<PAGE>
As filed with the Securities and Exchange Commission on June 4, 1999
Registration No. 333-73459
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 3
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.
Latham & Watkins Caine T. Moss, Esq.
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. [_]
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 JUNE 4, 1999
PROSPECTUS
9,375,000 Shares
[LOGO OF DRKOOP APPEARS HERE]
drkoop.com, Inc.
Common Stock
------------
This is an initial public offering of 9,375,000 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. Our common stock has been
approved for listing on the Nasdaq National Market under the symbol "KOOP." We
anticipate that the initial public offering price will be between $7.00 and
$9.00 per share.
At our request, the underwriters will reserve at the initial public offering
price up to $10 million of common stock for sale to each of Dell Computer
Corporation, Quintiles Transnational Corp. and FHC Health Systems Investment
Company, L.C., all of whom have expressed a non-binding interest in acquiring
these shares. This would represent an aggregate of 3,750,000 shares of common
stock at the midpoint of the estimated offering price range.
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.
------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price...............................................
Underwriting discounts and commissions..............................
Proceeds, before expenses, to us....................................
</TABLE>
------------
drkoop.com, Inc. has granted the underwriters a 30-day option to purchase up to
an additional 1,406,250 shares of common stock from us at the initial public
offering price less the underwriting discount. The underwriters expect to
deliver the shares on , 1999.
------------
Bear, Stearns & Co. Inc.
Hambrecht & Quist
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 this 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 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 individuals with trusted healthcare content, services and tools to
empower them 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 us to deliver
quality healthcare content to a targeted audience. Affiliates provide local,
relevant information directly to a local audience. Through this unique means of
distribution, drkoop.com is building a leading network of health content and
editorial-based, breaking health news on the Internet."
The following caption is under the logos of the healthcare industry
affiliates: "Through our Community Partner Program, we enroll hospitals and
health systems as local affiliates. 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 130 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, according to commercial software
that we utilize, by June 1, 1999 www.drkoop.com had attracted over 6 million
unique users and enrolled over 280,000 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. Under the Infoseek agreement, 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 $57.9 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
<TABLE>
<C> <S>
Common stock offered........ 9,375,000 shares
Common stock outstanding
after this offering ....... 27,514,591 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."
Nasdaq National
Market symbol.............. KOOP
</TABLE>
- --------
The number of shares of common stock outstanding after this offering is based
on shares outstanding on March 31, 1999. This calculation excludes:
. 10,492,530 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 $0.53 per share (5,240,902 of these
options were exercisable as of March 31, 1999; the balance are subject to
future vesting requirements);
. 1,742,800 shares of common stock issuable upon exercise of options to be
granted contemporaneously with this offering under our 1999 Equity
Participation Plan with an exercise price equal to the public offering
price listed on the cover of this prospectus;
. 33,482 shares of common stock issuable upon exercise of warrants with an
exercise price of $4.78 per share;
. 775,000 shares of common stock issuable upon exercise of warrants with an
exercise price of $8.60 per share; and
. 318,750 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:
. 7,249,667 shares of common stock to be issued upon the conversion of all
outstanding shares of convertible preferred stock;
. 439,187 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
. 1,345,185 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 in March 1999;
. a five-for-two stock split effected in June 1999;
. no exercise by the underwriters of their overallotment option to purchase
up to 1,406,250 additional shares of common stock;
. the conversion of all outstanding shares of our convertible preferred
stock into 7,249,667 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
439,187 shares of common stock upon the closing of this offering; and
. the issuance of 1,345,185 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."
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.
<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) (9,117) (709) (4,097)
Net loss.............. (622) (9,084) (709) (4,128)
Net loss attributable
to common
stockholders......... (622) (23,903) (709) (24,632)
Basic and diluted net
loss per common
share................ $ (.09) $ (2.95) $ (.10) $ (2.63)
====== ======== ====== ========
Weighted average
shares outstanding
used in basic and
diluted net loss per
common share
calculation.......... 6,750 8,100 7,030 8,569
====== ======== ====== ========
Pro forma basic and
diluted net loss per
common share(1)...... $ (.75) $ (.25)
======== ========
Weighted average
shares outstanding
used in pro forma
basic and diluted net
loss per common share
calculated(1)........ 12,111 16,347
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
--------------- -------------------------------------
Pro Forma
1997 1998 Actual Pro Forma(1) As Adjusted(2)
----- -------- -------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................ $ 8 $ -- $ 2,021 $ 2,021 $70,416
Working capital (defi-
cit)................. (649) (2,905) (3,038) (286) 68,109
Total assets.......... 43 380 11,717 11,717 80,112
Convertible note pay-
able................. -- 451 2,741 -- --
Mandatorily redeemable
convertible
(Series B) preferred
stock................ -- 18,940 30,296 -- --
Total stockholders'
equity (deficit)..... (614) (21,527) (24,155) 8,893 77,288
</TABLE>
- --------
(1) Gives pro forma effect to the following:
. the conversion of all outstanding shares of our convertible preferred
stock into 7,249,667 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
439,187 shares of common stock upon the closing of this offering; and
. the issuance of 1,345,185 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 $8.00
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.
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;
8
<PAGE>
. 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.
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
$24.2 million, which included $10.4 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 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
9
<PAGE>
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 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."
We have committed significant financial and marketing resources to expand our
network; if we are unable to earn revenues in excess of these commitments, our
business will suffer.
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. 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, and if we are unsuccessful
in generating sufficient resources to offset these expenditures, we will likely
be unable to operate our business. 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. Under the Infoseek
agreement, 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 $57.9 million.
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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 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.
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.
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In addition, as our market develops, seasonal and cyclical patterns may
emerge. These patterns may affect our revenues. We cannot yet predict to what
extent 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 have recently experienced and are currently experiencing rapid growth in our
business, and our inability to manage this growth could harm 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 the successful integration of our management
team is critical to our ability to effectively manage our operations and
support our anticipated future growth.
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Any future acquisitions we make of companies or technologies may result in
disruptions to our business and/or the distraction of our management, due to
difficulties in assimilating acquired personnel and operations.
We may acquire or make investments in complementary businesses, technologies,
services or products if appropriate opportunities arise. From time to time we
engage in 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.
If our ability to expand our network infrastructure is constrained in any way
we could lose customers and suffer damage to our operating results.
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. 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. For a more complete description of the risks we face relating to our
intellectual property, please see "Business--Intellectual Property."
Year 2000 problems may disrupt our operations which could result in lost
revenues and increased operating costs.
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 a final evaluation of our state of readiness, potential risks and costs,
and to determine to what extent a contingency plan is necessary. Third-party
software, hardware or services incorporated into our systems may need to be
revised or replaced, which could be time consuming and expensive, potentially
resulting in lost revenues and increased costs for us. For a preliminary
evaluation of the potential impact of these Year 2000-related issues on us,
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, and investors should not buy our common
stock expecting to receive 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.
We are subject to anti-takeover provisions in our charter and in our contracts
that could delay or prevent an acquisition of our company, even if such an
acquisition would be beneficial to our stockholders.
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
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 which could cause our business to suffer.
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 use
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healthcare information available on our network, that 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 if we are unable to successfully implement our business
model, our business will be materially adversely affected.
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;
. 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 which could impair our
operations.
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."
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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 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."
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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, which could hinder our ability to generate advertising revenue.
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 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.
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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;
. 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."
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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.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. The net tangible
book value of a share of common stock purchased at an assumed initial public
offering price of $8.00 per share will be only $2.67. You may incur additional
dilution if holders of stock options, whether currently outstanding or
subsequently granted, exercise their options or if warrantholders exercise
their warrants to purchase common stock. Please see "Dilution" for a summary of
this dilution.
The large number of shares eligible for public sale after this offering could
cause our stock price to decline.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in
the market after this offering or the perception that such sales could occur.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate. Please see
"Shares Eligible for Future Sale" for a description of sales that may occur in
the future.
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 58% 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.
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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 $68,395,000 ($78,857,500 if the underwriters'
over-allotment option is exercised in full), assuming an initial public
offering price of $8.00 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 $7.43 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--Any future
acquisitions we make of companies or technologies may result in disruption to
our business and/or the distraction of our management, due to difficulties in
assimilating acquired personnel and operations." 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.
20
<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 into 7,249,667 shares of our common stock and
convertible notes ($2.8 million aggregate principal amount plus accrued
interest) into 439,187 shares of common stock upon the closing of this
offering, and other issuances of 1,345,185 shares of common stock related
to the termination of a purchase option and related anti-dilution
adjustment rights; and
. on a pro forma as adjusted basis to give effect to the sale of the
9,375,000 shares offered hereby at an assumed initial public offering
price of $8.00 per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us.
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 As Adjusted
-------- --------- -----------
(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; 750,000 shares designated; 619,102
shares issued and outstanding actual; no
shares issued and outstanding pro forma or pro
forma as adjusted............................. 1 -- --
Series C convertible preferred stock, $.001 par
value; 3,000,000 shares designated; 2,615,677
shares issued and outstanding actual; no
shares issued and outstanding pro forma or pro
forma as adjusted............................. 3 -- --
Common stock, $.001 par value, 100,000,000
shares authorized; 9,105,552 shares issued and
outstanding actual; 18,139,591 shares issued
and outstanding pro forma; and 27,514,591
shares issued and outstanding pro forma as
adjusted...................................... 9 18 28
Additional paid-in capital..................... 4,284 37,327 105,712
Obligation to issue common stock pursuant to
option cancellation agreement (Note 7)........ 9,147 -- --
Dividend payable to preferred stock holders
(Note 7)...................................... (9,147) -- --
Deferred stock compensation.................... (4,213) (4,213) (4,213)
Accumulated deficit............................ (24,239) (24,239) (24,239)
-------- -------- --------
Total stockholders' (deficit) equity......... (24,155) 8,893 77,288
-------- -------- --------
Total capitalization........................ $ 8,893 $ 8,893 $ 77,288
======== ======== ========
</TABLE>
21
<PAGE>
DILUTION
The pro forma net tangible book value of our company as of March 31, 1999 was
$5,115,580, or $0.28 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 $8.00 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 $73,510,580, or $2.67 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $2.39 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $5.33 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.................... $8.00
Pro forma net tangible book value per share as of March 31,
1999............................................................ $0.28
Pro forma increase in net tangible book value attributable to new
investors....................................................... 2.39
-----
Pro forma net tangible book value per share after this offering.. 2.67
-----
Pro forma dilution per share to new investors.................... $5.33
=====
</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..... 18,139,591 66% $ 37,345,076 33% $2.06
New investors............. 9,375,000 34 75,000,000 67 8.00
---------- --- ------------ --- -----
Total................... 27,514,591 100% $112,345,076 100% $4.08
========== === ============ === =====
</TABLE>
The foregoing tables and calculations are based on shares outstanding on
March 31, 1999 and exclude:
. 10,492,530 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 $0.53 per share (5,240,902 of these
options were exercisable on March 31, 1999; the balance are subject to
future vesting requirements);
. 33,482 shares of common stock issuable upon exercise of warrants with an
exercise price of $4.78 per share;
. 775,000 shares of common stock issuable upon exercise of warrants with an
exercise price of $8.60 per share; and
. 318,750 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:
. 7,249,667 shares of common stock to be issued upon the conversion of all
outstanding shares of convertible preferred stock;
. 439,187 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
. 1,345,185 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.
22
<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 2,704 259 1,418
----- -------- ------ --------
Total operating expenses... 622 9,160 709 4,501
----- -------- ------ --------
Loss from operations....... (622) (9,117) (709) (4,097)
Other income (expense),
net....................... -- 34 -- (31)
----- -------- ------ --------
Net loss................... (622) (9,083) (709) (4,128)
Accretion of redeemable
securities to fair value.. (14,820) -- (11,357)
Dividend to preferred
stockholders.............. -- -- -- (9,147)
----- -------- ------ --------
Loss attributable to common
stockholders.............. $(622) $(23,903) $ (709) $(24,632)
===== ======== ====== ========
Basic and diluted net loss
per common share(1)....... $(.09) $ (2.95) $(0.10) $ (2.87)
===== ======== ====== ========
Weighted average shares
outstanding used in basic
and diluted net loss per
common share
calculation(1)............ 6,750 8,100 7,030 8,569
===== ======== ====== ========
Pro forma basic and diluted
net loss per common
shares(1)(2).............. $ (.75) $ (.25)
======== ========
Weighted average shares
used in computing pro
forma basic and diluted
net loss per common share
calculation(1)(2)......... 12,111 16,347
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------
Pro Forma
December 31, December 31, As
1997 1998 Actual Pro Forma(2) Adjusted(2)
------------ ------------ -------- ------------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 8 $ -- $ 2,021 $2,021 $70,416
Working capital
deficiency............. (649) (2,905) (3,038) (286) 68,109
Total assets............ 43 380 11,717 11,717 80,112
Convertible notes
payable to
stockholder............ -- 451 2,741 -- --
Mandatorily redeemable
convertible (Series B)
preferred stock........ -- 18,940 30,296 -- --
Stockholders' equity
(deficit).............. (614) (21,527) (24,155) 8,893 77,288
</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 7,249,667 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
439,187 shares of common stock upon the closing of this offering; and
. the issuance of 1,345,185 shares of common stock to satisfy in full a
purchase option and related anti-dilution adjustment rights.
23
<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 and software consisting of visual icons
containing embedded links back to the drkoop.com website 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. We recognize advertising
revenues at the lesser of the ratio of impressions delivered over the total
guaranteed impressions or the straight-line rate over the term of the contract,
provided that no significant obligations remain and collection of the resulting
receivable is probable. Our obligations typically include the guarantee of
24
<PAGE>
a minimum number of impressions, or times that an advertisement appears in
pages viewed by the users of the Company's website. 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
pages on the website that enhance the promotional objectives of the sponsor.
Costs associated with the creation of the customized pages are minimal and
expensed as incurred. Sponsorship revenues are recognized at the lesser of the
ratio of impressions delivered over the total guaranteed impressions or the
straight line rate over the term of the contract, provided that no significant
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include the guarantee of a minimum number of
impressions.
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 or anchor tenant rental
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 2,615,677 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 master 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 March 10, 1999, we 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. We will be the premier content provider appearing in the Health
Channel. Under the terms of this agreement, we will have the ability to direct
users to related commerce, community and interactive tool features appearing on
the drkoop.com website from within
25
<PAGE>
all health content appearing in the Health Channel. In addition, we will share
in all advertising revenues generated by @Home in the Health Channel where our
content dominates the related page. We will pay a carriage fee of $2.25 million
to @Home in installments over the term of the agreement.
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. Under the Infoseek agreement, 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 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 $57.9 million in
total consideration consisting of cash and warrants to purchase up to 775,000
shares of common stock for $8.60 per share assuming the agreements run for the
full three years. The cash portion of this obligation is payable as
approximately $16.2 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 $1.5 million and $3.1 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
$107,000 and $314,000 was recorded as compensation expense in 1998 and the
quarter ended March 31, 1999. This accounting treatment will generate non-cash
amortization expense of $2.0 million in 1999, $1.4 million in 2000, $748,000 in
2001, $311,000 in 2002 and $31,000 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 $24.2 million
including $10.4 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 negative cash flow 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
26
<PAGE>
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 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
by $1.8 million 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 $1.2 million, or 447%, to $1.4 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,
27
<PAGE>
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 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 $2.7 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 1,016 2,048
General and
administrative........ 161 2,704 259 562 870 1,012 1,418
----- ------- ----- ------- ------- ------- -------
Total operating
expenses............. 622 9,160 709 1,415 3,363 3,673 4,501
----- ------- ----- ------- ------- ------- -------
Loss from operations..... (622) (9,117) (709) (1,415) (3,363) (3,630) (4,097)
Interest income
(expense)............... -- 33 -- 14 13 6 (31)
----- ------- ----- ------- ------- ------- -------
Net loss................. $(622) $(9,084) $(709) $(1,401) $(3,350) $(3,624) $(4,128)
===== ======= ===== ======= ======= ======= =======
</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 of $709,000 offset by
increases in accounts payable and accrued expenses of $75,000 and $158,000,
respectively. Cash used in operating activities for the quarter ended March 31,
1999 of $3.7 million resulted primarily from net operating losses of $3.9
million, a decrease in related party payable of $1.1 million and an increase in
accounts receivable of $365,000, partly offset by an increase in accrued
expenses of $807,000 and deferred revenue of $544,000. The increase in accounts
receivable and deferred-revenue amounts are attributable primarily to Community
Partner Program contracts. Net cash used in operating activities was $6.8
million for the year ended December 31, 1998 primarily attributable to net
operating losses of $9.0 million offset by increases in accounts payable,
accrued expenses and related party payable of $747,000, $458,000 and $872,000,
respectively. 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 of
$58,000, $62,000 and $537,000, respectively, offset by a net operating loss of
$622,000.
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 619,102 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 671,727 shares
of common stock upon the closing of this offering.
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On April 28, 1998, we issued 3,850,597 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 3,962,265 shares of
common stock upon the closing of this offering. In connection with this
transaction we gave Superior the right to require us to repurchase their shares
for the current fair market price during each of the 90-day periods following
April 28, 2000 and April 28, 2001. Due to these terms, we are required under
generally accepted accounting principles to accrete the Series B Non-voting
Preferred Stock to its fair value for the periods reported. We incurred a
charge for accretion to fair value for the redeemable stock of $8.7 million for
the year ended December 31, 1998 which resulted in a fair value of $12.8
million as of December 31, 1998. We incurred a charge of $17.5 million for the
quarter ended March 31, 1999 which resulted in a fair value of $30.3 million as
of March 31, 1999. Upon the completion of an underwritten public offering 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, the Series B Non-voting Preferred Stock is required to be converted
into common stock. Upon conversion to common stock, the repurchase right held
by Superior as holder of Series B Non-voting Preferred Stock terminates. In
addition, Superior received the right to purchase an additional
3,850,597 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
1,210,665 shares of common stock, valued at $8.2 million, including shares to
be issued as an anti-dilution adjustment. In addition, 134,520 shares, valued
at $900,000, 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 33,482 shares of Series C Preferred Stock for an
exercise price of $4.78 per share, which will become the right to purchase
33,482 shares of common stock for $4.78 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 $4.78 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 2,615,677 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 recorded
our 10% ownership in Healthmagic at $5.0 million as investment in affiliate. 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. We did not attribute any value
to the desktop-based PMR technology we contributed to HealthMagic as we believe
the fair value was zero. We recorded the license received from HealthMagic as
an intangible asset in the total amount of $4.5 million.
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 $7.43 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 $4.78 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
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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 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.
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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 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.
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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 June 1, 1999, www.drkoop.com had
attracted over 6 million unique users and enrolled over 280,000 registered
users, according to commercial software that we utilize. 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
130 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
130 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 130 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.
Under the Infoseek agreement, 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 $57.9 million
in total consideration consisting of cash and warrants to purchase 775,000
shares of common stock at an exercise price of $8.60 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.
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 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.
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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 of $2.25 million 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 2.6 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 14 million residents of Los Angeles and Orange
Counties in California. MemorialCare offers Southern Californians four
major medical centers and a children's hospital, as well as a number of
subsidiary facilities.
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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 500,000 individuals.
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 1.8
million residents of Central Texas as well as patients from throughout
the United States and many foreign countries.
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
3.5 million residents of the Miami area.
Promina Health Systems. Promina Health Systems is a local, not-for-
profit organization created by local doctors and hospitals who have
come together to protect and improve community-based health care for
the 4.3 million residents of metro Atlanta.
Contracts we enter into under our Community Partner Program typically
specify performance standards that require us to:
. provide up to 10 customized website pages;
. maintain operation of our website for at least 95% of the time;
and/or
. provide monthly traffic reports to our community partners.
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 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.
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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. Under
the Community Partner Program, we develop co-branded Internet pages and
software consisting of visual icons containing links back to the drkoop.com
website for local healthcare organizations, such as hospitals and payor
organizations. 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 plan to 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, are being designed to be 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 are also offering e-commerce anchor tenant
positions to online and traditional pharmacies on a category-exclusive
basis to allow consumers to link to their online stores. We receive an
annual rental fee for these anchor tenant positions. Our first contract is
with Vitamin Shoppe, an online vitamin and supplement company. We also
intend to offer anchor tenant positions for the online pharmacy on the Go!
Health Network.
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 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.
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. 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. 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
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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 our
personal medical record feature and for personalization tools currently in
development.
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:
. 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 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.
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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 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.
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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 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
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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, 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.
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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 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.
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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.
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
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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 232,500 shares of our common
stock which he claims are owed to him under the consulting agreement. In the
event an injunction is granted, we will not complete this offering in a timely
manner, if at all. We believe that the claims made by plaintiff are without
merit and intend to defend this lawsuit vigorously. We filed a counterclaim
against the plaintiff on April 27, 1999 in which we allege causes of action
including breach of contract, fraudulent inducement, breach of fiduciary duty
and professional malpractice.
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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(2)........ 64 Vice Chairman of the Board of Directors
Donald W. Hackett......... 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(1)(2).. 43 Director
Mardian J. Blair.......... 67 Director
G. Carl Everett,
Jr.(1)(2)................ 48 Director
Richard D. Helppie, Jr.... 43 Director
Nancy L. Snyderman,
M.D.(1).................. 47 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. C. Everett 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.
C. Everett Koop is also a frequent lecturer on healthcare topics. An
internationally respected pediatric surgeon, Dr. C. Everett 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. C.
Everett 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. C. Everett 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. C.
Everett 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.
C. Everett Koop is also the recipient of numerous honors and awards, including
35 honorary doctorates. Dr. C. Everett Koop serves as our Chief Medical
Officer. In this role, he oversees and sets policies and standards for all
content on the website and keeps current with respect to medical issues in the
political and national arenas. Dr. C. Everett Koop is our liaison to the
medical community. He also is our primary spokesperson, making many appearances
on our behalf.
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 Advisor 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
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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 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, Inc., an international
media company, including President of the Interactive Media and Development
Group. Mr. Ballowe is Chairman of the Board of Deja News, Inc. and is a
director of VerticalNet, Xoom.com and ZDTV, a unit of Ziff-Davis, Inc.
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.
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<PAGE>
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 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.
Peter Brumleve, 44, joined drkoop.com in May 1999 and serves as our Executive
Vice President and General Manager, Health Division. From August 1994 until
joining drkoop.com Mr. Brumleve was the Chief Marketing Officer and Chairman,
Division of Marketing of the Cleveland Clinic Foundation and the Cleveland
Clinic Health System. Prior to that Mr. Brumleve held the position of Group
Vice President for Planning and Marketing with Group Health Corporation of
Puget Sound.
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.
Keith Schaefer, 49, serves as our Executive Vice President and General
Manager, New Media Division. From August 1997 until joining drkoop.com, Mr.
Schaefer was Executive Partner for USWeb/CKS, a
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<PAGE>
professional services firm, where he was responsible for worldwide business
development. From 1994 to August 1997 he was co-founder of Cybernautics, an
Internet communications company. Prior to Cybernautics, he was Vice President
of Technology at Paramount Communications.
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).
Sara B. Wells, 38, has served as our Senior Vice President Sales, Healthcare
Division since May 1999. From January 1998 until joining drkoop.com, Ms. Wells
was Senior Vice President of Sales at Abaton.com, a provider of web-based
clinical solutions. From April 1997 until January 1998, she was Regional Vice
President of Sales for Per-Se Technologies, a provider of healthcare business
systems.
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 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. Ballowe, Everett 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. Ballowe and Everett.
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.
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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 37,500 shares
of common stock upon initial appointment to the board of directors and an
additional grant of options to purchase 12,500 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 183,750 shares of common stock with an exercise price of $0.12 per
share. Mr. Helppie received an option to purchase 112,500 shares of common
stock with an exercise price of $0.16 per share. In 1999 we have granted to
Messrs. Blair, Everett and Ballowe options to purchase 87,500, 87,500 and
87,500 shares, respectively. Each option has an exercise price of $4.78 per
share. As noted above, additional grants may be made in the future. All
directors are also 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. Ballowe and
Everett. 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.
On April 28, 1998, we entered into a series of agreements with Superior.
Pursuant to the terms of a stock purchase agreement, Superior purchased
3,850,592 shares of our Series B Non-Voting Preferred Stock for a purchase
price of $6,000,000. These shares will convert into 3,962,265 shares of common
stock upon the closing of this offering. We also entered into an option and put
agreement with Superior. The option and put agreement will terminate upon the
closing of this offering in exchange for the issuance of 1,210,665 shares of
common stock, valued at $8.2 million, to Superior plus 134,520 shares, valued
at $900,000, to be issued to Adventist Health System Sunbelt Healthcare
Corporation to satisfy an anti-dilution right held by them.
