<PAGE>
As filed with the Securities and Exchange Commission on March 5, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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drkoop.com, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 7375 95-4697615
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
8920 Business Park Drive, Suite 200
Austin, Texas 78759
(512) 726-5110
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
C. Everett Koop, M.D.
Chairman of the Board
drkoop.com, Inc.
8920 Business Park Drive, Suite 200
Austin, Texas 78759
(512) 726-5110
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Anthony J. Richmond, Esq. Jeffrey D. Saper, Esq.
Harold R. DeGraff, Esq. Paul R. Tobias, Esq.
Eileen M. Fitzsimmons, Esq. Caine T. Moss, Esq.
Latham & Watkins Wilson Sonsini Goodrich & Rosati
135 Commonwealth Drive 650 Page Mill Road
Menlo Park, California 94025 Palo Alto, California 94304
(650) 328-4600 (650) 493-9300
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title of Each Class of Maximum Aggregate Amount of
Securities to be Registered Offering Price(1)(2) Registration Fee(2)
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<S> <C> <C>
Common Stock, $.001 par value ....... $50,000,000 $13,900
</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase solely
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the
registration fee.
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 MARCH 5, 1999
PROSPECTUS
Shares
[LOGO OF DRKOOP APPEARS HERE]
drkoop.com, Inc.
Common Stock
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This is an initial public offering of shares of common stock of drkoop.com,
Inc. drkoop.com, Inc. is selling all of the shares of common stock offered
under this Prospectus.
There is currently no public market for the shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the
symbol "KOOP." We anticipate that the initial public offering price will be
between $ and $ per share.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 8 to read about certain risks that you should
consider carefully before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the accuracy or
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
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<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price.............................................. $ $
Underwriting discounts and commissions............................. $ $
Proceeds, before expenses, to us................................... $ $
</TABLE>
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The underwriters may, under certain circumstances, purchase up to an additional
shares of common stock from us at the initial public offering price less the
underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
-------------
Bear, Stearns & Co. Inc.
William Blair & Company
Wit Capital Corporation
as e-Manager(TM)
The date of this Prospectus is , 1999
<PAGE>
[Pictures Of The drkoop.com Logo, Home Page And Various Other Screens Within
Our Website]
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail elsewhere
in this Prospectus. This summary is not complete and does not contain all of
the information that you should consider before investing in our common stock.
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
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 source of consumer healthcare
information and services on the Internet.
We launched our website in July 1998. By February 28, 1999, www.drkoop.com
had attracted over 2.6 million unique users and enrolled over 83,000 registered
users. Our network is designed to provide consumers with a variety of
healthcare content, including information on acute ailments, chronic illnesses,
nutrition, fitness and wellness, and access to medical databases, publications,
and real-time medical news. In addition, we offer eight interactive communities
consisting of over 100 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 prescription refills and health insurance sales, offered by outside parties.
3
<PAGE>
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 650 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 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 Internet 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
100 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
4
<PAGE>
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 sell 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. We presently enable sales of
prescription refills and insurance services. Although we do not provide these
products or services, we do provide a link 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 a transaction
fee for sales attributable to users from our website. We believe that
contextual merchandising of e-commerce transactions will attract users to our
website and promote user loyalty.
Our principal executive offices are located at 8920 Business Park Drive,
Suite 200, Austin, Texas 78759, and our telephone number is (512) 726-5110.
5
<PAGE>
The Offering
Common stock offered.... shares
Common stock
outstanding after this
Offering (1)........... shares
Use of proceeds......... We intend to use the net proceeds of this Offering to
fund operating losses and for general corporate
purposes, including advertising, brand promotion,
content development and working capital. We may also
use a portion of the proceeds for strategic alliances
and acquisitions. See "Use of Proceeds."
Proposed Nasdaq
National
Market symbol.......... KOOP
- --------
(1) Based on shares outstanding on January 31, 1999. Excludes: (a) 4,024,233
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 $0.47 per share (2,203,418 of these options were
exercisable as of February 26, 1999; the balance are subject to future
vesting requirements) and (b) 13,393 shares of common stock issuable upon
exercise of warrants with an exercise price of $11.95 per share. Includes:
(x) 484,266 shares of common stock to be issued upon the closing of this
Offering to satisfy in full a purchase option and anti-dilution right held
by a stockholder plus 53,808 shares which will be issued to satisfy an
anti-dilution right held by the Series C preferred stockholder, (y)
2,899,868 shares of common stock to be issued upon the conversion of all
outstanding shares of convertible preferred stock and (z) 66,964 shares of
common stock issuable upon conversion and exercise of a convertible
promissory note. Please see "Management--Stock Option Plans" and
"Description of Securities."
----------------
Conventions Which Apply to this Prospectus
Unless we indicate otherwise, all information in this Prospectus reflects the
following:
. a three-for-one stock split approved in November 1998 and effected on
March 4, 1999;
. the conversion of all outstanding shares of our convertible preferred
stock into 2,899,868 shares of our common stock upon the closing of this
Offering;
. the conversion of the $800,000 convertible note payable to stockholder
into 66,964 shares of common stock upon the closing of this Offering;
. the issuance of 538,074 shares of common stock to satisfy in full a
purchase option and related anti-dilution rights; and
. no borrowings by the Company under loan agreements with two accredited
investors which make available to the Company an aggregate principal
amount of up to $2.5 million at an interest rate of 7% per annum.
. no exercise by the underwriters of their overallotment option to purchase
up to additional shares of common stock.
References in this Prospectus to the "Company," "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.
The Company 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 certain summary financial data for our
company. You should read this information together with the financial
statements and the notes to those statements appearing elsewhere in this
Prospectus and the information under "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Period from
Inception
through Year Ended
December 31, 1997 December 31, 1998
----------------- -----------------
(in thousands, except per share
data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ -- $ 43
Loss from operations..................... (622) (9,030)
Net loss................................. (622) (8,997)
Net loss attributable to common
stockholders............................ (622) (17,713)
Basic and diluted net loss per common
share(1)................................ $ (.23) $ (5.47)
========== ==========
Weighted average shares outstanding used
in basic and diluted net loss per common
share calculation(1).................... 2,700,000 3,240,108
========== ==========
Pro forma basic and diluted net loss per
common share(1)(2)...................... $ (3.66)
==========
Weighted average shares outstanding used
in pro forma basic and diluted net loss
per common share calculated(1)(2)....... 4,835,142
==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
1997 December 31, 1998
------------ -------------------------------------
Pro Forma
Actual Actual Pro Forma(2) As Adjusted(3)
------------ -------- ------------ --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................... $ 8 $ -- $ -- $
Working capital (defi-
cit)..................... (649) (2,905) (2,455)
Total assets.............. 43 380 380
Convertible note payable
to stockholder........... -- 451 --
Mandatorily redeemable
convertible (Series B)
preferred stock.......... -- 12,836 --
Total stockholders' defi-
cit...................... (614) (15,423) (2,137)
</TABLE>
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(1) Please see the financial statements and the notes to such statements
appearing elsewhere in this Prospectus for the determination of shares used
in computing basic and diluted and pro forma basic and diluted net loss per
common share.
(2) Gives pro forma effect to the following:
. the conversion of the $500,000 principal amount convertible note payable
to stockholder as of December 31, 1998 into 41,853 shares of common
stock;
. the conversion of all of the outstanding shares of the mandatorily
redeemable (Series B) convertible preferred stock into 1,584,906 shares
of common stock and 484,266 shares of common stock to be issued upon the
closing of this Offering to satisfy in full a purchase option and
antidilution right held by a stockholder; and
. the conversion of all of the outstanding shares of the Series A
convertible preferred stock into 268,691 shares of common stock.
(3) As adjusted to give effect to the sale of shares of common stock offered by
us in this Offering at an assumed initial public offering price of per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
7
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the other information contained in this Prospectus, before you decide whether
to buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition would likely suffer. In
any such case, the market price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business, results of operations and financial
condition.
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 certain factors,
including the risks faced by us described below 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.
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;
. offer compelling on-line content, services and e-commerce opportunities;
. maintain our current, and develop new, affiliate relationships;
. attract a large number of advertisers;
. respond effectively to competitive pressures;
. 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. Failure to address adequately any of these
risks or difficulties could have a material adverse effect on our business,
results of operations and financial condition. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements for detailed information on our extremely limited
operating history.
We Have a History of Losses and Anticipate Continued Losses
Since our inception, we have incurred significant losses and negative cash
flow, and as of December 31, 1998, had an accumulated deficit of approximately
$15.2 million (including $5.6 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 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 users will access certain 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
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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 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 Are Dependent on our Relationship with Dr. Koop and the Availability of
Other Key Personnel
Our future success depends to a significant extent on the continued services
of key board members, our senior management and other personnel, particularly
Dr. C. Everett Koop, Chairman of the Board of Directors, and Donald W. Hackett,
President and CEO. The loss of the services of Dr. C. Everett Koop, Mr.
Hackett, or any other key employee would likely have a material adverse effect
on our business, results of operations and financial condition.
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. The Koop agreement is exclusive and for a term of 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 the 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, and no rebranding period will apply. Dr. C.
Everett Koop may also terminate the Koop agreement upon a change in control of
our company.
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 (and not more than four percent (4%) of our
revenues derived from sales of our new products) during the term of the
agreement (including any rebranding period). 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."
Our future success also depends on our continuing ability to attract, retain
and motivate highly skilled employees. 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.
Consumers and the Healthcare Industry May Not Accept Our Product Offerings
To be successful, we must attract to our network a significant number of
consumers as well as other participants in the healthcare industry. To date,
consumers have generally looked to healthcare professionals as their principal
source for health and wellness information. Our business model assumes that
consumers will be attracted to and use healthcare information and related
content available on our Internet-based consumer healthcare network which will,
in turn, allow us the opportunity to sell advertising designed to reach those
9
<PAGE>
consumers. Our business model also assumes that those users will access certain
important healthcare needs (such as pharmacy sales, insurance purchases and
other goods and services) through electronic commerce using our website and
that local healthcare organizations will affiliate with us. This business model
is not yet proven, and we cannot assure you that it will be successful or, if
so, that our company will be able to successfully implement this business model
in this market.
Our Market is Highly Competitive
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 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 special 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 loss of market share,
reduced prices or reduced 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. Please see
"Business--Competition."
We Must Provide Editorial Content, Tools and Other Features Which Meet the
Changing Demands of our 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
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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 may 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 any failure to execute on them quickly and efficiently
would likely have a material adverse effect on our business, results of
operations and financial condition. If we fail to expand the breadth of our
offerings quickly, or these offerings fail to achieve market acceptance, our
business will suffer significantly.
Government Regulation Could Affect Our Business
Our business is subject to government regulation. Laws and regulations have
been or may be adopted with respect to the Internet or other on-line services
covering issues such as:
. user libel and personal privacy;
. the regulation of medical devices;
. the practice of medicine and pharmacology;
.the regulation of government and third-party cost reimbursement;
.the regulation of insurance sales;
.the sale of controlled products such as pharmaceuticals;
.taxation;
.content;
.copyright protection;
.distribution; and
.characteristics and quality of products and services.
The applicability to the Internet of existing laws in various jurisdictions
governing issues is uncertain and may take years to resolve. Demand for our
editorial content, features and services may be affected by additional
regulation of the Internet. Although our transmissions originate in Texas, the
governments of other states or foreign countries may attempt to regulate our
transmissions, levy sales or other taxes relating to our activities or impose
other restrictions on our content or services. The laws governing the Internet,
however, remain largely unsettled, even in areas where there has been some
legislative action. In addition, the growth and development of the market for
Internet commerce may prompt the adoption of more stringent consumer protection
laws, both in the United States and abroad, that impose additional burdens on
companies conducting business over the Internet. The requirement that we comply
with any new legislation or regulation, or any unanticipated application or
interpretation of existing laws, may decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition.
Privacy Concerns. The Federal Trade Commission and state governmental bodies
have recently investigated the disclosure of personal identifying information
obtained from individuals by Internet companies. Legislative proposals have
also been made by the federal government in this area. In the event the Federal
Trade Commission or other governmental authorities adopt or modify laws or
regulations relating to the Internet, our business, results of operations and
financial condition could be adversely affected. Foreign regulators have also
begun to take action in this area. For example, the European Union ("EU") has
adopted a directive that imposes restrictions on the collection and use of
personal data, guaranteeing EU citizens certain rights, including the right of
access to their data, the right to know where the data originated and the right
to recourse in the event of unlawful processing. We cannot assure you that we
could comply with this directive without adversely affecting the activities of
our company in EU countries.
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As is typical with most websites, our website places certain information
("cookies") on a user's hard drive without the user's knowledge or consent.
This technology enables website operators to target specific users with a
particular advertisement and to limit the frequency with which a user is shown
a particular advertisement. Certain currently available Internet browsers allow
users to modify their browser settings to remove cookies at any time or to
prevent cookies from being stored on their hard drives. In addition, some
Internet commentators, privacy advocates and governmental bodies have suggested
limiting or eliminating the use of cookies. If this technology is reduced or
limited, the Internet may become less attractive to advertisers and sponsors.
