTMENT PROVISIONS. The aggregate number of shares with respect to
which the Purchase Option may be exercised will be appropriately adjusted for
any increase or decrease in the number of issued shares representing an equity
interest in Empower resulting from any merger, reorganization, consolidation,
recapitalization, liquidation stock dividend, stock split, reverse stock split
or other change in the corporate structure of Empower affecting its equity
securities. Such adjustment shall be made in the number of shares which may be
issued upon exercise of the Purchase Option and in the Exercise Price, to the
extent appropriate to prevent dilution or enlargement of Superior's rights.
(g) EXERCISE PRICE ADJUSTMENT FORMULA. If Empower shall issue or sell any
shares of Common Stock of any class, for a consideration per share which (X) is
less than the per share value paid by Superior in the acquisition of the Shares
under the Sale Agreement, if the issue or sale occurs within 90 days after the
date of this Agreement, or (Y) is less than the Fair
<PAGE>
Market Value Per Share in effect at the time of such issue or sale, for all
other issues or sales, then the Exercise Price shall automatically be adjusted
and immediately be deemed to equal the following:
(i) the number of shared of Common Stock outstanding on a Fully
Diluted Basis immediately prior to such issue and sale
multiplied by
(ii) the Exercise Price in effect at the time of such issuance or
sale
plus
(iii) the total consideration received and to be received by the
Company upon such issue and sale
divided by
(iv) the total number of shares of Common Stock outstanding on a
Fully Diluted Basis immediately after such issue or sale.
(h) LEGEND. The parties agree that certificates evidencing any Shares
which, when acquired hereunder, constitute "restricted stock" as that term is
defined under Rule 144 promulgated under the 1933 Act, as mended, shall bear the
following legend::
THESE SECURITIES ARE NOT REGISTERED UNDER THE 1933 ACT OR ANY STATE
SECURITIES ACT. THEY MAY NOT BE TRANSFERRED FOR VALUE UNLESS AND UNTIL THEY
ARE REGISTERED UNDER ALL SUCH APPLICABLE ACTS OR SUCH TRANSFBR SATISFIES
APPLICABLE REGISTRATION EXEMPTIONS THEREUNDER. THE COMPANY WILL NOT
TRANSFER THESE SECURITIES ON ITS BOOKS AND RECORDS WITHOUT AN OPINION OF
COUNSEL, SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE COMPANY,
THAT SUCH TRANSFER DOES NOT VIOLATE THE 1933 ACT OR ANY STATE SECURITIES
LAWS.
4. DETERMINATION OF PURCHASE PRICE. Promptly following delivery of a Put
--------------------------------
Notice or an Exercise Notice, Empower and Superior shall determine the Fair
Market Value Per Share in accordance with Section 1.14 of the Sale Agreement,
for computation of the Purchase Price or the Exercise Price, as the case may be.
Following determination of the Fair Market Value Per Share, the Purchase Price
or the Exercise Price as the case may be, shall be promptly determined.
5. COVENANTS. Empower covenants that:
---------
(a) Empower and its subsidiaries shall keep true books of record and
account in accordance with GAAP and fix which full, tree and correct entries in
accordance with sound accounting practice will be made of all income, expenses,
dealings and transactions fix relation to their business activities.
<PAGE>
(b) Empower shall deliver to Superior as soon as practicable and in any
event within ninety (90) calendar days after the close of each fiscal year of
Empower commencing with. the fiscal year ending December 31, 1998, consolidated
audited Financial Statements prepared -m accordance with GAAP, all in reasonable
detail and with an unqualified opinion expressed by independent public
accountants selected by Empower. Empower shall further deliver to Superior as
soon as practicable and in any event within forty-five (45) calendar days after
the close of each fiscal quarter of Empower commencing with the first fiscal
quarter ending after the date of this Agreement, unaudited Financial Statements
prepared in accordance with GAAP (subject to normal year end adjustments which
are not material individually or in the aggregate), in reasonable detail.
(c) Empower will retain independent public accountants of recognized
national or regional standing who shall certify the audited Financial
Statements.
(d) Empower will, at all times prior to expiration or exercise in full of
the Purchase Option (whichever is earlier), reserve from its authorized but
unissued shares a number of shares adequate to satisfy the exercise in full of
the Purchase Option (to the extent not theretofore exercised).
6. RIGHT TO PURCHASE ADDITIONAL SECURITIES.
----------------------------------------
(a) FIRST REFUSAL RIGHTS. Subject to the terms and conditions of this
Article 6, Empower hereby grants to Superior a right of first refusal to
purchase all or any part of its Pro Rata Share of any issue of New Securities
that Empower (or any subsidiary whose capital stock will not be wholly owned,
directly or indirectly, by Empower upon completion of any such issuance) may
propose to issue from time to time after the date of this Agreement.
(b) NOTICE AND ALLOCATION PERIODS. If Empower or, when applicable, its
subsidiary, proposes to undertake a bona fide issuance of New Securities, then
it shall give Superior written notice of its intention, describing the type of
New Securities, the price, the number of shares to be offered, and the general
terms upon which such securities are proposed to be offered. Superior shall be
given at least 15 days' prior written notice within which to agree to purchase
all or any part of its Pro Rata Share of such issuance of New Securities for the
price and upon the general terms specified in the notice by giving written
notice to the issuer within such period and stating therein the quantity of New
Securities to be purchased by it. The closing of any purchase of securities by
Superior pursuant to the exercise of its right of first refusal shall be held
simultaneously with the closing of the sale of the balance of the sale or
issuance of New Securities to which the exercise relates.