On April 29, 1998, we entered into a service agreement with Superior that
obligates us to provide $3.0 million in professional services revenue to
Superior prior to September 1999. During the year ended December 31, 1998, we
paid Superior approximately $1.5 million for services under this agreement.
Please see "Certain Transactions."
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
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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 337,500 shares of common stock and,
upon closing of this offering, will receive an option to purchase an additional
150,000 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 337,500 shares of common stock and, upon
the closing of this offering, Ms. Georgen-Saad will receive an option to
purchase an additional 150,000 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.
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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
$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 713,437 shares of common
stock with a weighted average exercise price of $0.11 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 938,437 shares of common stock with a weighted average exercise price of
$0.08 per share. Options to purchase 225,000 shares will be fully vested on
July 17, 1999. The other options to purchase 713,437 shares of common stock
vested immediately on the date of grant.
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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 183,750
shares of our common stock with an exercise price of $0.16 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.
<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 -- 2,061,975
Robert C. Hackett, Jr., Executive Vice
President................................... $144,750 -- 465,000
Louis A. Scalpati, Senior Vice President,
Chief Architect............................. $129,750 -- 367,500
</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 initial public offering
price of $8.00 per share and the assumption that our common stock appreciates
at he annual rate shown, compounded annually, from the date of
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grant until the expiration of the option 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....... 975,000 15% $.13 $8.00 3/24/03 $ 9,828,246 $12,435,228
Donald W. Hackett....... 1,086,975 16% $.13 $8.00 4/27/03 $10,956,982 $13,863,366
Robert C. Hackett,
Jr. ................... 465,000 7% $.12 $8.00 3/24/08 $ 6,003,688 $ 9,592,922
Louis A. Scalpati....... 367,500 5% $.12 $8.00 3/24/08 $ 4,744,850 $ 7,581,503
</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 6,709,512 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 $8.00 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.......... 1,127,682 1,546,480 8,874,865 12,170,798
Robert C. Hackett, Jr. .... 1,008,750 112,500 7,948,950 886,500
Louis A. Scalpati.......... 1,000,312 187,500 7,882,463 1,477,500
</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 11,250,000 shares of common
stock. To date we have granted options to purchase an aggregate of 11,116,902
shares of common stock to employees, directors and consultants under the 1997
Plan with a weighted average exercise price of $0.53 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 contemporaneously with
the completion of this offering and thereafter no further grants will be made
under the 1997 Plan. Options to purchase an aggregate of 1,742,800 shares of
common stock with an exercise price equal to the public offering price listed
on the cover of this prospectus will be granted under the 1999 Plan
contemporaneously with this offering. Up to 3,750,000 shares of common stock
may be issued under the 1999 Plan.
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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 37,500 shares of common stock upon initial election to the board of
directors and 12,500 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 1,250,000 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 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.
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 318,750 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.
Employee Stock Purchase Plan. The drkoop.com 1999 Employee Stock Purchase
Plan was adopted by the Board in June 1999 and approved by the stockholders in
June 1999. A total of 750,000 shares of
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common stock has been reserved for issuance under the purchase plan. As of the
date of this prospectus, no shares have been issued under the purchase plan.
The purchase plan, which is intended to qualify under Section 423 of the
Code, contains consecutive offer periods that are generally six months in
duration. The offer periods start and end on February 15 and August 15 of each
year, except for the first two offer periods, which will commence on the date
immediately preceding the first date on which a share of common stock is traded
on an exchange or quoted on Nasdaq or a successor quotation system, and on
August 15, 1999, respectively, and will end on February 15, 2000.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week. However, no
employee may be granted a right to purchase stock under the purchase plan (1)
to the extent that, immediately after the grant of the right to purchase stock,
the employee would own (or be treated as owning) stock possessing 5% or more of
the total combined voting power or value of all classes of the capital stock of
the Company or (2) to the extent that his or her rights to purchase stock under
all of our employee stock purchase plans accrues at a rate which exceed $25,000
worth of stock for each calendar year. The purchase plan permits participants
to purchase common stock through payroll deductions of up to 15% of the
participant's base compensation. Base compensation is defined as the
participant's gross base compensation, excluding overtime payments, sales
commissions, incentive compensation, bonuses, expense reimbursements, fringe
benefits and other special payments. The maximum number of shares a participant
may purchase with respect to a single offer period is 10,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offer period. The price of stock
purchased under the purchase plan is 85% of the lesser of the fair market value
of the common stock (1) the first day of the offer period or (2) the last day
of the offer period. Participants may end their participation at any time other
than the final fourteen days of an offer period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination
of employment with the Company.
Rights to purchase stock granted under the purchase plan are not transferable
by a participant other than by will, the laws of descent and distribution, or
as otherwise provided under the purchase plan. The purchase plan provides that,
in the event of a merger of the Company with or into another corporation or a
sale of substantially all of the Company's assets, each outstanding right to
purchase stock may be assumed or substituted for by the successor corporation.
The Board has the authority to amend or terminate the purchase plan. However,
no such action by the Board may adversely affect any outstanding rights to
purchase stock under the purchase plan, except that the Board may terminate an
offer period on any exercise date if the board of directors determines that the
termination of the purchase plan is in the best interests of the Company and
its stockholders.
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 under our compensatory stock plans 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 18,139,591 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 This Offering
------------------------------------------------
Beneficial Owner Number Percent Number Percent
---------------- ------------- ----------------------- ----------
<S> <C> <C> <C> <C>
C. Everett Koop, M.D. (1)...... 2,543,505 11% 2,543,505 7%
John F. Zaccaro (2)............ 1,643,505 7 1,643,505 4
Donald W. Hackett (3).......... 7,058,402 30 7,058,402 19
Jeffrey C. Ballowe ............ -- * -- *
Mardian J. Blair (4)........... 2,750,195 12 2,750,195 7
Adventist Health System Sunbelt 2,750,195 12 2,750,195 7
Healthcare Corporation........
111 North Orlando Avenue
Winter Park, Florida 32789
G. Carl Everett, Jr. .......... -- * -- *
Richard D. Helppie, Jr. (5).... 5,201,055 22 5,201,055 14
Superior Consultant Holdings 5,172,930 22 5,172,930 14
Corporation...................
4000 Town Center, Suite 1100
Southfield, Michigan 48075
Nancy L. Snyderman, M.D. (6)... 367,500 2 367,500 1
Robert C. Hackett, Jr. (7)..... 1,233,750 5 1,233,750 3
Louis A. Scalpati (8).......... 1,375,312 6 1,375,312 4
All directors and executive
officers as a group (10
persons)...................... 22,173,224 94 22,173,224 58
</TABLE>
- --------
(1) Includes 713,437 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
(2) Includes 938,437 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 1,643,177 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
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(4) Consists of 2,615,677 shares of common stock held by Adventist Health
Systems Sunbelt Healthcare Corporation and 134,520 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 3,962,265 shares of common stock held by Superior Consultant
Holdings Corporation, 1,210,665 shares of common stock that will be issued
to Superior upon the closing of this offering and 28,125 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 367,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
(7) Includes 1,008,750 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
(8) Includes 1,000,312 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 31, 1999.
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CERTAIN TRANSACTIONS
Series A Financing
From March 1, 1998 through April 6, 1998, we issued 619,102 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 671,727 shares
of common stock upon the closing of this offering. Three members of Donald W.
Hackett's immediate family purchased 104,505 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 3,850,597 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 3,962,265 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.
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 3,850,597
shares of Series B Preferred Stock (convertible into 3,962,265 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 1,210,665 shares
of common stock, valued at $8.2 million to Superior plus 134,520 shares valued
at $900,000, 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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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 2,615,677 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 related agreements call 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.
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. Under
the terms of the license, drkoop.com and HealthMagic will share in revenues
generated from activities related to the licensed technology. However, in the
event that HealthMagic grants more favorable revenue sharing terms to a third
party, drkoop.com's revenue share will be adjusted to match the other terms. In
addition, drkoop.com has agreed not to develop, support or distribute any
product that significantly duplicates the functionality of the web-enabled
personal medical record. The license is nonexclusive and has a term of 99
years. In general, neither party may assign, delegate or transfer any right or
obligation under this license. HealthMagic may also develop similar
technologies that it licenses to our competitors.
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. Under the agreement, Adventist has the right, over a period of
three years, to enroll affiliates in our Community Partner Program. Each
Community Partner Program affiliate agreement has a term of one year. Mardian
J. Blair, a director of our company, is president of Adventist. To the extent
that our board of directors determines that a potential conflict of interest
exists between our company and either Adventist or HealthMagic, Mr. Blair
abstains from discussions and voting on matters concerning Adventist or
HealthMagic.
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 $7.43.
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 1,800,360 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
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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 183,750 shares of common stock for an exercise price of
$0.12 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
183,750 shares of common stock for an exercise price of $0.16 per share as
compensation for her services as a director. All of these options vested
immediately on the date of grant. Please see "Other Consulting Agreements with
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 11 to the financial statements.
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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
100,000,000 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 18,139,591 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 33,482 shares of Series C Preferred Stock
for an exercise price of $4.78 per share, which will become the right to
purchase 33,482 shares of common stock for $4.78 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 $4.78 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 775,000 shares of common stock at an exercise price of $8.60 per
share.
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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 8,124,017 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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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.
71
<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 and Trust Company.
Listing
We have applied to have our common stock admitted for quotation on the Nasdaq
National Market under the symbol "KOOP."
72
<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--The
sale of shares eligible for future sale and expectations of future sales of
these shares could depress share prices.
Upon the closing of this offering, we will have an aggregate of 27,514,591
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, 5,625,000 of 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 other 3,750,000 shares
sold in this offering will be available for sale in the public market after 180
days from the date of this prospectus. The remaining 18,139,591 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, shares will be available for sale in the public market as
follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
5,625,000 After the date of this prospectus
1,891,105 At various times after 90 days from the date of this prospectus
(Rule 144)
19,998,486 At various times after 180 days from the date of this prospectus
(subject, in some cases, to volume limitations)
</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 275,146 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 16,248,486
shares in the aggregate 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."
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of March 31, 1999, the holders of options exercisable into
approximately 10,492,531 shares of common stock
73
<PAGE>
will be eligible to sell their shares on the expiration of the 180-day lockup
period or subject in some cases to vesting of such options.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
the Amended and Restated 1997 Stock Option Plan, the 1999 Equity Participation
Plan and the 1999 Employee Stock Purchase Plan within 180 days after the date
of this prospectus, thus permitting the resale of such shares by nonaffiliates
in the public market without restriction under the Securities Act.
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
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--The sale of shares eligible for future sale and expectations of
future sales of these shares could depress share prices."
Following this offering, holders of 8,090,534 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 and accrued interest are convertible into an aggregate
of up to 439,187 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.
74
<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., Hambrecht & Quist LLC
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. ..........................................
Hambrecht & Quist LLC .............................................
Wit Capital Corporation............................................
---------
Total............................................................ 9,375,000
=========
</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 1,406,250 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, assuming an initial public
offering price of $8.00 per share.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us............................... $ .56 $5,250,000 $6,037,500
Expenses payable by us.................... $ .14 $1,355,000 $1,355,000
</TABLE>
At the request of drkoop.com, the underwriters will reserve up to an
aggregate of $30 million of common stock at the initial public offering price
for sale to Dell Computer Corporation, Quintiles Transactional Corp. and FHC
Health Systems Investment Company, L.C. This would represent 3,750,000 shares
of common stock at the midpoint of the estimated offering price range. We
cannot assure you that any of these reserved shares will be purchased. Dell
Computer Corporation, Quintiles Transactional Corp. and FHC Internet Services,
L.C. will each agree that, if it purchases any shares of common stock or other
securities of drkoop.com, it will not sell or otherwise dispose of such shares
or securities until six months after this offering. Any other strategic
partners will also be required to agree to a similar lock-up.
The price of shares reserved for Dell Computer Corporation, Quintiles
Transactional Corp. and FHC Health Systems Investment Company will be the
initial public offering price on the cover page of this prospectus. The number
of shares available to the general public will be reduced to the extent these
entities purchase the reserved shares. Any reserved shares not purchased by
them at the closing of the public offering will be offered by the underwriters
to the general public on the same terms as the other shares offered by this
prospectus.
The underwriters, at the request of drkoop.com, have reserved for sale at the
initial public offering price up to 500,000 shares of common stock to be sold
in this offering for sale to our employees 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 16,248,486 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.
76
<PAGE>
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 been approved for 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
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 (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of that firm as experts in auditing and accounting.
77
<PAGE>
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.
78
<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, except for Note 14, for which the date is May 13, 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 assets, 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 5)... -- -- -- --
Mandatorily redeemable
convertible (Series B)
preferred stock;
liquidation preference of
$2,998,408 (Note 7)...... -- 18,939,627 30,296,306 --
Stockholders' equity
(deficit):
Convertible preferred
stock: $0.001 par
value; 15,000,000
shares authorized:
Series A 750,000 shares
designated; 619,102
shares issued and
outstanding;
liquidation preference
of $790,639 and
$805,498 (unaudited)
at December 31, 1998
and March 31, 1999.... -- 619 619 --
Series C 3,000,000
shares designated:
2,615,677 shares
issued and outstanding
(unaudited);
liquidation preference
of $12,440,162........ -- -- 2,616 --
Common stock: $0.001 par
value; 15,000,000
shares authorized at
December 31, 1998,
25,000,000 shares
authorized at March 31,
1999, and 75,000,000
shares authorized pro
forma; 6,750,000 and
8,550,360 shares issued
and outstanding in 1997
and 1998, 9,105,552
(unaudited) and
18,139,591 (unaudited)
shares at March 31,
1999, actual and pro
forma.................. 6,750 8,550 9,106 18,139
Additional paid-in
capital................ 2,250 -- 4,283,913 37,326,937
Deferred stock
compensation........... -- (1,425,047) (4,212,495) (4,212,495)
Amounts receivable from
common stockholders.... (1,300) -- -- --
Accumulated deficit..... (621,958) (20,111,318) (24,239,223) (24,239,223)
--------- ------------ ------------ ------------
Total stockholders'
equity (deficit)..... (614,258) (21,527,196) (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 2,703,500 2,864,829 259,244 1,418,454
---------- ------------ ------------ --------- ------------
Total operating
expenses........... 621,958 9,159,997 9,781,955 708,887 4,501,198
---------- ------------ ------------ --------- ------------
Loss from operations.... (621,958) (9,117,263) (9,739,221) (708,887) (4,096,983)
Interest income
(expense).............. -- 33,646 33,646 -- (30,922)
---------- ------------ ------------ --------- ------------
Net loss.............. (621,958) (9,083,617) (9,705,575) (708,887) (4,127,905)
Accretion of redeemable
securities to fair
value.................. -- (14,819,627) (14,819,627) -- (11,356,679)
Dividend to preferred
stockholders (Note 7).. -- -- - -- (9,147,258)
---------- ------------ ------------ --------- ------------
Loss attributable to
common stockholders.... $ (621,958) $(23,903,244) $(24,525,202) $(708,887) $(24,631,842)
========== ============ ============ ========= ============
Net loss per share--
basic and diluted...... $ (.09) $ (2.95) $ (3.21) $ (.10) $ (2.87)
========== ============ ============ ========= ============
Shares used in per share
calculations--basic and
diluted................ 6,750,000 8,100,270 7,650,180 7,030,055 8,568,867
========== ============ ============ ========= ============
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (.75) $ (.25)
============ ============
Shares used in pro forma
calculations--basic and
diluted (unaudited).... 12,110,670 16,347,347
============ ============
</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..... -- $ -- 6,750,000 $6,750 $ 2,250 $ -- $(1,300) $ -- $ 7,700
Net loss.......... -- -- -- -- -- -- -- (621,958) (621,958)
--------- ------ --------- ------ ----------- ----------- ------- ------------ ------------
Balance at
December 31,
1997.............. -- -- 6,750,000 6,750 2,250 -- (1,300) (621,958) (614,258)
Issuance of Series
A preferred stock
for cash,
net of issuance
costs of $6,232... 525,750 526 -- -- 624,140 -- -- -- 624,666
Issuance of Series
A preferred stock
for services...... 93,352 93 -- -- 111,932 -- -- -- 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........... -- -- 1,800,360 1,800 214,243 -- -- -- 216,043
Payment received
on amounts
receivable from
common
stockholders...... -- -- -- -- -- -- 1,300 -- 1,300
Deferred stock
compensation...... -- -- -- -- 1,531,880 (1,531,880) -- -- --
Amortization of
deferred stock
compensation...... -- -- -- -- -- 106,833 -- -- 106,833
Issuance of
warrant to
convertible note
holder............ -- -- -- -- 49,439 -- -- -- 49,439
Accretion of
redeemable
securities to fair
value............. -- -- -- -- (4,413,884) -- -- (10,405,743) (14,819,627)
Net loss.......... -- -- -- -- -- -- -- (9,083,617) (9,083,617)
--------- ------ --------- ------ ----------- ----------- ------- ------------ ------------
Balance at
December 31,
1998.............. 619,102 619 8,550,360 8,550 -- (1,425,047) -- (20,111,318) (21,527,196)
Issuance of Series
C preferred stock
for cash and
investment
(unaudited)....... 2,615,677 2,616 -- -- 12,497,384 -- -- -- 12,500,000
Issuance of
warrant to
convertible note
holder
(unaudited)....... -- -- -- -- 29,663 -- -- -- 29,663
Exercise of stock
options
(unaudited)....... -- -- 555,192 556 12,018 -- -- -- 12,574
Deferred stock
compensation
(unaudited)....... -- -- -- -- 3,101,527 (3,101,527) -- -- --
Amortization of
deferred stock
compensation
(unaudited)....... -- -- -- -- -- 314,079 -- -- 314,079
Obligation to
issue common stock
pursuant to option
cancellation
agreement (Note
7)................ -- -- -- -- 9,147,258 -- -- -- 9,147,258
Dividend payable
to preferred
stockholder (Note
7)................ -- -- -- -- (9,147,258) -- -- -- (9,147,258)
Accretion of
redeemable
securities to fair
value
(unaudited)....... -- -- -- -- (11,356,679) -- -- (11,356,679)
Net loss
(unaudited)....... -- -- -- -- -- -- -- (4,127,905) (4,127,905)
--------- ------ --------- ------ ----------- ----------- ------- ------------ ------------
Balance as of
March 31, 1999
(unaudited)....... 3,234,779 $3,235 9,105,552 $9,106 $ 4,283,913 $(4,212,495) $ -- $(24,239,223) $(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) $(9,083,617) $(9,705,575) $(708,887) $(4,127,905)
Depreciation and
amortization........ 6,941 64,090 71,031 5,036 258,631
Amortization of
deferred stock
compensation........ -- 106,833 106,833 -- 314,079
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
reincorporated in the State of Delaware as drkoop.com, Inc. on March 24,
1999. 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
F-7
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
year ended December 31, 1998. Such interim financial statements have been
prepared in conformity with 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 at the lesser of
(i) the ratio of impressions delivered over the total guaranteed
impressions or (ii) the straight-line rate over the term of the contract,
provided that no significant obligations remain and collection of the
resulting receivable is probable. Company obligations typically include the
guarantee of a minimum number of impressions or times that an advertisement
appears in pages viewed by the users of the Company's website.
The Company has entered into revenue sharing arrangements whereby it is
entitled to revenue sharing for advertising revenue derived from
advertisements delivered on partner sites which display the Company's
content. The Company recognizes advertising revenue under revenue sharing
arrangements as the related impressions or pages are delivered, based on
information obtained from our partner, provided that no significant
obligations remain and collection of the resulting receivable is probable.
Advertising revenues earned under these revenue sharing arrangements from
partner websites are recorded net of commissions as the commissions are not
contractual obligations of the Company. Revenues derived from advertising
arrangements where the Company contracts directly with the advertiser are
recorded at the gross contract amount and commissions paid to obtain these
advertisements are recorded as selling expense.
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
F-8
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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 pages on the web-
site that enhance the promotional objectives of the sponsor. Costs
associated with the creation of the customized pages are minimal and
expensed as incurred. Sponsorship revenues are recognized at the lesser of
the ratio of impressions delivered over the total guaranteed impressions or
the straight line rate over the term of the contract, provided that no
significant obligations remain and collection of the resulting receivable
is probable, Company obligations typically include the guarantee of a
minimum number of impressions or times that an advertisement appears in
pages viewed by the users of our web-site.
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 equivalent to cost of revenue and
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.
F-9
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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.
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 (6,757,457 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.
F-10
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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....................................... 8,100,270 8,568,867
Effect of convertible securities:
Convertible preferred stock........................ 3,201,282 6,406,840
Common stock issued to satisfy purchase option and
anti-dilution right held by a stockholder......... 807,110 1,210,665
Convertible notes payable and interest payable to
stockholders...................................... 2,008 160,975
---------- ----------
Shares used in pro forma calculation............. 12,110,670 16,347,347
========== ==========
</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. 33 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.
3. 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.
4. 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
$4.78 per share equivalent to the share price for the sale of Series C
preferred stock completed subsequent to December 31, 1998 and more fully
described in footnote 13.
F-11
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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 20,927 shares of
a total of 33,482 shares were deemed outstanding based upon the cash
received as of that date. Warrants for the remaining 12,555 shares were
deemed outstanding upon funding of the remaining $300,000 in January 1999.
The exercise price is $4.78 per share, subject to anti-dilution provisions,
and is equivalent to the share price for the sale of Series C preferred
stock completed subsequent to December 31, 1998 and more fully described in
footnote 13. 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 $2.36 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 $7.43 per share.
5. 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
F-12
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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 232,500 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 7, the preferred stockholder has agreed
to terminate the option and put agreements upon the completion of a
specified offering, in exchange for 1,210,665 shares of common stock,
valued at approximately $8.2 million, and 134,520 shares, valued at
approximately $900,000, to be issued to satisfy an antidilution right held
by the Series C stockholder. These amounts have been reflected as dividends
to preferred stockholders.
6. 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.
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.
F-13
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
7. 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 13,781,145 shares as $.001 par value Series B Convertible Non-
Voting Preferred Stock. On April 28, 1998, the Company issued 3,850,597
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 $0.78 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
3,962,265 shares of common stock, or the number of shares of preferred
stock convertible into 3,962,265 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 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 agreement in exchange for 1,210,665 shares of
common stock, valued at approximately $8.2 million (an additional 134,520
shares, valued at approximately $900,000 will be issued to the Series C
holder pursuant to antidilution protection provisions). These amounts have
been reflected as dividends to preferred stockholders.
The Company allocated the $6.0 million of proceeds as follows: $4.1 million
to the Series B stock and $1.9 million 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. The per share redemption value is $4.78 as of
December 31, 1998.
In conjunction with the January 1999 equity financing (Note 13), 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.
F-14
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
8. Capital Stock
The authorized capital stock of the Company consists of 25,000,000 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 750,000 shares of its authorized preferred stock as
Series A 8% convertible preferred stock. From March 1, 1998 through April
6, 1998, the Company issued 619,102 Series A preferred shares for $742,923
including 104,505 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 $0.096 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 $1.20 per share plus an amount equal to all accumulated
and unpaid dividends thereon which totaled $47,716 at December 31, 1998.
9. Stock Option Plan
The Company has established the 1997 Stock Option Plan under which
3,750,000 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 7,500,000 shares to 11,250,000
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
F-15
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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........................... 3,750,000 -- $ --
Options granted.............................. -- 2,851,500 0.02
Options canceled............................. -- -- --
Options exercised............................ -- -- --
---------- --------- -----
Balances, December 31, 1997.................. 3,750,000 2,851,500 0.02
Options authorized........................... 7,500,000 -- --
Options granted.............................. -- 6,822,012 0.13
Options canceled............................. -- (69,180) 0.10
Options exercised............................ -- -- --
---------- --------- -----
Balances, December 31, 1998.................. 11,250,000 9,604,332 $0.10
========== ========= =====
</TABLE>
<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>
$0.01 868,245 8.50 $0.01 433,787 $0.01
$0.03 1,970,325 9.00 0.03 1,842,827 0.03
$0.12 - $0.13 5,159,700 9.25 0.12 2,960,868 0.12
$0.16 1,606,062 9.75 0.16 183,750 0.16
--------- ---------
$0.01 - $0.16 9,604,332 9.21 $0.10 5,421,232 $0.08
========= =========
</TABLE>
At December 31, 1997 and 1998, 1,970,250 and 5,421,232 options were vested,
respectively.