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. We could incur
additional expenses if new regulations regarding the use of personal
information are introduced or if any regulator chooses to investigate our
privacy practices.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by certain foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet or
Internet-related activities. 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.
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 (the "FDA"). 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,
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 present 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
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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, results of
operations or financial condition. Please see "Business--Government
Regulation."
Our Reliance on Advertising and Sponsorship Revenues and the Unproven
Effectiveness of the Internet as an Advertising Medium
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 business, results of operations
and financial condition could 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.
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our
website. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider. This could
cause us to incur additional costs or cause interruptions in our business
during the time we are replacing these services. If we do not implement these
measurement systems successfully, we may not be able to accurately evaluate the
demographic characteristics of our users. Companies may choose not to advertise
on our website or may pay less for advertising if they do not perceive our
measurements or measurements made by third parties to be reliable.
We Must Establish, Maintain and Strengthen our Brand
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, among
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other things, 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 component 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 currently consider Dr. C. Everett Koop
to be a trustworthy and credible leader in the healthcare field. We cannot
assure you, however, that Dr. Koop will maintain this current reputation, any
damage to which could materially adversely impact our business, results of
operations and financial condition.
We Depend on Third-Party Relationships
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 and providers of
content. Most 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 editorial 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, there may 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 would
have a materially adverse impact on our business, results of operations and
financial condition.
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. Failure of one or more of our
strategic relationships to achieve or maintain market acceptance or commercial
success or the termination of one or more successful strategic relationships
could have a material adverse effect on our business, results of operations and
financial condition.
There is no Established Market for Consumer Healthcare E-commerce Transactions
We plan to develop relationships with retailers, manufacturers and other
providers to offer healthcare products and services, such as e-commerce
transaction opportunities 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 no significant 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, nor
can we 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.
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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, results of operations or financial position.
Internet Capacity Constraints
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 (e.g., reliable network
backbone), timely development of complementary products (e.g., 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 Quarterly Operating Results May Vary
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. These
factors include:
. our ability to attract and retain users;
. our ability to attract and retain advertisers and sponsors and maintain
advertiser and sponsor satisfaction;
. traffic levels on our Internet site;
. our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce offerings;
. new Internet sites, services or products introduced by us or our
competitors;
. the level of Internet and other on-line services usage;
. our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
. our ability to successfully integrate operations and technologies from
any acquisitions, joint ventures or other business combinations or
investments;
. technical difficulties or system downtime affecting the Internet
generally or the operation of our website; and
. economic conditions specific to the Internet as well as general economic
conditions.
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. We may be unable to adjust spending
quickly enough to offset any unexpected revenue shortfall. Many of our expenses
(for example, personnel costs and technology and infrastructure costs) are
relatively fixed in the short-term. If we have a shortfall in revenue in
relation to our expenses, or if our expenses precede increased revenues, then
our business, results of operations and financial condition 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.
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We believe that advertising sales in traditional media, such as television
and radio, generally are lower in the first and third calendar quarters of each
year. If our market makes the transition from an emerging to a more developed
market, seasonal and cyclical patterns may develop in our industry. Seasonal
and cyclical patterns in Internet advertising affect our revenues. Given the
early stage of the development of the Internet and our company, however, we
cannot predict to what extent, if at all, our operations will prove to be
seasonal.
Due to the factors noted above and the other risks discussed in this section,
you should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance. It is possible that in some
future periods our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock may
underperform or fall. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We Need to Manage Growth
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.
Our Management Will Have Broad Discretion as to Use of Proceeds
Our management will have broad discretion with respect to the use of the net
proceeds from this Offering. Presently, anticipated uses include the funding of
operating losses and for general corporate purposes, including advertising,
brand promotion, content development and working capital. We may also use a
portion of the proceeds for strategic alliances and acquisitions. We have not
yet determined the amount of net proceeds to be used specifically for each of
the foregoing purposes. Investors will be relying on the judgment of our
management regarding the application of these proceeds. Please see "Use of
Proceeds."
We Face Risks Associated With Potential Acquisitions, Investments or Other
Ventures
We may acquire or make investments in complementary businesses, technologies,
services or products if appropriate opportunities arise. From time to time we
have had discussions and negotiations with companies regarding our acquiring or
investing in such companies' businesses, products, services or technologies,
and we regularly engage in such discussions and negotiations in the ordinary
course of our business. Some of those discussions also contemplate the other
party making an investment in our company. To date we have entered into such
relationships with Superior Consultant Holdings Corporation and HealthMagic,
Inc. We cannot assure you that we will be able to identify future suitable
acquisition or investment candidates, or if we do identify suitable candidates,
that we will be able to make such acquisitions or investments on commercially
acceptable terms or at all. If we acquire or invest in another company, we
could have difficulty in assimilating that company's personnel, operations,
technology and software. In addition, the key personnel of the acquired company
may decide not to work for us. If we make other types of acquisitions, we could
have difficulty in integrating the acquired products, services or technologies
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our
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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.
We Face Risks Related to Systems Operation
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. 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. Such an event could
lead to a significant negative impact on our business, results of operations,
and financial condition. 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 have a material adverse effect
on our business, results of operations and financial condition.
We retain confidential customer information in our database. Therefore, it is
critical that our facilities and infrastructure remain secure and that our
facilities and infrastructure 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.
Our Platform Infrastructure and its Scalability Are Not Proven
Presently, only a relatively limited number of consumers use our website. We
must continue to expand and adapt our network infrastructure to accommodate
additional users, increased 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 Retrieved From the Web
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
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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 health care information and services. Allegations of impropriety,
even if unfounded, could therefore have a material adverse effect on our
reputation and our business, results of operations or financial position.
We Depend on Our Intellectual Property Rights
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 have a material adverse
effect on our business, results of operation and financial condition.
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
some foreign countries do not protect proprietary rights as well as the laws of
the United States, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation could be time-consuming and costly.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our
website overlaps with competitive offerings. Defending against these claims,
even if not meritorious, could be expensive and divert our attention from
operating our company. If we become liable to third parties for infringing
their intellectual property rights, we could be required to pay a substantial
damage award and forced to develop noninfringing technology, obtain a license
or cease selling the applications that contain the infringing technology. We
may be unable to develop noninfringing technology or obtain a license on
commercially reasonable terms, or at all.
We also rely on a variety of technologies that are licensed from third
parties, including our database and Internet server software, which is used in
the drkoop.com website to perform key functions. These third-party licenses may
not be available to us on commercially reasonable terms in the future. The loss
of or inability to maintain any of these licenses could delay the introduction
of software enhancements, interactive tools and other features until equivalent
technology could be licensed or developed. Any such delays could materially
adversely affect the company's business, results of operations and financial
condition.
There is No Prior Public Market for Our Common Stock
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 a trading market or how liquid that market might become. 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
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
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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 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 such securities may have rights, preferences or privileges senior to those
of our stockholders. 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. Please see "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Our Stock Price May be Highly Volatile
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been extremely volatile. 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 Face Possible Year 2000 Risks
We have begun to assess the Year 2000 readiness of our systems. We are also
in the process of contacting certain third-party vendors, licensors and
providers of hardware, software and services regarding their Year 2000
readiness. Following our Year 2000 assessment and after contacting these third
parties, we will be able to make an evaluation of our state of readiness,
potential risks and costs, and to determine to what extent a contingency plan
is necessary. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Impact of the Year 2000."
New Investors will Suffer Immediate and Substantial Dilution
Investors who purchase common stock in this Offering will suffer immediate
and significant dilution in the tangible net book value of their investment.
Please see "Dilution" for a summary of this dilution.
Our Dividend Policy
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.
There will be a Significant Number of Shares Eligible for Future Sale
The market price of our common stock could decline as a result of sales of a
large number of shares of common stock in the market after this Offering, or
the perception that such sales could occur. Such sales also
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might make it more difficult for us to sell equity securities in the future at
a time and at a price that we deem appropriate. After this Offering, we will
have outstanding shares of common stock. Of these shares, the shares
being offered hereby will be freely tradeable. Subject to compliance with the
lock-up agreements described in "Underwriting," this leaves shares eligible
for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
After the date of this prospectus
Upon the filing of a registration statement to register for resale
shares of common stock issuable upon the exercise of options granted
under the Company's stock option plan
At various times after 90 days from the date of this prospectus
(Rule 144)
After 180 days from the date of this Prospectus (subject, in some
cases, to volume limitations)
At various times after 180 days from the date of this Prospectus
(Rule 144)
</TABLE>
Many Corporate Actions Will Be Controlled by Officers, Directors and Affiliated
Entities
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this Offering. These stockholders will, if they act together, be able
to exercise control over most matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of our company, which could have a
material adverse effect on our stock price. Please see "Management" and
"Principal Stockholders."
Anti-Takeover Provisions
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."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to our company from the sale of the shares offered hereby
(after deducting underwriting discounts and estimated offering expenses) are
estimated to be approximately $ ($ if the underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of $
per share.
We intend to use the net proceeds of this Offering to fund operating losses
and for general corporate purposes, including advertising, brand promotion,
content development and working capital. We may also use a portion of the
proceeds for strategic alliances and acquisitions. We have not yet determined
the amount of net proceeds to be used specifically for each of the foregoing
purposes. Accordingly, management will have significant flexibility in applying
the net proceeds of this Offering. Pending any such use, as described above, we
intend to invest the net proceeds in high quality, interest-bearing
instruments. See "Risk Factors--We Face Risks Associated with Potential
Acquisitions, Investments or Other Ventures" and "--Our Management Will Have
Broad Discretion as to Use of Proceeds."
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.
21
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the capitalization
of our company (i) on an actual basis, (ii) on a pro forma basis to reflect the
automatic conversion of certain securities into shares of common stock upon the
closing of this Offering, and (iii) on a pro forma as adjusted basis to give
effect to the sale of the shares offered hereby at an assumed initial
public offering price of $ per share, after deducting underwriting discounts
and the estimated offering expenses. This information should be read in
conjunction with our financial statements and the notes relating to such
statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------
Pro Forma
Actual Pro Forma(2) As Adjusted(3)
------- ------------ --------------
(dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents................. $ $ $
------- ------- ----
Convertible notes payable to stockholder.. 451 -- --
------- ------- ----
Mandatorily redeemable (Series B)
convertible preferred stock.............. 12,836 -- --
------- ------- ----
Series A convertible preferred stock,
$.001 par value; 300,000 shares
designated; 247,641 shares issued and
outstanding actual; no shares issued and
outstanding pro forma or pro forma as
adjusted................................. -- -- --
Common stock, $.001 par value,
15,000,000 shares authorized; 3,420,144
shares issued and outstanding actual;
5,799,860 shares issued and outstanding
pro forma; and 5,799,860 shares issued
and outstanding pro forma as adjusted.. 3 6
Additional paid-in capital................ -- 13,333
Deferred stock compensation............... (252) (252)
Accumulated deficit....................... (15,175) (15,224)
------- ------- ----
Total stockholders' (deficit)
equity(1).............................. (15,424) (2,137)
------- ------- ----
Total capitalization................... $(2,137) $(2,137) $
======= ======= ====
</TABLE>
- --------
(1) Excludes 1,046,271 shares of Series C convertible preferred stock issued in
January 1999, which are convertible into 1,046,271 shares of common stock
at the time of the Offering.
(2) Gives pro forma effect to the following:
. the conversion of the $500,000 principal amount convertible note payable
to stockholder as of December 31, 1998 into 41,853 shares of common
stock;
. the conversion of all of the outstanding shares of the mandatorily
redeemable (Series B) convertible preferred stock into 1,584,906 shares
of common stock and 484,266 shares of common stock to be issued upon the
closing of this Offering to satisfy in full a purchase option and
antidilution right held by a stockholder; and
. the conversion of all of the outstanding shares of the Series A
convertible preferred stock into 268,691 shares of common stock.
(3) As adjusted to give effect to the sale of shares of common stock offered by
us in this Offering at an assumed initial public offering price of per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expense payable by us.
22
<PAGE>
DILUTION
The pro forma net tangible book value deficiency of our company as of
December 31, 1998 was ($2,137,008), or ($0.37) 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 December 31, 1998. Assuming the sale by us of the shares
offered by this Prospectus at an assumed initial public offering price of $
per share and after deducting underwriting discounts and the estimated offering
expenses payable, the pro forma net tangible book value of our company as of
December 31, 1998 would have been $ , or $ per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $ per
share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ $
Pro forma net tangible book value per share as of December 31,
1998.............................................................. $ $
Pro forma increase in net tangible book value attributable to new
investors......................................................... $ $
Pro forma net tangible book value per share after this Offering.... $ $
Pro forma dilution per share to new investors...................... $ $
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1998,
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....... 5,799,860 % $13,339,318 % $2.30
New investors...............