(c) RIGHT OF COMPANY TO SELL NEW SECURITIES If Superior fails to exercise
in full its right of first refusal within the applicable period set forth above,
then Empower or, when applicable, its subsidiary shall have 120 days thereafter
to sell the New Securities with respect to which the right of first refusal was
not exercised, at a price and upon general terms no more favorable to the
purchaser thereof than specified in the notice to Superior. If such New
Securities have not been sold within such 120-day period, then Empower or, when
applicable, its subsidiary
<PAGE>
shall not thereafter issue or sell any New Securities without first offering
them to Superior in the manner provided in this Article 6.
(d) TERMINATION. This Article 6 shall continue in effect from the date of
this Agreement until Empower has completed a Public Equity Offering.
7. MISCELLANEOUS.
--------------
(a) NO INCONSISTENT AGREEMENTS. If Empower enters into any agreement
which grants to any holders rights to purchase securities, or to require
repurchase by Empower of securities, during the term of this Agreement which
rights conflict directly with those of Superior under this Agreement, the terms
of this Agreement shall be superior in resolving such conflicts.
(b) REMEDIES. Superior shall be entitled to specific enforcement of its
fights under
this Agreement, to recover damages caused by reason of any breach of any
provision of this Agreement and to exercise all other fights granted by law. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that Superior may
in its sole discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive or equitable relief in order to enforce or
prevent violation of the provisions of this Agreement.
(c) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of Empower and Superior.
(d) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and permitted assigns.
(e) SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
(f) COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(g) DESCRIPTIVE HEADINGS. The captions and descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(h) GOVERNING LAW. The corporate law of Texas will govern all issues
concerning the internal governance of Empower and the relative rights of Empower
and its shareholders in connection therewith. All other questions concerning the
construction, validity and interpretation of this Agreement and the exhibits and
schedules hereto will be governed by the laws of
<PAGE>
Michigan without regard to choice of law principles which would require the
application of the laws of any other jurisdiction.
(i) ENTIRE AGREEMENT. This Agreement, together with the Sale Agreement
and the Schedules, Exhibits and Annexes thereto, constitutes the entire
agreement between the parties hereto and supersedes all prior agreements,
representations, warranties, statements, promises, information, arrangements and
understandings, whether oral or written, express or implied, with respect to the
subject matter hereof.
(j) NOTICES. Any and all notices and other communications hereunder shall
be in writing addressed to the parties at the addresses specified below or such
other addresses as either party may direct by notice given in accordance with
this section, and shall be delivered in one of the following manners (i) by
personal delivery, in which case notice shall be deemed to have been duly given
when delivered; (ii) by certified mail, return receipt requested, with postage
prepaid, in which case notice shall be deemed to have been duly given on the
date indicated on the return receipt; (iii) by reputable delivery service
(including, by way of example and not limitation, Federal Express, UPS and DHL)
which makes a record of the date and time of delivery, in which case notice
shall be deemed to have been duly given on the date indicated on the delivery
service's record of delivery; or (iv) by fax transmission to the fax numbers
given below, with confirmation of good receipt and confirmed by letter to the
addresses set forth below, in which case notice shall be deemed to have been
duly given on the date indicated fix the confirmation of fax transmission (or
the next Business Day if such date is not a Business Day or the transmission is
made after business hours):
if to Superior, to
Superior Consultant Holdings Corporation
4000 Town Center, Suite 1100
Southfield, Michigan 48075
Attention: Richard P. Saslow, Vice President and General Counsel
Fax: (248) 386-8459
If to Empower to
Empower Health Corporation
4008 River Place Boulevard
Austin, Texas 78730
Attention: Donald W. Hackett, President and CEO
Fax: (512) 832,0752
with a copy to:
<PAGE>
Alan Schoenbaum
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, TX 78205
Fax: (210) 224,2035 .
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
EMPOWER HEALTH CORPORATION, SUPERIOR CONSULTANT HOLDINGS CORPORATION,
a Texas corporation a Delaware corporation
By: /s/ David W. Hackett By: /s/ James T. House
---------------------------- ------------------------------
4/29/98
Its: President & CEO Its: CFO
--------------------------- -----------------------------
<PAGE>
EXHIBIT 10.46
SERVICE AGREEMENT
This service agreement is entered into this 29th day of April, 1998 between
Empower Health Corporation a Texas corporation ("Empower") and Superior
Consultant, Inc., a Michigan corporation, 4000 Town Center Drive, Suite 1100,
Southfield, Michigan 48075 as Seller, ("Superior")
RECITALS
--------
A. Empower develops and markets an integrated suite of Internet enabled,
consumer oriented software applications and services to its clients, including
consumers, hospitals, health plans, pharmaceutical companies, and other health
care organizations. Such products and services include but are not limited to
Dr. Koop's Personal Medical Record SystemTM (Electronic Medical Record, Medical
Expense Manager, Personal information Manager, integrated Disease Management
applets), Dr. Koop's CommunityTM, Internet media to which Empower has legal
rights, electronic commerce and electronic data interchange services, other
proprietary software, system training, and advertising and promotional services
(the "Empower Software and Related Services").