During 1997 and 1998 the Company issued stock options under the 1997 Stock
Option Plan, with the following weighted average fair values:
<TABLE>
<CAPTION>
Options Weighted Average
Granted Fair Value
--------- ----------------
<S> <C> <C>
At fair value................................. 5,178,038 $0.08
Below fair value.............................. 1,821,312 $0.99
Above fair value.............................. 2,674,162 $0.10
</TABLE>
F-16
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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) $(9,083,617)
Pro forma...................................... $(629,445) $(9,142,413)
</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 1,355,497 stock options under the 1997 plan and 87,893
additional stock options with weighted average exercise prices of $3.37 and
$.01, respectively, during the three month period ending March 31, 1999.
During this period, 555,192 options were exercised with a weighted average
exercise price of $0.02 per share.
Contingent upon the successful completion of this offering, certain
officers and employees will receive 318,750 options with an exercise price
equivalent to the offering price.
10. 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>
F-17
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
11. 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 7)............. $ -- $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 1,800,360 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
183,750 shares at an exercise price of $0.16 per share. The Company
recorded deferred stock compensation in the amount of $28,664 related to
the option grant.
F-18
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
12. 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) $ -- $ (1,853,726)
====== ========== ========== ======== ============
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 $ -- $ 98,198
====== ========== ========== ======== ============
Issuance of preferred
stock for investment in
affiliate.............. $ -- $ -- $ -- $ -- $ 5,000,000
====== ========== ========== ======== ============
Issuance of preferred
stock for intangible
asset.................. $ -- $ -- $ -- $ -- $ 4,000,000
====== ========== ========== ======== ============
Obligation to issue
common stock pursuant
to option cancellation
agreement.............. $ -- $ -- $ -- $ -- $ 9,147,258
====== ========== ========== ======== ============
</TABLE>
13. 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
2,615,677 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). HealthMagic is a supplier of applications to
Internet companies. 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,
which the Company had assigned a zero value, 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, based on the economic life
of the technology.
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 21,982 shares of Series C
preferred stock and Series C stockholders received 134,520 shares of Series
C preferred stock.
F-19
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
We also entered into selected agreements with HealthMagic and Adventist
which provide for registration rights and specified transfer restrictions.
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.
In addition, on January 29, 1999, the Company entered into a master content
subscription and software licensing agreement with Adventist for $500,000.
The master content subscription and software licensing agreement grants
Adventist the right, over a period of three years, to enroll affiliates in
our Community Partner Program. Each Community Partner Program affiliate
agreement has a term of one year. The software licensing fee will be
recognized upon shipment of the software, and the content subscription fees
will be recognized ratably over the one year term of each individual
affiliate's agreement.
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 $7.43 per share. As of March 31, 1999, the Company has
borrowed $2.0 million under these loan agreements.
14. Events Subsequent to March 4, 1999
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.
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 $7.43 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. Under the Infoseek agreement, 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 $57.9 million
in total consideration consisting of cash and warrants to purchase 775,000
shares of common stock at an exercise price of $8.60 per share over the
full three year term. The Company will recognize the costs associated with
the agreements ratably over the term of agreements. The cash portion of
this obligation is payable as approximately $16.2 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.
F-20
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
The warrants have been recorded at a fair value of $2.89 per share 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 5.0% and an expected life of 3
years.
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 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. The Company will recognize the costs associated with the
agreements ratably 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.
In May 1999, the Company effected a five-for-two stock split of common and
preferred stock. The effect of this stock split has been recorded
retroactively to inception of the Company in the accompanying financial
statements.
In May 1999, the Company increased its authorized capital stock to
75,000,000 shares of common stock, par value $0.001 per share.
* * *
F-21
<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 pro-
spectus. 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 se-
curities in any jurisdiction where the offer or sale is not permitted. The in-
formation 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 per-
mit 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 in-
form themselves about and to observe the restrictions of that jurisdiction re-
lated 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.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 34
Management............................................................... 53
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................................................... 78
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF DRKOOP APPEARS HERE]
drkoop.com, Inc.
9,375,000 Shares
Common Stock
-------------
PROSPECTUS
-------------
Bear, Stearns & Co. Inc.
Hambrecht & Quist
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............................................. $ 26,975
NASD filing fee.................................................. 10,204
Nasdaq National Market listing fee............................... 94,000
Legal fees and expenses.......................................... 600,000
Accounting fees and expenses..................................... 195,000
Printing and engraving........................................... 350,000
Blue sky fees and expenses (including legal fees)................ 10,000
Transfer agent fees.............................................. 7,500
Miscellaneous.................................................... 61,321
----------
Total........................................................ 1,355,000
==========
</TABLE>
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 11,116,902
shares of common stock to a total of 107 employees, consultants and non-
employee directors at a weighted average exercise price of $0.53 per share
pursuant to compensatory stock option plans.
(2) On July 17, 1997, we issued an aggregate of 6,750,000 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 1,800,360 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 3,850,597 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 3,962,265 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 3,850,597 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 1,210,665 shares of common stock to Superior and 134,520
shares to Adventist Health System Sunbelt Healthcare Corporation.
(5) From March 1, 1998 through April 6, 1998, we issued 619,102 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 671,727 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 33,482 shares of Series C Preferred Stock for an exercise
price of $4.78 per share (which will become the right to purchase 33,482 shares
of common stock for $4.78 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 $4.78 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 2,615,677 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 $7.43 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 775,000 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 $8.60 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
3.5 Certificate of Amendment of Restated Certificate of Incorporation
of drkoop.com, Inc., a Delaware corporation
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+ Content License Agreement dated December 11, 1998 by and between
Company and Excite, Inc. (terminated on March 1, 1999)
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
------- -----------
<C> <S>
10.30 Master Community Partner Program Agreement dated January 29, 1999 by
and between Company and Adventist Health System Sunbelt Healthcare
Corporation
10.31 Reserved
10.32** Form of Community Partner Program Agreement
10.33** Form of Indemnification Agreement
10.34 1999 Employee Stock Purchase Plan
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>
- --------
** Previously filed.
+ Registrant has requested confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
(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. 3 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 4th day of June, 1999.
drkoop.com, Inc.
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. 3 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>
Donald W. Hackett* President, Chief Executive June 4, 1999
______________________________________ Officer and Director
Donald W. Hackett (Principal Executive
Officer)
/s/ Susan M. Georgen-Saad Chief Financial Officer June 4, 1999
______________________________________ (Principal Financial and
Susan M. Georgen-Saad Accounting Officer)
C. Everett Koop, M.D.* Chairman of the Board June 4, 1999
______________________________________
C. Everett Koop, M.D.
John F. Zaccaro* Vice Chairman of the Board June 4, 1999
______________________________________
John F. Zaccaro
Mardian J. Blair* Director June 4, 1999
______________________________________
Mardian J. Blair
Richard D. Helppie, Jr.* Director June 4, 1999
______________________________________
Richard D. Helppie, Jr.
Nancy L. Snyderman, M.D.* Director June 4, 1999
______________________________________
Nancy L. Snyderman, M.D.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey C. Ballowe Director June 4, 1999
______________________________________
Jeffrey C. Ballowe
/s/ G. Carl Everett, Jr. Director June 4, 1999
______________________________________
G. Carl Everett, Jr.
</TABLE>
*By: /s/ Susan M. Georgen-
Saad
----------------------------
Susan M. Georgen-Saad
Attorney-in-Fact
II-8
<PAGE>
Index of 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
3.5 Certificate of Amendment of Restated Certificate of Incorporation of
drkoop.com, Inc., a Delaware corporation
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+ Content License Agreement dated December 11, 1998 by and between
Company and Excite, Inc. (terminated on March 1, 1999)
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
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 Master Community Partner Program Agreement dated January 29, 1999 by
and between Company and Adventist Health System Sunbelt Healthcare
Corporation
10.31 Reserved
10.32** Form of Community Partner Program Agreement
10.33** Form of Indemnification Agreement
10.34 1999 Employee Stock Purchase Plan
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>
- --------
** Previously filed.
+ Registrant has requested confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
<PAGE>
Exhibit 1.1
9,375,000 Shares of Common Stock
DRKOOP.COM, INC.
UNDERWRITING AGREEMENT
----------------------
June __, 1999
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST, L.L.C.
WIT CAPITAL CORPORATION
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
drkoop.com, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, to issue and sell to the several underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of 9,375,000 shares (the
"Firm Shares") of its common stock, par value $0.001 per share (the "Common
Stock") and, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, at the option of the Underwriters, up to an
additional 1,406,250 shares (the "Additional Shares") of Common Stock. The Firm
Shares and any Additional Shares purchased by the Underwriters are referred to
herein as the "Shares". The Shares are more fully described in the Registration
Statement referred to below.
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have
filed an amendment or amendments thereto, on Form S-1 (No. 333-73459),
---------
for the registration of the Shares under the Securities Act of 1933, as
amended (the "Act"). Such registration statement, including the
prospectus, financial statements and schedules, exhibits and all other
documents filed as a part thereof, as amended at the time of
effectiveness of the registration statement, including any information
deemed to be a part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A or Rule 434 of the published Rules and
Regulations of the Commission under the Act (the "Regulations"), is
herein called the "Registration Statement" and the prospectus, in the
form first filed with the Commission pursuant to Rule 424(b) of the
Regulations or filed as part of the
<PAGE>
Registration Statement at the time of effectiveness if no Rule 424(b) or
Rule 434 filing is required, is herein called the "Prospectus". The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration Statement
or the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) or Rule 434 of the Regulations, when any
supplement to or amendment of the Prospectus is filed with the Commission
and at the Closing Date and the Additional Closing Date, if any (as
hereinafter respectively defined), the Registration Statement and the
Prospectus and any amendments thereof and supplements thereto complied or
will comply in all material respects with the applicable provisions of
the Act and the Regulations and does not or will not contain an untrue
statement of a material fact and does not or will not omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading. When the
related preliminary prospectus as described in Rule 430 of the
Regulations contained in Amendment No. 2 to the Registration Statement
dated May 14, 1999 or thereafter filed with the Commission (whether filed
as part of the registration statement for the registration of the Shares
or any amendment thereto or pursuant to Rule 424(a) of the Regulations)
and when any amendment thereof or supplement thereto was first filed with
the Commission, such preliminary prospectus and any amendments thereof
and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain
an untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein in light of the circumstances under which they
were made not misleading. No representation and warranty is made in this
subsection (b), however, with respect to any information contained in or
omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of any Underwriter through you as herein
stated expressly for use in connection with the preparation thereof. If
Rule 434 is used, the Company will comply with the requirements of Rule
434.
(c) PricewaterhouseCoopers LLP, who have certified the financial
statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the Act and
the Regulations.
(d) Except for changes in the economy or the securities markets
generally, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
disclosed in or contemplated by the Registration Statement and the
Prospectus, there has been no material adverse change or any development
involving a prospective material adverse change in the business,
prospects, properties, operations, condition (financial or other) or
results of operations of
-2-
<PAGE>
the Company, whether or not arising from transactions in the ordinary
course of business (a "Material Adverse Effect"), and since the date of
the latest balance sheet presented in the Registration Statement and the
Prospectus, the Company has not incurred nor undertaken any liabilities
or obligations, direct or contingent, which are material to the Company,
except for liabilities or obligations which are disclosed in or
contemplated by the Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and this Agreement has
been duly and validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will
not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, any agreement, instrument,
franchise, license or permit to which the Company is a party or by which
any of the Company's properties or assets may be bound or (ii) violate or
conflict with any provision of the certificate of incorporation or by-
laws of the Company or any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over the Company or any of its properties or
assets, except for any such conflict, breach, default, lien, change or
encumbrance which would not reasonably be expected to result in a
Material Adverse Effect. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its properties or assets is
required to be obtained by the Company for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance, sale and delivery of the
Shares to be issued, sold and delivered by the Company hereunder, except
the registration under the Act of the Shares and such consents,
approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters or which have duly been
obtained at or prior to closing.
(g) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and nonassessable and were not
issued and are not now in violation of or subject to any preemptive
rights. The Shares, when issued, delivered and sold in accordance with
this Agreement, will be duly and validly issued and outstanding, fully
paid and nonassessable, and will not have been issued in violation of or
be subject to any preemptive rights. The Company had, at March 31, 1999,
an authorized and outstanding capitalization as set forth under the
heading "Capitalization" in the Registration Statement and the
Prospectus. The Common Stock, the Firm Shares and the Additional Shares
conform in all material respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. Except as disclosed in or
specifically
-3-
<PAGE>
contemplated by the Prospectus, the Company has no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations, except
for grants of options to purchase shares of the Company's Common Stock to
employees made in the ordinary course of business since March 31, 1999
and not in excess of options to purchase 2,000,000 shares. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents in
all material respects the information required to be shown with respect
to such plans, arrangements, options and rights. No further approval or
authority of the stockholders or the Board of Directors of the Company
will be required for the issuance and sale of the Shares to be sold by
the Company to the Underwriters as contemplated herein.
(h) The Company does not own or control, either directly or
indirectly, any corporation, partnership, association or other entity.
The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. The Company is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification necessary except as
would not reasonably be expected to result in a Material Adverse Effect.
The Company has all requisite corporate power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory
or governmental agencies and bodies, to own, lease and operate its
properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus except as
would not reasonably be expected to have a Material Adverse Effect; no
such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and
the Prospectus; and, to the knowledge of the Company, no proceeding has
been instituted in any jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(i) Except as described in the Prospectus, there is no litigation
or governmental proceeding to which the Company is a party or to which
any property of the Company is subject or which is pending or, to the
knowledge of the Company, contemplated against the Company which could
reasonably be expected to result in any material adverse change or any
development involving a material adverse change in the business,
prospects, properties, operations, condition (financial or other) or,
results of operations of the Company or which is required to be disclosed
in the Registration Statement and the Prospectus.
(j) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which
constitutes or which might
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<PAGE>
reasonably be expected to constitute, the stabilization or manipulation
of the price of the shares of Common Stock to facilitate the sale or
resale of the Shares.
(k) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the
Prospectus present fairly in all material respects the financial position
of the Company as of the dates indicated and the results of its
operations for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis; the supporting schedules included in the Registration
Statement, if any, present fairly the information required to be stated
therein. Except as included in the Registration Statement, no other
financial statements or schedules are required by Form S-1 to be included
in the Registration Statement.
(l) Except as described in the Prospectus, no holder of securities
of the Company has any rights to the registration of securities of the
Company because of the filing of the Registration Statement or otherwise
in connection with the sale of the Shares contemplated hereby.
(m) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940.
(n) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(o) The Company is not in violation or default of any provision
of its certificate of incorporation or by-laws, or other organizational
documents, and is not in breach of or default with respect to any
provision of any agreement, judgment, decree, order, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound
except as would not reasonably be expected to be material to the
Company's business, results of operations or financial condition; and
there does not exist any state of facts which constitutes an event of
default on the part of the Company as defined in such documents or which,
with notice or lapse of time or both, would constitute such an event of
default except as would not reasonably be expected to be material to the
Company's business, results of operations or financial condition.
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<PAGE>
(p) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement which have not been described or filed as
required. The contracts so described in the Prospectus are in full force
and effect on the date hereof and neither the Company nor, to the
Company's knowledge, any other party is in breach of or default under any
of such contracts except as would not be material to the Company's
business, results of operations or financial condition.
(q) The Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements, or (ii) those
which are not material in amount and do not adversely affect in any
material respect the use made and proposed to be made of such property by
the Company. The Company holds its leased properties under valid and
binding leases, with such exceptions as are not materially significant in
relation to the business of the Company. Except as disclosed in the
Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be
conducted.
(r) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, except as disclosed or
specifically contemplated therein: (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or
entered into any material agreement or other transaction which is not in
the ordinary course of business; (ii) the Company has not sustained any
material loss or interference with its business or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company is
not in default in the payment of principal or interest on any outstanding
debt obligations; and (iv) there has not been any change in the capital
stock (other than upon the sale of the Common Stock hereunder and upon
the exercise of options or warrants described in the Registration
Statement) or indebtedness material to the Company.
(s) Except as disclosed in or specifically contemplated by the
Prospectus, the Company has or can acquire on commercially reasonable
terms sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals and governmental authorizations to conduct its
business as now conducted and as proposed to be conducted; and the
Company has no knowledge of any material infringement by it of trademark,
trade name rights, patent rights, copyrights, licenses, trade secret or
other similar rights of others and, to the Company's knowledge, there is
no claim being made against the Company regarding trademark, trade name,
patent, copyright, license, trade secret or other infringement which
would reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company, nor is the Company aware of any reasonable
grounds for the same.
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<PAGE>
(t) The Company has filed all necessary federal, state and
foreign income and franchise tax returns, and all such tax returns are
complete and correct in all material respects, and the Company has paid
all taxes shown as due thereon. The Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company which would reasonably be expected to materially and adversely
affect the business, operations or properties of the Company.
(u) The Company has not distributed and will not distribute prior
to the Closing Date any offering material in connection with the offering
and sale of the Shares other than the Prospectus, the Registration
Statement and the other materials permitted by the Act.
(v) The Company maintains insurance of the types and in the
amounts generally deemed adequate for its business and all other risks
customarily insured against, all of which insurance is in full force and
effect. The Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially
and adversely affect the condition (financial or otherwise), properties,
business or results of operations of the Company.
(w) Neither the Company nor, to the Company's knowledge, any of
its employees or agents has at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law or (ii)
made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the
United States of any jurisdiction thereof.
(x) To the Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers,
subcontractors, original equipment manufacturers, authorized dealers or
international distributors that would reasonably be expected to result in
a material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company. No
collective bargaining agreement exists with any of the Company's
employees and, to the Company's knowledge, no such agreement is imminent.
(y) The Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(z) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or
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<PAGE>
the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws,
which claim is required to be disclosed in the Registration Statement and
the Prospectus, (iii) the Company will not be required to make future
material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended (42 U.S.C. (S) 9601, et seq.), or otherwise designated as a
-- ----
contaminated site under applicable state or local law except in each case
as would not reasonably be expected have a Material Adverse Effect.
(aa) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of
the executive officers or directors of the Company or any of the members
of the families of any of them of the sort required to be disclosed in
the Registration Statement and Prospectus, except as disclosed therein.
2. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to sell to the Underwriters and the
Underwriters, severally and not jointly, agree to purchase from the
Company, at a purchase price per share of $_______, the number of Firm
Shares set forth opposite the respective names of the Underwriters in
Schedule I hereto plus any additional number of Shares which such
Underwriter may become obligated to purchase pursuant to the provisions
of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the offices of Latham & Watkins, located
at 135 Commonwealth Drive, Menlo Park, CA 94025 (the "L&W Offices"), or
at such other place as shall be agreed upon by Bear, Stearns & Co., Inc.
("Bear Stearns") and the Company, at 10:00 A.M. on the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act)
(unless postponed in accordance with the provisions of Section 9 hereof)
following the date of the effectiveness of the Registration Statement
(or, if the Company has elected to rely upon Rule 430A of the
Regulations, the third or fourth business day (as permitted under Rule
15c6-1 under the Exchange Act) after the determination of the initial
public offering price of the Shares), or such other time not later than
ten business days after such date as shall be agreed upon by Bear Stearns
and the Company (such time and date of payment and delivery being herein
called the "Closing Date"). Payment shall be made to the Company by
certified or official bank check or checks drawn in federal funds or
similar same day funds payable to the order of the Company, or by wire
transfer in same day funds, against delivery to you for the respective
accounts of the Underwriters of certificates for the Shares to be
purchased by them. Certificates for the Shares shall be registered in
such name or names
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<PAGE>
and in such authorized denominations as you may request in writing at
least two full business days prior to the Closing Date. The Company will
permit you to examine and package such certificates for delivery at least
one full business day prior to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to 1,406,250 Additional Shares at the same purchase
price per share to be paid by the Underwriters to the Company for the
Firm Shares as set forth in this Section 2, for the sole purpose of
covering over-allotments in the sale of Firm Shares by the Underwriters,
if any. This option may be exercised from time to time and at any time,
in whole or in part, on or before the thirtieth day following the date of
the Prospectus, by written notice by you to the Company. Such notice
shall set forth the aggregate number of Additional Shares as to which the
option is being exercised and the date and time, as reasonably determined
by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing
Date"); provided, however, that unless otherwise agreed to by Bear Stearns
-------- -------
and the Company, the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full business day after the
date on which the option shall have been exercised nor later than the
eighth full business day after the date on which the option shall have
been exercised (unless such time and date are postponed in accordance
with the provisions of Section 9 hereof). Certificates for the Additional
Shares shall be registered in such name or names and in such authorized
denominations as you may request in writing at least two full business
days prior to the Additional Closing Date. The Company will permit you to
examine and package such certificates for delivery at least one full
business day prior to the Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter shall be
the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number increased as set
forth in Section 9 hereof) bears to 9,375,000, subject, however, to such
adjustments to eliminate any fractional shares as you in your sole discretion
shall make.
Payment for the Additional Shares shall be made by certified or official
bank check or checks drawn in federal funds or similar same day funds, payable
to the order of the Company, or by wire transfer in same day funds at the L&W
Offices, or such other location as may be mutually acceptable, upon delivery
of the certificates for the Additional Shares to you for the respective
accounts of the Underwriters.
3. Offering.
--------
(a) Upon your authorization of the release of the Firm Shares, the
Underwriters propose to offer the Shares for sale to the public upon the
terms set forth in the Prospectus.
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<PAGE>
(b) At the request of the Company, the Underwriters will reserve up
to an aggregate of _______________ Shares for sale to Dell Computer
Corporation, Quintiles Transnational Corporation and FHC Internet
Services, L.C. (collectively, the "Concurrent Purchasers") at the initial
public offering price for such Shares. As a condition to the purchase of
such Shares by the Concurrent Purchasers from the Underwriters, the
Concurrent Purchasers shall enter into a lock-up agreement the same in
duration and substantially identical in scope to that of the Company set
out in Section 4(f) of this Agreement. The number of Shares available to
the general public shall be reduced to the extent the Concurrent
Purchasers elect to purchase such Shares. Any reserved Shares not
purchased by the Concurrent Purchasers at the Closing shall be offered by
the Underwriters to the general public in accordance with the terms of
purchase, sale and delivery set out in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with the
------------------------
Underwriters that:
(a) If the Registration Statement has not yet been declared
effective the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is
otherwise required under Rule 424(b) or Rule 434, the Company will file
the Prospectus (properly completed if Rule 430A has been used) pursuant
to Rule 424(b) or Rule 434 within the prescribed time period and will
provide evidence satisfactory to you of such timely filing. If the
Company elects to rely on Rule 434, the Company will prepare and file a
term sheet that complies with the requirements of Rule 434.
The Company will promptly notify you (and, if requested by you, will
confirm such notice in writing) (i) when the Registration Statement and
any amendments thereto become effective, (ii) of any request by the
Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for any additional information, (iii) of
the mailing or the delivery to the Commission for filing of any amendment
of or supplement to the Registration Statement or the Prospectus, (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto or of the initiation, or the threatening, of any
proceedings therefor, (v) of the receipt of any comments from the
Commission, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for
sale in any jurisdiction or the initiation or threatening of any
proceeding for that purpose. If the Commission shall propose or enter a
stop order at any time, the Company will make every reasonable effort to
prevent the issuance of any such stop order and, if issued, to obtain the
lifting of such order as soon as practicable. The Company will not file
any amendment to the Registration Statement or any amendment of or
supplement to the Prospectus (including the prospectus required to be
filed pursuant to Rule 424(b)or Rule 434) that differs from the
prospectus on file at the time of the effectiveness of the Registration
Statement before
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<PAGE>
or after the effective date of the Registration Statement to which you
shall reasonably object in writing after being timely furnished in
advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would, in
the judgment of the Company include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall
be necessary at any time to amend or supplement the Prospectus or
Registration Statement to comply with the Act or the Regulations, the
Company will notify you promptly and prepare and file with the Commission
an appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or omission and
will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as practicable.
(c) The Company will promptly deliver to you two signed copies of
the Registration Statement, including exhibits and all amendments
thereto, and the Company will promptly deliver to each of the
Underwriters such number of copies of any preliminary prospectus, the
Prospectus, the Registration Statement, and all amendments of and
supplements to such documents, if any, as you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time of effectiveness of the Registration
Statement, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions within the United States or Canada as you may designate and
to maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be
obligated in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal
quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement (in form complying
with the provisions of Rule 158 of the Regulations) covering a period of
at least twelve consecutive months beginning after the effective date of
the Registration Statement.