--------- --- ----------- --- -----
Total..................... 100% $ 100% $
========= === =========== === =====
</TABLE>
The foregoing tables and calculations are based on shares outstanding on
December 31, 1998. Excludes (a) 3,796,733 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 $.25 per share (2,203,418
of these options are exercisable on February 26, 1999; the balance are subject
to future vesting requirements) and (b) 8,371 shares of common stock issuable
upon exercise of warrants with an exercise price of $11.95 per share. Includes
(x) 484,266 shares of common stock to be issued upon the closing of this
Offering to satisfy in full a purchase option and anti-dilution right held by a
stockholder plus 53,808 shares will be issued to satisfy an anti-dilution right
held by the Series C preferred stockholder, (y) 2,899,868 shares of common
stock to be issued upon the conversion of all outstanding shares of convertible
preferred stock and (z) 41,853 shares of common stock issuable upon conversion
and exercise of a convertible promissory note. See "Management--Stock Option
Plans" and "Description of Securities."
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The statement of operations data for the
period from July 17, 1997 (inception) through December 31, 1997 and for the
year ended December 31, 1998, and the balance sheet data at December 31, 1997
and 1998, are derived from our audited financial statements included elsewhere
in this Prospectus. Historical results are not indicative of the results to be
expected in the future.
<TABLE>
<CAPTION>
Period From
Inception Year Ended
through December 31,
December 31, 1997 1998
----------------- ------------
(in thousands, except per
share data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ -- $ 43
--------- ---------
Operating expenses:
Production, content and product development... 461 4,448
Sales and marketing........................... -- 2,008
General and administrative.................... 161 2,617
--------- ---------
Total operating expenses....................... 622 9,073
--------- ---------
Loss from operations........................... (622) (9,030)
Other income (expense), net.................... -- 33
--------- ---------
Net loss....................................... $ (622) $ (8,997)
========= =========
Accretion of redeemable securities to fair
value......................................... (8,716)
--------- ---------
Loss attributable to common stockholders....... $ (622) $ (17,713)
========= =========
Basic and diluted net loss per common
share(1)...................................... $ (.23) $ (5.47)
========= =========
Weighted average shares outstanding used in
basic and diluted net loss per common share
calculation(1)................................ 2,700,000 3,240,108
========= =========
Pro forma basic and diluted net loss per common
shares(1)(2).................................. $ (3.66)
=========
Weighted average shares used in computing pro
forma basic and diluted net loss per common
share calculation(1)(2)....................... 4,835,142
=========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
December 31, ----------------------
1997 Actual Pro Forma(2)
------------ -------- ------------
(in thousands, except per share
data)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 8 $ -- $ --
Working capital deficiency................ (649) (2,905) (2,455)
Total assets.............................. 43 380 380
Convertible notes payable to stockholder.. -- 451 --
Mandatorily redeemable convertible (Series
B) preferred stock....................... -- 12,836 --
Stockholders' deficit..................... (614) (15,423) (2,137)
</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 the $500,000 principal amount convertible note payable
to stockholder as of December 31, 1998 into 41,853 shares of common
stock; and
. the conversion of all of the outstanding shares of the mandatorily
redeemable (Series B) convertible preferred stock into 1,584,906 shares
of common stock and 484,266 shares of common stock to be issued upon the
closing of this Offering to satisfy in full a purchase option and
antidilution right held by a stockholder; and
. the conversion of all of the outstanding shares of the Series A
convertible preferred stock into 268,691 shares of common stock.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of our company should be read in conjunction with the financial statements and
the notes to those statements included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Please see "Risk Factors."
Overview
Our company operates drkoop.com, an Internet-based consumer healthcare
network. Our network consists of a consumer-focused interactive website which
provides users with comprehensive healthcare information and services, as well
as affiliate relationships with portals, other websites, healthcare
organizations and traditional media outlets. Our website, www.drkoop.com, is a
healthcare portal which integrates dynamic healthcare content on a wide variety
of subjects, interactive communities and tools as well as opportunities to
purchase healthcare-related products and services on-line.
Our company was founded in July 1997 as Personal Medical Records, Inc. From
July to December 1997 our primary operating activities related to the
development of software for Dr. Koop's Personal Medical Record SystemTM. A
personal medical record is a software application designed for consumers to
establish and maintain lifelong control of personal health and medical
information and related expense records. We originally contemplated the PMR as
a free-standing product. As we developed it, however, we concluded that the PMR
was best suited as one component of an Internet-based network including
healthcare information, interactive tools and other useful features.
Accordingly, in early 1998 we changed our primary emphasis to the development
of the software and hardware infrastructure for the drkoop.com website,
licensing and creating content, negotiating relationships with strategic
partners, recruiting personnel and raising capital. We launched the drkoop.com
website in late July 1998. After the launch of the website and for the
remainder of 1998, we focused on broadening the functionality of the website
and attracting an audience to the drkoop.com network. We presently expect to
add a personal medical record feature to our website in the first half of 1999
as an element of our technology relationship with HealthMagic, Inc.
Through the end of 1998, our revenues were derived primarily from recurring
revenues from content subscriptions and software licensing to 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.
In October 1998, we officially launched our first local affiliate
subscription offering, the Dr. Koop Community Partner Program. Subscriptions to
our Community Partner Program run from one to three years. Under this program,
we develop co-branded Internet pages for local healthcare organizations, such
as hospitals and payor organizations. Advance billings and collections relating
to future services are recorded as deferred revenue and recognized when revenue
is earned. Sales of software licensed to CPP affiliates is recognized as
revenue upon shipment of the software, provided that the portion of the
contract allocated to the software license is based upon vendor specific
objective evidence of fair value, and collectibility is probable. Content
subscription revenue is recognized ratably over the term of the CPP contract,
generally ranging from twelve to thirty-six months.
In November 1998, we sold our first advertising contract and in December
began running advertising banners on the website. Advertising revenues are
derived principally from short-term advertising contracts in which we typically
guarantee a minimum number of user "impressions" (times that an advertisement
is viewed by users of our website) to be delivered over a specified period of
time for a fixed fee. To the extent that minimum guaranteed page deliveries are
not met, we defer recognition of the corresponding revenues until the
guaranteed page deliveries are achieved. 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
25
<PAGE>
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 $16,000 or 37% of revenues for the year ended December
31, 1998.
Sponsorship revenues are derived principally from contracts ranging from one
to twelve months in which we commit to provide sponsors enhanced promotional
opportunities that go beyond traditional banner advertising. Sponsorships are
designed to support broad marketing objectives, including branding, awareness,
product introductions, research and transactions, frequently on an exclusive
basis. Sponsorship agreements typically include the delivery of a guaranteed
minimum number of impressions and the design and development of customized
websites that enhance the promotional objectives of the sponsor. Sponsorship
revenues related to the delivery of impressions are recognized ratably in the
period in which the advertisement is displayed provided that no significant
obligations remain. To the extent that minimum guaranteed page deliveries are
not met, we defer recognition of the corresponding revenues until the
guaranteed page deliveries are achieved.
In December 1998, we began to generate electronic commerce revenues through
alliances with certain retailers of pharmaceuticals and related products and to
provide insurance companies with the opportunity to sell products and services
to our audience. We do not provide any of the goods or services offered. We
receive compensation in the form of transaction fees from certain 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 drkoop.com website. E-commerce revenues were nominal
for the year ended December 31, 1998.
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 ("Adventist"), in exchange for 1,046,271 shares
of our Series C Convertible Preferred Stock (which will be converted into an
equivalent number of shares of common stock upon the closing of this Offering).
We also established a technology relationship with HealthMagic, a supplier of
applications to Internet companies, whereby we contributed to them our PMR
product and received from them a license to use a broad range of Internet
technologies, including a web-enabled personal medical record, personalization
tools, and security and authentication features. HealthMagic will develop,
implement and support these technologies for us. Currently, we expect to deploy
these features in the first half of 1999. In addition, on January 29, 1999, we
entered into a content subscription and software licensing agreement with
Adventist for $500,000.
Contract Research Organizations ("CRO's") 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 CRO's in the identification and
enrollment of qualified individuals into studies.
We recorded deferred stock compensation of $272,000 during the year ended
December 31, 1998 for the difference between the exercise price and the deemed
fair value of certain stock options granted by us to our employees, of which
$20,000 was recorded as compensation expense in 1998. This accounting treatment
will generate non-cash amortization expense of $108,000 in 1999, $59,000 in
2000, $31,000 in 2001, $13,000 in 2002 and $41,000 in 2003.
Since inception, we have incurred significant losses and negative cash flow,
and as of December 31, 1998 had an accumulated deficit of $15.2 million
including $5.6 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 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
26
<PAGE>
reach those consumers. Our business model also assumes that those users will
access certain 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--We Have an Extremely Limited Operating History" and
"We Have a History of Losses and Anticipate Continued Losses."
We have a very limited operating history on which to base an evaluation of
our business and prospects. Our prospects must be considered in light of the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as the Internet market. In view of the
rapidly evolving nature of our business and our limited operating history, we
believe that period-to-period comparisons of revenues and operating results are
not necessarily meaningful and should not be relied upon as indications of
future performance.
Results of Operations
Comparison of the year ended December 31, 1998 to the period from July 17,
1997 (inception) through December 31, 1997
Revenues. Revenues for 1998 consisted primarily of content subscription and
software license revenue related to our Community Partner Program and to a
lesser extent advertising revenue. Our website, drkoop.com, was launched in
July 1998. For the year ended December 31, 1998, we recorded revenues of
$43,000; no revenues were recognized for the period from July 1997 (inception)
to December 31, 1997. We presently anticipate that revenues from advertising
and sponsorship, as well as content, subscription and software license
revenues, will comprise the majority of total revenue for the foreseeable
future. The development and implementation of our e-commerce strategies are
expected to provide additional revenue.
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 operations expense.
Production, content and product development expense increased to $4.4 million
in 1998 from $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 were $161,000 for the period ended December 31, 1997 and $2.6 million
for the year ended December 31, 1998. The absolute dollar 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
27
<PAGE>
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.
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 four quarters ended December 31, 1998. 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 Year
Inception to ---------------------------------------------- Ended
December 31, March 31, June 30, September 30, December 31, December 31,
1997 1998 1998 1998 1998 1998
------------ --------- -------- ------------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ 43 $ 43
----- ----- ------- ------- ------- -------
Operating expenses
Production, content
and product.......... 461 284 672 1,847 1,645 4,448
Sales and marketing... -- 166 181 646 1,015 2,008
General and
administrative....... 161 259 562 870 926 2,617
----- ----- ------- ------- ------- -------
Total operating
expenses........... 622 709 1,415 3,363 3,586 9,073
----- ----- ------- ------- ------- -------
Loss from operations.... (622) (709) (1,415) (3,363) (3,543) (9,030)
Interest income and
other income........... -- -- 14 13 6 33
----- ----- ------- ------- ------- -------
Net loss................ $(622) $(709) $(1,401) $(3,350) $(3,537) $(8,997)
===== ===== ======= ======= ======= =======
</TABLE>
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 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
28
<PAGE>
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.
On April 28, 1998, we issued 1,540,239 shares of Series B Non-voting
Preferred Stock to Superior Consultant Holdings Corporation for a purchase
price of $6.0 million. These shares will be converted into 1,584,906 shares of
common stock upon the closing of this Offering. In connection with this
transaction, we also gave Superior the right to require us to repurchase their
shares prior to our initial public offering and the right to purchase an
additional 1,540,239 shares of either Series B Non-voting Preferred Stock or
common stock (the "Superior Purchase Option") at a per share exercise price
equal to 70% of the fair market value of the common stock on the date of
exercise. The Superior Purchase Option will be terminated at the closing of
this Offering in consideration for the issuance of 484,266 shares of common
stock (including shares to be issued as an anti-dilution adjustment). In
addition, 53,808 shares will be issued to satisfy an anti-dilution right held
by the Series C preferred stockholder.
On April 30, 1998, we issued 247,641 shares of Series A 8% Convertible
Preferred Stock to certain accredited investors for an aggregate purchase price
of $742,925. These shares will be converted into 268,691 shares of common stock
upon the closing of this Offering.
On December 24, 1998, we issued a convertible note payable to stockholder in
the original principal amount of $800,000 ($500,000 of which was received in
1998) bearing interest at 6% per annum due December 24, 1999, along with five
year warrants to purchase 13,393 shares of Series C Preferred Stock for an
exercise price of $11.95 per share (which will become the right to purchase
13,393 shares of common stock for $11.95 per share upon the closing of this
Offering). Interest on the note is payable at maturity. At any time prior to
maturity any unpaid principal and interest may be converted into Series C
Preferred Stock at a conversion price of $11.95 per share.
On January 29, 1999, we received $3.5 million in cash and acquired 10% of the
outstanding stock of HealthMagic, Inc., a subsidiary of Adventist Health System
Sunbelt Healthcare Corporation ("Adventist"), in exchange for 1,046,271 shares
of our Series C Convertible Preferred Stock (which will be converted into an
equivalent number of shares of common stock upon the closing of this Offering).