B. Superior provides management consulting, information technology
services and outsourcing services to healthcare constituents, including IDNs,
hospitals, health plans, employers, physician organizations, software and
hardware vendors, and other healthcare clients, Such consulting services
include, but are not limited to, information systems planning, information
systems audits, systems integration and interfaces, product design, development
and implementation, management consulting, process refinement and reengineering,
physician services, patient accounting and financial management consulting,
nursing management consulting and reengineering, nursing informatics and total
quality management (TQM/CQI) assistance (the "Superior Services").
C. To attain mutual goals of Empower and Superior, the parties believe it
will be beneficial to pursue a business relationship encompassing joint
marketing and services, whereby the products and services of both firms will
ultimately benefit the client (the "Joint Client"). Accordingly, to serve the
needs of clients of Empower and Superior, Empower and Superior agree to work
together with either Empower or Superior clients, in a Subcontract or Co-bid
Situation, under the terms and conditions as set forth below.
NOW THEREFORE, in consideration of the mutual obligations in this Agreement,
Empower and Superior agree as follows:
1. ROLES AND RELATIONS OF PARTIES
------------------------------
(a) Superior Services to Empower
----------------------------
Under the terms of this Agreement, Superior is appointed the exclusive
international consulting and information technology services provider to
Empower and its subsidiaries and affiliates, throughout the term of this
Agreement. These services include, without limitation, strategic planning,
reengineering, process improvement, installation, implementation, custom
programming, systems integration and related services incidental to
Empowers need to design, develop and maintain products and services and to
assist in the acquisition and implementation by clients or agents of
Empower such software and related services. In connection therewith,
Superior will provide its systems consultants,
Page 1
<PAGE>
project managers, management consultants and technical personnel to furnish
services in accordance with the terms and conditions stated in this
Agreement. Except as expressly provided herein, all services shall be
provided pursuant to Supplemental Services Agreements ("SSAs") which are
agreed to between the parties. It is anticipated that personnel provided by
Superior will assist, as specified in a series of SSAs, in the development,
installation, implementation and customization, functional and technical-
specifications, project planning, feasibility analysis for delivery of
function, project monitoring and progress reporting, development of test
plans, testing, and other related activities as requested by Empower as
developed in project work plans.
(b) Superior Services to Clients and Customers of Empower
-----------------------------------------------------
Consulting services by Superior contemplated hereunder, may be provided
directly to Empower or Superior may, as a subcontractor;, where Empower is
the prime contractor, provide such services directly to clients and or
customers of Empower. Further, Superior may, through service agreements
negotiated and executed directly between Superior and clients and customers
of Empower, perform consulting services to such clients and customers of
Empower in connection with the installation, implementation or other
consulting needs associated with the acquisition of Empower software and
related services by such customer.
(c) Minimum Amount of Services to be Purchased by Empower
-----------------------------------------------------
Empower agrees to purchase herewith from Superior Services resulting in not
less than Three Million ($3,000,000) Dollars in recognized revenue to
Superior, excluding expenses, within the first twelve (12) months from the
date of this Agreement. Superior agrees to provide services to Empower and,
if as a subcontractor, to its agents or clients pursuant to SSAs that will
be negotiated between Empower and Superior. Revenue recognized by Superior
in connection with the performance of services directly for clients of
Empower (whether Superior is acting as a subcontractor to Empower or by
separate agreement with the client) and where such services are performed
in connection with the use, acquisition, or installation and implementation
of Empower products by such client, will be credited toward the above
stated minimum services requirement. Empower agrees to authorize SSAs
hereunder that, together with Superior Services performed under direct
agreements with clients in connection with the installation, implementation
and/or support of Empower Products and Services, comprise Three Million
($3,000,000) Dollars in professional fees to Superior, exclusive of
reimbursable expenses, in a timely manner so as to permit performance by
Superior within the twelve (12) month period following execution of this
Agreement. Superior agrees to use commercially reasonable efforts to
perform all SSAs in a timely manner, and in any event, Empower shall not in
any way be penalized by the failure of Superior to recognize $3 Million
Dollars in revenue during the first twelve months of this Agreement to the
extent that such failure is a result of Superior's failure to timely
perform such services, provided however, that Superior, in the performance
of services, shall in no event be required to perform more than 1000 person
hours of services in any given week.
(d) Joint Marketing Activities
--------------------------
The parties shall undertake a joint marketing effort as set forth in this
Agreement. Each party agrees to be responsible for its own marketing
expenses incurred during marketing activities hereunder, unless other
arrangements to in writing between, the parties. Either
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<PAGE>
party may introduce the other party to a client or prospect who may have a
desire for the products or services of the party; or furnish the other
party information respecting such introduction or business opportunity
shall be deemed confidential and introducing party. Each party hereto
agrees that the receiving party's use of such information shall be limited
to the pursuit and development of business opportunities with such client
or prospect and shall not be disclosed to any third party and further, such
information shall be subject to the restrictions imposed in Section 6 of
this Agreement.
(e) Independent Contractors
-----------------------
The relationship between Empower and Superior shall be that of independent
contractors only. No agency relationship between Empower and Superior. is
created by this Agreement. Neither party shall have the right or authority
to act on behalf of the other or represent that it has such right or
authority. Each party shall be responsible for its own tax obligations
arising in connection with the performance of this Agreement.
(f) Revenue sharing -- Empower Software and Related Services.
---------------------------------------------------------
Unless otherwise specified in an SSA executed by authorized representatives
of both Superior and Empower, Superior will be entitled to one-hundred
percent of service related revenues derived from clients for the services
it renders and Empower will be entitled to one-hundred percent of Empower
software license revenues derived from Clients for its software licenses.