(f) During the period of 180 days from the date of the Prospectus,
the Company will not, without your prior written consent, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any Common Stock (or any securities
convertible into, exercisable for or exchangeable for Common Stock). The
foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of shares of Common
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<PAGE>
Stock upon the exercise of options or warrants or the conversion of a
security outstanding on the date hereof of which the Underwriters have
been advised in writing and which is described in the Prospectus, (C) the
grant of options or share purchase rights by the Company pursuant to the
option and employee stock purchase plans described in the Registration
Statement and Prospectus, provided, such options are not exercisable for
180 days after the date of the Prospectus, or if such options are
exercisable within such period, such options are subject to lockup
provisions substantially the same as those set forth in this Section 4(f)
or (D) the issuance of shares of Common Stock in acquisition or
investment transactions approved by the Company's Board of Directors,
provided, such shares are subject to lockup provisions substantially
similar to those set forth in this Section 4(f) and so long as such
shares are not transferrable until the expiration of such lockup, which
expiration shall not occur until 180-days after the date of the
Prospectus.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will upon request make generally
available to its securityholders copies of (i) all reports to its
shareholders; and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will use all reasonable commercial efforts to cause
the Shares to be listed for quotation on the Nasdaq National Market
System.
(j) The Company will comply with Rule 463 of the Regulations.
5. Payment of Expenses. Whether or not the transactions contemplated in
-------------------
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any
amendments or supplements thereto (including, without limitation, fees and
expenses of the Company's accountants and counsel) but excluding the fees and
expenses of counsel to the Underwriters, the underwriting documents including
this Agreement and the Agreement Among Underwriters and all other documents
related to the public offering of the Shares (including those supplied to the
Underwriters in quantities as hereinabove stated), (ii) the issuance, transfer
and delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the qualification of the Shares under state
or foreign securities or Blue Sky laws, including the reasonable costs of
printing and mailing a preliminary and final "Blue Sky Survey" and the
reasonable fees of counsel for the Underwriters and such counsel's
disbursements in relation thereto, (iv) listing the Shares for quotation on
the Nasdaq
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<PAGE>
National Market, (v) filing fees of the Commission and the National
Association of Securities Dealers, Inc.; (vi) the cost of printing
certificates representing the Shares and (vii) the cost and charges of any
transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Wilson Sonsini Goodrich &
Rosati, P.C. ("Underwriters' Counsel") pursuant to this Section 6 of any
misstatement or omission, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York time, on the date of this Agreement or at such
later time and date as shall have been consented to in writing by you; if
the Company shall have elected to rely upon Rule 430A or Rule 434 of the
Regulations, the Prospectus shall have been filed with the Commission in
a timely fashion in accordance with Section 4(a) hereof; and, at or prior
to the Closing Date no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereof shall have
been issued and no proceedings therefor shall have been initiated or
threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of
Latham & Watkins, counsel for the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) The Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Delaware, with
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus. Based solely
on certificates from public officials, we confirm that the Company is
qualified to do business in the State of Texas.
(ii) The authorized capital stock of the Company consists solely
of 100,000,000 shares of Common Stock, $.001 par value per share, and
15,000,000 shares of Preferred Stock, $.001 par value per share.
(iii) The shares of Common Stock to be issued and sold by the
Company pursuant to the Underwriting Agreement have been duly authorized
and, when issued to and paid for by the Underwriters in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
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<PAGE>
(iv) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
(v) The issuance and sale of the shares of Common Stock to be
sold to you by the Company pursuant to the Underwriting Agreement on the
date hereof will not result in the violation by the Company of its
Certificate of Incorporation or Bylaws or the violation by the Company of
any federal, California or Delaware statute, rule or regulation known by
us to be applicable to the Company (other than federal or state
securities laws as to which no opinion is expressed in this paragraph) or
in the breach of or a default under any agreement or instrument listed on
Annex A hereto or under any license or permit known to us, which breach
or default which in any such case would reasonably be expected to result
in a Material Adverse Effect. No consent, approval, authorization or
order of, or filing with, any federal, California or Delaware court or
governmental agency or body known by us to be applicable to the Company
is required for the consummation of the issuance and sale of the shares
of Common Stock to be sold to you by the Company pursuant to the
Underwriting Agreement on the date hereof, except such as have been
obtained under the Act, such as may be required under applicable state
securities laws in connection with the purchase and distribution of such
shares of Common Stock by the Underwriters and the filing of the
Company's Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware.
(vi) The Registration Statement has become effective under the
Act, and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act
and no proceedings therefor have been initiated by the Commission.
(vii) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements for registration
statements on Form S-1 under the Act and the rules and regulations of the
Commission thereunder; it being understood, however, that we express no
opinion with respect to the financial statements, schedules and other
financial data included in the Registration Statement or the Prospectus.
In passing upon the compliance as to the form of Registration Statement
and the Prospectus, we assume that the statements made therein are
correct and complete.
(viii) The statements set forth in the Prospectus under the
headings "Description of Securities," "Management--Stock Option Plans,"
"Shares Eligible for Future Sale" and "Item 14 of Part II of the
Registration Statement" insofar as such statements constitute a summary
of the legal matters or documents referred to therein, are accurate in
all material respects.
(ix) To the best of our knowledge, there are no legal or
governmental proceedings required to be described in the Prospectus that
are not described as required, or contracts or documents of a character
required to be described in
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<PAGE>
the Registration Statement or Prospectus or to be filed as exhibits to
the Registration Statement that are not described and filed as required.
(x) The Shares to be issued and sold by the Company pursuant
to the Underwriting Agreement are duly authorized for quotation on the
Nasdaq National Market.
(xi) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents and the Prospectus and related
matters were discussed and, no facts have come to the attention of such counsel
which would lead such counsel to believe that either the Registration Statement
at the time it became effective (including the information deemed to be part of
the Registration Statement at the time of effectiveness pursuant to Rule 430A(b)
or Rule 434, if applicable), or any amendment thereof made prior to the Closing
Date as of the date of such amendment, contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus as of its date (or any amendment thereof or supplement thereto made
prior to the Closing Date as of the date of such amendment or supplement) and as
of the Closing Date contained or contains an untrue statement of a material fact
or omitted or omits to state any 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 (it being understood that such counsel need
express no belief or opinion with respect to the financial statements and
schedules and other financial data included or incorporated by reference
therein).
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its subsidiaries, provided that
copies of any such statements or certificates shall upon request be delivered to
Underwriters' Counsel.
(c) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, and the Underwriters shall have received from said Underwriters'
Counsel a favorable opinion, dated as of the Closing Date with respect to
the issuance and sale of the Shares, the Registration Statement and the
Prospectus and such other related matters as you may reasonably require,
and the Company shall have furnished to Underwriters' Counsel such
-15-
<PAGE>
documents as they reasonably request for the purpose of enabling them to
pass upon such matters.
(d) At the Closing Date you shall have received a certificate of the
Company executed on its behalf by its Chief Executive Officer and Chief
Financial Officer, dated the Closing Date to the effect that (i) the
condition set forth in subsection (a) of this Section 6 has been
satisfied, (ii) as of the date hereof and as of the Closing Date the
representations and warranties of the Company set forth in Section 1
hereof are accurate, (iii) as of the Closing Date the obligations of the
Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
the Company has not sustained any material loss or interference with its
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding, and there has not been any
material adverse change, or any development involving a material adverse
change, in the prospects, properties, operations, condition (financial or
otherwise), results of operations or business of the Company as presently
conducted or as proposed to be conducted, except in each case as
described in or contemplated by the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from PricewaterhouseCoopers LLP,
independent public accountants for the Company, dated, respectively, as
of the date of this Agreement and as of the Closing Date addressed to the
Underwriters and in form and substance satisfactory to you, to the effect
that: (i) they are independent certified public accountants with respect
to the Company within the meaning of the Act and the Regulations and
stating that the answer to Item 10 of the Registration Statement is
correct insofar as it relates to them; (ii) stating that, in their
opinion, the financial statements and schedules of the Company included
in the Registration Statement and the Prospectus and covered by their
opinion therein comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable
published rules and regulations of the Commission thereunder; (iii) on
the basis of procedures consisting of a reading of the latest available
unaudited interim financial statements of the Company, a reading of the
minutes of meetings and consents of the shareholders and board of
directors of the Company and the committees of such boards subsequent to
December 31, 1998, inquiries of officers and other employees of the
Company who have responsibility for financial and accounting matters of
the Company with respect to transactions and events subsequent to
December 31, 1998 and other specified procedures and inquiries to a date
not more than five days prior to the date of such letter, nothing has
come to their attention that would cause them to believe that: (A) the
unaudited financial statements and schedules of the Company presented in
the Registration Statement and the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of the
Act and the applicable published rules and regulations of the Commission
thereunder or that such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
-16-
<PAGE>
audited financial statements included in the Registration Statement and
the Prospectus; (B) with respect to the period subsequent to March 31,
1999 there were, as of the date of the most recent available monthly
financial statements of the Company and as of a specified date not more
than five days prior to the date of such letter, any changes in the
capital stock or long-term indebtedness of the Company or any decrease in
the net current assets or stockholders' equity of the Company, in each
case as compared with the amounts shown in the most recent balance sheet
presented in the Registration Statement and the Prospectus, except for
changes or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such letter
or (C) that during the period from March 31, 1999 to the date of the most
recent available monthly financial statements of the Company and to a
specified date not more than five days prior to the date of such letter,
there was any decrease, as compared with the corresponding period in the
prior fiscal year, in total revenues, or total or per share net income,
except for decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such
letter; and (iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the
Registration Statement and the Prospectus, which have been specified by
you prior to the date of this Agreement, to the extent that such amounts,
numbers, percentages, and information may be derived from the general
accounting and financial records of the Company or from schedules
furnished by the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate
procedures specified by you set forth in such letter, and found them to
be in agreement.
(f) Prior to the Closing Date the Company shall have furnished to
you such further information, certificates and documents as you may
reasonably request.
(g) You shall have received from each person who is a director or
officer of the Company or such shareholder as have been heretofore
designated by you and listed on Schedule II hereto a Lock-Up Agreement to
the effect that such person will not, directly or indirectly, without
your prior written consent, offer, sell, offer or agree to sell, grant
any option to purchase or otherwise dispose (or announce any offer, sale,
grant of an option to purchase or other disposition) of any shares of
Common Stock (or any securities convertible into, exercisable for or
exchangeable or exercisable for shares of Common Stock) for a period of
180 days after the date of the Prospectus.
(h) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in
-17-
<PAGE>
form and substance to you and to Underwriters' Counsel, all obligations of the
Underwriters hereunder may be cancelled by you at, or at any time prior to,
the Closing Date and the obligations of the Underwriters to purchase the
Additional Shares may be cancelled by you at, or at any time prior to, the
Additional Closing Date. Notice of such cancellation shall be given to the
Company in writing, or by telephone, telex or telegraph, confirmed in writing.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any and
all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to reasonable attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent but only to the
extent that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company in writing
by or on behalf of any Underwriter through you expressly for use therein.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each
of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to reasonable
attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced
or threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), jointly or several, to which they
or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue
-18-
<PAGE>
statement of a material fact contained in the registration statement for
the registration of the Shares, as originally filed or any amendment
thereof, or any related preliminary prospectus or the Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein;
provided, however, that in no case shall any individual Underwriter be
-------- -------
liable or responsible for any amount in excess of the underwriting
discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The
Company acknowledges that the statements set forth in the last paragraph
of the cover page and under the caption "Underwriting" in the Prospectus
constitute the only information furnished in writing by or on behalf of
any Underwriter expressly for use in the registration statement relating
to the Shares as originally filed or in any amendment thereof, any
related preliminary prospectus or the Prospectus or in any amendment
thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this
Section 7 except to the extent the indemnifying party is substantially
prejudiced, and then only to the extent thereof). In case any such action
is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel
shall have been authorized in writing by one of the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of
such action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and
expenses shall be borne by the indemnifying parties. In no event shall
the indemnifying
-19-
<PAGE>
parties be liable for the fees and expenses of more than one counsel (in
addition to any required local counsel) for all indemnified parties,
which counsel shall be selected by Bear Stearns. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected without
its written consent; provided, however, that such consent was not
-------- -------
unreasonably withheld.
8. Contribution. In order to provide for contribution in circumstances in
------------
which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares or,
if such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same proportion
as (x) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (y) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and of the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter hereunder,
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<PAGE>
and (ii) no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding the
provisions of this Section 8 and the preceding sentence, no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed
the Registration Statement and each director of the Company shall have the
same rights to contribution as the Company, subject in each case to clauses
(i) and (ii) of this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties, notify each party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have under this Section 8 or
otherwise, except to the extent the indemnifying party is substantially
prejudiced, and then only to the extent thereof. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
- -------- -------
9. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default
relates do not (after giving effect to arrangements, if any, made by you
pursuant to subsection (b) below) exceed in the aggregate 10% of the
number of Firm Shares or Additional Shares, to which the default relates
shall be purchased by the non-defaulting Underwriters in proportion to
the respective proportions which the numbers of Firm Shares set forth
opposite their respective names in Schedule I hereto bear to the
aggregate number of Firm Shares set forth opposite the names of the non-
defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties
(including any non-defaulting Underwriter or Underwriters who so agree)
to purchase such Firm Shares or Additional Shares, as the case may be, to
which such default relates on the terms contained herein. In the event
that within 5 calendar days after such a default you do not arrange for
the purchase of the Firm Shares or Additional Shares, as the case may be,
to which such default relates as provided in this Section 9, this
Agreement or, in the case of a default
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<PAGE>
with respect to the Additional Shares, the obligations of the
Underwriters to purchase and of the Company to sell the Additional Shares
shall thereupon terminate, without liability on the part of the Company
with respect thereto (except in each case as provided in Section 5, 7(a)
and 8 hereof) or the Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their
liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as
aforesaid, you or the Company shall have the right to postpone the
Closing Date or Additional Closing Date, as the case may be for a period,
not exceeding five business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus
or in any other documents and arrangements, and the Company agrees to
file promptly any amendment or supplement to the Registration Statement
or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in
this Agreement shall include any party substituted under this Section 9
with like effect as if it had originally been a party to this Agreement
with respect to such Firm Shares and Additional Shares.
10. Survival of Representations and Agreements. All representations and
------------------------------------------
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective, upon the later of when
(i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price or the purchase
price per Share has not been agreed upon prior to 5:00 P.M., New York
time, on the fifth full business day after the Registration Statement
shall have become effective, this Agreement shall thereupon terminate
without liability to the Company or the Underwriters except as herein
expressly provided. Until this Agreement becomes effective as aforesaid,
it may be terminated by the Company by notifying you or by you notifying
the Company. Notwithstanding the foregoing, the provisions of this
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<PAGE>
Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional
Closing Date, as the case may be, if (A) any domestic or international
event or act or occurrence has materially disrupted, or in your opinion
will in the immediate future materially disrupt, the market for the
Company's securities or securities in general; or (B) if trading on
either of the Nasdaq National Market or the New York Stock Exchange (the
--------- -----------------------------------
"NYSE") shall have been suspended, or minimum or maximum prices for
------
trading shall have been fixed, or maximum ranges for prices for
securities shall have been required, on the Nasdaq or the NYSE or by
order of the Commission or any other governmental authority having
jurisdiction; or (C) if a banking moratorium has been declared by a New
York or federal authority or if any new restriction materially adversely
affecting the distribution of the Firm Shares or the Additional Shares,
as the case may be, or (i) if the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United
States or there is a declaration of a national emergency or war by the
United States or (ii) if there shall have been such change in political,
financial or economic conditions if the effect of any such event set
forth in clauses (i) or (ii) as in your judgment makes it impracticable
or inadvisable to proceed with the offering, sale and delivery of the
Firm Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof),
or if the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth
herein is not satisfied or because of any refusal, inability or failure
on the part of the Company to perform any agreement herein or comply with
any provision hereof, the Company will, subject to demand by you,
reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and expenses of their counsel), no incurred by the
Underwriters in connection herewith.
12. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Syndicate Department, with a copy to Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304, Attn:
Paul R. Tobias, Esq.; if sent to the Company, shall be mailed, delivered, or
telegraphed and confirmed in writing to the Company, drkoop.com, Inc., 8920
Business Park Drive, Austin, TX 78759, Attn: Chief
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<PAGE>
Executive Officer, with a copy to Latham & Watkins, 135 Commonwealth Drive,
Menlo Park, CA 94025, Attn: Anthony J. Richmond, Esq.
13. Parties. This Agreement shall insure solely to the benefit of, and
-------
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 7
and 8, and their respective successors and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained. The term "successors and assigns" shall not include a purchaser, in
its capacity as such, of Shares from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
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<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
DRKOOP.COM, INC.
_____________________________________________
By: Donald Hackett
Its: President and Chief Executive Officer
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST L.L.C.
WIT CAPITAL CORPORATION
By____________________________________
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
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<PAGE>
its pro rata share of
SCHEDULE I
Number of Firm
Name of Underwriter Shares to be Purchased
- -------------------------------------------------------------------
Bear, Stearns & Co. Inc
Hambrecht & Quist L.L.C.
Wit Capital Corporation
Total...........__________
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<PAGE>
SCHEDULE II
Names of stockholders subject to the lock-up provision:
Received
- --------
X C. Everett Koop
X John F. Zaccaro
X Donald W. Hackett
X Louis A. Scalpati
X Dennis J. Upah
X Susan M. Georgen-Saad
X Robert C. Hackett, Jr.
X Richard D. Helppie, Jr.
X Superior Consultant Holdings Corporation
X Nancy L. Snyderman
X Adventist Health Systems Sunbelt Healthcare Corporation
X Jeffrey McClorey
X Neil K. Longwill
X Thomas Main
X John C. Williams
X Joseph Zaccaro
X The Software Atelier
X James W. Graham
X Harry Hackett
X Jean Hackett
X Eric Friar
X Judy Behm
X Hal Hunter
X Calvert W. Huffines
X Bruce Hackett
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<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
DRKOOP.COM, INC.
DRKOOP.COM, INC., a corporation organized under and by virtue of the
General Corporation Law of the State of Delaware, does hereby certify that:
1. The name of the corporation is drkoop.com, Inc.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on February 26, 1999.
3. This Certificate of Amendment has been duly adopted by this
corporation's Board of Directors and stockholders in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware, and the corporation's stockholders have given their written consent
in accordance with Section 228 of the General Corporation Law of the State of
Delaware.
4. The first paragraph of Article IV of the Restated Certificate of
Incorporation of this corporation shall be amended to read in its entirety as
follows:
ARTICLE IV
The aggregate number of shares that the Company shall have authority
to issue is 75,000,000 divided into 50,000,000 shares of Common Stock (the
"Common Stock") each with the par value of $0.001 per share, and 25,000,000
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 in one or
more series. The first series shall be denominated the "Series A 8%
-----------
Convertible Preferred Stock" and shall consist of 750,000 shares. The
---------------------------
second series shall be denominated the "Series B Preferred Stock" and shall
------------------------
consist of 13,781,145 shares. The third series shall be denominated the
"Series C Preferred Stock" and shall consist of 3,000,000 shares.
-------------------------
As of the date of the filing of this Certificate of Amendment of
Restated Certificate of Incorporation, each currently outstanding share of
Common Stock shall be subdivided and converted into 2.5 outstanding shares
of Common Stock and each currently outstanding share of Preferred Stock
shall be subdivided and converted into 2.5 outstanding shares of Preferred
Stock.
<PAGE>
The foregoing amendment has been duly adopted by this corporation's Board
of Directors and stockholders in accordance with the applicable provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
Executed at Austin, Texas, this ____ day of June, 1999.
DRKOOP.COM, INC.
By: ______________________________
Donald W. Hackett, President
ATTEST:
By: ______________________________
Louis A. Scalpati, Secretary
<PAGE>
Exhibit 5.1
[LETTERHEAD OF LATHAM & WATKINS]
June 4, 1999
drkoop.com, Inc.
8920 Business Park Drive
Suite 200
Austin, Texas 78759
Ladies and Gentlemen:
This opinion is rendered in connection with the filing by drkoop.com,
Inc., a Delaware corporation (the "Company"), of its Registration Statement on
Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), with
respect to the offer and sale by the Company (the "Offering") of up to
10,781,250 shares of the Company's common stock, par value $.001 per share
(the "Registered Common Stock"), and any subsequent registration statement the
Company may hereafter file with the Commission pursuant to Rule 462(b) under
the Act to register additional shares of the Company's common stock, par value
$.001 per share, in connection with the Offering (such additional shares,
together with the Registered Common Stock, the "Shares"). We have acted as
special counsel to the Company in connection with the preparation of the
Registration Statement.
In our capacity as such counsel, we are familiar with the proceedings
taken and to be taken by the Company in connection with the authorization,
issuance and sale of the Shares. In addition, we have made such legal and
factual examinations and inquiries, including and examination of originals (or
copies certified or otherwise identified to our satisfaction as being true
reproductions of originals) or such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances, as we have deemed
necessary or appropriate for the purposes of this opinion.
<PAGE>
June 4, 1999
Page 2
In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the legal capacity of natural persons executing such documents and the
authenticity and conformity to original documents of documents submitted to us
as certified or photostatic copies.
We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware, including statutory
and reported decisional law thereunder, and we express no opinion with respect
to the applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to any matters
of municipal law of the laws of any local agencies within any state.
Subject to the foregoing and the other qualifications set forth
herein, it is our opinion that, as of the date hereof, based on the foregoing
and the proceedings to be taken by the Company as referred to above, we are
the opinion that the Shares have been duly authorized, and upon issuance,
delivery and payment therefor in the manner described in the Registration
Statement, such Shares will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" of the prospectus included therein, and to the
incorporation by reference of this opinion and consent into a registration
statement filed with the Commission pursuant to Rule 462(b) under the Act
relating to the Offering.
Very truly yours,
/s/ LATHAM & WATKINS
<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 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
________________
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>
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, *** 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, and this Agreement has not been
terminated as of the second anniversary of the Effective Date,
Infoseek shall have ninety (90) 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"), Infoseek shall be entitled to a refund, equivalent to the
value of the Excess Page Views, of any fees previously refunded to
Content Partner. ***
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.
__________________________
*** 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>
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 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 devoted
primarily to health related topics and named the Health Center
("Health Center"). 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. ***
__________________________
*** 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>
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 ***
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 ***
__________________________
*** 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>
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, 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).
__________________________
*** 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>
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 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.
__________________________
*** 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.
6
<PAGE>
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
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.
7
<PAGE>
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.
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, *** that the systems and technology
utilized by Infoseek to operate the GO Network (including, without
limitation, order fulfillment systems relating to products sold by
Infoseek) 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.
__________________________
*** 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>
4.4 Infoseek represents and warrants to Content Partner that *** 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 the Infoseek
proprietary technology as utilized by the Service does not infringe
any U.S. copyright, patent, trademark, trade dress or trade secret of
any person or entity, and that Infoseek Content (as defined in this
Section 4.4) will not (a) violate any U.S. laws or any rights of any
third parties, including, but not limited to, such violations as
infringement or misappropriation of any 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. As used herein, "Infoseek Content" means any content
on the Health Center that has been authored and created solely by
Infoseek.
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.
__________________________
*** 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>
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. Notwithstanding the
foregoing, either party may terminate this Agreement without cause
effective as of the second anniversary of the Effective Date by
providing at least 120 days prior written notice to the other party.
If this Agreement is not terminated as of the second anniversary of
the Effective Date, the Agreement shall continue in full force and
effect for another twelve (12) months (unless terminated for cause
during said 12 month period).
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) 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:
***
__________________________
*** 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>
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,
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 ***
__________________________
*** 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>
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) (ii) any injury to person or property caused by
any products or services sold by Content Partner, or any User's use of
or reliance on the DKC Health Content; (iii) any injury to person or
property caused by any products or services sold through Content
Partner Content (including, without limitation, the sale of products
by Affiliate Partners); (iv) any other claim with respect to Content
Partner, Content Partner Content, or products or services sold by or
through Content Partner or its Affiliate Partners, or (v) Content
Partner's sales or marketing practices. 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 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 to defend, indemnify and hold Content Partner and its
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
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<PAGE>
breach of any of Infoseek's representations and warranties set forth
in Section 4.4; (ii) any injury to person or property caused by any
Infoseek products or Infoseek services sold by Infoseek on the Health
Center, or any User's use of or reliance on the Infoseek Content
displayed on the Health Center; or (iii) any breach by Infoseek of an
international law, rule or regulation or international third party
proprietary right (as if Infoseek had made the representations and
warranties equivalent to those set forth in Section 4.4 regarding US
laws, regulations and proprietary rights). 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 to defend, indemnify and hold Content Partner
and its 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 any
content authored by such GO Partner which is displayed in connection
with the DKC Health Content on a GO Partner's Internet site. 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 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
13
<PAGE>
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.