We also established a technology relationship with HealthMagic, a supplier of
applications to Internet companies, whereby we contributed to them our PMR
product and received from them a license to use a broad range of Internet
technologies, including a web-enabled personal medical record, personalization
tools, and security and authentication features. HealthMagic will develop,
implement and support these technologies for us.
On March 3, 1999, we entered into loan agreements with two accredited
investors. Pursuant to these agreements, the investors are irrevocably
obligated to loan to us the aggregate principal amount of up to $2.5 million at
an interest rate of 7% per annum. Upon the closing of this Offering, the
principal amount borrowed under these agreements and all accrued interest will,
solely at the option of each investor, either be due and payable or convert
into common stock at a conversion price of $18.56 per share. The Company
currently anticipates borrowing under these agreements prior to the closing of
this Offering. As of March 5, 1999, we had borrowed $0.
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We currently anticipate that our available cash resources combined with the
net proceeds from this Offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this Prospectus. These requirements are expected to include
the funding of operating losses, working capital requirements and other general
corporate purposes, including advertising, brand promotion and content
development. We may also elect to 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 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 such securities may have rights, preferences or privileges senior to those
of our stockholders. 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, the Company may require additional financing sooner than
anticipated.
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 (i) 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; (ii) assessing and implementing repair or
replacement of such components as required; and (iii) creating contingency
plans in the event of Year 2000 failures. We plan to perform a Year 2000
simulation on our
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systems, including the drkoop.com web site, during the first 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 February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". We adopted the statement effective at inception.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a financial statement with the same prominence as other
financial statements. Comprehensive income is defined as net income adjusted
for changes in stockholders' equity resulting from events other than net income
or transactions related to an entity's capital instruments. We adopted SFAS No.
130 effective January 1, 1998. There were no differences between net loss and
comprehensive loss in the periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments. Generally, SFAS 131 requires that
financial information be reported on the basis that is used internally for
evaluating performance. We adopted SFAS No. 131 effective January 1, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which provides guidance concerning the
capitalization of costs related to such software. SOP 98-1 must be adopted by
us effective January 1, 1999 and is not expected to have a material impact to
our results of operations or financial position.
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 February 28, 1999, www.drkoop.com
had attracted over 2.6 million unique users and enrolled over 83,000 registered
users. Our network is designed to provide consumers with a variety of
healthcare content, including information on acute ailments, chronic illnesses,
nutrition, fitness and wellness, and access to medical databases, publications,
and real-time medical news. In addition, we offer eight interactive communities
consisting of over 100 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 prescription refills and health insurance sales, 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 650 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
100 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 sell 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. We presently enable sales of
prescription refills and insurance services. Although we do not provide these
products or services, we do provide a link 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 a transaction
fee for sales attributable to users from our website. We believe that
contextual merchandising of e-commerce transactions will attract users to our
website and promote user loyalty.
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
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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 medical articles on Dartmouth Medical School,
over 70 common medical conditions Nancy Snyderman, M.D.
ranging from allergies to cancer
. 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 650 health-related drkoop.com
websites including ratings and reviews
</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 100 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.
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
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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 Check. Our drug interaction tool, Drug Check, 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 Check 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.
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.
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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 first 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 first quarter 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.
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 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:
Excite. Excite has selected drkoop.com as a provider of health
information. Once this relationship is fully implemented, Excite users in
search of health information will have direct access to drkoop.com content
including healthcare information on a variety of topics, disease and
wellness information, late breaking health news and daily features from Dr.
Nancy Snyderman. Our relationship with Excite specifies that the parties
will share revenue generated from pages on which the drkoop.com content is
displayed. We believe this relationship will generate substantial traffic
to our website.
The Go Network. drkoop.com has entered into an agreement with Infoseek
under which The Go Network will distribute health-related content to their
users. Through this agreement, users on The Go
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Network will be able to access various health information, services,
interactive tools and related commerce opportunities through direct links
to the drkoop.com website. We believe that this partnership will contribute
substantially to our brand awareness and traffic generation efforts. This
agreement with Infoseek has a one-year term. We will pay Infoseek a fee for
running a minimum number of content segments on its Health Center homepage.
Salon Magazine. Salon Magazine 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 Internet, Inc. 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.
Total Mind and Body Network. drkoop.com has been selected as the provider
of traditional health and medical information for the Total Mind and Body
Network, a division of Element Media, Inc., an alternative health company.
The Total Mind and Body Network ("TMBN") agreement has a three-year term
under which the Company will be the exclusive provider of traditional
healthcare content to TMBN (except that TMBN may use other sources to the
extent that we decline to develop any specific content). TMBN 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 ("POL"), one of the largest Internet communities of
doctors. POL 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 POL 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.
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.
The Weather Channel. The Weather Channel and weather.com have selected
drkoop.com as a leading provider of health information and services for
their cable network and on-line efforts. Through this partnership,
drkoop.com will provide health information, services, interactive tools and
e-commerce features to weather.com users. As an affiliate of the drkoop.com
network, weather.com, will have the right to integrate drkoop.com content
into their Health & Allergies initiative, as well as other related sections
of their on-air and Internet initiative. In addition, drkoop.com will
develop unique health-related content and
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offerings exclusively for weather.com. All content presented on weather.com
and The Weather Channel will carry the "provided by drkoop.com" brand.
Healthcare Organizations. drkoop.com enrolls healthcare organizations as
local affiliates through our Community Partner Program. This program allows
local organizations such as hospitals, health systems and other healthcare
organizations to integrate the drkoop.com brand and content into their on-line
initiatives. Under this program, we develop co-branded Internet pages linked to
drkoop.com for local healthcare organizations. The Community Partner Program
enables healthcare organizations to supply their patients with on-line health
resources and interactive capabilities integrated with specific information
about their facilities. This program provides consumers with the ability to
educate themselves, make an informed decision, and take action through a
healthcare organization's local website, strengthening the relationship between
the consumer and the organization. Those consumers are introduced to the
drkoop.com brand through our association with their local provider or payor.
Examples of local healthcare organizations that have enrolled in our Community
Partner Program include:
Adventist Health System. Adventist Health System currently operates
31 hospitals in nine states and has more than 4,900 licensed beds.
Adventist Health System also operates 27 extended-care facilities with
more than 3,000 long-term care beds. Florida Hospital, part of
Adventist Health System, serves the one million residents of the
Orlando area.
Highmark. Highmark, created in 1996 by the consolidation of Blue
Cross of Western Pennsylvania and Pennsylvania Blue Shield, is one of
the ten largest health insurers in the United States. Highmark offers
managed care programs, health plans, traditional health insurance
coverage, life and casualty insurance, and dental and vision programs
to approximately 18 million people.
MemorialCare. MemorialCare is a comprehensive healthcare system
servicing the over 5 million residents of Los Angeles and Orange
Counties in California. MemorialCare offers Southern Californians four
major medical centers and a children's hospital, as well as a number of
subsidiary facilities.
Scott and White Hospital and Clinic. Scott and White is one of the
largest multi-specialty hospital and clinic groups in the United
States. Their more than 515 physicians and scientists service the
750,000 residents of Central Texas as well as patients from throughout
the United States and many foreign countries.
Tallahassee Memorial HealthCare. Tallahassee Memorial HealthCare
provides Floridians with a comprehensive system of patient and
healthcare services coordinated under certain specialty centers. These
specialty centers include Tallahassee Memorial Hospital, the eighth
largest hospital in Florida, and eleven satellite facilities in five
counties. Founded more than fifty years ago, Tallahassee Memorial
HealthCare currently services a population of over 200,000 individuals.
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
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the HRP newsletters distributed through chain drugstores. HRP estimates
that it will distribute up to 20 million newsleters 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.
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 branding, 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;
and
. Schering-Plough, a pharmaceutical company, which has sponsored our
allergy health topic with Claritin. The integrated sponsorship includes
logo links, keywords, and banner impressions.
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.
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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.
Content Syndication. We license our content and certain interactive tools
through a broad variety of affiliated websites. The primary source of content
syndication revenue is our Community Partner Program. The Community Partner
Program allows payor and provider organizations to co-brand their websites with
drkoop.com for an annual fee. Licensing fees are typically determined based on
the channel for which the content will be used. Content syndication agreements
generally stipulate that all content provided by drkoop.com must retain a
legend indicating "Provided by drkoop.com" and is subject to an acceptable use
policy that defines how and where the content may be used. Editorial content
and/or content control generally remain the exclusive right of the drkoop.com
network. We believe that by allowing other high-traffic websites and portals to
offer our content we will gain broad exposure of our brand and drive high
volumes of traffic to the drkoop.com website, thereby allowing us to generate
more advertising and e-commerce revenues. While we expect to also generate
significant revenues from certain of our syndication programs, this revenue
source is expected to become a smaller proportion of our overall revenues as
our audience continues to grow.
E-Commerce. We provide users with the ability to access e-commerce
opportunities provided by outside parties in numerous locations throughout the
drkoop.com website. For example, users can access prescription refill services
through pages relevant to a particular condition. We also offer the drkoop.com
Health Store, a section of the website which aggregates all of the e-commerce
opportunities found throughout the site into one comprehensive storefront that
users can navigate to find the specific products or services offered by outside
parties. E-commerce interfaces on drkoop.com, whether in the drkoop.com Health
Store or in other locations within the website's general content, have been
designed to be secure, informative and easy to use.
We currently offer two primary categories of products and services which
users can purchase from third parties through our website:
On-line Pharmacy Products. According to industry statistics, the retail
prescription drug market in 1997 accounted for approximately $89.1 billion
in sales generated by 2.6 billion prescriptions. Over-the-counter
medications and the other health and beauty aids accounted for $26.8
billion and $26.9 billion in retail sales, respectively, in 1997. Due to
the convenience, privacy, cost-savings and selection that can be offered to
consumers via the Internet, we believe that the on-line pharmacy will
become a major factor in retail pharmacy sales and will capture a
significant portion of these sales in the near future. Moreover, direct
deliveries of prescription drugs to the home via mail accounts for a
significant proportion of all prescription drug sales. We expect that this
distribution channel will expand to include other products traditionally
associated with retail pharmacy stores.
Our personal drugstore provides links to 23 traditional and on-line
pharmacies where users can order prescription refills and other pharmacy
products over the Internet. We have agreements with the PlanetRX and
Greentree, on-line pharmacies, under which we will provide content and
interactive tools as well as links to their websites. Under these
agreements, we receive a fee for each drkoop.com user who executes a
transaction. We receive a flat service fee for sales of prescription drug
products and a commission based on the value of the underlying transaction
for sales of other products.
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.
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Our current insurance partners include:
. Quotesmith.com, an on-line insurance website where users can obtain
instant quotes from 375 leading insurance companies. We have
implemented a co-branded version of their instant quote system.
. American Health Value, a user-friendly Medical Savings Account (MSA)
administrator offering consumers access to their MSA funds with a
Visa card. We link to their website through our Personal Insurance
Center.
. HealthCore Medical Solutions, HealthCore markets the HealthCare
Solutions Card, which entitles its members to discounts on eye care,
dental and pharmacy benefits. We will be linking to their site
through our Personal Insurance Center.
Sales
As of January 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.
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 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
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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
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.
Operating Infrastructure
The drkoop.com website is based on a technical operating infrastructure, the
drkoop.com web platform, which is designed to be highly scaleable and reliable.
The drkoop.com web platform consists of several subsystems, including a
scaleable web cluster used to service user requests for web pages. The web
cluster is controlled by a hardware cluster manager which continuously monitors
the performance and availability of the individual servers within the web
cluster. In the event of an individual server failure or when a server requires
maintenance, the hardware cluster manager automatically distributes incoming
requests to other available servers without disrupting the user's experience.
The drkoop.com web platform consists of readily available, off-the-shelf,
computer systems, including dual Intel Pentium servers in a fully redundant
configuration. The drkoop.com web platform was designed using a proprietary
architecture deploying primarily Microsoft technology running the Windows/NT
Operating System. Other Microsoft web enabling technologies used in the
drkoop.com web platform include the Microsoft Membership and Personalization
Server (software that captures user data and enables the drkoop.com experience
to be customized for each user), Microsoft SQL Server (database software used
to store user data and content) and Microsoft Internet Information Server
(software which enables pages to be displayed to the user).
Our data center is maintained offsite by a third party and provides us with
multiple backbone connections to the Internet and a fault-tolerant network
design. In addition, electricity for running the drkoop.com web platform is
protected by uninterruptible power systems including back-up diesel generators.
We have an operations and disaster recovery plan, and drkoop.com is backed up
nightly to an off-site storage facility. We do not maintain a back-up data
center.
Competition
A large number of Internet companies compete for users, advertisers, e-
commerce transactions and other sources of on-line revenue. The number of
Internet websites offering users healthcare content, products and services is
vast and increasing at a rapid rate. In addition, traditional media and
healthcare providers compete for consumers' attention both through traditional
means as well as through new Internet initiatives. We believe that competition
for healthcare consumers will continue to increase as the Internet grows as a
communication and commercial medium.