(g) Revenue sharing -- Other Services.
----------------------------------
Superior and Empower intend to share revenues derived from other services
to be provided, such as electronic commerce transaction related fees,
advertising revenues, etc. Recognizing that the precise nature of work and
consequently the fee sharing arrangements are difficult to accurately
predict, Superior and Empower will specify the fee sharing arrangements
either in SSAs or by a written amendment to this Agreement, signed by
authorized representatives of both parties.
(h) Empower Software Development Services
-------------------------------------
To the extent Empower determines it advantageous to utilize contractors or
consultants instead of its employees for product strategy and planning,
software development, training, or any other related services not otherwise
covered by this Agreement, the parties agree that Superior will be
exclusive supplier of such services to Empower or its affiliates, unless
Superior cannot provide such services, either because of a lack of know how
or resources, or Superior refuses to provide such services, or because a
client does not want Superior to perform such services. In particular, it
is understood that Empower may seek internet content provider services from
contractors other than Superior.
2. Term of Service Agreement
-------------------------
(a) The term of this Service Agreement will commence on May 1, 1998 and
terminate on May 1, 2003. This Agreement can be extended upon written
agreement between Empower and Superior.
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<PAGE>
(b) This Agreement may only be terminated for reason of material breach. In
the event of material breach by a party, the other shall provide written
notice of such material breach which shall specify in detail the acts or
omissions claimed to constitute the breach. The party claimed to be in breach
shall then have sixty (60) days within which to cure the claimed breach. In
the event such party shall fail, within the sixty (60) day period to cure the
breach or to provide a reasonable program to accomplish such cure, the party
claiming breach shall thereupon be entitled to payment for all fees and
expense reimbursement incurred prior to the effective date of termination.
(c) Should Empower terminate this Agreement prior to utilizing at least Three
Million ($3,000,000) Dollars of Superior Services under this Agreement,
Empower hereby agrees to remit to Superior within 30 days of termination, the
difference between $3 Million Dollars and the actual revenues recognized by
Superior in connection with services provided to Empower, and for Empower
clients, as provided in Section J (c), above, pursuant to this Agreement.
3. SUPPLEMENTAL SERVICE AGREEMENTS
-------------------------------
Superior and Empower shall prepare SSAs to define and authorize various segments
of work, To the extent of any conflict or inconsistency between the terms and
conditions of an SSA and the terms and conditions of this Agreement, the terms
and conditions of the SSA will control. Each SSA shall:
(a) Be in writing and signed by both parties.
(b) Refer specifically to this Agreement
(c) Designate the date as of which the provisions of the SSA will be
effective and, if applicable, the term or period of time during which
Superior will perform, services, provide resources or otherwise
discharge its obligations as specified in the SSA.
(d) Describe the assistance to be rendered and/or the services to be
performed, and/or resources to be provided, and/or applicable
deliverables and/or obligations to be discharged by Superior pursuant to
the SSA.
(e) Describe any additional obligations of Empower and Superior related to
the SSA, including any facilities, equipment, personnel and tasks or
other support to be provided or performed.
(f) Specify any other terms and conditions appropriate to the services to be
performed and the obligations of the parties.
(g) Specify the testing procedures and/or acceptance criteria to be applied
to any deliverable that may be called for under the SSA.
(h) The basis and procedure for computation billing and payment of
professional fees and expenses (e.g., hourly rate or fixed fee).
Page 4
<PAGE>
(i) SSAs for work performed on an hourly basis should include, in addition
to the information described above, the Superior personnel
classifications who will render the services, their respective hourly
rates, and the starting and closing dates for performance.
(j) SSAs for work performed on a fixed-fee basis should include, in addition
to the information set forth above, a list of tasks to be completed, a
set of milestones specifying the date by which, each portion of the work
specified in the SSA will be completed, payment schedule and acceptance
criteria.
(k) For assignments involving computer program development, a functional
specification, an operational narrative and a matrix of conditions to be
tested may also be included.
SSAs may be amended by mutual agreement of the parties, in writing and signed by
both parties.
4. PROJECT ORGANIZATION
--------------------
Each Project shall be organized and staffed by Superior as set forth in the
mutually agreed upon SSA.
Superior shall assign an Engagement Manager, who shall be a senior executive or
manager of Superior and who, acting on behalf of Superior, shall have
responsibility for ensuring that Superior performs its obligations under this
Agreement and the SSAs.
Empower shall designate an employee of sufficient management rank as Empower's
Project Liaison, who shall represent Empower and have responsibility for
ensuring that Empower performs its obligations under this Service Agreement and
the SSAs.
The Engagement Manager and Empower's Project Liaison will hold joint
responsibility for planning status meetings and will discuss issues as they
arise. Formal telephone or personal meetings between the Engagement Manager and
Empower's Project Liaison will be scheduled as deemed appropriate.
Both parties recognize that certain SSAs may require periodic adjustments to
either party's staffing and/or fees. If such adjustments are necessary, both
parties will use their best efforts to accommodate such adjustments as they
arise. Any adjustments must be agreed to by both parties.
5. EMPOWER SUPPORT
---------------
Empower will provide support to Superior as follows:
(a) Empower will provide access to its staff for interviews as reasonably
required by any project plan. Empower's data processing department will
provide orientation to shop standards, technical support, reasonable
training on system and program development software required to provide
services, appropriate technical manuals, computer terminals and other
support normally associated with computer program development and necessary
for performance of services as set forth in this Agreement and associated
SSAs. Empower will
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<PAGE>
also provide to Superior, documentation which Empower has-in its possession
of procedures, system instruction manuals internal documentation.