<TABLE>
<S> <C>
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
</TABLE>
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 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
proffered by the other party in any purchase order, correspondence or
other
14
<PAGE>
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 will 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 Tanes
--------------------------
Print Name: Steve Tanes
------------------
Title: SVP-General Manager
-----------------------
Date: 4/9/99
------------------------
15
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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.
16
<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.
__________________________
* * * 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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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
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.
__________________________
* * * 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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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.
(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:
__________________________
* * * 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.
19
<PAGE>
(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.
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.
20
<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 - NIH Drkoop.com any use Standard Yes
Patient Associations Individual deals - Standard No
please inquire about
specifics with
[email protected]
==================================================================================================
Expert Sharon Howard - Drkoop.com any use Standard No
Content 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>
21
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Multum Multum Standard + Yes
Multum
==================================================================================================
Insurance J. Hallam / T. Drkoop.com any use Standard No
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.
22
<PAGE>
APPENDIX B
GO NETWORK-WRAPPED PAGES SPECIFICATIONS
AND
INFOSEEK-HOSTED HEALTH CENTER SCHEMATIC
See attached
23
<PAGE>
GO health Center Level One
----------------------------------------------------------------------------
------------------------------------------------------------------------
header
------------------------------------------------------------------------
Navigation Family Health Conditions
*etc. *etc
*etc. *etc -Community
-Health
Health/Wellness Health Resources Record
*etc *etc -Feature TBD
*etc *etc -Snyderman
Health News
-etcetcetc Red=Fourth level
-etcetcetc Black=second level
-etcetcetc Green=third level
=advertisement
----------------------------------------------------------------------------
<PAGE>
GO health Center Level Two (except news)
- -------------------------------------------------------------------------------
--------------------------------------------------------------------
header
--------------------------------------------------------------------
Navigation Family Health
. Topic -Community
. Topic -Health
. Topic Record
Related GO . Topic
Links . Topic -Link TBD
Links . etc
Links
- -------------------------------------------------------------------------------
<PAGE>
GO Health Center Level Three
- -------------------------------------------------------------------------------
---------------------------------------------------------------------
header
---------------------------------------------------------------------
Navigation Heart Disease
Links to Links to
Dr Koop Dr Koopv
Links to
Dr Koopv
Related GO
Links
Links
Links
Links to
Dr Koop
- -------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
AMENDED AND RESTATED APPENDIX F TO THE DISTRIBUTION AGREEMENT
FEES AND PAYMENTS
THIS AMENDED AND RESTATED APPENDIX F TO THE DISTRIBUTION AGREEMENT is made as of
the 9th day of April, 1999 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". This Addendum is
effective as of April 9, 1999 (the "Effective Date")
BACKGROUND
Whereas, Infoseek and drkoop.com are parties to that certain Distribution
Agreement, dated April 9, 1999 (the "Agreement"). Infoseek and drkoop.com have
agreed to revise and restate Appendix F to the Agreement in its entirety to
reflect pricing which was agreed to by the parties.
Appendix F is hereby revised and restated as follows:
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, DrKoop.com shall pay to Infoseek a nonrefundable payment of One
Million Three Hundred Seventy Thousand Eight Hundred Thirty-Four dollars
($1,370,834) by no later than August 1, 1999 (which shall be in addition to the
One Million Dollars up front payment to be paid upon the Execution Date).
2. DrKoop.com shall pay to Infoseek an up-front nonrefundable payment
of One Million Dollars ($1,000,000) for engineering services due and payable
upon the Execution Date (as defined in Section 9 below) by DrKoop.com. Within 30
days after the close of the Financing, but in no event later than June 30, 1999,
DrKoop.com shall pay Infoseek an additional up-front payment of Two Million
Seven Hundred Fifty-Four Thousand Eight Hundred and Fifteen Dollars
($2,754,815). Such prepayment is attributable to the following components of
this Agreement:
Ecommerce Premier Merchant listing ($1,414,891)
Exclusivity in the Health Center and related content distribution
($2,339,924).
<PAGE>
3. In addition, DrKoop.com shall issue 250,000 warrants to Infoseek pursuant to
the form of warrant agreement attached hereto as Appendix I, which agreement
shall be executed concurrently with this Agreement.
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. 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
- ------------------------------
*** 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>
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.
(Signature Page Follows)
<PAGE>
Except as amended and restated by this Amended and Restated Appendix F
to the Distribution Agreement, the Agreement remains in effect pursuant to its
terms, and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Appendix F to the Distribution Agreement as of the date first written above.
INFOSEEK CORPORATION DRKOOP.COM, INC.
By: /s/ Andrew Newton By: /s/ Ian Bagnall
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
Print Name: Andrew Newton Print Name: Ian Bagnall
------------------------ ------------------------
Title: General Counsel Title: Vice President, Business
----------------------------- -----------------------------
Development
-----------
Date: May 12, 1999 Date: May 11, 1999
------------------------------ ------------------------------
<PAGE>
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
<PAGE>
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 legal and financial liability 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. Each
party shall promptly inform the other party of any event or
circumstance, and provide all information pertaining to such event
or circumstance, related to or arising out of this Agreement which
could lead to a claim or demand against either party by any third
party.
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.
__________________________
* * * 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>
5. Fees/Revenue Sharing
5.1 During the term of this Agreement, DrKoop.com shall pay to Infoseek ***
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.
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")
As used herein, "Premier Merchant" means that DrKoop.com Premier
Products shall be the only Prescription drugs, Vitamins and OTC
pharmacy products promoted by Infoseek on GO Shop As used herein a
product is "promoted" by Infoseek if it prominently advertised or
marketed by Infoseek on GO Shop. Notwithstanding the foregoing,
prescription drugs, vitamins, and OTC pharmacy products, and
information and content related thereto, may be provided to Users on GO
Shop in response to or pursuant to:
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.
<PAGE>
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.
<PAGE>
APPENDIX I - WARRANT AGREEMENT
<PAGE>
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
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<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.
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<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.
----------------
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<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
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<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)
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<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>
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.
<PAGE>
. 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:
NO "POP UP" ADS
<PAGE>
EXHIBIT 10.12
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is entered into by and between Buena
Vista Internet Group, a corporation duly organized under the laws of California,
with its principal place of business at 5161 Lankershim Blvd., North Hollywood
California 91601, hereinafter referred to as "BVIG", 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".
WITNESSETH:
WHEREAS, BVIG hosts and maintains a web site known as "Disney's family.com" (the
"Service" or "Family.com") located at www.family.com through which information
targeted towards parents and families is provided to its users ("Users"); and
WHEREAS, Content Partner operates an Internet site located at www.drkoop.com
--------------
(the "DrKoop.com Site" or the "Content Partner Service") and is the provider of
information described in Appendix A hereto ("Health Content").
WHEREAS, BVIG desires to create a clearly designated area on Family.com devoted
to Health Content (the "Health Channel") and BVIG and Content Partner desire
Content Partner to provide such content for such channel. Health Content
provided by Content Partner hereunder, as set forth on Appendix A-1 hereto,
shall be 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, BVIG and Content Partner hereby agree as follows:
1 LICENSE; OBLIGATIONS OF CONTENT PARTNER; OBLIGATIONS OF BVIG
1.1 Subject to the terms and conditions of this Agreement, Content Partner
hereby grants to BVIG and its subsidiaries and Affiliates, a fully-
paid, worldwide, irrevocable (during the term), non-exclusive right
and license to use, reproduce, adapt, incorporate, integrate,
distribute and otherwise exploit the Content Partner Content on the
Service and other BVIG sites as specified in Section 1.9 below, and,
in conjunction with BVIG's activities pursuant to this Agreement, to
exploit the applicable copyrights, trade names, trade dress,
trademarks and other intellectual property rights of Content Partner
on the Service. The terms set forth in the Appendices attached hereto
shall also apply to this Agreement.
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 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).
1.2 BVIG shall create the Health Channel which shall contain Content
Partner Content and/or Links (defined in Section 1.7) to Content
Partner Content. The Health Channel is further described on Appendix
A.
__________________
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.
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<PAGE>
1.3 Content Partner shall host most of the Content Partner Content on
Content Partner's servers. Certain Content Partner Content hosted by
Content Partner and accessed by Users shall, at BVIG's option, appear
within a BVIG-designed branded frame ("Family.com-Wrapped Pages"),, or
within pages on the DrKoop Site with no wrapper (collectively
"Pages"). The Family.com-Wrapped Pages shall, at BVIG's option,
consist of either (a) a custom configuration of portions of the
Content Provider Content selected by BVIG which shall appear within a
Family.com branded frame which includes the Family.com navigation bar;
or (b) Go-Wrapped Pages created under the Distribution Agreement
between Content Partner and Infoseek Corporation of even date herewith
(the "Distribution Agreement"). The advertising and sponsorships on
the Family.com-Wrapped Pages shall be determined by Content Partner,
subject to Appendix A, Section 7. The Family.com-Wrapped Pages shall
appear to the viewer to be located at www.family.drkoop.com. The
parties will mutually agree on the format for the Family.com-Wrapped
Pages wrapper. Content Partner shall cooperate and assist BVIG 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 demand against the other party by any
third party. The parties acknowledge that, unless otherwise agreed,
Users will not be required to pay a fee to view any Family.com-Wrapped
Pages or to view a page on the DrKoop.com Site which Users accessed
through a link from Family.com.
1.4 Content Partner will deliver to BVIG all Content Partner Content to be
hosted by BVIG 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 BVIG on a regular mutually agreed upon
basis. BVIG shall have the right, but not the obligation, to remove
from Family.com, or direct Content Partner to remove from the
Family.com-Wrapped Pages, any Content Partner Content which BVIG, in
its reasonable discretion, determines to be offensive, in poor taste,
or otherwise objectionable.
1.5 Subject to the exceptions set forth below, during the term of this
Agreement, Content Partner shall be the exclusive provider of Health
Content for the Health Channel. ***
1. ***
2. Health Content provided to BVIG by news or data feeds or
Freelancers;
3. Any Health Content created internally by BVIG or its Affiliates;
4. ***
5. BVIG's standard advertising banner business conducted outside the
Health Channel;
6. 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; ***
__________________________
* * * 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 of 21
<PAGE>
7. New Content or products that are not available from DrKoop.com as
further described in Appendix A, Section B 2; and
8. Any Health Content obtained from a third party which is marketed
under the "Disney" brand (such as, "Disney's Health
Encyclopedia").
As used herein, "Freelancers" shall mean independent parties who
receive a fee for their services and who are not (to BVIG's
knowledge) full time employees of any DrKoop.com Direct Competitor
as set forth on Appendix E.
DrKoop.com acknowledges that the following shall not constitute a
breach of this Section 1.5: (a) the BVIG search technology may search
the sites *** (b) BVIG may provide search-related products that may
include results from any third parties; and (c) any third party may be
included in service/product provider directories on Family.com.
1.6 ***
1.7 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 BVIG brings to DrKoop.com's
attention or about which DrKoop.com otherwise becomes aware are
specified in Appendix C; *** DrKoop.com agrees not to override browser
back button functionality to prevent Users who link to the DrKoop.com
Site 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 a web site which takes the User directly to another web
site.
1.8 Each party will be responsible for its respective telecommunications
charges with respect to the provision of respective portions of the
Content Partner Content to BVIG and to Users. Except as expressly
provided herein, BVIG retains the right to adapt or otherwise alter
the design, look, and any other attributes of the Service and Service
pages, and the placement of the Content Partner Content on the
Service. BVIG will use commercially reasonable efforts to incorporate
into the Content Partner Content error corrections, as provided and
identified as such by Content Partner; provided, however that if
Content Partner advises BVIG in writing during normal business hours
that failure to promptly correct an error could result in serious
physical injury to a User, BVIG shall exercise best commercially
reasonable efforts to expedite the correction of such error.
1.9 Family.com may place up to ten articles of Content Partner Content
per month as part of the archival database for the Service during the
term of the Agreement. The archival database may be searched from
Family.com as well as other BVIG sites that include the Family.com
database in their search.
1.10 User Registration. DrKoop.com shall ensure that its privacy policy
applicable to the DrKoop.com Site and the Family.com-Wrapped Pages, to
the extent applicable to its performance under this Agreement, is
consistent with the BVIG's privacy policy for Family.com, as such may
be changed from time to time, including but not limited to including a
mechanism that allows Users to opt in to DrKoop.com's sharing of User
data (not including personal medical information) with BVIG. The
parties will work together to implement a shared registration solution
for Users accessing DrKoop functionality.
__________________________
* * * 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 of 21
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1.11 DrKoop.com User Data. *** DrKoop.com shall make available to BVIG,
via a method and timing to be mutually agreed upon, all names and
email addresses of all new Dr.Koop.com Users who register on the
Family.com-Wrapped Pages or who have accessed the DrKoop.com Site from
a Link on Family.com, provided that such User has opted in for sharing
his/her data with BVIG and provided such disclosure is not prohibited
by law or regulation. In addition, except as prohibited by law,
Dr.Koop.com shall provide to BVIG all available data (in aggregate,
anonymous form only) concerning Users who access the Pages from Links
on Family.com, concerning products and/or services purchased by such
Users, survey and promotion responses, and other demographic
information concerning such Users. Notwithstanding the foregoing,
DrKoop.com shall not provide personal medical information to BVIG,
including, without limitation, personal medical records. BVIG 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. Drkoop.com User data must be aggregated with
other BVIG User data before being provided to a third party.
1.12 BVIG User Data. BVIG shall own all right, title and interest in and
to and the exclusive right to use all BVIG User Data generated on all
pages of the Service hosted by BVIG.
1.13 Access. The Health Channel shall be accessible by Users through no
more than one hyperlink from the Family.com home page. Further, BVIG
shall maintain the Health Channel, in a manner consistent with its
development and operation of the other Channels within the Service.
1.14 Warrants. At BVIG's option, upon execution of this Agreement,
Content Partner will provide BVIG with warrants for the right to
purchase sixty thousand (60,000) shares of Content Partner's common
stock pursuant to a Warrant Agreement between Content Partner and BVIG
containing terms no less favorable to BVIG than the terms of the
Warrant Agreement between Content Partner and Infoseek Corporation
attached to the Distribution Agreement.
2 FEES AND PAYMENTS
Each party will make payments to the other party in the amounts and at the
times specified in Appendix D. Each party will be responsible for the proper
payment of all taxes, including sales, excise and value added taxes, which
may be levied in connection with its payments to the other party, exclusive
of taxes based upon the other party's net income.
3 CONFIDENTIAL INFORMATION
3.1 Either BVIG 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.
__________________________
* * * 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 of 21
<PAGE>
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 BVIG that it
holds the necessary rights to permit the use of Content Partner
Content by BVIG 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 BVIG that the use,
reproduction, distribution, transmission, or display of Content
Partner Content 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.
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 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.
__________________________
* * * 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 of 21
<PAGE>
4.3 BVIG represents and warrants, *** that the systems and technology
utilized by BVIG to operate the Service 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.
4.4 BVIG represents and warrants to Content Partner that *** 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 the BVIG proprietary
technology as utilized by the Service does not infringe any U.S.
copyright, patent, trademark, trade dress or trade secret of any
person or entity, and that BVIG Content (as defined in this Section
4.4) will not (a) violate any U.S. laws or any rights of any third
parties, including, but not limited to, such violations as
infringement or misappropriation of any 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. As used herein, "BVIG Content" means any content on
the Health Channel that has been authored and created solely by BVIG.
5 LIMITATION OF LIABILITY; DISCLAIMER
5.1 EXCEPT FOR EITHER PARTY'S LIABILITY FOR THIRD PARTY CLAIMS AS
SPECIFIED IN SECTION 9 BELOW OR IN APPENDIX A, SECTION B(4), DAMAGES
ARISING FROM PERSONAL INJURY, OR EITHER PARTY'S BREACH OF SECTION 3,
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY 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.
5.2 EXCEPT AS SET FORTH IN SECTION 4, NEITHER PARTY MAKES ANY, AND EACH
PARTY ACKNOWLEDGES THAT THE OTHER HAS NOT MADE ANY, AND HEREBY
SPECIFICALLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, REGARDING THE SERVICE, THE DRKOOP.COM SITE, THE CONTENT
PARTNER CONTENT, 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.
__________________________
* * * 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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<PAGE>
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 Execution Date (as defined in
Appendix A, Section B.1.a). 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. Notwithstanding the foregoing, either party may
terminate this Agreement effective as of the second anniversary of the
Execution Date by providing at least 120 days prior written notice to
the other party. If this Agreement is not terminated as of the
second anniversary of the Execution Date, the Agreement shall continue
in full force and effect for another twelve (12) months (unless
terminated for cause during said 12 month period).
6.2 DrKoop.com will make best commercially reasonable efforts for the
Pages to meet the following performance standards The applicable
performance standards are as follows:
***
6.3 BVIG shall make best commercially reasonable efforts for that portion
of the Health Channel hosted by BVIG ("Health Channel" as used in
this Section 6.3) to meet the following external performance
standards. Such performance standards are as follows:
***
6.4 ***
6.5 The following sections shall survive the termination or expiration of
this Agreement: 1.11 (first sentence only), 1.12, 2, 3, Article 4 (as
to claims arising prior to termination or expiration or claims based
on events arising prior to termination or expiration) 5, 8.1 (first
and second sentences only), 8.2, 9, and 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, except as may be otherwise provided in this Agreement;
(b) promptly pay all amounts due and payable as of the date of such
expiration or termination; and (c) promptly remove the other party's
content, branding, links, and any other material provided under this
Agreement from its respective sites and services.
6.7 During the term of this Agreement, BVIG shall not enter into any
agreements to permit the sale or distribution of tobacco or tobacco
products on the Health Channel. 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 Channel in response to the
search queries of Users.
__________________________
* * * 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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<PAGE>
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,
telecommunications line failures, storm, acts of war, riot, government
interference, strikes and/or walk-outs. The party experiencing the force
majeure event shall provide the other party with notice as soon as
reasonably possible under the circumstances. In the event of a force
majeure event which lasts longer than fifteen (15) 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, Family.com
BVIG or its Affiliates, without prior coordination with and written
approval from BVIG, which approval may be granted or withheld in
BVIG's sole discretion. BVIG 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,
after execution of this Agreement, and during the term of the
Agreement, DrKoop.com *** shall reasonably cooperate with BVIG in the
issuance of a press release, mutually agreed to between the parties,
announcing this Agreement. All such endorsements must receive BVIG's
prior review and approval. Except and only to the extent specifically
set forth in this Agreement, DrKoop.com shall not acquire any right
under this Agreement to use any BVIG trademarks or logos or the names
"Disney" or "Family.com" (either alone or in conjunction with or as a
part of any other word or name) or any fanciful characters or designs
of any BVIG affiliate, (a) in any advertising, publicity, or
promotion; (b) to express or to imply any endorsement of its own
products or services; or (c) in any other way.
8.2 BVIG 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 DrKoop.com, which consent may be withheld in
DrKoop.com's sole discretion.
8.3 Content Partner and BVIG may undertake such joint marketing efforts as
may be mutually agreed upon from time to time, but neither party is
obligated to undertake any such efforts.
__________________________
* * * 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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<PAGE>
9 INDEMNIFICATION
9.1 Content Partner agrees to defend, indemnify and hold BVIG 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 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);
(ii) any injury to person or property caused by any products or
services sold by Content Partner, or any User's use of or reliance on
the Content Partner Content; (iii) any other claim with respect to
Content Partner, Content Partner Content, or products or services sold
by or through Content Partner, or (iv) Content Partner's sales or
marketing practices. Content Partner shall bear full responsibility
for the defense (including any settlements) of any such claim;
provided however, that (a) Content Partner shall keep BVIG informed
of, and consult with BVIG in connection with the progress of such
litigation or settlement; and (b) Content Partner shall not have any
right, without BVIG'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 BVIG or otherwise requires BVIG to take or
refrain from taking any material action (such as the payment of fees).
9.2 BVIG agrees to defend, indemnify and hold Content Partner and its
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 BVIG's representations and
warranties set forth in Section 4.4; (ii) any injury to person or
property caused by any BVIG products or BVIG services sold by BVIG on
the Health Channel, or any User's use of or reliance on the BVIG
Content displayed on the Health Channel; or (iii) any breach of an
international law, rule or regulation or international third party
proprietary right (as if BVIG had made the representations and
warranties equivalent to those set forth in Section 4.4 regarding US
laws, regulations and proprietary rights). BVIG shall bear full
responsibility for the defense (including any settlements) of any such
claim; provided, however, that (a) BVIG shall keep Content Partner
informed of, and consult with Content Partner in connection with the
progress of such litigation or settlement; and (b) BVIG 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, suite 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
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.
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<PAGE>
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 an "assignment" for purposes of this
Section 10.2; provided, however, that as long as control is not
transferred to a 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 Los Angeles 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.
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<PAGE>
If to BVIG: If to Content Partner:
Buena Vista Internet Group drkoop.com, Inc.
5161 Lankershim Blvd. 8920 Business Park Drive, Longhorn Suite
North Hollywood, CA 91601 Austin, Texas 78759
Attention: Dan Rosen Attention: __________________
Tel: (212) 456-6469 Tel: ______________________
Fax:(212) 456-7635 Fax:________________
With a copy to:
Legal Department
Fax: (818) 623-3637
10.7 This Agreement and the Appendices attached hereto and incorporated
herein by reference constitutes 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
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 document 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.
BUENA VISTA INTERNET GROUP DRKOOP.COM, INC.
By: /s/ Larry Shapiro By: /s/ Donald Hackett
--------------------------- ------------------------------
Authorized Signature Authorized Signature
Print Name: Larry Shapiro Print Name: Donald Hackett
------------------- ----------------------
Title: Sr. V.P. Business and Legal Affairs Title: CEO
------------------------ ---------------------------
Date: 4/9/99 Date: 4/9/99
------------------------- ----------------------------
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<PAGE>
APPENDIX A
A. HEALTH CONTENT
1. "Health Content" means content that relates to human health conditions,
medicine, and the treatment of disease ***
B. HEALTH CHANNEL DESCRIPTION
1. a. The Health Channel shall comprise one or more pages and shall
include a DrKoop.com branded area featuring relevant Headlines from
the DrKoop.com Site selected by Family.com. "Headline" means a
title of an article, application, graphic or other Content Provider
Content. The Headlines shall be Links to the applicable Health
Content within the Pages either hosted by BVIG or Dr.Koop.com. The
Headlines may be pulldown menus or other kinds of Links and may
also include a brief description of the content (subject to the
obligations set forth in Section B 4 below). Each page of the
Health Channel shall include a Drkoop.com button which will be
Linked to the DrKoop.com site or the Family.com Wrapped Pages, as
determined by BVIG. The Health Channel shall be available to Users
within 60 days of the Effective Date. The date on which the Health
Channel is made available to Users is referred to herein as the
"Execution Date."
b. At least *** of the content on the Health Channel's home page shall
be Content Provider Content or Headlines, provided Family.com's
editorial team, in its reasonable discretion, identifies relevant
Content Provider Content/Headlines to reach this *** threshold. At
least *** of the Links on the Health Channel shall go directly to
the Family.com-Wrapped Pages or the DrKoop.com Site, provided
Family.com's editorial team identifies, in its reasonable
discretion, relevant Content Provider Content/Headlines to reach
this *** threshold. The other *** may link to Family.com pages that
contain other Health Content (subject to Section B 2b) and other
content.
c. Family.com may also choose in its sole discretion to host and
display in full on Family.com up to 10 articles per month from the
Content Provider Content. Each such article will include a mutually
agreed Link to the DrKoop.com Site.
d. BVIG shall promote the Health Channel in a manner commensurate with
BVIG's promotion of the other Family.com Channels.
2. a. DrKoop.com shall provide Health Content and tools to Family.com in
areas and subjects as specified by BVIG. BVIG and DrKoop.com shall
mutually upon a schedule for the display of Content Provider
Content which may include implementation of the following features
within 90 days of the Effective Date:
. Weekly articles
. Periodic online chats with experts provided by DrKoop.com
. At least one photo for each article and illustrations, graphs,
statistical tables and charts wherever appropriate
. Weekly replies from experts affiliated with DrKoop.com to
Family.com user questions
. Search
__________________________
* * * 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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<PAGE>
b. In the event that BVIG desires Health Content and/or tools, medium
and/or functionality not available from Content Partner at the time
of BVIG's request ("New Content"), it shall provide DrKoop.com with
written notice of its desire to obtain such New Content, which
notice shall include a specification therefor, and a delivery
schedule in reasonable detail to allow DrKoop.com to evaluate the
scope of the development project (the "Request").
c. ***
3. All Links pointing to the DrKoop.com Site from the Service shall
provide Links back to the same area of the Service.