We compete directly for users, advertisers, e-commerce merchants, syndication
partners and other affiliates with numerous Internet and non-Internet
businesses, including:
. health-related on-line services or websites targeted at consumers such as
accesshealth.com, ahn.com, betterhealth.com, drweil.com,
healthcentral.com, healthgate.com, intelihealth.com, mayohealth.org;
mediconsult.com, onhealth.com, thriveonline.com and webmd.com;
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. 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.
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 loss of market share,
reduced prices or reduced margins, any of which could adversely affect our
business. Competition is likely to increase significantly as new companies
enter the market and current competitors expand their services.
Intellectual Property
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. We
intend to file for federal trademark registrations for the mark "drkoop.com,"
as well as other service and trademarks which incorporate the Dr. Koop name.
Our right to use the Dr. Koop name is granted to us under an agreement with Dr.
C. Everett Koop. If we lose our right to use the Dr. Koop name, we would be
forced to change our corporate name and adopt a new domain name. These changes
could confuse current and potential customers and would have a material adverse
effect on our business, results of operation and financial condition. 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 selling the applications that contain the infringing technology. We
may be unable to develop noninfringing technology or obtain a license on
commercially reasonable terms, or at all.
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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 delays could materially
adversely affect the company's business, results of operations and financial
condition.
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 certain types 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 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 the Company's business, results of operations
and financial condition.
Privacy Concerns. The Federal Trade Commission (the "FTC") 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
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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 (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) used to track demographic information
and to target advertising may become subject to laws limiting or prohibiting
their use. 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 our use of cookies could limit
the effectiveness of the our targeting of advertisements, which could have a
material adverse effect on the our business, results of operations and
financial condition.
The European Union (the "EU") has adopted a directive (the "Directive") that
imposes restrictions on the collection and use of personal data. Under the
Directive, EU citizens are guaranteed certain rights, including the right of
access to their data, the right to know where the data originated, the right to
have inaccurate data rectified, the right to recourse in the event of unlawful
processing and the right to withhold permission to use their data for direct
marketing. The Directive could, among other things, affect U.S. companies that
collect information over the Internet from individuals in EU member countries,
and may impose restrictions that are more stringent than current Internet
privacy standard in the United States. In particular, companies with offices
located in EU countries will not be allowed to send personal information to
countries that do not maintain adequate standards of privacy. The Directive
does not, however, define what standards of privacy are adequate. As a result,
there can be no assurance that the Directive will not adversely affect the
activities of entities such as our company that engage in data collection from
users in EU member countries.
Planned features of our website include the retention of personal information
about our users which we obtain with their consent. We have a stringent privacy
policy covering this information. However, if third persons were able to
penetrate our network security and gain access to, or otherwise misappropriate,
our users' personal information, we could be subject to liability. Such
liability could include claims for misuses of personal information, such as for
unauthorized marketing purposes or unauthorized use of credit cards. These
claims could result in litigation, our involvement in which, regardless of the
outcome, could require us to expend significant financial resources. Moreover,
to the extent any of the data constitute or are deemed to constitute patient
health records, a breach of privacy could violate federal law.
Data Protection. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information (e.g., 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 certain 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
such 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
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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 the Company's domain names will not lose their value, or that
the Company 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, ("FDA"). 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.
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, we cannot assure you that a state regulatory authority will not 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 present 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 (the "Federal Statute") has been broadly
interpreted to apply to certain 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.
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As the primary purpose of marketing is to generate business by referring or
recommending, the Office of Inspector General ("OIG") of the United States
Department of Health and Human Services ("DHHS") has recognized that "many
marketing and advertising activities may involve at least technical violations
of the Federal Statute." Because of the breadth of the Federal Statute,
Congress required DHHS to promulgate regulatory safe harbors to protect
activities which do not harm federal healthcare programs. Our electronic
commerce activities do not qualify for safe harbor protection under the Federal
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
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
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 parties providers who we believe to be
appropriately licensed under applicable law. The use of the Internet in the
marketing of insurance products is a relatively new practice. It is not clear
whether or to what extent state insurance licensing laws apply to our
activities. If we were required to comply with such licensing laws, compliance
could be costly or not possible and could have a material adverse effect on our
business, results of operations or financial condition.
Jurisdiction. Due to the global reach of the Internet, it is possible that,
although transmissions by the Company 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 the Company's transmissions or take
action against the Company 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 January 31, 1999, we had 63 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
As of the date of this Prospectus, we are not a party to any material legal
proceedings.
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MANAGEMENT
The following table sets forth, as of January 31, 1999, the name, age and
position of each director and executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
C. Everett Koop, M.D. .... 82 Chairman of the Board of Directors
John F. Zaccaro(1)(2)..... 64 Vice Chairman of the Board of Directors
Donald W. Hackett(1)...... 42 President, Chief Executive Officer and Director
Dennis J. Upah............ 37 Chief Operating Officer
Susan M. Georgen-Saad..... 41 Chief Financial Officer
Robert C. Hackett, Jr. ... 47 Executive Vice President, Business Development
Louis A. Scalpati......... 35 Senior Vice President, Chief Architect
Jeffrey C. Ballowe........ 43 Director
Mardian J. Blair.......... 67 Director
G. Carl Everett, Jr....... 48 Director
Richard D. Helppie, 42
Jr.(2)................... Director
Nancy L. Snyderman, 46
M.D.(1).................. Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
C. Everett Koop, M.D., has served as the Company's Chairman of the Board of
Directors since he co-founded the Company in July 1997. Since 1992, Dr. Koop
has served as the McInerney Professor of Surgery at the Dartmouth Medical
School and as Senior Scholar at the C. Everett Koop Institute at Dartmouth. Dr.
Koop is also a frequent lecturer on healthcare topics. An internationally
respected pediatric surgeon, Dr. Koop was Surgeon-in-Chief of the Children's
Hospital of Philadelphia from 1948 to 1981 and Editor-in-Chief of the Journal
of Pediatric Surgery from 1964-1976. Dr. Koop is a director of Superior
Consultant Holdings Corporation, a publicly-traded healthcare consulting
company, as well as several private healthcare companies. From 1994 to 1996,
Dr. Koop was a director and ex-officio Chairman of the Board of Patient
Education Media, Inc., a producer of medical video tapes which filed for
bankruptcy protection in 1996. Dr. Koop was Surgeon General of the United
States from 1981 to 1989. He was also appointed Director of the Office of
International Health in May 1982. Dr. Koop is also the recipient of numerous
honors and rewards, including 35 honorary doctorates.
John F. Zaccaro has served as the Company's Vice Chairman of the Board of
Directors since he co-founded the Company in July 1997. From 1991 until
November 1997, Mr. Zaccaro served as the President and Executive Producer of
the International Health & Medical Film Festival. In addition, since 1995 Mr.
Zaccaro has served as a Senior Administrator to the Russian Arts Foundation.
Mr. Zaccaro is also a director of Kit Manufacturing Company, a publicly-traded
constructor of manufactured housing. Mr. Zaccaro is a published author and a
motivational speaker.
Donald W. Hackett has served as the Company's President, Chief Executive
Officer and a director since he co-founded the Company in July 1997. From
January 1996 until joining the Company, 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 practice management services company. While
employed at Physician Computer Network, Inc., Mr. Hackett successfully
implemented the first provider-centric, computer-based pay-per-view-advertising
network, and initiated direct data interchange transactions between
laboratories, pharmacies and hospitals with practice management systems.
Dennis J. Upah has served as the Company's Chief Operating Officer since
January 1999. From February 1995 until joining the Company, 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
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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 the Company's Chief Financial Officer
since October 1998. From March 1997 until joining the Company, 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 the Company's Executive Vice President,
Business Development, since 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 the Company's Senior Vice President, Chief
Architect and Secretary since he co-founded the Company in July 1997. From
December 1995 until joining the Company, 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 the Company since March 1999.
Since 1997, Mr. Ballowe has been self-employed. From 1986 until 1997, Mr.
Ballowe held various management positions at Ziff-Davis, an international media
company including President of the Interactive Media and Development Group. Mr.
Ballowe is Chairman of the Board of Deja News and is a director of VerticalNet,
Xoom.com and ZDTV.
Mardian J. Blair has served as a director of the Company 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 been Senior Vice President, Personal Systems Group,
of Dell Computer Corporation, responsible for worldwide development and
marketing of all Dell desktop and notebook products, since February 1998. For
the prior twenty years, Mr. Everett was employed by Intel Corporation, most
recently as General Manager of the Desktop Products Group.
Richard D. Helppie, Jr. has served as a director of the Company 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 the Company 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
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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 Vice President of Business Development of the
Company and has served as Director of our website since April 1998. From
October 1996 until joining the Company, Mr. Bagnall served as Marketing
Relations Manager for ichat, Inc. (now Acuity, Inc.), a provider of web-
integrated chat browser and server products. From October 1995 to October 1996,
Mr. Bagnall worked as an Internet Consultant, and from July 1994 until October
1995 Mr. Bagnall served as Business Manager for Enter Television, Inc.
Alex Cavalli, Ph.D., 49, has served as the Company's Chief Development
Officer since August 1998. From April 1995 until joining the Company, 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 the Company's Senior Vice President of
Sales since May 1998. From May 1980 until joining the Company, Mr. Longwill
served in various sales and management positions with Intel Corporation.
Guy D. MacNeill, 38, has served as the Company's Vice President of Marketing
since February 1998. From January 1997 until joining the Company, Mr. MacNeill
served as Vice President of Marketing of ichat, Inc. (now Acuity, Inc.). From
March 1996 until January 1997, he served as Director of Marketing, and from
January 1995 until March 1996, he served as a Senior Product Manager, of
Intuit, Inc. While at Intuit, Mr. MacNeill was active in all aspects of product
management and marketing for the best selling TurboTax and MacInTax line of
desktop and on-line consumer tax preparation products.
Roy A. Smith, 41, has served as the Company's Chief Technology Officer since
January 1998. In November 1996, Mr. Smith founded MarketPlace Consulting, a
computer consulting company. From April 1995 until November 1996, Mr. Smith was
the founder of Tradewave Corporation, an Internet network security company, and
held the following positions: Chief Executive Officer, Vice Chairman and
President. From April 1992 until April 1995, Mr. Smith served as Vice President
of Microelectronics and Computer Technology Corporation, where he led the
development of key information technologies for the National Information
Infrastructure (NII) in conjunction with the Defense Advanced Research Projects
Agency (DARPA) and the National Institute of Standards and Technology (NIST).
Board Composition
We currently have eight authorized directors. In accordance with the terms of
our Restated Certificate of Incorporation which will become effective upon the
closing of this Offering (the "Restated Certificate"), 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
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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, the Restated Certificate provides that the authorized number of
directors may be changed 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 the
Company.
Board Committees
The Audit Committee of the Board of Directors reviews, acts on and reports to
the Board of Directors with respect to various auditing and accounting matters,
including the recommendation of our independent auditors, the scope of the
annual audits, fees to be paid to the independent auditors, the performance of
our independent auditors and our accounting practices. The members of the Audit
Committee are Messrs. Helppie and Zaccaro.
The Compensation Committee of the Board of Directors determines the salaries
and benefits for our employees, consultants, directors and other individuals
compensated by our company. The members of the Compensation Committee are Dr.
Snyderman and Messrs. Hackett and Zaccaro.
The Company plans to establish a Stock Awards Committee of the Board of
Directors to administer the 1999 Equity Participation Plan and determine the
stock option grants for our employees, consultants, directors and other
individuals under this plan.
Director Compensation
From and after the completion of this Offering, non-employee directors, other
than Dr. Koop and Mr. Zaccaro, will receive an annual retainer of $ per
year, plus $ for attendance at each meeting of the Board and $ for
each meeting of a Committee. 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
shares of common stock upon initial appointment to the Board of Directors and
an additional grant of options to purchase 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. 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.
Each of Dr. 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 "--Employment and Consulting Agreements."
All directors are reimbursed for their reasonable expenses incurred in
connection with attendance at Board and Committee meetings and on related
Company business. In addition, from time to time, certain directors of the
Company have received grants of options to purchase shares of our common stock.
Compensation Committee Interlocks And Insider Participation
Our Compensation Committee consists of Dr. Snyderman and Messrs. Hackett and
Zaccaro. Prior to the Offering, all compensation decisions were made by the
full Board of Directors.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on the Company's Board of Directors or Compensation
Committee, except that Dr. C. Everett Koop is a director of Superior Consultant
Holdings Corporation. Mr. Helppie is the Chairman of the Board and Chief
Executive Officer of Superior.
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Employment Agreements with Management
Donald W. Hackett. We are a party to an Employment Agreement with Donald W.
Hackett, dated August 1, 1997. The term of the agreement is three years,
although we may, by mutual agreement with Mr. Hackett, extend the agreement for
successive one-year terms. Pursuant to the agreement, we are obligated to pay
Mr. Hackett an initial annual salary of $195,000. This salary automatically
increases by 20% at the end of each of the first three years of the agreement.