(b) When service is performed at Empower, Empower will provide a reasonable
work environment and secretarial assistance to the extent reasonably
necessary for Superior's personnel to render service under this Agreement.
(c) Empower will provide Superior's personnel access to computer facilities
reasonably required to provide service under this Agreement on a 24-hour
per day, seven day per week basis, with the exception of normal system
downtime for system maintenance and file backup. Access may be physical
entry to the facility or via telecommunications, as dictated by the needs
of the Project.
(d) Empower's system will provide computer operations and system software
staffing reasonably necessary for the work contemplated.
(e) Empower shall be responsible for protection of electronically stored data
in its electronic data processing systems, by means of data backup no less
than once each day, security devices and procedures designed to prevent
unauthorized access or damage to databases.
Where Superior performs services hereunder to Empower clients as subcontractor
to Empower, Empower shall use its best efforts to ensure that Empower client, as
necessary and appropriate, provides the above described support to Superior in
the performance of its services.
6. NON-DISCLOSURE
--------------
(a) Superior shall treat as confidential and proprietary and not disclose
directly or indirectly to anyone, or use for Superior's personal benefit or
the benefit of any client of Superior, except as expressly provided herein,
any Proprietary information of Empower except as authorized in writing by
an executive officer of Empower. Further, Superior covenants, warrants and
agrees that it will not, except as contemplated in the preceding sentence,
remove from premises of Empower, its affiliates or the sites of Licensees
of Empower, any Proprietary information of Empower, and will not copy in
any form, either magnetically or by facsimile, any Proprietary information.
(b) For purposes hereof, Proprietary Information of Empower shall mean and
include all software programs belonging to Empower, its affiliates and
Licensors and Licensees, whether in written or on magnetic media, and all
design documentation, procedures manuals, program listings, source codes,
working papers and other documentation, methodologies reduced to writing
and information related to the foregoing that has been reduced to writing.
Proprietary Information shall also include personal, financial and/or
medical information regarding Empower's patients and staff.
(c) Empower agrees that it will, prior to disclosure to Superior, identify each
item of Proprietary Information as such, in writing. In the event that any
material so identified to Superior is not, in Superior's view, legitimate
Proprietary information belonging to Empower, Superior shall so advise
Empower and may decline to accept possession of such material.
(d) From time to time in the performance of Superior Services, Superior may
disclose Superior Confidential Information to Empower. Superior will
identify all Superior Confidential
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<PAGE>
Information as such in writing at the time of disclosure. Empower shall
treat as confidential and proprietary and not disclose directly or
indirectly to anyone, or use for Empower's personal benefit or the benefit
or the benefit of and client of Empower, except as provided herein, and
Superior Confidential Information, except as authorized in writing by an
Executive Officer of Superior. Empower shall employ reasonable measures to
protect the confidentiality of Superior Confidential Information, such
measures being not less than equal to those employed by Empower to protect
its own proprietary information.
7. OWNERSHIP
---------
(a) All work product, documentation, computer programs, source code, or
software products ("Work Products") that are developed, discovered,
conceived or introduced by either party, either independently or in
conjunction with personnel of a Joint Client or of each other, in the
course of providing services under this Agreement, shall be the property of
both parties unless expressly otherwise provided by the terms of the
applicable EL, or contract with the Joint Client.
(b). All designs, procedures, methods, and innovations ("Innovations") that are
developed, discovered, conceived, or introduced by either party, either
independently or in conjunction with personnel of a Joint Client or of each
other, in the course of providing services under this Agreement, shall be
the property of Superior, unless expressly otherwise provided by the terms
of the applicable EL, or contract with the Joint Client.
This Section shall survive termination or expiration of this Agreement. Empower
shall be responsible for compliance by its Subsidiaries and affiliates, with the
provisions of Section 6 and 7 of this Agreement.
8. PROFESSIONAL FEES
-----------------
Professional fees for some SSAs will be paid on an hourly rate basis, and for
other SSAs will be paid at predetermined fixed fees for such assignments, all as
set forth in each SSA.
8.1 HOURLY RATE FEES
----------------
Work that requires investigation, research and analysis may be paid on an hourly
rate basis, as provided in an SSA. Examples include specification work, project
coordination, project management, analysis and estimation of software
development tasks and some design work.
Hourly rate fees will be computed based upon actual time devoted to servicing
Empower, including travel time. Travel time is measured from the time Superior's
personnel leave Superior's office or their home until arrival at the work site
or hotel, and vice versa.
Rates for hourly professional fees will adhere to the schedule below during the
first twelve months of this Agreement. Rates thereafter may be adjusted subject
to a maximum 10% annual increase, or the annual rise in the national consumer
price index, whichever is greater.
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<PAGE>
FEE SCHEDULE FOR HOURLY RATES BASIS PAYMENTS
--------------------------------------------
<TABLE>
<CAPTION>
Work or Personnel Classification Hourly Rate Fees
<S> <C>
Advisory Board Members $450
Corporate Officers and Senior Group Directors $375
Executive Management Consultant $325
Engagement Manager $190 / $325
Y2K Engagement Manager $230
Project Manager $185 / $275
Y2K Project Management $200
Senior Management Consultant $185 / $275
Management Consultant $175 / $195
Senior Technical Advisor $160
Technical Advisor $145
Senior Systems Consultant $145
Systems Consultant $130
Management Analyst $125
</TABLE>
Each biweekly billing for hourly rate assignments shall include a list of each
hourly rate SSA worked on and, for each such SSA, a list of the personnel
performing services, the job classifications and hourly rate charged for each.