4. Notwithstanding the foregoing, BVIG shall not modify, edit, abbreviate
or censor Content Partner Content, but BVIG shall have the right not to
include such content on any pages of Family.com. In the event that BVIG
modifies; including without limitation, creating summaries, any portion
of the Content Partner Content without the prior written approval of
Content Provider, BVIG shall be solely responsible for any liability
arising from such unauthorized modifications and shall indemnify and
hold Content Partner harmless from such liability.
5. ***
6. At BVIG's request, DrKoop.com shall send to BVIG's facilities a minimum
of one (1) on-site designer/producer/engineer during the term of this
Agreement for a mutually agreed upon duration for purposes of assisting
BVIG in building the Health Channel and integrating the Content Partner
Content therein.
7. ***
a. DrKoop.com shall place on the Family.com Wrapped-Pages and on any
portion of the DrKoop.com Site which includes only promotions for
or links to the Family.com Wrapped-Pages only "run of site"
advertising and shall not include in such locations any advertising
from any *** without BVIG's prior written consent, which may be
granted or withheld in BVIG's sole discretion.
b. DrKoop.com may sell sponsorships which appear on the Family.com-
Wrapped Pages, provided that (i) such sponsorships comply with
BVIG's current Advertising Guidelines and (ii) DrKoop does not sell
Family.com-Wrapped Pages sponsorships as a stand alone opportunity
and without BVIG's prior approval do not reference Family.com when
discussing sponsorship opportunities.
c. Content Provider shall comply with BVIG's then current standard
advertising policy.
d. DrKoop.com shall not transmit any so-called "interstitials" or
"pop-up ads" to users of Family.com or the Family.com Wrapped-
Pages.
8. At present, BVIG intends that all Health Content provided to users of
BVIG's site "Disney.com" shall be provided via Links to Family.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.
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<PAGE>
9. Any promotions and/or links to Family.com provided by DrKoop.com shall
be approved in advance by BVIG.
10. All Content Partner Content shall carry Content Partner's legal
disclaimer, a copy of which is included on Appendix A-1, which may be
revised from time to time by Content Provider. Other than Headlines,
this disclaimer shall be presented in its entirety any time Content
Partner 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 Content Partner
Content is submitted for inclusion in the Service.
11. Advertising
a. Commencing on Execution Date, BVIG shall deliver *** of DrKoop.com
Ad Banners at a cpm of *** on a "run of site" basis across
Family.com. *** of such impressions shall be delivered by September
15, 1999 and the remainder shall be delivered within the first year
of this Agreement. The terms and conditions of the BVIG's then-
current "Advertising Sales Terms and Conditions" shall apply to
such advertising. Copies of such terms and conditions are available
from BVIG on request.
b. Provided DrKoop.com is current on all payments described above,
BVIG agrees to purchase *** Ad Banner impressions on the DrKoop.com
Site at a cpm of *** of the impressions shall be delivered during
the first year of this Agreement and the remaining *** shall be
delivered as determined by BVIG over the first two (2) years of
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.
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<PAGE>
APPENDIX A-1
This Appendix A-1 sets forth existing Content Provider Content as of the
Effective Date. All Content Provider Content includes, in addition to the
requirements listed below, drkoop.com branding. 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 BVIG's reasonable approval; notwithstanding the
foregoing, Content Partner shall maintain the quality and quantity of Content
Provider Content available to BVIG throughout the term of the Agreement.
<TABLE>
<CAPTION>
Category Source Copyright Distribution Disclaimer Logo
Rights Required Needed
========================================================================================================
Disease
<S> <C> <C> <C> <C> <C>
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 Sharon Howard - Drkoop.com any use Standard No
Content 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
Multum Multum Standard + Yes
Multum
</TABLE>
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<PAGE>
<TABLE>
==============================================================================================
<S> <C> <C> <C> <C> <C>
Insurance J. Hallam / T. Drkoop.com any use Standard No
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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<PAGE>
APPENDIX B
***
__________________________
* * * 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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<PAGE>
APPENDIX C
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 Users of Family.com bring 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.
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APPENDIX D
FEES AND PAYMENTS
A. Fees and Payments
1. DrKoop.com shall pay to BVIG a content/program placement fee of six
million dollars ($6,000,000) (five hundred thousand dollars of which
is attributable as a production fee as described below) and, in
consideration for the ad impressions to the delivered under Appendix
A, Section 12a., an advertising fee of one million five hundred
thousand dollars ($1,500,000) payable to BVIG on the schedule
specified below.
2. BVIG shall pay to DrKoop.com an advertising fee of two million dollars
($2,000,000) for the ad impressions to be provided under Appendix A,
Section 12b over the first two year period of the term of this
Agreement, provided this Agreement is not terminated.
B. Payment Schedule
1. Content/Placement Fee to BVIG:DrKoop.com shall pay to BVIG a non-
refundable, up-front production fee payment ***
2. ***
C. Other
1. BVIG (or its agents) shall receive all monies derived from
advertising, product sales, and all other activities and transactions
on all pages of Family.com. DrKoop.com shall receive all monies
derived from advertising, product sales and all other activities and
transactions on the Family.com-Wrapped Pages and the DrKoop.com Site.
2. All BVIG invoices are to be mailed to:
drkoop.com, Inc.
8920 Business Park Drive
Longhorn Suite
Austin, Texas 78759
Attention: _______________________
All payments are to be mailed to:
Buena Vista Internet Group
5161 Lankershim Blvd.
North Hollywood, CA 91601
Attention: Accounts Payable
__________________________
* * * 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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<PAGE>
APPENDIX E
***
__________________________
* * * 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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<PAGE>
APPENDIX F
***
__________________________
* * * 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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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.
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.
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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.
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.
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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); 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,
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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 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).
________________________________________________________________________________
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
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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.
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.
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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, 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
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code and object code for software components) that EHC owns, to the best of
EHC's knowledge, as of the Effective Date.
________________________________________________________________________________
PART III. LICENSE TO HMI PRODUCTS
1. License
A. Except as set forth in Part VI.1, HMI hereby grants EHC a ninety-nine (99)
year, 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 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.
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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.
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
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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.
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. If any material functionality or end-user
value of any particular EHC Engaging Application is derived from, related to or
enabled by LHR, 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 a ninety-nine (99) year, 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, derivative
works of, and to perform, display and use such EHC Engaging Applications
(including source code, the "EHC Engaging Applications Source Code") 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.
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(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) such EHC
Engaging Application as a "Protected Engaging Application" that EHC need not
offer to license to HMI as provided for in Part III.3.A (1) above; 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; and (ii) if any material functionality or end-user value of any
particular HMI Engaging Application is derived from, related to or enabled by
LHR or if HMI creates a derivative work based an EHC Engaging Application
licensed to HMI under Part III.3.A, HMI shall, in consideration of the revenue
sharing scheme set forth in Part VI.1.F, offer to EHC a ninety-nine (99) year,
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.
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
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<PAGE>
"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: (i) failure on the part of HMI to
resolve material errors in Web-Based LHR in a commercially reasonable manner (as
determined by prevailing industry standards); (ii) material failure by HMI to
meet the Service Levels (exclusive of failures caused by the Third-Party Secured
Site over which HMI has no control,) on a continuing basis; (iii) a material
failure by HMI to comply with the End-User Data Standards; (iv) upon 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.3.C(1) or (3), or Part
VII.6; (v) breach by HMI of the document which shall be developed pursuant to
Part VII.7.A; (vi) termination of this Agreement by EHC pursuant to Part
VII.10.B; or (vii) termination of this Agreement by HMI pursuant to Part VII.5.
(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: (i) failure on the part of HMI
to resolve material errors in Client-Based LHR in a commercially reasonable
manner (as determined by prevailing industry standards); (ii) upon 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, , or Part IV.3.C(1) or (3); (iii)
termination of this Agreement by EHC pursuant to Part VII.10.B; or (iv)
termination of this Agreement by HMI pursuant to Part VII.5.
(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.
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(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 eighteen (18) months after the initial deposit of such Source
Code into escrow. After such eighteen (18) month 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 support issues, as defined by the
parties under Part IV.3.C(1), plus an additional thirty (30) day 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.
(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
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HealthMagic, Inc 12 Confidential and Proprietary
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<PAGE>
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.
(6) The non-competition provisions set forth in Part V.2 shall cease to
apply with respect to the products such Source Code underlies.
________________________________________________________________________________
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.
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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.
(2) Should a breach of this Agreement by HMI (including, without
limitation, a material failure to meet the Service Levels) 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 and EHC's exclusive remedy under this Agreement shall be for the parties to
promptly select another commercially reasonable Third-Party Secured Site, and
following HMI entering into a commercially reasonable agreement with such
alternative Third-Party Secure Site, relocate LHR to such alternate Site.
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
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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.
(2) For a period of six (6) months following such time as any EHC Feature
has been incorporated, but in no event longer than nine (9) months after the EHC
Feature has been made available for incorporation, into any new Update, Release
or Version of the EHC LHR ("EHC Exclusivity Period"), HMI shall not make
available to any of its other customers any new Update, Release or Version of
Client-Based LHR or Web Based LHR that contains such EHC Feature. 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 less than nine (9) months have elapsed since the
time such Version was the current (i.e., most recent)Version of
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<PAGE>
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).
________________________________________________________________________________
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
----------------
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.
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HealthMagic, Inc 16 Confidential and Proprietary
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2. Non-Competition
A. HMI agrees not to use EHC Sourced End-User Data (as defined in Part
VII.7.A) to directly or indirectly solicit or assist in the solicitation of
EHC's End Users to leave EHC.
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 not, outside of this Agreement or any other agreement with
HMI: (i) develop itself, contract for the creation of on its behalf, or
represent that it has any product(s) or service(s) that duplicate to any
significant degree the functionality of a Personal Medical Record; (ii) support
or distribute any such product(s) or service(s); or (iii) enter into or maintain
contractual relationships with third parties under which a material portion of
the revenue EHC receives pursuant to such relationships derives from the sale or
license by such third parties of any such product(s) or service(s).
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
not, outside of this Agreement or any other agreement with EHC: (i) develop
itself, contract for the development of on its behalf, or represent that it has
a Portal Web Site that substantially duplicates the functionality and content of
the EHC Web Site (a "Competitive Portal Web Site"); or (ii) develop and
distribute to third parties an LHR-variant enhanced with content to the extent
that, standing alone, such LHR-variant, when put up on a Web site, is a
Competitive Portal Web Site. A "Portal Web Site" means a machine on the Internet
that is running a Web server to respond to requests from remote Web browsers
which contains both content owned or licensed by the web site owner and acts as
a significant gateway to other web sites. For the avoidance of doubt, HMI may
create, contract for the development of on its behalf, and represent that it has
a web site, so long as that web site does not exceed the limitations of this
Part V.2.C.
D. If the EHC Web Site ceases to be a Market Competitive Product, HMI may
terminate this Agreement, in which case the provisions of this Part V.2 shall
not survive termination of this Agreement. If LHR ceases to be a Market
Competitive Product, EHC may terminate this Agreement, in which case the
provisions of this Part V.2 shall not survive termination of this Agreement.
"Market Competitive Product" shall, in each of the foregoing instances, be
defined by mutual agreement of the parties, or failing mutual agreement through
the binding arbitration procedure described in Part VII.11.D. In the event that
the LHR becomes a noncompetitive product pursuant to this Part V.2.D, material
breach of Part IV.3.B(2) by HMI, or material breach of Part V.2.A or Part V.2.C
by HMI, EHC may provide prompt written notice to HMI. Upon written notice, and
subject to the cure period provided in Part VII.10.A, the non-compete provisions
in this Part V.2 shall terminate and EHC shall have a twelve (12) month
transition period commencing immediately on receipt of such notice by HMI. At
the end of such twelve month transition period, this Agreement shall terminate
in its entirety.
E. For a period of nine (9) months after EHC introduces HMI to any EHC
customer or EHC notifies HMI that a customer is a potential EHC customer, HMI
shall not directly or indirectly solicit or attempt to solicit such EHC
customer. What constitutes a "customer (or potential customer) of EHC" shall be
defined by mutual agreement of the parties, or failing mutual agreement through
the binding arbitration procedure described in Part VII.11.D.
F. Each party acknowledges and agrees that the restrictive 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
restrictive covenants will result in irreparable injury to the other party.
Each party hereby irrevocably waives any right to challenge or otherwise attempt
to invalidate any of the restrictive
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HealthMagic, Inc 17 Confidential and Proprietary
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and Development Agreement Final, January 20, 1999
<PAGE>
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 restrictive
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.
---------------
(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 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
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HealthMagic, Inc 18 Confidential and Proprietary
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and Development Agreement Final, January 20, 1999
<PAGE>
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.
________________________________________________________________________________
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 ten percent (10%)), and other reasonable direct costs.
A. Advertising. Any advertising Revenue generated by the EHC Web Site's use
-----------
of the LHR pages, including without limitation, advertisements framing LHR, or
"pop-up" advertising, shall be shared between EHC and HMI with 30% of such
Revenues allocated to EHC and 70% 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
-----------
LHR pages shall be shared between EHC and HMI with 30% of such Revenues
allocated to EHC and 70% of such Revenues to HMI.
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HealthMagic, Inc 19 Confidential and Proprietary
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<PAGE>
C. Electronic Data Interchange (EDI). Any Revenues generated through EDI
---------------------------------
agreements reasonably related to LHR shall be shared between EHC and HMI with
30% of such Revenues allocated to EHC and 70% 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
30% of such Revenues allocated to EHC and 70% 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
------------------------
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
---------------------
HMI or EHC Engaging Application shall be shared between EHC and HMI with 70% of
such revenues allocated to the party who developed the Engaging Application and
30% 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 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. LHR Data "Pool" Sharing. HMI may respond to requests from an advertiser or
-----------------------
a supplier of health related goods and services for information to provide
market research or data analysis of a statistical or demographic nature
(specifically to spot trends and make observations about end users whose data is
contained in LHR) to the extent HMI receives compensation for such services.
Provisions regarding the sharing between the parties of revenues generated by
such activities shall be as mutually agreed upon by the parties; provided that
any revenue sharing scheme shall take into account the quantity and quality of
the End-User Data originating from the EHC Web Site used in responding to the
request.
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HealthMagic, Inc 20 Confidential and Proprietary
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and Development Agreement Final, January 20, 1999
<PAGE>
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 8% 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.
5. Most Favored Nation Status
If and to the extent HMI enters into a revenue sharing scheme with a third
party that is better than any of the revenue sharing schemes set forth in Part
VI.1, HMI agrees to adjust the revenue splits in this Agreement to match the
other agreement. By way of clarification, if HMI enters into a revenue sharing
scheme analogous to a scheme in this Agreement, whereby the other customer
receives forty percent (40%) of such revenues, and the other conditions of this
provision are met, EHC's share of advertising revenues for the analogous scheme
would be adjusted to forty percent (40%). However, if the revenue sharing
scheme with such third party is structured in conjunction with up-front cash or
cash equivalent consideration, then the adjustment to the revenue scheme in this
Agreement will be equitably scaled back to take into account the value of such
consideration. Without limiting the generality of the foregoing, the benefit of
the most favored nations status accounted to EHC in this Part VI.5 shall be
shifted by an additional ten percent (10%) to the advantage of EHC (thus, in the
example above, the forty percent (40%) would become forty four percent (44%).
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HealthMagic, Inc. 21 Confidential and Proprietary
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Development Agreement Final, January 20, 1999
<PAGE>
6. All Initial Revenues to HMI
Until HMI has received a cumulative amount of One Million Two Hundred and
Fifty Thousand Dollars ($1,250,000) (the "Initial Revenue Amount") in Revenues
from the revenue sharing opportunities under Part VI.1, HMI shall receive all
Revenues from such opportunities, rather than the sharing formulas provided in
Part VI.1. For the avoidance of doubt, each of the formulas provided in Part
VI.1 are deemed to provide that HMI receives one hundred percent (100%) of the
Revenues and EHC receives zero percent (0%) of the Revenues until HMI has
received the Initial Revenue Amount. Once the Initial Revenue Amount has been
achieved, the revenue sharing provisions will apply as stated in Part VI.1.
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
property, EHC will reimburse HMI for that portion of any claims HMI actually
pays for which EHC is legally liable.
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HealthMagic, Inc. 22 Confidential and Proprietary
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<PAGE>
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. Notwithstanding the foregoing, EHC's obligation under item
(iii) and (iv) of this Part VII.2.B shall be limited proceeds from the insurance
required to be carried by EHC pursuant to Part VII.9.C and up to One Million
Dollars ($1,000,000) for such item(s) if the insurance does not cover the claim.
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. Notwithstanding the foregoing, HMI's
obligation under items (iii), (iv) and (v) of this Part VII.2.C shall be limited
proceeds from the insurance required to be carried by HMI pursuant to Part
VII.9.C and up to One Million Dollars ($1,000,000) for such item(s) if the
insurance does not cover the claim.
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 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
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HealthMagic, Inc. 23 Confidential and Proprietary
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<PAGE>
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, in an amount not to
exceed, in the aggregate for all claims, the greater of: (a) cumulative revenue
share paid to HMI under Part VI.1 in the three (3) month period immediately
proceeding the event giving rise to such liability, or (b) One Million Dollars
($1,000,000.00).
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 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
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HealthMagic, Inc. 24 Confidential and Proprietary
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<PAGE>
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.
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.
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HealthMagic, Inc. 25 Confidential and Proprietary
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<PAGE>
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.
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
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HealthMagic, Inc. 26 Confidential and Proprietary
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<PAGE>
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 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).
________________________________________________________________________________
HealthMagic, Inc. 27 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
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 with a minimum limit of $1,000,000 per occurrence and
$5,000,000 in the aggregate.
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, in
a minimum amount of $5,000,000.
C. Errors and Omissions Liability Insurance covering the liability for
financial loss due to error, omission, negligence of employees and machine
malfunction in an amount of at least $5,000,000.
D. Software Errors and Omissions Liability Insurance covering the liability
for financial loss due to software errors and omissions in an amount of at least
$5,000,000.
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 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
________________________________________________________________________________
HealthMagic, Inc. 28 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
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.
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:
________________________________________________________________________________
HealthMagic, Inc. 29 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
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
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
________________________________________________________________________________
HealthMagic, Inc. 30 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
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 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.
________________________________________________________________________________
HealthMagic, Inc. 31 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
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: (i) the non-compete provisions set forth in Part V.2
of this Agreement shall no longer be binding on either party and shall for all
purposes be deemed to be null and void; and (ii) the party who has not had a
change in control may at any time thereafter terminate this Agreement for
convenience subject to a three (3) month transition period commencing
immediately upon receipt by the non-terminating party of notice of termination.
At the end of such transition period: (i) EHC shall cease all 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.
________________________________________________________________________________
HealthMagic, Inc. 32 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
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.
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.
________________________________________________________________________________
HealthMagic, Inc. 33 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
________________________________________________________________________________
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
-------------------------- ---------------------------
________________________________________________________________________________
HealthMagic, Inc. 34 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
Exhibit A
Terms and Conditions for EHC Services
Please see the attached HMI consulting services agreement.
________________________________________________________________________________
HealthMagic, Inc. A-1 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
Exhibit B
Confidentiality Agreement
Please see the attached HMI Confidentiality Agreement
________________________________________________________________________________
HealthMagic, Inc. B-1 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<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
________________________________________________________________________________
HealthMagic, Inc. C-1 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<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.
________________________________________________________________________________
HealthMagic, Inc. D-1 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<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.
________________________________________________________________________________
HealthMagic, Inc. E-1 Confidential and Proprietary
Software Sale, License and
Development Agreement Final, January 20, 1999
<PAGE>
Exhibit F
Technology Escrow Agreement
<PAGE>
Exhibit 10.19
CONTENT LICENSE AGREEMENT
This agreement ("Agreement") is entered into as of the 11th day of December,
1998 ("Effective Date"), by and between Excite, Inc., a Delaware corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Empower
Health Corporation, a Texas corporation, located at 8920 Business Park Drive,
Longhorn Suite, Austin, TX 78759 ("Content Provider").
RECITALS
A. Excite maintains sites on the Internet at http://www. excite.com (the
"Excite Site") and at http://www.webcrawler.com (the "Webcrawler Site"), and
owns and/or manages related Web sites worldwide (collectively, the "Excite
Network") which, among other things, allow its users to search for and
access content and other sites on the Internet.
B. Excite also maintains and/or manages certain Web pages which may be
delivered to users worldwide via email, desktop "channels" or Internet
"push" technologies (collectively, "Broadcast Pages") which may incorporate
content supplied to Excite by third parties for the purpose of providing
value to Excite users and providing access to the content, products and/or
services of such third parties.
C. Content Provider owns or has the right to distribute certain health content
and maintains a related site on the Internet at http://www.drkoop.com (the
"Content Provider Site").
D. Excite and Content Provider wish to distribute Content Provider's content
through the Excite Network and/or Broadcast Pages.
Therefore, the parties agree as follows:
1. CONTENT PROVIDED TO EXCITE
a) Content Provider will provide to Excite the content described in
Exhibit A (the "Content"). The Content will comply with the description a
- ---------
technical specifications attached hereto as Exhibit A; provided, however, that
---------
Content Provider does not warrant that the Content is error free. Content
Provider warrants that Content will comply with the description and technical
specifications contemplated by this Agreement.
- ----------------
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.
<PAGE>
b) Excite may incorporate the Content into certain pages in the Excite
Network (the "Content Pages) and reasonable excerpts or portions of the
Content may be incorporated into Broadcast Pages, at Excite's
discretion.
c) Content Provider will have sole control and responsibility over the data
and information contained in the Content. Content Provider and Excite
will mutually agree on reasonable legal and medical disclaimers for the
Content Pages and the Broadcast Pages.
d) Content Provider will get prominent branding on the Content Pages. The
exact type and placement of the branding will be mutually determined by
Content Provider and Excite.
e) Content Provider and Excite will determine mutually agreeable methods
for the transmission and incorporation of updates to the Content. Other
than updates to the Content, Content Provider will not alter the Content
without Excite's prior consent; provided, however, that Content Provider
may promptly and without prior consent of Excite make any changes in the
Content to correct errors and the like, or to remove any defamatory
materials or any other materials that Content Provider can demonstrate
via user feedback are offensive to a reasonable number of users of
Content Provider Site.
f) Excite will have sole control over the "look and feel" of the Excite
Network. Excite will have sole control over the content, composition,
"look and feel" and distribution of the Broadcast Pages. Excite will
have sole responsibility for providing, hosting and maintaining, at its
expense, the Excite Network and for providing and delivering the
Broadcast Pages.
g) Content Provider will have sole responsibility for providing, at its
expense, the Content to Excite.
h) Content Provider will be able to provide the Content to other partners
at its discretion.
2. ADVERTISING; USAGE REPORTS; PUBLICITY
a) Excite will be solely responsible for selling any advertising on the
Excite Network.
<PAGE>
b) Excite will pay Content Provider on a quarterly basis * * * of the "Net
Advertising Revenue" that accrues to Excite during the term of this
Agreement from banner advertising that appears on "Advertising Pages."
"Net Advertising Revenue" means all banner advertising revenue that
accrues to Excite during the applicable payment period * * ** * * .
"Advertising Pages" mean Content Pages that display the Content or any
portion thereof and with respect to which at least a majority of the
content (excluding advertisements) on such pages is composed of the
Content. "Advertising Pages" specifically exclude Excite and Webcrawler
search results pages.
c) Payments by Excite to Content Provider will be due within thirty (30)
days of the end of each calendar quarter.
d) With each payment, Excite will provide to Content Provider documentation
reasonably detailing the calculation of the payment.
e) Excite will maintain accurate records with respect to the calculation of
all payments due under this Agreement. Content Provider may, upon no
less than thirty (30) days' prior written notice to Excite and no more
than once per year, cause an independent Certified Public Accountant to
inspect the records of Excite reasonably related to the calculation of
such payments during Excite's normal business hours. The fees charged by
such Certified Public Accountant in connection with the inspection will
be paid by Content Provider, unless any such inspection reveals any
underpayment of fees by Excite of greater than ten percent (10%) in
which event Excite shall reimburse Content Provider for any reasonable
fees charged by such Certified Public Accountant in connection with such
inspection.
f) Excite will provide Content Provider via email usage reports containing
the total number of page views generated by links from the Excite
Network to the Advertising Pages. Each Usage Report will cover a
calendar month and will be delivered within fifteen (15) days following
the end of the applicable month.
g) Except as otherwise set forth in this Agreement, neither party will make
any public statement, press release or other announcement relating to
the terms of or existence of this Agreement without the prior written
approval of the other.