In addition, Mr. Hackett receives a monthly car allowance of $700 and is
eligible for annual discretionary bonuses. In the event Mr. Hackett's
employment is terminated without cause or by reason of disability, he would
receive a severance payment in an amount equal to his annual base salary. In
the event Mr. Hackett resigns or his employment is terminated with cause, he
has agreed not to compete with us for a period of 12 months following the
cessation of his employment.
Dennis J. Upah. We are a party to an Employment Agreement with Dennis J.
Upah, dated January 15, 1999. The term of the agreement is three years.
Pursuant to the agreement, we are obligated to pay Mr. Upah an annual salary of
$140,000 and an annual bonus of at least $140,000 the first year of the
agreement and $105,000 for the second and third years. In addition, Mr. Upah
receives a monthly car allowance of $600. Upon commencement of his employment,
Mr. Upah was granted options to purchase 135,000 shares of common stock and
upon closing of this Offering, will receive an option to purchase an additional
60,000 shares of our common stock with an exercise price equal to the public
offering price set forth on the cover of this Prospectus. In the event Mr.
Upah's employment is terminated without cause or by reason of disability, each
of the options granted under the agreement would vest immediately, and he would
receive a severance payment in an amount equal to his annual base salary and
annual bonus. Mr. Upah has agreed not to compete with us for a period of 12
months following the cessation of his employment.
Robert C. Hackett. We are a party to an Employment Agreement with Robert C.
Hackett, dated August 1, 1997. The term of the agreement is three years,
although we may, by mutual agreement with Mr. Robert Hackett, extend the
agreement for successive one-year terms. Pursuant to the agreement, we are
obligated to pay Mr. Robert Hackett an initial annual salary of $165,000. This
salary automatically increases by 20% at the end of each of the first three
years of the agreement. In addition, Mr. Robert Hackett receives a monthly car
allowance of $600 and is eligible for annual discretionary bonuses. In the
event Mr. Robert Hackett's employment is terminated without cause or by reason
of disability, he would receive a severance payment in an amount equal to his
annual base salary. In the event Mr. Robert Hackett resigns or his employment
is terminated with cause, he has agreed not to compete with us for a period of
12 months following the cessation of his employment.
Susan M. Georgen-Saad. We are a party to an Employment Agreement with Susan
M. Georgen-Saad, dated January 27, 1999. The term of the agreement is two
years. Pursuant to the agreement, Ms. Georgen-Saad's initial annual salary of
$124,000 was increased to $150,000 on January 1, 1999. In addition,
Ms. Georgen-Saad receives a monthly car allowance of $600 and is eligible for
annual discretionary bonuses. Upon commencement of her employment, Ms. Georgen-
Saad was granted options to purchase 135,000 shares of common stock and upon
the closing of this Offering, Ms. Georgen-Saad will receive an option to
purchase an additional 60,000 shares of our common stock with an exercise price
equal to the public offering price set forth on the cover of this Prospectus.
In the event Ms. Georgen-Saad's employment is terminated without cause or by
reason of disability, each of the options granted under the agreement would
vest immediately, and she would receive a severance payment in an amount equal
to one-half her annual base salary. Ms. Georgen-Saad has agreed not to compete
with us for a period of 12 months following the cessation of her employment.
Louis A. Scalpati. We are a party to an Employment Agreement with Louis A.
Scalpati, dated August 1, 1997. The term of the agreement is three years,
although we may, by mutual agreement with Mr. Scalpati, extend the agreement
for successive one-year terms. Pursuant to the agreement, we are obligated to
pay Mr. Scalpati an initial annual salary of $145,000. This salary
automatically increases by 20% at the end of each of the first three years of
the agreement. In addition, Mr. Scalpati receives a monthly car allowance of
$600 and is eligible for annual discretionary bonuses. In the event Mr.
Scalpati's employment is terminated without cause
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or by reason of disability, he would receive a severance payment in an amount
equal to his annual base salary. In the event Mr. Scalpati resigns or his
employment is terminated with cause, he has agreed not to compete with us for a
period of 12 months following the cessation of his employment.
Agreements with Dr. C. Everett Koop
Name and Likeness Agreement. We are a party to an agreement, dated January 5,
1999 and amended effective as of January 5, 1999, with Dr. C. Everett Koop (the
"Koop Agreement"). 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 ("Voluntary Termination"). If the 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
(the "Rebranding Period") 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 and no Rebranding Period will apply. Dr. C. Everett Koop
may also terminate the Koop Agreement upon a change in control of our company.
As consideration for the Koop Agreement, we are obligated to pay Dr. 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. Koop that, when
we introduce a personal medical records feature to our users (i.e., a product
which permits our users to store historical personal and healthcare information
in a secure portion of our database), 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. The Koop Agreement obligates us to convey to Dr. 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.
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 from time to time.
Dr. Nancy L. Snyderman. We are a party to an agreement, dated June 1, 1998,
with Dr. Nancy Snyderman (the "Snyderman Agreement"), a director of our
company. The Snyderman Agreement permits us
54
<PAGE>
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 ("Voluntary Termination"). 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 (the "Rebranding Period") to rebrand approved software
services and programs bearing the name, image or likeness of Dr. Snyderman. As
consideration for the Snyderman Agreement, we granted to Dr. Snyderman options
to acquire 73,500 shares of our common stock. 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 (collectively,
the "Named Executive Officers") for services rendered in all capacities to us
during 1998.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
-----------------Shares Underlying
Name and Principal Position Salary Bonus Options
--------------------------- ----------------------------------
<S> <C> <C> <C>
Donald W. Hackett, President and Chief
Executive Officer......................... $ 146,250 -- 824,790
Robert C. Hackett, Jr., Executive Vice
President................................. $ 144,750 -- 186,000
Louis A. Scalpati, Senior Vice President,
Chief Architect........................... $ 129,750 -- 147,000
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
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 constituted less
than the lesser of $50,000 or 10% of the total of annual salary and bonuses
for each of such Named Executive Officers in 1998. Dennis J. Upah, our
Chief Operating Officer, joined the Company 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 the
Company 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."
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<PAGE>
Option Grants During the Year Ended December 31, 1998
The following table sets forth certain information regarding options granted
to each of the Named Executive Officers during the year ended December 31,
1998. We have not granted any stock appreciation rights. The options were
granted under our Amended and Restated 1997 Stock Option Plan. In general,
options granted under the plan vest over four years and expire on the tenth
anniversary of the date of grant. The options granted to Donald W. Hackett
expire five years after the date of grant. Potential realizable values are net
of exercise price before taxes, and are based on the assumption that our common
stock appreciates at the annual rate shown (compounded annually) from the date
of grant until the expiration of the ten-year term. These numbers are
calculated based on Securities and Exchange Commission requirements and do not
reflect our projection or estimate of future stock price growth.
<TABLE>
<CAPTION>
Individual Grants
---------------------
Potential Realizable
Value At
Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to for Option Term
Options Employees Exercise Market Expiration ---------------------
Name Granted in 1998(1) Price Price Date 5% 10%
---- ---------- ---------- -------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald W. Hackett....... 390,000 15% $.33 $.30 3/24/03 $ 20,600 $ 61,900
Donald W. Hackett....... 434,790 16% $.33 $.30 4/27/03 $ 23,000 $ 69,000
Robert C. Hackett,
Jr. ................... 186,000 7% $.30 $.30 3/24/08 $ 15,400 $ 35,100
Louis A. Scalpati....... 147,000 5% $.30 $.30 3/24/08 $ 12,200 $ 27,700
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 2,683,805 shares of common
stock granted during the year ended December 31, 1998.
1998 Year-End Option Values
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers at
December 31, 1998. None of the Named Executive Officers exercised options to
purchase common stock during the year ended December 31, 1998. The value of in-
the-money options is based on the initial public offering price of $ per
share and 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(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald W. Hackett.......... 451,073 618,592
Robert C. Hackett, Jr. .... 403,500 45,000
Louis A. Scalpati.......... 400,125 75,000
</TABLE>
- --------
Stock Option Plans
Amended and Restated 1997 Stock Option Plan. Our Amended and Restated 1997
Stock Option Plan (the "1997 Plan"), authorizes the issuance of up to 4,500,000
shares of common stock. To date we have granted options to purchase an
aggregate of 4,024,233 shares of common stock to employees, directors and
consultants under the 1997 Plan. 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.
56
<PAGE>
1999 Equity Participation Plan. Our 1999 Equity Participation Plan (the
"Participation Plan") was adopted by the Company's Board of Directors in
February 1999 as a successor equity plan to our 1997 Plan. The Participation
Plan will become effective upon the completion of this Offering and thereafter
no further grants will be made under the 1997 Plan. Up to shares of common
stock may be issued under the Participation Plan.
The Participation Plan provides for the discretionary grant of incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code
of 1986, the "Code," 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
Participation Plan provides that we cannot issue incentive stock options after
February 2009. The Participation Plan also provides for grants to the non-
employee directors (other than Dr. Koop and Mr. Zaccaro) of nonstatutory stock
options to purchase shares of common stock upon (or upon initial election to
the Board of Directors) and 5,000 shares of common stock annually thereafter
(except that no annual grant will be made if the director was first appointed
to the Board within 90 days of the applicable annual meeting of stockholders).
The Participation Plan may be administered by the Board or a committee
thereof (as applicable, the "Administrator"). The Administrator has the power
to determine the terms of the options or other awards granted, including the
exercise price of the options or other awards, the number of shares subject to
each option or other award (up to 500,000 per year per participant), the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the Administrator has the authority to amend, suspend or
terminate the Participation Plan, provided that no such action may affect any
share of common stock previously issued and sold or any option previously
granted under the Participation Plan without the consent of the holder.
The exercise price of all incentive stock options granted under the
Participation 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 Participation 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
Participation Plan may not exceed ten years.
In the case of restricted stock, unless the Administrator determines
otherwise, the restricted stock purchase agreement will grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with the 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 Participation 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 Participation Plan must generally be exercised within 3
months after the end of optionee's status as an employee, director or
consultant of the Company, 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 Participation Plan provides that, in the event of a merger of the Company
with or into another corporation, the Administrator shall have the authority,
but not the obligation to accelerate the vesting of each outstanding option and
other award.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the common stock as of January 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 the Company to
beneficially own 5% or more of the common stock, (2) each director of the
Company, (3) each of the Named Executive Officers of the Company and (4) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior Owned After
To This Offering(1) This Offering(1)
---------------------------------------------
Beneficial Owner Number Percent Number Percent
---------------- ------------ ------------------- ----------
<S> <C> <C> <C> <C>
C. Everett Koop, M.D.
(2)(3).................... 1,017,402 11%
John F. Zaccaro (4)........ 657,402 7
Donald W. Hackett (2)(5)... 2,823,361 30
Jeffrey C. Ballowe (2)..... -- *
Mardian J. Blair (2)(6).... 1,100,078 12
Adventist Health System 1,100,078 12
Sunbelt Healthcare
Corporation...............
111 North Orlando Avenue
Winter Park, Florida 32789
G. Carl Everett, Jr. (2)... -- *
Richard D. Helppie, Jr.
(7)....................... 2,069,172 22
Superior Consultant 2,069,172 22
Holdings Corporation......
4000 Town Center, Suite
1100
Southfield, Michigan 48075
Nancy L. Snyderman, M.D.
(2)(8).................... 147,000 2
Robert C. Hackett, Jr.
(2)(9).................... 493,500 5
Louis A. Scalpati (2)(10).. 550,125 6
All directors and executive
officers as a group (10
persons).................. 8,858,040 94
</TABLE>
- --------
(1) 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 shares of common stock outstanding as of January 31,
1999, assuming conversion of all outstanding shares of preferred stock into
common stock. 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 January 31,
1999 are deemed to be outstanding and beneficially owned.
(2) The mailing address of each such person is c/o drkoop.com, Inc., 8920
Business Park Drive, Suite 200, Austin, Texas 78759.
(3) Includes 285,375 shares of common stock issuable upon the exercise of
options exercisable within 60 days of January 31, 1999.
(4) Includes 375,375 shares of common stock issuable upon the exercise of
options exercisable within 60 days of January 31, 1999. The business
address of Mr. Zaccaro is 24050 Madison Street, Torrance, California 90505.
(5) Includes 657,271 shares of common stock issuable upon the exercise of
options exercisable within 60 days of January 31, 1999.
(6) Consists of 1,046,271 shares of common stock held by Adventist Health
Systems Sunbelt Healthcare Corporation and 53,808 shares of common stock
that will be issued to Adventist upon the closing of this Offering. Please
see "Certain Transactions." Mr. Blair, a director of our Company, is also
the president of Adventist and disclaims beneficial ownership of the shares
held by Adventist.