Superior shall maintain time records for all Superior personnel assigned to the
Project which shall indicate the name of the individual, job title, date, number
of hours worked, and the task worked on. Such records shall be made available to
Empower upon Empower's request.
8.2 FIXED-FEE ASSIGNMENTS
---------------------
Technically-oriented work for which a specific result can be defined may be paid
on predetermined fixed-fee basis as set forth in each SSA. Examples include
coding and testing of computer programs.
9. REIMBURSABLE EXPENSES
---------------------
In addition to, and distinct from, professional fees as described above, Empower
will also reimburse Superior for all reasonable travel and Project expenses
according to the guidelines set forth below.
Page 8
<PAGE>
(a) Travel by personal automobile, reimbursable at a rate no greater
than the allowable mileage, deduction as specified by the IRS.
(b) Travel by commercial carrier.
(c) Hotel/motel accommodations.
(d) Automobile rental and fuel expense, or use of Empower vehicles in
lieu of reimbursement.
(e) Miscellaneous required travel expense such as parking, taxis, etc.
(f) Telephone charges, Cog., remote program development work, phone
conferences, fax transmissions, etc.
(g) Copying, postage and shipping.
(h) Meals (or $___ per day meal allowance for each full day in Empower's
Metropolitan area. $___ for arrival and departure days).
(i) All other expenses incurred by Superior and/or Superior's personnel
solely and directly as a result of performing services for Empower
under this Agreement.
(j) Administrative time and materials.
Items (b), (c), (d), (e), (f), (g), (h) and (i)are reimbursable on an
"incurred cost" basis.
Superior will use its best efforts to ensure that costs are reasonably
consistent with industry custom for consulting personnel, e.g., coach rate for
commercial carriers when available, standard size rental automobile when
available, etc.
10. INVOICING AND PAYMENT SCHEDULE
------------------------------
Invoices for hourly fee assignments will be rendered biweekly for services
rendered in each biweekly period. Billing periods begin on Sundays and end on
the second Saturday following.
Invoices for fixed fee assignments will be rendered in accordance with the terms
of this Agreement and the payment and milestone schedule set forth in the
applicable SSA. No more than 90% of the fixed fee will be invoiced prior to
acceptance of the assignment by Empower, with an invoice for the remaining
portion rendered when the assignment is accepted by Empower.
In the event that, after execution of an SSA and prior to commencement of work
by Superior on the assignment, Empower decides, for any reason, not to proceed
with the assignment then Superior shall credit Empower with any amounts received
by Superior in connection with that SSA.
Invoices for reimbursable expenses will be rendered biweekly for expenses
incurred in each biweekly period. Billing periods begin on Sundays and end on
the second Saturday following.
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<PAGE>
Invoices for hourly compensation for terminated fixed fee SSAs will be rendered
within two (2) weeks following termination, and will include documentation.
Payment is due in full upon rendering of invoice. If payment is not received by
Superior within thirty (30) days after payment is due, interest on the amount
owing will accrue at the rate of 1-12% per month, or the maximum interest rate
allowed by law, whichever is less, until the-amount owing is paid in full. In
the event that collection efforts are required, Empower agrees to pay Superior
the reasonable cost and expenses of collection, including attorneys' fees.
11. ACCEPTANCE TESTING
------------------
11.1 This section applies to Fixed-fee assignments. Superior will notify
Empower when an assignment is complete. Empower will then have a number of days,
specified in the SSA, to perform acceptance testing and either accept the
assignment as complete or describe in good faith to Superior the reasons for
rejection. In the event the assignment fails acceptance testing as defined in
the SSA, Superior shall thereafter have a number of days, specified in the SSA,
within which to modify, correct or replace the assignment. Superior shall then
resubmit the assignment to Empower for further acceptance testing (for a number
of days specified in the SSA). Assignments will be deemed to have passed the
acceptance test if, (a) Empower signs off on the SSA assignment as accepted, or
(b) by the end of the acceptance period Empower has not met its testing
obligations, or (c) if Empower, at any time, places the assignment function into
production.
11.2 Following written notification by Superior that an assignment is complete
and ready for acceptance testing, Empower shall, within the schedule provided in
the SSA, fully complete all acceptance tests set forth in SSA. Upon completion
of acceptance testing, Empower shall notify Superior, in writing, that (1) the
assignment has passed acceptance testing, or (2) identify all areas in which
Empower claims the assignment has failed acceptance testing. Further, as to each
testing step or criterion identified in each SSA, Empower shall state that (1)
the assignment has passed, or (2) it has failed, or (3) it could not be tested
due to the failure of a dependent component, in instances where Empower has
notified Superior of failures in acceptance testing, and Superior agrees that
the assignment has failed acceptance testing, Superior shall use its best
efforts to remedy all deficiencies identified by Empower and shall continue to
do so until the assignment passes Acceptance Testing. in instances where Empower
has notified Superior of failures in acceptance testing, but Superior does not
agree that acceptance tests have been failed, then Superior shall not be
obligated to continue working on the assignment.