3. CONTENT OWNERSHIP AND LICENSE
- ---------------------
* * * 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>
a) Content Provider will retain all right, title and interest in and to the
Content worldwide (including, but not limited to, ownership of all
copyrights and other intellectual property rights therein). Subject to
the terms and conditions of this Agreement, Content Provider hereby
grants to Excite a non-exclusive, worldwide license to use, reproduce,
distribute, transmit and publicly display the Content in accordance with
this Agreement and to sub-license the Content to Excite's wholly-owned
subsidiaries or to joint ventures in which Excite participates for the
sole purpose of using, reproducing, distributing, transmitting and
publicly displaying the Content in accordance with this Agreement.
Excite's only payment obligation to Content Provider in consideration
for such license is set forth in Section 2.
b) Excite will retain all right, title, and interest in and to the Excite
Network and the Broadcast Pages worldwide (including, but not limited
to, ownership of all copyrights, look and feel and other intellectual
property rights therein).
4. TRADEMARK OWNERSHIP AND LICENSE
a) Content Provider will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, including any
goodwill associated therewith, subject to the limited license granted to
Excite hereunder. Any use of any such trademarks by Excite shall inure
to the benefit of Content Provider and Excite shall take no action that
is inconsistent with Content Provider's ownership thereof.
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, including any
goodwill associated therewith, subject to the limited license granted to
Content Provider hereunder. Any use of any such trademarks by Content
Provider shall inure to the benefit of Excite and Content Provider shall
take no action that is inconsistent with Excite's ownership thereof.
c) Each party hereby grants to the other a non-exclusive, limited license
to use its trademarks, service marks or trade names only as specifically
described in this Agreement. All such use shall be in accordance with
each party's reasonable policies regarding advertising and trademark
usage as established from time to time.
d) Upon the expiration or termination of this Agreement, each party will
cease using the trademarks, service marks and/or trade names of the
other except:
(i) As the parties may agree in writing; or
(ii) To the extent permitted by applicable law.
<PAGE>
5. TERM
The term of this Agreement will begin on the Effective Date and will end one
year thereafter. This Agreement will automatically renew for additional
terms of one year each, unless either party notifies the other in writing at
least thirty (30) days prior to automatic renewal that it does not wish to
renew this Agreement.
6. TERMINATION
a) Either party may terminate this Agreement if the other party materially
breaches its obligations hereunder and such breach remains uncured for
thirty (30) days following the notice to the breaching party of the
breach, with the following exceptions:
(i) In the event of three or more material errors, failures or outages
of the Content in any thirty (30) day period, Excite may elect to
immediately terminate this Agreement upon the third such event by
written notice to Content Provider and enter into other
arrangements for the acquisition of similar content:
(ii) Content Provider will ensure that the Content will at all times be
at least comparable to or better any other source of similar
topical content available on the Internet in terms of the following
factors, taken as a whole: (i) breadth and depth of coverage, (ii)
timeliness of content updates and (iii) reputation and ranking
based on a cross-section of third party reviewers in terms of
topics covered, accuracy of included information and other
qualitative factors. In the event that Content Provider fails to
meet these quality criteria, Excite may terminate this Agreement on
thirty (30) days' written notice and enter into other arrangements
for the acquisition of similar content.
b) All payments that have accrued prior to the termination or expiration of
this Agreement will be payable in full within thirty (30) days thereof.
c) The provisions of this Section 6 (Termination), Section 7
(Confidentiality), Section 8 (Warranty and Indemnity), Section 9
(Limitation of Liability) and Section 10 (Dispute Resolution) will
survive any termination or expiration of this Agreement.
7. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers') business
activities that is proprietary and confidential, which shall include all
business, financial, technical and other information of a party marked
or designated by such party as "confidential" or "proprietary," or
information which, by the nature of the
<PAGE>
circumstances surrounding the disclosure, ought in good faith to be
treated as confidential.
b) 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 without reference to the
Confidential Information of the disclosing party.
c) 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.
d) 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 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.
e) The information contained in the Usage Reports provided by each party
hereunder will be deemed to be the Confidential Information of the
disclosing party.
f) The terms and conditions of this Agreement will be deemed to be the
Confidential Information of each party and will not be disclosed without
the written consent of the other party.
8. WARRANTY AND INDEMNITY
a) Content Provider warrants that it owns, or has obtained the right to
distribute and make available as specified in this Agreement, any and
all Content provided to Excite hereunder.
b) Except for the Content, Excite warrants that it owns, or has obtained
the right to distribute and make available as specified in this
Agreement the Content Pages and Broadcast Pages.
c) Content Provider will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and agents from
any and all third party claims, liability, damages and/or costs
(including, but not limited to, attorneys fees) arising from:
(i) Its breach of any warranty, representation or covenant in this
Section 8; or
<PAGE>
(ii) Any claim that the Content infringes or violates any third party's
copyright, patent, trade secret, trademark, right of publicity or
right of privacy or contains any defamatory content; or
(iii) Any claim that the Content and/or its display on the Excite
Network violate any state, federal or local laws, regulations or
statues, including but not limited to, restrictions on the
practice of medicine; or
(iv) Any claim of personal injury or product liability with respect to
the Content displayed to consumers on the Excite Network.
Excite will promptly notify Content Provider of any and all such claims
and will reasonably cooperate with Content Provider with the defense
and/or settlement thereof, which defense and/or settlement shall be
controlled by Content Provider, provided that, if any settlement
requires an affirmative obligation of, results in any ongoing liability
to or prejudices or detrimentally impacts Excite in any way and such
obligation, liability, prejudice or impact can reasonably be expected to
be material, then such settlement shall require Excite's written consent
(not to be unreasonably withheld or delayed) and Excite may have its own
counsel in attendance at all proceedings and substantive negotiations
relating to such claim.
d) Excite will indemnify, defend and hold harmless Content Provider, its
affiliates, officers, directors, employees, consultants and agents from
any and all third, party claims, liability, damages and/or costs
(including but not limited to, attorneys fees) arising from:
(i) Its breach of any warranty, representation or covenant in this
Section 8; or
(ii) Any claim arising from content displayed on the Excite Network
other than the Content, and any claim arising from any modification
made to the Content by Excite or by Content Provider at the
direction of Excite.
Content Provider will promptly notify Excite of any and all such claims
and will reasonably cooperate with Excite with the defense and/or
settlement thereof, which defense and/or settlement shall be controlled
by Excite, provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Content Provider in any way and such obligation,
liability, prejudice or impact can reasonably be expected to be
material, then such settlement shall require Content Provider's written
consent (not to be unreasonably withheld or delayed) and Content
Provider may have its own counsel in attendance at all proceedings and
substantive negotiations relating to such claim.
e) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY
IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND HEREBY
DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED
<PAGE>
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
REGARDING SUCH SUBJECT MATTER.
9. LIMITATION OF LIABILITY
a) EXCEPT UNDER SECTION 10(c) and 10(d), IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE.
b) EXCEPT UNDER SECTION 10(c), THE LIABILITY OF CONTENT PROVIDER FOR
DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY
OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS
PAYABLE TO EXCITE UNDER THIS AGREEMENT.
c) EXCEPT UNDER SECTION 10(d), THE LIABILITY OF EXCITE FOR DAMAGES OR
ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL
THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS ACTUALLY PAID TO
CONTENT PROVIDER.
10. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties' obligations
regarding trademarks, service marks or trade names and/or
confidentiality would result in irreparable injury for which there is no
adequate remedy at law. Therefore, in the event of any breach or
threatened breach of a party's obligations regarding trademarks, service
marks or trade names or confidentiality, the aggrieved party will be
entitled to seek equitable relief in addition to its other available
legal remedies in a court of competent jurisdiction. For the purposes of
this section only, the parties consent to venue in either the state
courts of the county in which Excite has its principal place of business
or the United States District Court for the Northern District of
California.
b) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names and/or confidentiality, cannot be resolved through good
faith negotiation within 30 days after notice of dispute is provided to
the other party, the parties will refer the dispute(s) to the American
Arbitration Association for resolution through binding arbitration by a
single arbitrator pursuant to the American Arbitration Association's
rules
<PAGE>
applicable to commercial disputes. The arbitration will be held in the
county in which Excite has its principal place of business.
11. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or in
----------
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be required in
connection with a merger, reorganization or sale of all, or
substantially all, of such party's assets. Any attempt to assign this
Agreement other than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of California, notwithstanding the
actual state or country of residence or incorporation of Content
Provider.
c) Notice. Any notice under this Agreement will be in writing and delivered
------
by personal delivery, express courier, confirmed facsimile, confirmed
email or certified or registered mail, return receipt requested, and
will be deemed given upon personal delivery, one (1) day after deposit
with express courier, upon confirmation of receipt of facsimile or email
or five (5) days after deposit in the mail. Notices will be sent to a
party at its address set forth below or such other address as that party
may specify in writing pursuant to this section.
d) 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.
<PAGE>
e) Force Majeure. Any delay in or failure of performance by either party
-------------
under this Agreement will not be considered a breach of this Agreement
and will be excused to the extent caused by any occurrence beyond the
reasonable control of such party including, but not limited to, acts of
God, power outages and governmental restrictions.
f) 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.
g) 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.
Empower Health Corporation Excite, Inc.
By: \s\ Donald W. Hackett By: \s\ Robert C. Hood
------------------------------ -----------------------------
Name: Donald W. Hackett Name: Robert C. Hood
---------------------------- ---------------------------
Title: Chief Executive Officer Title: Executive Vice President/
--------------------------- --------------------------
Chief Financial Officer
--------------------------
Date: 12/22/98 Date: 12/16/98
---------------------------- ---------------------------
8920 Business Park Drive 555 Broadway
Longhorn Suite Redwood City, CA 94063
Austin, TX 78759 415-568-6000 (voice)
512-726-5116 (voice) 415-568-6030 (fax)
<PAGE>
EXHIBIT A
CONTENT DESCRIPTION AND TECHNICAL SPECIFICATIONS
The content will include content, currently presented on http://www.drkoop.com
---------------------
or any other Health related presentations directly produced or authored by
Content Provider:
1) A.D.A.M. Database
2) University of Pennsylvania editorial content
3) Reuters news and articles
4) Dr. Nancy Snyderman's column and editorial content
5) Multum Database, pharmaceutical/drug information
6) Government Documents and databases as they become available
7) Other content to be mutually agreed upon
Updates to the Content may include new and additional information and
corrections for errors or other misinformation.
Content Provider will meet Excite's technical specifications for the delivery
and maintenance of the Content by January 2, 1999. An FTP site, the databases
and an agreed to retrieval and update methodology will be in place by January 2,
1999.
Changes to the contents format, delivery and timeliness will be mutually agreed
to between Excite and Dr. Koop.
<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 exclusive rights with respect to
vitamins and nutritional supplements on the drkoop.com Website and to be the
exclusive 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' exclusive 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:
ARTICLE 1.
EXCLUSIVE VITAMIN SPONSOR
1.1. Exclusive Vitamin Sponsor. Throughout the Term (as defined below),
Sponsor shall be the sole and exclusive vitamin and supplement sponsor of, and
the sole and exclusive vitamin and supplement advertiser on, the drkoop.com
Website, and in furtherance thereof, drkoop.com shall not (i) place any names,
trademarks, links, buttons, advertisements or content (other than editorial
content which does not contain links) of any Sponsor Competitor (as defined
below) (collectively, "Competitor Content"), or any links which link directly to
any Competitor Content, on any area of the drkoop.com Website; or (ii) other
than Sponsor banner advertisements, allow any banner advertisements for or
promoting the sale of vitamins or nutritional supplements to appear on the
drkoop.com site; provided, however, that the Greentree
________________
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the infomation subject to the confidential request.
Omissions are designated ***. A complete version of this exhibit has been filed
seperately with the Securities and Exchange Commission.
<PAGE>
link which is currently on the drkoop.com Website may continue in its current
form until April 18, 1999. For purposes of this Agreement the term "Sponsor
Competitor" means: (i) any entity set forth on Exhibit A attached hereto, which
---------
Exhibit A may be updated from time to time by Sponsor, subject to the reasonable
- ---------
approval of drkoop.com; or (ii) any entity which derives more than 67% of its
revenues from the sale of vitamins and/or nutritional supplements.
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 exclusive 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"). In furtherance of the foregoing,
drkoop.com agrees that: (A) it shall place a permanent Sponsor logo containing a
Sponsor link on each page of the Sponsor Areas; (B) Sponsor banner advertising
(which advertising shall be served by Sponsor) on the top of at least 70% of all
page views of pages within the Sponsor Areas; and (C) it shall allow Sponsor, in
Sponsor's sole discretion, to place Sponsor impressions in up to all four of the
e-commerce tiles appearing on pages within the Sponsor Areas; (D) only Sponsor
e-commerce tiles shall appear within the Sponsor Areas; and (E) Sponsor links
may link, in Sponsor's sole discretion, to either the Sponsor Website or to
Sponsor's Vitamin Buzz website ("Vitamin Buzz"). Sponsor shall be treated no
less favorably in Sponsor Areas than any other similarly situated sponsor of the
drkoop.com Website is treated within its sponsored areas of the drkoop.com
Website. The Excluded Areas may be sponsored by entities other than Sponsor,
provided, that no Sponsor Competitor, or any drugstore*** may sponsor any of the
Excluded Areas. Schedule 1.2(i) is a page shot mock-up of the Nutrition Center
---------------
home page and the home page of each major area within the Nutrition Center,
substantially as they will appear on their respective launch dates.
(ii) drkoop.com shall place a permanent Sponsor logo on the home page
of the drkoop.com Website so that it appears prominently. Such logo shall
contain a link to, in Sponsor's sole discretion, either Sponsor's Website or the
Vitamin Buzz. No logo of any other similarly situated sponsor of the drkoop.com
Website shall be more prominently displayed on the home page of the drkoop.com
Website, whether in terms of size, placement or frequency.
__________________________
* * * 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>
(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) As used in this Section 1.2, the term exclusive with respect to
any area means that: (A) Sponsor shall be the sole and exclusive vitamin and
nutrition supplement provider in such area, and that no Competitor Content, or
links which link directly to any Competitor Content, shall appear in such area
where Sponsor has such exclusivity; and (B) other than Sponsor banner
advertisements, no banner advertisements for or promoting the sale of vitamins
or nutritional supplements shall appear in such area. 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. Only
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.
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. Content License to Third Parties. If drkoop.com wishes to allow any
area on the drkoop.com Website set forth in this Section 1 in which Sponsor is
the exclusive sponsor of vitamins and supplements to be displayed on any website
other than the drkoop.com Website (regardless of whether such other website is
owned by drkoop.com or not and regardless of whether such content is served up
by drkoop.com or by a third party) and if drkoop.com is able to control the
advertising placements within or sponsorship of such area on such third party
website, then drkoop.com shall, prior to contacting any other party with respect
to such advertisements or sponsorship, notify Sponsor in writing prior to the
launch of such area 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.
3
<PAGE>
shall negotiate in good faith with Sponsor in order to allow Sponsor to be the
exclusive advertiser on and sponsor of such area on such third party website.
If Sponsor and drkoop.com have not reached an agreement on the principal terms
of such agreement within 15 business days after Sponsor is notified of such
opportunity, drkoop.com shall be free to commence negotiations with other
parties with respect to such opportunities.
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, so as to materially change the
Sponsor's prominence or placements within such areas.
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.
4
<PAGE>
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.
__________________________
* * * 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>
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. 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
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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 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.
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<PAGE>
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 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, ***
__________________________
* * * 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>
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 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; (iv) any and all product liability claims
arising from this Agreement; and (v) the development, operation, maintenance and
Content (as defined below) of its Site. 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
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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 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.
__________________________
* * * 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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<PAGE>
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 and
expire on the one year anniversary of the date (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 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.
8.1.2. On the 95/th/ day prior to the expiration of the initial
Term, drkoop.com shall deliver a written notice to Sponsor to notify Sponsor of
the commencement of the extension negotiation period. Between the 90/th/ and
60/th/ day prior to the expiration of the initial Term, drkoop.com and Sponsor
shall in good faith negotiate to extend the term of this Agreement. If by the
30th day prior to the expiration of the initial Term, drkoop.com and Sponsor
shall have not agreed on mutually agreeable terms for an extension of the Term
of this Agreement, drkoop.com may commence negotiations with third parties with
respect to the sponsorship of the Sponsor Areas, provided, that prior to
entering into any agreement with any third party regarding the sponsorship of
the Sponsor Areas, drkoop.com must notify Sponsor in writing of the material
terms of such third party agreement ("Third Party Terms"), and Sponsor shall
have two business days from the receipt of such notice to notify drkoop.com that
Sponsor will accept such Third Party Terms, in which case drkoop.com and Sponsor
shall enter into an agreement for the extension of the Term on substantially the
terms set forth in the Third Party Terms. If Sponsor
__________________________
* * * 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>
does not respond to drkoop.com within such two business day period, then on or
after the next succeeding business day, drkoop.com may enter into an agreement
with such third party substantially upon the terms of the Third Party Terms.
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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<PAGE>
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:
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
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<PAGE>
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
32/nd/ 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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<PAGE>
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:
15
<PAGE>
SCHEDULE 1.2(I)
Screen Shot Mock-Ups
[ATTACHED]
<PAGE>
EXHIBIT A
***
__________________________
* * * 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
File Formats
Naming Convention: (lowercase only, 8.3)
Alternate Text: Use ALT tag; ten words or less
Image Dimensions :
Sponsor Banner: 468 pixels by 60 pixels, 234 pixels by 60 pixels, 120 pixels
by 60 pixels
Image File Format: [GIF/JPEG]
Image File Size: 12 k maximum file size
File Names:Use Sponsor name.: [Sponsor].gif]
Delivery of GIFs
Email - [email protected], cc: [email protected]
We accept [,CompactPro, zip, gzip, and UNIX tar or compress] format tiles. All
formats must be mailed in [ASCII encoding(uuencode, mmencode)].
<PAGE>
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. Ce. Everett Koop
<PAGE>
EXHIBIT 10.30
MASTER COMMUNITY PARTNER PROGRAM AGREEMENT
------------------------------------------
This is a Master Community Partner Program Agreement ("Agreement"),
effective as of the 29th of January, 1999 (the "Effective Date"), by and between
Adventist Health System Sunbelt Healthcare Corporation ("Adventist"), a Florida
not-for-profit corporation, and Empower Health Corporation ("EHC"), a Texas
corporation (individually a "party" and collectively, the "parties").
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 wet site
http://www.drkoop.com (collectively, the "EHC Web Site");
WHEREAS, EHC offers a service to healthcare providers, under Community
Partner Program Agreements, 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, Adventist desires to allow Adventist itself, its present and
future subsidiaries and health care organizations who are present customers on
HealthMagic, Inc.'s HealthCompass product (collectively the "Subscribing
Organizations") to execute Subscribing Organizations Community Partner Program
Agreements with EHC on a discounted basis, as well as allow other health care
organizations ("Other Organizations") to execute Standard Community Partner
Program Agreements with EHC.
NOW, THEREFORE, in consideration for the obligations stated in this
Agreement, and for other good and valuable consideration received by each of the
parties, the parties hereto agree as follows:
1. OFFER OF COMMUNITY PARTNER PROGRAM AGREEMENTS
During the Term of this Agreement, and as further described in Section 3
below, EHC agrees to execute the Subscribing Organizations Community Partner
Program Agreements (the "Subscriber CCP Agreements"), a form of which is
attached to this Agreement as Exhibit A, with the Subscribing Organizations and
the Standard Community Partner Program Agreements (the "Standard CCP
Agreements"), as adjusted pursuant to Section 4(b) of this Agreement, with Other
Organizations, a form of which is attached to this Agreement as Exhibit B.
Subscriber CCP Agreements and Standard CCP Agreements shall collectively be
referred to as "Community Partner Agreements."
<PAGE>
2. PAYMENT BY ADVENTIST
(a) In accordance with the terms and conditions of this Agreement,
Adventist shall pay to EHC the sum of Five Hundred Thousand Dollars ($500,000)
upon execution of this Agreement in consideration for thirty-one (31) one year
licenses for Community Partner Agreements, which licenses shall be divided, at
Adventist's option, between Subscriber CPP Agreements and Standard CCP
Agreements. In addition, Adventist shall have the right to offer the opportunity
to enter into, and EHC agrees to execute, Subscriber CPP Agreements with
additional (beyond 31) Subscribing Organizations (as "not Initial Subscribing
Organizations") under the Subscriber CPP Agreement.
(b) Once the total number of Subscriber CCP Agreements and Standard CCP
Agreements entered into has collectively reached thirty-one (31) in number,
Adventist may not offer additional Standard CCP Agreements to Other
Organizations under the terms of this Agreement. Provided, however, that any
Subscriber CCP Agreement terminated under Section 1.2 of the Subscriber CCP
Agreement shall not count as one of the thirty-one Community Partner Agreements.
(c) In the event that EHC offers to a third party a license fee less than
the rate set forth in the Subscriber CCP Agreement, EHC shall offer to any
Subscribing Organization renewing a Subscriber CCP Agreement most favorite
nation pricing; provided that such most favored nation pricing shall be shifted
by an additional ten percent (10%) to the advantage of the Subscribing
Organization. This Section 3(c) shall survive termination of this Agreement. The
Subscribing Organizations are intended third party beneficiaries of this Section
3(c).
3. OTHER ORGANIZATIONS
(a) When Adventist provides an Other Organization to enter into a Standard
CCP Agreement, at rates to be determined by Adventist ("Other Organization
Subscriber Rates"), upon execution of the Standard CCP Agreement and payment of
the Other Organization Subscriber Rate to Adventist, if the Other Organization
Subscriber Rate charged to the Other Organization is less than Forty-Five
Thousand Dollars ($45,000), Adventist shall remit to EHC the difference between
Forty-Five Thousand Dollars ($45,000) and the Other Organization Subscriber Rate
paid by the Other Organization. Notwithstanding the foregoing, Adventist shall
obtain EHC's prior written consent before providing an Other Organization to
enter into a Standard CCP Agreement, which consent shall not be unreasonably
withheld or delayed and the sole justification for withholding such consent
shall be on the basis of reasonably protecting the high quality of EHC's
trademarks including the "Dr. Koop" name.
(b) The Standard CCP Agreement, a form of which is attached to this
Agreement as Exhibit B, shall be modified by the parties to create a Standard
CPP Agreement to effectuate the provisions of this Agreement, specifically
Section 4(a).
2
<PAGE>
4. CONFIDENTIALITY
(a) Either party (the "Disclosing Party") may from time to time disclose
Confidential Information to the other party (the "Recipient"). "Confidential
Information" means non-public information belonging to or in the possession or
control of a party which is of a confidential, proprietary or trade secret
nature that is furnished or disclosed to the other party under the Agreement:
(i) in tangible form and marked or designated in writing in a manner to indicate
its confidential, proprietary or trade secret nature, or (ii) in intangible form
and subsequently identified as confidential, proprietary or trade secret in a
writing provided to the receiving party within thirty (30) business days after
disclosure. 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 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 reasonable 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. Notwithstanding the foregoing, confidential information
does not include information that the receiving party can establish (i) was, at
the time of disclosure to it, in the public domain, (ii) after disclosure to it,
is published or otherwise becomes part of the public domain through no fault of
the receiving party, (iii) was in possession of the receiving party at the time
of disclosure to it, as established by documentary evidence, (iv) was received
after disclosure to it from a third party who had a lawful right to disclose
such information, or (v) is legally required to be disclosed pursuant to a
judicial order.
(b) The obligation of confidentiality set forth in this Section 5 will
survive the termination or expiration of this Agreement.
5. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY 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 THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Each party will be liable for
direct damages only, in an
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amount not to exceed, in the aggregate for all claims, Five Hundred Thousand
Dollars ($500,000.00).
6. TERM AND TERMINATION
This Agreement will commence on the Effective Date and continue for three
(3) years (the "Term").
7. NOTICES
Any notice, request, instruction or other document or communication
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to be given upon (i) delivery in person, (ii) five (5) days
after being deposited in the mail, postage prepaid, for mailing by certified or
registered mail, (iii) one (1) day after being deposited with an overnight
courier, charges prepaid, or (iv) when transmitted by facsimile, with a copy
simultaneously sent as provided in clause (iii), in every case as follows:
For EHC: For Adventist:
Empower Health Corporation 111 North Orlando Avenue
8920 Business Park Drive Winter Park, Florida 32789-3675
Austin, Texas 78759
Attn: Calvin Wiese
Attn: Chief Financial Officer 407.975.1458 (facsimile)
or to such other address or addresses as may be specified in writing at any time
or from time to time by any party to the other parties hereto.