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<PAGE>
(7) Consists of 1,584,906 shares of common stock held by Superior Consultant
Holdings Corporation and 484,266 shares of common stock that will be issued
to Superior upon the closing of this Offering. Please see "Certain
Transactions." Mr. Helppie, a director of our Company, is the Chairman of
the Board and Chief Executive Officer of Superior and disclaims beneficial
ownership of the shares held by Superior.
(8) Consists of 147,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of January 31, 1999.
(9) Consists of 403,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days of Janaury 31, 1999.
(10) Consists of 400,125 shares of common stock issuable upon the exercise of
options exercisable within 60 days of Janaury 31, 1999.
59
<PAGE>
CERTAIN TRANSACTIONS
Series A Financing
From March 1, 1998 through April 6, 1998, we issued 247,641 shares of Series
A 8% Convertible Preferred Stock to 17 accredited investors for an aggregate
purchase price of $742,923. These shares will be converted into 268,691 shares
of common stock upon the closing of this Offering. Three members of Donald W.
Hackett's immediate family purchased 41,802 shares of the stock for an
aggregate purchase price of $125,400.
Series B Financing
On April 28, 1998, we entered into a series of agreements with Superior
Consultant Holdings Corporation ("Superior"). Pursuant to the terms of a Stock
Purchase Agreement, Superior purchased 1,540,239 shares of our Series B Non-
Voting Preferred Stock for a purchase price of $6,000,000. Superior has agreed
that these shares will automatically be converted into 1,584,906 shares of
common stock upon the closing of this Offering. Pursuant to this agreement
Superior also acquired the right to have one or more designee 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 the
Company. 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 gave Superior the right to
require us to repurchase their shares at specified times prior to our initial
public offering and gave Superior the right to acquire an additional 1,540,239
shares of Series B Preferred Stock (convertible into 1,584,906 shares of common
stock) at an exercise price equal to seventy percent (70%) of the fair market
value of the underlying shares of common stock on the date of exercise. All
substantive provisions of the Option and Put Agreement will be terminated at
the closing of this Offering for the issuance of 484,266 shares of common stock
to Superior plus 53,808 shares to be issued to Adventist Health System Sunbelt
Healthcare Corporation to satisfy an anti-dilution right held by them. 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
contemplated 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 included 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.
HealthMagic Transaction
On January 29, 1999, we entered into a master license agreement with
Adventist Health System Sunbelt Healthcare Corporation under which Adventist
purchased 31 community partner program licenses from the Company. Each
community partner program license is a one year agreement under which we create
and host
60
<PAGE>
up to ten co-branded pages for a healthcare organization. Under the master
license agreement, Adventist may distribute these licenses for use by its
subsidiary healthcare organization or may resell the licenses to third party
healthcare organizations. Adventist has up to three years to distribute the
licenses; provided, however, that we have the right to qualify each healthcare
organization in order to ensure that it is an acceptable partner for
drkoop.com. In the event that a subsidiary healthcare organization chooses to
renew its community partner program license, it may purchase such a renewal
license at a price which will be adjusted to match any more favorable license
quoted to a third party by us, less an additional 10%. Mardian J. Blair, a
director of our company, is president of Adventist.
Other Agreement with Adventist
On March 3, 1999 we entered into a loan agreement with Adventist. Pursuant to
this agreement, Adventist is irrevocably obligated to loan to us the aggregate
principal amount of up to $2.0 million at an interest rate of 7% per annum.
Upon the closing of this Offering, the principal amount borrowed under this
agreement and all accrued interest will, solely at Adventist's option, either
be due and payable or convert into common stock at a per share price of $18.56.
As of March 5, 1999, we had borrowed $0.
Hackett Loan Agreement
From July 1997 through March 1998, Donald W. Hackett loaned the company an
aggregate of $216,043. On March 16, 1998, we issued 720,144 shares of common
stock to Mr. Hackett in exchange for cancellation of this indebtedness.
Agreements with Dr. C. Everett Koop
We are party to a Name and Likeness Agreement and a Consulting Agreement with
Dr. Koop. For the year ended December 31, 1998 we accrued royalty fees of $855,
paid him lecture fees of $95,000 and Director's fees of $83,333. Additionally,
during such period we reimbursed him for his travel and other expenses incurred
on company business. For the year ended December 31, 1997, we paid Dr. Koop
$2,200 in connection with certain services he rendered to our company. Please
see "Management--Agreements with Dr. C. Everett Koop."
Consulting Agreement with Mr. Zaccaro
We are party to a Consulting Agreement with Mr. Zaccaro pursuant to which we
paid him $83,333 for the year ended December 31, 1998. Please see "Management--
Other Consulting Agreements with Directors."
Name and Likeness Agreement with Dr. Snyderman
We are party to a Name and Likeness Agreement with Dr. Snyderman. For the
year ended December 31, 1998, she received no cash compensation but was granted
options to purchase 73,500 shares of common stock for an exercise price of
$0.30 per share, which we believe was not less than fair market value on the
date of grant. In addition, Dr. Snyderman was granted options to purchase
73,500 shares of common stock for an exercise price of $0.39 per share as
compensation for her services as a director. Please see "Consulting Agreements
with Other Directors."
Promoters of drkoop.com, Inc.
Each of Dr. Koop, Chairman of the Board, Mr. Zaccaro, Vice Chairman, Mr.
Hackett, Chief Executive Officer and President and Mr. Scalpati, Senior Vice
President, Chief Architect, is a co-founder of the Company and may be deemed a
promoter for purposes of the federal securities laws. All material transactions
with such persons are described elsewhere in this Prospectus.
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<PAGE>
DESCRIPTION OF SECURITIES
The following description of our capital stock and certain provisions of our
Restated Certificate of Incorporation (as will be in effect upon the closing of
this offering, the "Certificate") and the Bylaws (as will be in effect upon the
closing of this offering, the "Bylaws") are summaries thereof and are qualified
by reference to the Certificate and the Bylaws. Copies of these documents have
been filed with the Commission 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, the authorized capital stock of the Company
consists of 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 January 31, 1999, there were 6,925,050 shares of common stock
outstanding and held of record by 24 stockholders (assuming conversion of all
outstanding shares of preferred stock and the convertible note payable to
stockholder 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
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 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 Certain
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 stockholder in
the original principal amount of $800,000 ($500,000 of which was received in
1998) bearing simple interest at 6% per annum convertible notes due December
24, 1999, along with five-year warrants to purchase 13,393 shares of Series C
Preferred Stock for an exercise price of $11.95 per share (which will become
the right to purchase 13,393 shares of common stock for $11.95 per share upon
the closing of this Offering). Interest on the notes is payable at maturity. At
any time prior to maturity any unpaid principal and interest may be converted
at a conversion price of $11.95 per share.
62
<PAGE>
Registration Rights
Pursuant to the terms of the Amended and Restated Investors' Rights
Agreement, after this Offering, the holders of approximately 3,249,607 shares
of common stock will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of the
agreement between us and the holders of such registrable securities, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such common stock therein. Additionally,
such holders are also entitled to certain demand registration rights pursuant
to which they may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock, and
we are required to use our best efforts to effect such registration. All of
these registration rights are subject to certain 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. Please see "Shares Eligible for Future Sale."
Anti-Takeover Effects of Certain 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 (as amended from time to time, the "DGCL"). Subject to certain
exceptions, Section 203 of the DGCL 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
(15%) 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 the Company and, accordingly, may discourage attempts
to acquire us.
In addition, certain provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of this Offering and are
summarized in the following paragraphs, 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.
Board of Directors. The Company's Board of Directors will be divided into
three classes of directors serving staggered three year terms. The Certificate
authorizes our Board of Directors to fill vacant directorships or increase the
size of the Board of Directors. This may deter a stockholder from removing
incumbent directors and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
Stockholder Action; Special Meeting of Stockholders. The Certificate provides
that stockholders may not take action by written consent, but only at a duly
called annual or special meeting of stockholders. The Certificate further
provides that special meetings of stockholders of the Company 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.
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 thereof 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
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<PAGE>
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
certain 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 Company by means of
a proxy contest, tender offer, merger or otherwise.
The DGCL 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. Our
Company has provisions in its Certificate and Bylaws which require a super-
majority vote of the stockholders to amend, revise or repeal certain anti-
takeover provisions incorporated therein.
Limitation of Liability and Indemnification Matters
The Certificate provides that, except to the extent prohibited by the DGCL,
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 the
DGCL, 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 the DGCL 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 DGCL. 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.
Section 145 of the DGCL 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 DGCL, or
. for any transaction from which the director derived an improper personal
benefit.
The DGCL 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 a 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 the DGCL 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
64
<PAGE>
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 the Company 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 the DGCL would permit
indemnification.
At present, there is no pending litigation or proceeding involving any
director, officer or employee as to which indemnification will be required or
permitted under the Certificate. We are not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
Transfer Agent And Registrar
Upon the closing of this Offering, the transfer agent and registrar for the
common stock will be .
Listing
We have applied to have our common stock admitted for quotation on the Nasdaq
National Market under the symbol "KOOP."
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of the common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of common stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our future ability
to raise capital through the sale of equity securities. See "Risk Factors--
There will be a Significant Number of Shares Eligible for Future Sale."
Upon the closing of this Offering, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, the shares sold in this Offering will be freely tradable,
except that any shares held by "affiliates" (as that term is defined in Rule
144 promulgated under the Securities Act) may only be sold in compliance with
the limitations described below. The remaining shares of common stock will
be deemed "restricted securities" as defined under Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
After the date of this Prospectus
Upon the filing of a registration statement to register for resale
shares of common stock issuable upon the exercise of options granted
under the Company's stock option plan
At various times after 90 days from the date of this Prospectus
(Rule 144)
After 180 days from the date of this Prospectus (subject, in some
cases, to volume limitations)
At various times after 180 days from the date of this Prospectus
(Rule 144)
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock (approximately shares immediately after this
Offering) or the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to certain 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.
The Company's directors and officers and certain stockholders who hold
shares in the aggregate, together with the holders of options to purchase
shares of common stock and the holders of warrants to purchase shares of
common stock, have agreed that they will not offer, sell or agree to sell,
directly or indirectly, or otherwise dispose of any shares of common stock
without the prior written consent of Bear, Stearns & Co. Inc. for a period of
180 days from the date of this Prospectus. Please see "Underwriting."
We have agreed not to sell or otherwise dispose of any shares of common stock
during the 180-day period following the date of the Prospectus, except that we
may issue, and grant options to purchase, shares of common stock under the 1999
Equity Participation Plan. In addition, we may issue shares of common stock in
66
<PAGE>
connection with any acquisition of another company if the terms of such
issuance provide that such common stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. See
"Risk Factors--There will be a Significant Number of Shares Eligible for Future
Sale."
Following this Offering, under certain circumstances and subject to certain
conditions, holders of shares of outstanding common stock will have certain
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. 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.
67
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and the Company (the "Underwriting Agreement"), each of
the underwriters named below (the "Underwriters"), through their
representatives Bear, Stearns & Co. Inc., William Blair & Company, L.L.C. and
Wit Capital Corporation as e-Manager(TM) (the "Representatives"), has severally
agreed to purchase from the Company the aggregate number of shares of common
stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ..........................................
William Blair & Company, L.L.C. ...................................
Wit Capital Corporation............................................
---
Total............................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder 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 certain 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, this 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 the Company, have reserved for sale at
the initial public offering price up to shares of common stock to
registered users of the Company'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 the Company's 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. In addition, pursuant to an e-
Dealer Agreement, all dealers purchasing shares from Wit Capital Corporation in
the Offering (the "e-Dealers") similarly have agreed to make a Prospectus in
electronic format available on websites maintained by each of the e-Dealers.
The Company has granted a 30-day over-allotment option to the Underwriters to
purchase up to an aggregate of additional shares of common stock of the
Company 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.
68
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by the Company and the expenses payable by the Company.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by the Company...................... $ $ $
Expenses payable by the Company........... $ $ $
</TABLE>
The Underwriters, at the request of the Company, have reserved for sale at
the initial public offering price up to percent of the shares of common
stock to be sold in this Offering for sale to employees of the Company and its
affiliates, and to their associates and related persons. The number of shares
available for sale to the general public will be reduced to the extent that any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the Underwriters on the same basis as the other shares offered
hereby.
The Underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act of 1933, as
amended, or will contribute to payments that the Underwriters may be required
to make in respect thereof.
The Company's directors and officers and certain stockholders who hold
shares in the aggregate, together with the holders of options to purchase
shares of common stock and the holders of warrants to purchase shares of
common stock, have agreed that they will not offer, sell or agree to sell,
directly or indirectly, or otherwise dispose of any shares of common stock
without the prior written consent of Bear, Stearns & Co. Inc. for a period of
180 days from the date of this Prospectus.
In addition, the Company has agreed that for a period of 180 days after the
date of this Prospectus it 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, the shares of
common stock issuable upon exercise of outstanding options and warrants.
Prior to this Offering, there has been no public market for the common stock
of the Company. Consequently, the initial offering price for the common stock
will be determined by negotiations between the Company and the Representatives.