12. SUPERIOR'S PERSONNEL
--------------------
It is expressly understood that personnel provided by Superior for the purpose
of performing services under this Agreement are the employees or subcontractors
of Superior, and under no circumstances will be considered employees of Empower.
Superior will be responsible for any and all applicable payroll and employment
taxes and employee insurance, and Empower will have no liability therefore.
Upon the request of Empower and for good cause, Superior shall immediately
remove from the project any Superior personnel. Superior shall thereafter have a
reasonable time to replace such person so removed.
Page 10
<PAGE>
Services performed under (the terms of this Agreement will be performed at
Empower's offices, Superiors offices or at other locations
13. BILATERAL NO-HIRE AGREEMENT
---------------------------
Without the written consent of the other party, Empower and Superior each agree
to refrain from conducting employment discussions with the other party's
employees, agents and subcontractors from the time an agent, employee or
subcontractor is introduced, until twelve (12) months after the date the agent,
employee or subcontractor of the other party was last involved n any activity
related to this Agreement.
Should either party wish to engage in employment discussions with an agent,
employee or subcontractor of the other party, prior written approval must be
obtained from the other party's employees the event that these employment
discussions result in the hiring or retention of services of an agent, employee
or subcontractor of a party to this Agreement by the other party, either
directly or through a third party, the party hiring or retaining the other's
agent, employee or subcontractor will pay a fee to the other party, in
consideration for the other party's expense in replacing its personnel, as well
as for lost revenue opportunities. In the event either party hires or retains
the services of an agent, employee or subcontractor of the other party, the fee
to be paid will be one third (1i3) the amount of the annual salary of the
individual hired, due and payable on the first day of employment or of
performing services.
14. LIMITATION OF LIABILITY
-----------------------
(a) ALL SERVICES PERFORMED UNDER THIS AGREEMENT ARE PROVIDED WITHOUT WARRANTY,
AND THERE IS NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. IN THE EVENT OF SUPERIOR'S MATERIAL BREACH OF THIS SERVICE
AGREEMENT, EMPOWER MAY CANCEL THE AGREEMENT WHICH SHALL BE EMPOWER'S SOLE
AND EXCLUSIVE REMEDY. SUPERIOR WILL NOT BE LIABLE FOR ANY GENERAL, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR LOSS, DAMAGE OR EXPENSE INCLUDING
BUT NOT LIMITED TO LOST PROFITS OR GOODWILL, AND COSTS OF RECOVERING,
REPROGRAMMING OR REPRODUCING ANY PROGRAM OR DATA.
(b) Superior shall not be liable for any loss, claims or damages arising out of
the failure or degraded performance of any hardware, software or computer,
or other system, or microprocessor, on or about January 1, 2000, or at any
other time, in connection with any so called Year 2000 problem. In no event
shall Superior be liable for any loss, claims or damages of any nature,
whether arising out of claimed breach of contract, tort, strict liability,
breach of warranty or any other cause of. action or theory of recovery
whatsoever, for any amounts in excess of $200,000.
15. INDEMNIFICATION
---------------
(a) Superior and Empower shall each indemnify, defend and hold harmless the
other from and against any third party claims for loss, damage, expense
(Including attorneys fees) liability and claims for death or personal
injury or physical damage to property caused by the negligent acts or
omissions of the other party, its employees, agents or subcontractors.
Page 11
<PAGE>
provided however that any loss or destruction of electronically or
magnetically stored information shall not be deemed an injury to any person
or physical damage property.
(b) No portion of any software written and developed by Superior and delivered
infringe upon any patent, copyright, trade secret or other proprietary
right of a third-party, and Superior agrees to indemnify, defend and hold
Empower harmless from and against any third party liabilities, suits,
causes'-of action, claims or expense (including attorneys' fees) arising
from any breach or claimed breach of this warranty.
In the event that any order of a Court of competent jurisdiction shall
prevent Empower from using all or any part of such software, Superior, at
Superior's sole option, shall either (a) obtain for Empower, at Superior's
expense, the right for Empower to continue using all of such software,
including the alleged infringing portion, or (b) replace such infringing
portion of such software with a non-infringing portion or modify such
software to make it non-infringing, provided that after such replacement or
modification by Superior such software continues to perform its specified
functions, or (c) refund to Empower all amounts paid under the SSA pursuant
to which such software was supplied and under all other SSAs the use of
which are adversely affected by Empower's inability to use such software.
(c) Each party shall promptly, and in writing, notify the other party of any
such claim made against it by any third party, and shall take action as may
be necessary to avoid default or other adverse consequences until such time
as the other party has a reasonable opportunity to assume the defense of
the claim.
In any claim wherein Superior shall have an obligation to defend under this
Section, Superior shall have the right to select counsel and to control
such defense. Empower shall provide cooperation and participation of its
personnel as required for such defense.
(d) The warranties and remedies set forth above am exclusive and in lieu of all
others, oral or written, express or implied.
This Section 15 shall survive termination or expiration of this Service
Agreement.