8. GENERAL
(a) 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.
(b) Neither party may assign this Agreement nor any interest in this
Agreement without the prior written consent of the other party except that
either party may assign or transfer this Agreement without the consent of the
other party to an entity which acquires all or substantially all of the assets
of the assigning party or to any subsidiary or affiliate or successor in a
merger or acquisition of the assigning party.
(c) 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 three (3) days to present its position. Judgment upon the award
rendered may be
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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 powers to award damages,
injunctive relief and reasonable attorneys' fees and expenses to any party in
such arbitration.
(d) 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.
(e) 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.
(f) 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, circumstances, 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. If such suspension continues for more than
30 days, the other party may immediately terminate this Agreement and EHC will
remit a pro-rata refund of the fees paid by Customer.
(g) 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.
(h) 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.
(i) 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 other 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.
(j) 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. With the exception of Section 3(c)
above, there are no intended third party beneficiaries of any provision of this
Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives, effective as of the date set forth in
the introductory paragraph of this Agreement.
Adventist Health System Sunbelt Empower Health Corporation ("EHC")
HealthCare Corporation ("Adventist")
/s/ Calvin W. Wiese /s/ D. Hackett
______________________________________ _____________________________________
(Signature) (Signature)
Calvin W. Wiese Donald Hackett
______________________________________ _____________________________________
(Name Printed) (Name Printed)
Senior Vice President CEO
______________________________________ _____________________________________
(Title) (Title)
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Exhibit 10.34
DRKOOP.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
drkoop.com, Inc., a Delaware corporation (the "Company"), hereby
adopts the drkoop.com, Inc. 1999 Employee Stock Purchase Plan (the "Plan"),
effective as of the Effective Date (as defined herein).
1. Purpose. The purpose of the Plan is to assist employees of the
Company and its Subsidiary Corporations in acquiring stock ownership interests
in the Company, pursuant to a plan which is intended to qualify as an "employee
stock purchase plan" within the meaning of Code Section 423. The Plan is
intended to help employees provide for their future security and to encourage
them to remain in the employ of the Company and its Subsidiary Corporations.
2. Definitions. Whenever one of the following terms is used in the
Plan with the first letter or letters capitalized, it shall have the following
meaning, unless the context clearly indicates to the contrary (such definitions
to be equally applicable to the singular and plural forms of the terms defined):
(a) "Administrator" shall mean the Company, acting through its
Chief Executive Officer or his or her delegate.
(b) "Authorization Card" shall mean the form prescribed by the
Administrator, which shall include a form of stock purchase agreement pursuant
to which an Eligible Employee shall purchase shares of Stock under the Plan and
a form of payroll deduction authorization pursuant to which such Eligible
Employee shall authorize the Company or a Subsidiary Corporation to deduct such
Eligible Employee's contributions under the Plan.
(c) "Base Pay" shall mean gross pay received by an Employee on
each Payday as cash compensation for services to the Company or any Subsidiary
Corporation, excluding overtime payments, incentive compensation, bonuses,
fringe benefits, expense reimbursements, and other special payments, except to
the extent that the inclusion of any such item is specifically designated by the
Administrator.
(d) "Board of Directors" shall mean the Board of Directors of
the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Company" shall mean drkoop.com, Inc., a Delaware
corporation.
(g) "Effective Date" shall mean the first day of the first Offer
Period, which shall be the date immediately preceding the first date on which a
share of Stock is traded on an exchange or quoted on Nasdaq or a successor
quotation system.
<PAGE>
(h) "Eligible Employee" shall mean any Employee who satisfies
the requirements of Section 4.
(i) "Employee" shall mean any person who renders services to the
Company or any Subsidiary Corporation in the status of an employee within the
meaning of Code Section 3121(d). "Employee" shall not include any director of
the Company or any Subsidiary Corporation who does not render services to the
Company or any Subsidiary Corporation in the status of an employee within the
meaning of Code Section 3121(d).
(j) "Enrollment Period" shall mean, for each Offer Period, the
two or three week period (as applicable) determined in accordance with Section
6(b) or such other period as determined by the Administrator in its discretion.
(k) "Entry Date" shall mean the date an Eligible Employee is
granted an Option during the Offer Period. The first Entry Date under the Plan
shall be the Effective Date. The second Entry Date under the Plan shall be
August 15, 1999. Subsequent Entry Dates under the Plan shall be each February 15
and August 15 during the period that the Plan is in effect.
(l) "Offer Period" shall mean the period beginning on each Entry
Date and ending on the date which is the six-month anniversary of such date;
provided, however, that the Offer Period for an Eligible Employee whose Entry
Date is the Effective Date shall be the period commencing on the Effective Date
and ending February 15, 2000.
(m) "Option" shall mean a right granted to an Eligible Employee
to purchase shares of Stock under Section 8(a) of the Plan.
(n) "Option Price" shall mean the per share exercise price of
shares of Stock to be purchased pursuant to an Option, as provided in Section 9.
(o) "Parent Corporation" shall mean any corporation, other than
the Company, in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the Option, each of the corporations other than the
Company own stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(p) "Participant" shall mean an Eligible Employee who elects to
participate in the Plan and complies with the provisions of Section 6.
(q) "Payday" of an Employee shall mean the regular and recurring
established day for payment of cash compensation to Employees in the same
classification or position.
(r) "Plan" shall mean this drkoop.com, Inc. 1999 Employee Stock
Purchase Plan.
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(s) "Purchase Date" shall mean the last day of each Offer Period
on which shares of Stock are automatically purchased for Participants under the
Plan.
(t) "Subsidiary Corporation" shall mean any corporation, other
than the Company, in an unbroken chain of corporations beginning with the
Company if, at the time of the granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(u) "Stock" shall mean the shares of the Company's Common Stock,
$.001 par value.
3. Stock Subject to the Plan.
(a) Subject to Section 14, the shares of Stock that may be sold
pursuant to Options granted under the Plan shall not exceed 750,000 shares.
(b) The maximum aggregate number of shares of Common Stock
subject to any Option shall not exceed 10,000 shares.
(c) The Company shall reserve for issuance under the Plan
750,000 shares of the Company's authorized but unissued Stock.
(d) If any Option expires or is canceled without having been
fully exercised, the number of shares subject to such Option but as to which
such Option was not exercised before its expiration or cancellation may again be
optioned hereunder, subject to the limitations of subsection (a).
(e) Any adjustment to the number of shares of Stock reserved for
issuance under the Plan shall be made only in accordance with Sections 14
(relating to recapitalization) and 17 (relating to amendments of the Plan).
4. Eligibility. Each Employee of the Company or any Subsidiary
Corporation who on the first day of any Enrollment Period is customarily
employed by the Company or any Subsidiary Corporation for more than twenty (20)
hours per week, shall become an Eligible Employee on such day.
5. Purchase Rights.
(a) Options shall be granted under the Plan until the earlier of
the maximum number of shares of Stock subject to sale pursuant to Options have
been sold, or the Plan is terminated.
(b) The Plan shall be implemented under successive Offer
Periods. Subject to subsection (c), the first Offer Period will begin on the
Effective Date and will end on February 15, 2000.
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(c) Under no circumstances shall any shares of Stock be issued
hereunder until such time as (i) the Plan shall have been approved by the
Company's stockholders and (ii) the Company shall have complied with all
applicable requirements of the Securities Act of 1933 (as amended), all
applicable listing requirements of any securities exchange on which shares of
the Stock are listed and all other applicable statutory and regulatory
requirements.
(d) Each Eligible Employee shall be granted a separate Option
for each Offer Period. The Option shall be granted on the Entry Date for the
relevant Offer Period and shall be automatically exercised on the last day of
such Offer Period.
6. Participation in the Plan.
(a) Each Eligible Employee may elect to participate in the Plan
by submitting to the Administrator a completed and executed Authorization Card
in accordance with subsection (b). An Eligible Employee who elects to
participate in the Plan shall elect on such Authorization Card any whole
percentage of Base Pay (such percentage not to exceed fifteen percent (15%)) to
be withheld by payroll deduction, which upon an exercise of the Option granted
to such Eligible Employee with respect to the Offer Period, shall be contributed
to the Company as payment for shares of Stock purchased pursuant to such Option.
The deduction rate authorized by any Eligible Employee shall continue in effect
for the remainder of the Offer Period and for successive Offer Periods, except
to the extent such rate is changed in accordance with the following:
(i) Each Eligible Employee may, at any one time during
the period commencing two weeks prior to a Purchase Date, increase (not to
exceed fifteen percent (15%)) or reduce his or her percentage of payroll
deduction to any whole percentage by filing a new completed and executed
Authorization Card with the Administrator (or his or her designate); provided,
however, that any such increase or reduction shall only be effective beginning
on the first day of the subsequent Offer Period.
(ii) Notwithstanding subsection (i), any Eligible
Employee may cease payroll deductions and/or withdraw from participation under
the Plan at any time by reducing his or her percentage of payroll deduction to
zero percent (0%), except that no Eligible Employee may cease payroll deductions
and/or withdraw during the period commencing two weeks prior to a Purchase Date.
An Eligible Employee electing to cease payroll deductions and/or withdraw from
the Plan must deliver to the Administrator a notice of withdrawal approved by
the Administrator (the "Cessation/Withdrawal Election") not later than the date
which is two weeks prior to a Purchase Date. Upon receipt of an Eligible
Employee's Cessation/Withdrawal Election pursuant to which the Eligible Employee
provides notice of his or her intent to withdraw from the Plan, the Company or
Subsidiary Corporation will as soon as practicable thereafter pay to such
Eligible Employee in cash in one lump sum the balance of payroll deductions
credited to such Eligible Employee's account under the Plan, without the payment
of any interest thereon, and the Eligible Employee will at that time be deemed
to have ceased to participate in the Plan and may only recommence active
participation in the Plan by submitting to the Administrator a
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<PAGE>
new completed and executed Authorization Card in accordance with subsection (b).
Upon receipt of an Eligible Employee's Cessation/Withdrawal Election pursuant to
which the Eligible Employee indicates his or her intention to cease
participation but does not provide notice of his or her intent to withdraw from
the Plan, such Eligible Employee's payroll deductions shall cease as soon as
administratively practicable following the Administrator's receipt of his or her
Cessation/Withdrawal Election, and his or her Option shall be exercised on the
Purchase Date in accordance with Section 8(b).
(b) Except as permitted otherwise by the Administrator in its
discretion, an Employee who is an Eligible Employee on the Effective Date must
submit his or her Authorization Card to the Administrator during the three week
period immediately prior to the Effective Date in order to participate in the
first Offer Period under the Plan. Except as permitted otherwise by the
Administrator in its discretion, an Employee who is an Eligible Employee on the
Effective Date but who does not submit his or her Authorization Card to the
Administrator during such three week period or an Employee who becomes an
Eligible Employee subsequent to the Effective Date must submit his or her
Authorization Card to the Administrator during the two week period commencing
one month prior to such Eligible Employee's Entry Date, or during such other
period designated by the Administrator in its sole discretion.
(c) An Eligible Employee's Authorization Card shall include
express written authorization by the Eligible Employee to the Company to issue
shares of Stock purchased under the Plan to an account in the name of such
Eligible Employee with a brokerage firm to be designated by the Administrator.
7. Payroll Deductions.
(a) Cash compensation payable to an Eligible Employee who elects
to participate in the Plan for an Offer Period shall be reduced each Payday
during such Offer Period through payroll deductions by an amount equal to the
whole percentage of Base Pay payable on such Payday elected by the Eligible
Employee under Section 6.
(b) The amount of each Eligible Employee's payroll deduction
shall be held by the Company or Subsidiary Corporation and credited to an
account established for such Eligible Employee. Neither the Company nor any
Subsidiary Corporation shall pay any interest on the funds credited to an
Eligible Employee's account under the Plan.
(c) During a leave of absence from the Company or any Subsidiary
Corporation which is approved by the Company or Subsidiary Corporation and which
meets the requirements of Treasury Regulation Section 1.421-7(h)(2), an Eligible
Employee may continue to participate in the Plan by making cash payments to the
Company or Subsidiary Corporation on each Payday equal to the dollar amount of
the payroll deduction made for such Eligible Employee for the Payday next
preceding the first day of such Eligible Employee's leave of absence.
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<PAGE>
8. Grant of Options; Exercise of Options.
(a) Each Eligible Employee shall be granted an Option on his or
her Entry Date for the Offer Period. Each Eligible Employee's Option shall be
automatically exercised on the Purchase Date for the Offer Period to which such
Option relates. The number of shares of Stock subject to an Option shall be the
quotient of the total payroll deductions made for the Eligible Employee during
the Offer Period divided by the Option Price with respect to such Offer Period,
excluding fractional shares of Stock; provided, however, that the number of
shares of Stock subject to each Option shall not exceed 10,000 shares.
(b) Except as otherwise provided in subsection (e) and Sections
6(a)(i) and (ii), each Eligible Employee participating in the Plan shall be
deemed to have exercised his or her Option on the Purchase Date for each Offer
Period in which the Eligible Employee is participating in the Plan, to the
extent that the balance of payroll deductions credited to such Eligible
Employee's account under the Plan is sufficient to purchase, at the Option
Price, whole shares of Stock. No fractional shares of Stock shall be purchased
upon the exercise of an Option and any funds credited to such Eligible
Employee's account remaining after the purchase of whole shares of Stock upon
exercise of an Option shall remain credited to such Eligible Employee's account
and carried forward for purchase of shares of Stock pursuant to the exercise of
the Option on the Purchase Date relating to the next following Offer Period.
(c) Upon exercise of an Option, the Company shall as soon as
practicable thereafter issue to the Eligible Employee such shares of Stock
purchased pursuant to subsection (b). Such Stock is initially to be held in the
brokerage account established by the Eligible Employee at such brokerage firm as
designated by the Administrator and as authorized by the Eligible Employee upon
enrollment in the Plan.
(d) If the total number of shares of Stock for which Options are
to be exercised on any date exceeds the number of shares remaining unsold under
the Plan (after deduction of all shares for which Options have theretofore been
exercised), the Administrator shall make a pro rata allocation of the available
remaining shares in as nearly a uniform manner as shall be practicable and any
balance of payroll deductions credited to the accounts of Eligible Employees
which have not been applied to the purchase of shares of Stock shall be paid to
such Eligible Employees by the Company or Subsidiary Corporation in cash in one
lump sum as soon as practicable, without payment of any interest thereon.
(e) Notwithstanding any provision in the Plan to the contrary,
an Eligible Employee shall not be granted an Option:
(i) if, immediately after the Option is granted, such
Employee would own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company, any Parent Corporation or
any Subsidiary Corporations. For purposes of determining stock ownership under
this paragraph, the rules of Code Section 424(d) shall apply and Stock which an
Eligible Employee may purchase under outstanding options held by such Eligible
Employee shall be treated as stock owned by such Eligible Employee; or
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<PAGE>
(ii) which permits such Eligible Employee's rights to
purchase stock under the Plan and all other employee stock purchase plans of the
Company, any Parent Corporation, or any Subsidiary Corporations subject to Code
Section 423, to accrue at a rate which exceeds $25,000 of the fair market value
of such Stock or other stock (determined at the time such Option is granted) for
each calendar year in which such option is outstanding at any time. For purpose
of the limitations imposed by this subsection, the right to purchase Stock or
other stock under an Option or other option accrues when the Option or other
option (or any portion thereof) first becomes exercisable during the calendar
year, the right to purchase Stock or other stock under an Option or other option
accrues at the rate provided in the Option or other option (but in no case may
such rate exceed $25,000 of fair market value of such Stock or other stock
determined at the time such Option or other option is granted) for any one
calendar year, and a right to purchase Stock or other stock which has accrued
under the Option or other option may not be carried over to any other Option or
other option.
(f) Any Employee who is an officer subject to Section 16(b)
under the Securities Exchange Act of 1934, as amended, shall not sell, transfer,
or otherwise dispose of any shares of Stock received upon the exercise of the
Option granted hereunder for a period of six months after the purchase of such
shares.
9. Option Price.
(a) The per share exercise price of each Option (the "Option
Price") shall be an amount equal to the lesser of:
(i) 85% of the "Fair Market Value" (as defined below) of
a share of Stock on the Participant's Entry Date into the Plan for the relevant
Offer Period; or
(ii) 85% of the Fair Market Value of a share of Stock on
the Purchase Date corresponding to the Offer Period for which a Participant
exercises his or her Option.
(b) For purposes of subsection (a), the Fair Market Value of a
share of Stock as of a given date shall be: (A) the closing price of a share of
Stock on the principal exchange on which the Stock is then trading, if any, on
such date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred; (B) if the Stock is not
traded on an exchange, but is quoted on Nasdaq or a successor quotation system,
(X) the last sales price (if the Stock is then listed as a National Market Issue
under the NASD National Market System) or (Y) the mean between the closing
representative bid and asked prices (in all other cases) for a share of Stock on
such date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred, as reported by Nasdaq or
such successor quotation system; (iii) if the Stock is not publicly traded on an
exchange and not quoted on Nasdaq or a successor quotation system, the mean
between the closing bid and asked prices for a share of Stock on such date, or,
if shares of Stock were not traded on such date, then on the next preceding
trading day during which a sale occurred, as determined in good faith by the
Board of Directors; or (iv) if the Stock is not publicly traded, the fair market
value of a share of Stock established by the Board of Directors acting in good
faith.
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10. Issuance of Certificates.
(a) In the event the Administrator is required to obtain
authority to issue certificates for any shares of Stock purchased by an Eligible
Employee under the Plan from any commissioner or agency, the Administrator shall
seek to obtain such authority. If the Administrator is unable, after reasonable
efforts, to obtain such authority, the Administrator, the Company, and any
Subsidiary Corporations shall be relieved from all liability and shall pay to
each such Eligible Employee the balance of payroll deductions credited to each
such Eligible Employee's account under the Plan in cash in one lump sum as soon
as practicable, without the payment of any interest thereon.
11. Cessation of Participation.
(a) An Eligible Employee shall cease to participate in the Plan
in the event that:
(i) the Eligible Employee reduces his or her percentage
of payroll deduction to zero percent (0%); or
(ii) the Eligible Employee terminates employment with
the Company or any Subsidiary Corporation for any reason.
(b) Upon cessation of participation by an Eligible Employee,
such Eligible Employee's payroll deductions shall cease. If such cessation of
participation occurs during the last two weeks of an Offer Period or if such
cessation of participation is not accompanied by the Eligible Employee's notice
of withdrawal from participation in the Plan, such Eligible Employee's Option
shall be exercised on the next Purchase Date in accordance with Section 8(b).
Upon cessation of participation at any other time which is accompanied by the
Eligible Employee's notice of withdrawal from participation in the Plan or which
is the result of the Eligible Employee's termination of employment within the
Company or any Subsidiary Corporation, any balance of payroll deductions
credited to such Eligible Employee's account under the Plan shall be paid to the
Employee (or his or her estate, in the event of the Eligible Employee's death)
in cash in one lump sum as soon as practicable after cessation of participation,
without payment of any interest thereon.
12. Transfer of Option. Options granted pursuant to the Plan shall
not be transferable by an Eligible Employee, other than by will or the laws of
descent and distribution, and shall be exercisable during the Eligible
Employee's lifetime only by such Eligible Employee.
13. Beneficiary.
(a) Each Eligible Employee shall designate on his or her
Authorization Card a beneficiary or beneficiaries and may, without such
beneficiaries' consent, change such designation. Any designation shall be
effective only after it is received by the Administrator and shall be
controlling over any disposition by will or otherwise. Upon the death of an
Eligible Employee, except as provided in Section 11(b), the balance of payroll
deductions credited to
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such Eligible Employee's account shall be paid or distributed to the designated
beneficiary or beneficiaries, or in the absence of such designation, to the
executor or administrator of the Eligible Employee's estate, and in either event
the Administrator, the Company, and any Subsidiary Corporations shall not be
under any further liability to anyone.
14. Recapitalization. If there shall be any change in the Stock
subject to the Plan or the Stock subject to any Option, through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock dividend (in excess of 2% of the fair market value of the Stock) or other
change in the corporate structure of the Company, appropriate adjustments shall
be made by the Board of Directors to the aggregate number of shares subject to
the Plan and the number of shares and the price per share subject to outstanding
Options in order to preserve, but not to increase, the benefits of the Eligible
Employees hereunder; provided, however, that subject to any required action by
the stockholders, if the Company shall not be the surviving corporation in any
such merger, consolidation or reorganization, every Option outstanding shall
terminate, unless the surviving corporation shall (subject to applicable
provisions of the Code) issue a new Option therefor or assume (with appropriate
changes) the existing Option in a manner complying with Code Section 424(a). If
the Option shall terminate by reason of such merger, consolidation, or
reorganization, then any provision herein to the contrary notwithstanding, any
Option held by an Eligible Employee may be exercised, in whole or in part, by
such Eligible Employee at any time designated by the Board of Directors which is
prior to or concurrent with the consummation of such merger, consolidation, or
reorganization.
15. Rights as a Stockholder. An Eligible Employee shall have no
rights as a stockholder with respect to any shares of Stock covered by Options
until the date of the issuance of a certificate for such shares of Stock. No
adjustments shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
otherwise expressly provided herein.
16. Costs; Indemnifications.
(a) The Company shall pay all costs and expenses incurred in
administering the Plan.
(b) In addition to such other rights of indemnification as the
Administrator may have as a director or officer of the Company, the Company
shall indemnify and hold the Administrator harmless against any and all
liability, loss, costs, damages, attorneys' fees and other expenses the
Administrator may sustain or incur in connection with administration of the
Plan, except for liability, loss, costs, damages, attorneys' fees and other
expenses caused by the negligence of the Administrator or his or her agent;
provided, that within 60 days after the institution of any action, suit or
proceeding the Administrator shall in writing offer the Company the opportunity
to handle, prosecute or defend the same, at the Company's own expense. The
Administrator shall have the right, but not the obligation, to adjust, settle,
or compromise any claim, obligation, debt, demand, suit or judgment against the
Administrator, and if such settlement is approved by independent legal counsel
selected by the Company then the Company
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shall reimburse the Administrator for all sums of money the Administrator may
pay or become liable to pay against which the Administrator is indemnified
hereunder.
17. Amendment or Termination of the Plan. The Board of Directors may
at any time, with respect to any shares of Stock not then subject to Options,
suspend or terminate the Plan, and may amend the Plan from time to time as the
Board of Directors may deem advisable; provided, however, that except as
provided in Section 14 hereof, the Board of Directors shall not amend the Plan
in the following respects without the affirmative vote of approval by a majority
of the outstanding shares of Stock of the Company:
(a) To increase the maximum number of shares of Stock subject to
the Plan;
(b) To change the designation or class of employees eligible to
receive Options under the Plan;
(c) To materially increase the benefits accruing to Employees
under the Plan; or
(d) In any manner which would cause the Plan to no longer be an
employee stock purchase plan under Code Section 423.
18. Application of Funds. The proceeds received by the Company from
the sale of Stock pursuant to the exercise of Options shall be deposited in the
account of the general corporate funds of the Company.
19. Approval of Stockholders. The Plan shall become effective on the
Effective Date subject to the affirmative vote by a majority of the outstanding
shares of Stock of the Company approving the Plan (which approval must occur
within twelve (12) months before or after the date the Plan is adopted by the
Board of Directors).
20. No Rights as an Employee. Nothing in the Plan shall be construed
to give any person the right to remain in the employ of the Company or any
Subsidiary Corporation or to affect the Company or any Subsidiary Corporation's
right to terminate the employment of any person at any time with or without
cause.
21. Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.
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I hereby certify that the foregoing Plan was adopted by the Board of
Directors of drkoop.com, Inc. on this ___ day of May, 1999.
----------------------------------------
________________, Secretary
I hereby certify that the foregoing Plan was duly approved by
affirmative vote of a majority of the outstanding shares of Stock of the Company
on May ___, 1999.
Executed on this _____ day of May, 1999.
----------------------------------------
_________________, Secretary
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 (File
No. 333-73459) of our report dated March 4, 1999, except for Note 14, for which
the date is May 13, 1999, relating to the financial statements of drkoop.com,
Inc., a development stage enterprise, which appear in such Registration
Statement. We also consent to the reference to us under the headings "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
Austin, Texas
June 4, 1999