16. SUPERIOR'S BUSINESS
-------------------
As a further condition of this Agreement, Empower expressly recognizes that
Superior has been, and is, in the business of providing services to its
healthcare industry clients, which services include, but are not limited to, the
strategic and operational consulting, design, development, installation,
implementation, enhancement, maintenance, training and support of information
management systems and services of various clients and vendors, including
Superior itself. It is further understood that Empower's information management
systems can, are and will be directly competitive with the business, services
and information systems of other clients and vendors for whom Superior provides
services Except as expressly provided herein, it is understood and agreed that:
1) Superior retains the right to continue to provide the same type of services,
and any other services, to any other client, including competitors of Empower
and customers of Empower; 2) Superior retains the right to carry on and expand
its business including without limitation, that part of its business involved
with the strategic and operational consulting and design, development,
installation, implementation, enhancement, maintenance, training and support of
information management systems and services that are similar to or in
competition with those of Empower, for
Page 12
<PAGE>
Superior's present and future clients. Nothing in this Agreement shall be deemed
in any way to prevent, restrict, or limit Superior in providing strategic and
operational consulting and design, development, installation, implementation,
enhancement, maintenance, training and support of information management systems
or services that are similar: to or in competition with those of Empower, nor to
restrict or limit Superior's use of its expertise and technical skills,
including enhancements of such expertise and skills that may result from its
engagement by Empower provided Superior maintains its obligations of
nondisclosure of Proprietary Information under Paragraph 6.
Empower acknowledges that Superior retains the right to exercise its skills and
expertise and to form and express opinions to its clients that may be based upon
experience gained under this Agreement, including exposure to Proprietary
Information.
17. FORCE MAJEURE
-------------
Neither party shall be responsible for any delay or failure in performance at
any time during the term of this Agreement, caused by flood, riot, insurrection,
fire, earthquake, strike, explosion, war, act of God, Year 2000 failures, the
death of, or incapacitating illness or injury to, identified personnel of
Superior or any other force or cause beyond the control of the party claiming
the protection of this paragraph. of any force majeure condition occurs, the
party whose performance fails or is substantially delayed (the "Delaying Party")
because of such force majeure condition shall give immediate notice to the other
party (the "Non-Delaying Party"), and the protection of this paragraph shall
only begin upon receipt of such notice.
18. TAXES
-----
Empower, shall be responsible for the payment of, or reimbursement to, Superior
or any other entity of any charges or taxes with the exception of income and
payroll taxes, which may hereinafter be imposed or levied with respect to
products or services delivered by Superior-under this Agreement.
19. ASSIGNMENT
----------
Superior shall not assign its obligation to perform services under this
Agreement, except to its subsidiaries and affiliates, without Empower's prior
written consent. Empower shall not assign its obligations under this Agreement,
except to its subsidiaries and affiliates, without Superior's prior written
consent. Any such purported assignment without prior consent shall be void.
Requests for such assignment may not be unreasonably withheld.
20. COMPLIANCE WITH LAW
-------------------
In compliance with Medicare Regulation 42 C.F.R. Section 420.302 and Section
1861(V)(1)(I) of the Social Security Act, Superior agrees to grant access to the
Controller General of the United States, the Department of Health and Human
Services and their duly authorized representatives, to the contractor's and its
subcontractor's and related organization's contracts, books, documents and
records until the expiration of four (4) years after the services are furnished
under this Agreement or subcontract, or such longer period as required by
Empower.
Page 13
<PAGE>
Notwithstanding any other provision, Empower remains responsible for ensuring
that any services provided under this Agreement comply with all Federal, state,
and local statutes, rules and regulations. This statement is inclined for
purposes of compliance with regulations and does not in any manner relieve
Superior of obligations or duties set forth in this Agreement and as provided by
law.
21. NOTICES
-------
Any notices to be given under this Agreement shall be given in writing, either
by hand delivery, personally, to Superior's Engagement Manager or Empowers
Project Liaison, respectively, or by certified mail, return receipt requested as
follows:
If to Superior: Superior Consultant Company, Inc.
4000 Town Center Drive, Suite 1100
Southfield, Michigan 48075
Attn: Richard D. Helppie
With copies to Joel French and Richard Saslow at the
above address
If to Empower: Empower Health Corporation
4008 River Place Blvd.
Austin, TX 78730
Attn: Donald W. Hackett
Notice by either party of a change in its address for purposes of this section
shall be in writing.
22. CHOICE OF LAW AND FORUM
-----------------------
This Agreement will be governed by and interpreted in accordance with the haws
of the
State of Michigan.
23. COMPLETE AGREEMENT
------------------
This Agreement sets forth the full and complete agreement of the parties, and
both parties warrant that there have been no promises, obligations or
undertakings, oral or written, other than those herein set forth. No
modification of the terms of this Agreement shall be effective unless in writing
and signed by both parties.
24. CAPTIONS AND HEADINGS
---------------------
The Captions and Headings throughout this Agreement are for convenience and
reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify, or add to the
interpretation, construction, or meaning of any provision of or the scope or
intent of this Agreement, nor in any way affect the agreement.
Page 14
<PAGE>
25. SAVING CLAUSE
-------------
In the event that any section or clause contained in, this Agreement is found to
be invalid by a court of competent jurisdiction, the remaining sections and
clauses shall remain in full force and effect.
26. AUTHORIZED SIGNATURES
---------------------
Acknowledged and accepted, for Donald W. Hackett (Empower)
-----------------
By /s/ Donald W. Hackett President/CEO 4/30/98
--------------------- ----------------- -----------
Signature Title Date
Acknowledged and accepted, for Superior Consultant Company, Inc.
By James T. House CFO 4/30/98
-------------------- -------------------- -----------
Signature Title Date
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<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 4, 1999, relating
to the financial statements of drkoop.com, Inc., a development stage
enterprise, which appears in such Prospectus. We also consent to the reference
to us under the headings "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Austin, Texas
April 21, 1999