Among the factors to be considered in such negotiations will be the results of
operations of the Company in recent periods, estimates of the prospects of the
Company and the industry in which the Company competes, an assessment of the
Company's management, the general state of the securities markets at the time
of this Offering and the prices of similar securities of generally comparable
companies. The Company intends to apply for approval for the quotation of its
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--There is No Prior Public Market for Our Common Stock."
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 have been sold to them by the Company. 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
69
<PAGE>
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.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for drkoop.com, Inc. by Latham & Watkins, Menlo Park, California. Certain legal
matters in connection with this Offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The financial statements for drkoop.com, Inc. as of December 31, 1997 and
1998 and for the period from July 17, 1997 (date of inception) to December 31,
1997, the year ended December 31, 1998, and the cumulative period from July 17,
1997 (date of inception) to December 31, 1998, included in this Prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of that firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission 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. 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. Statements contained in this Prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
You may read and copy all or any portion of the registration statement or any
other information that we file at the Securities and Exchange Commission'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 Securities and Exchange Commission. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our Securities and Exchange Commission
filings, including the Registration Statement, are also available to you on the
Securities and Exchange Commission's website (http://www.sec.gov).
As a result of this Offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
70
<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 pro forma as of
December 31, 1998 (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, and
the cumulative period from July 17, 1997 (date of inception) to December
31, 1998................................................................. F-4
Statements of Changes in Stockholders' Deficit for the period from July
17, 1997 (date of inception) to December 31, 1997, and the year ended
December 31, 1998........................................................ 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, and
the cumulative period from July 17, 1997 (date of inception) to December
31, 1998................................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
drkoop.com, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' deficit and cash flows listed in the index
on page F-1 of this Form S-1 Registration Statement present fairly, in all
material respects, the financial position of drkoop.com, Inc., a development
stage enterprise ("the Company"), at December 31, 1997 and 1998, and the
results of its operations and its cash flows for the period from July 17, 1997
(date of inception) to December 31, 1997, for the year ended December 31, 1998,
and the cumulative period from July 17, 1997 (date of inception) to December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses and negative cash flows
from operations since inception, which raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
March 4, 1999
F-2
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
December 31, as of
----------------------- December 31,
1997 1998 1998
--------- ------------ -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $ 7,586 $ 303 $ 303
Accounts receivable................... -- 40,531 40,531
Employee receivables.................. -- 4,130 4,130
Prepaids and other.................... -- 17,500 17,500
--------- ------------ ------------
Total current assets................ 7,586 62,464 62,464
Equipment, furniture and fixtures, net.. 35,204 306,539 306,539
Other assets............................ -- 11,373 11,373
--------- ------------ ------------
Total assets........................ $ 42,790 $ 380,376 $ 380,376
========= ============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable...................... $ 57,747 $ 804,459 $ 804,459
Accrued liabilities................... 61,993 519,800 519,800
Related party payables................ 537,308 1,193,125 1,193,125
Convertible note payable to
stockholder.......................... -- 450,561 --
--------- ------------ ------------
Total current liabilities........... 657,048 2,967,945 2,517,384
--------- ------------ ------------
Commitments and contingencies (Note 6).. -- -- --
Mandatorily redeemable convertible
(Series B) preferred stock; liquidation
preference of $2,998,408 (Note 8)...... -- 12,835,650 --
Stockholders' deficit:
Convertible preferred stock: $0.001
par value; 15,000,000 shares
authorized:
Series A 300,000 shares designated;
247,641 shares issued and
outstanding; liquidation preference
of $790,639 at December 31, 1998.... -- 248 --
Common stock: $0.001 par value;
15,000,000 shares authorized;
2,700,000 and 3,420,144 shares issued
and outstanding in 1997 and 1998 and
5,799,860 shares on a pro forma
basis................................ 2,700 3,420 5,800
Additional paid-in capital............ 6,300 -- 13,333,518
Deferred stock compensation........... -- (252,017) (252,017)
Amounts receivable from common
stockholders......................... (1,300) -- --
Accumulated deficit................... (621,958) (15,174,870) (15,224,309)
--------- ------------ ------------
Total stockholders' deficit......... (614,258) (15,423,219) (2,137,008)
--------- ------------ ------------
Total liabilities and stockholders'
deficit............................ $ 42,790 $ 380,376 $ 380,376
========= ============ ============
</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
Inception to Ended Inception to
December 31, December 31, December 31,
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................. $ -- $ 42,734 $ 42,734
---------- ------------ ------------
Operating expenses:
Production, content and product
development....................... 460,629 4,448,125 4,908,754
Sales and marketing................ -- 2,008,372 2,008,372
General and administrative......... 161,329 2,616,883 2,778,212
---------- ------------ ------------
Total operating expenses......... 621,958 9,073,380 9,695,338
---------- ------------ ------------
Loss from operations................. (621,958) (9,030,646) (9,652,604)
Interest income...................... -- 33,646 33,646
---------- ------------ ------------
Net loss........................... $ (621,958) $ (8,997,000) $ (9,618,958)
========== ============ ============
Accretion of redeemable securities to
fair value.......................... -- (8,715,650) (8,715,650)
---------- ------------ ------------
Loss attributable to common
stockholders........................ $ (621,958) $(17,712,650) $(18,334,608)
========== ============ ============
Net loss per share--basic and
diluted............................. $ (.23) $ (5.47) $ (5.99)
========== ============ ============
Shares used in per share
calculations--basic and diluted..... 2,700,000 3,240,108 3,060,072
========== ============ ============
Pro forma net loss per share--basic
and diluted (unaudited)............. $ (3.66)
============
Shares used in pro forma
calculations--basic and diluted
(unaudited)......................... 4,835,142
============
</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 and the Year Ended December
31, 1998
<TABLE>
<CAPTION>
Preferred Amounts
Stock Common Stock Additional Deferred Receivable
-------------- ---------------- Paid-in Stock from Common Accumulated
Shares Amount Shares Amount Capital Compensation Stockholders Deficit Total
------- ------ --------- ------ ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock in July 1997 to
founders for cash and
other consideration.. -- $-- 2,700,000 $2,700 $ 6,300 $ -- $(1,300) $ -- $ 7,700
Net loss............. -- -- -- -- -- -- -- (621,958) (621,958)
------- ---- --------- ------ ---------- --------- ------- ------------ ------------
Balance at December
31, 1997............. -- -- 2,700,000 2,700 6,300 -- (1,300) (621,958) (614,258)
Issuance of Series A
preferred stock for
cash,
net of issuance costs
of $6,232............ 210,300 210 -- -- 624,456 -- -- -- 624,666
Issuance of Series A
preferred stock for
services............. 37,341 38 -- -- 111,987 -- -- -- 112,025
Issuance of options
to Series B
stockholders......... -- -- -- -- 1,880,000 -- -- -- 1,880,000
Issuance of common
stock upon conversion
of stockholder note
payable.............. -- -- 720,144 720 215,323 -- -- -- 216,043
Payment received on
amounts receivable
from common
stockholders......... -- -- -- -- -- -- 1,300 -- 1,300
Deferred stock
compensation......... -- -- -- -- 272,233 (272,233) -- -- --
Amortization of
deferred stock
compensation......... -- -- -- -- -- 20,216 -- -- 20,216
Issuance of warrant
to convertible note
holder............... -- -- -- -- 49,439 -- -- -- 49,439
Accretion of
redeemable securities
to fair value........ -- -- -- -- (3,159,738) -- -- (5,555,912) (8,715,650)
Net loss............. -- -- -- -- -- -- -- (8,997,000) (8,997,000)
------- ---- --------- ------ ---------- --------- ------- ------------ ------------
Balance at December
31, 1998............. 247,641 $248 3,420,144 $3,420 $ -- $(252,017) $ -- $(15,174,870) $(15,423,219)
======= ==== ========= ====== ========== ========= ======= ============ ============
</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 Inception
Period from Ended to
Inception to December December
December 31, 31, 31,
1997 1998 1998
------------ ----------- -----------
<S> <C> <C> <C>
Operating Activities:
Net loss............................... $(621,958) $(8,997,000) $(9,618,958)
Depreciation and amortization.......... 6,941 64,090 71,031
Amortization of deferred stock
compensation.......................... -- 20,216 20,216
Stock issued for services.............. 2,000 112,025 114,025
Changes in assets and liabilities:
Accounts receivable.................. -- (40,531) (40,531)
Employee receivables................. -- (4,130) (4,130)
Prepaids and other................... -- (17,500) (17,500)
Accounts payable and other accrued
liabilities......................... 657,048 2,076,379 2,733,427
Other assets......................... -- (11,373) (11,373)
--------- ----------- -----------
Cash provided by (used in)
operating activities.............. 44,031 (6,797,824) (6,753,793)
--------- ----------- -----------
Investing Activities:
Purchase of equipment, furniture and
fixtures.............................. (42,145) (335,425) (377,570)
--------- ----------- -----------
Cash used in investing activities.. (42,145) (335,425) (377,570)
--------- ----------- -----------
Financing Activities:
Proceeds from issuance of convertible
note payable to stockholder........... -- 500,000 500,000
Proceeds from issuance of preferred
stock, net............................ -- 6,624,666 6,624,666
Proceeds from issuance of common stock,
net................................... 5,700 -- 5,700
Repayment of stockholder payables...... -- 1,300 1,300
--------- ----------- -----------
Cash provided by financing
activities........................ 5,700 7,125,966 7,131,666
--------- ----------- -----------
Increase (decrease) in cash and cash
equivalents........................... 7,586 (7,283) 303
Cash and cash equivalents at beginning
of period............................. -- 7,586 --
--------- ----------- -----------
Cash and cash equivalents at end of
period................................ $ 7,586 $ 303 $ 303
========= =========== ===========
Supplemental Disclosure of Noncash
Financing Activities:
Conversion of related party payable to
common stock.......................... $ -- $ 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)
========= =========== ===========
Accretion of redeemable securities to
fair value............................ $ -- $ 8,715,650 $ 8,715,650
========= =========== ===========
Stock issued for services.............. $ 2,000 $ 112,025 $ 114,025
========= =========== ===========
Amortization of deferred stock
compensation.......................... $ -- $ 20,216 $ 20,216
========= =========== ===========
</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 is
Empower Health Corporation, a Texas corporation. The Company is in the
process of reincorporating in the State of Delaware as drkoop.com, Inc. This
change has been reflected in the financial statements. The Company operates
an Internet-based consumer healthcare network, consisting of an interactive
website providing consumers with healthcare information and services, as
well as affiliate relationships with portals, other websites, local
healthcare organizations and traditional media outlets.
The Company has sustained losses and negative cash flows from operations
since its inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to raise
additional financing through public or private equity financings, establish
profitable operations, enter into collaborative or other arrangements with
corporate sources, or secure other sources of financing to fund operations.
During 1998, the Company received cash and services of approximately $6.7
million through the issuance of preferred stock. In January 1999, the
Company received approximately $4.3 million through transactions which
included the issuance of preferred stock, convertible debt and warrants.
Additionally, the Company has received loan commitments from a preferred
stockholder and a new investor to finance anticipated working capital
requirements up to $2.5 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.
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
note payable to stockholder will be converted into shares of
F-7
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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 December 31, 1998.
Cash Equivalents
Highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the
assets, generally three to seven years. Upon disposal, the Company removes
the asset and the accumulated depreciation from its records and recognizes
the related gain or loss in the results of operations.
Revenue Recognition
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of
time for a fixed fee. Advertising revenues are recognized ratably over the
period in which the advertisement is displayed, provided that no significant
Company obligations remain. To the extent that minimum guaranteed page
deliveries are not met, the Company defers recognition of the corresponding
revenues until the guaranteed page deliveries are achieved. Proceeds from
advertising arrangements in which the Company is deemed to bear all material
economic risks associated with the transaction and, as such, is properly
entitled to the full proceeds of the sales as they are consummated, are
recorded as revenues. Proceeds from advertising arrangements in which the
Company is not deemed to bear material economic risks associated with the
transaction are recorded as revenue net of commissions.
Sponsorship revenues are derived principally from contracts in which the
Company commits to provide sponsors enhanced promotional opportunities
beyond traditional banner advertising. Sponsorship agreements typically
include the delivery of impressions, exclusive relationships and the design
and development of customized features designed to enhance the promotional
objective of the sponsor. The portion of sponsorship revenues related to the
delivery of impressions are recognized ratably in the period in which the
advertisement is displayed, provided that no significant Company obligations
remain. To the extent that minimum guaranteed page deliveries are not met,
the Company defers recognition of the corresponding revenue until the
guaranteed page deliveries are achieved.
Content subscription and software license revenues are derived from
contracts under the Dr. Koop Community Partner Program ("CPP") with local
affiliates such as healthcare providers and third party payor organizations.
Sales of software licenses to CPP 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 CPP contract, generally
ranging from twelve to thirty-six months.
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
operations expense. These costs are expensed as incurred.
F-8
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS
No. 86") issued by the Financial Accounting Standards Board ("FASB")
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. To date, costs incurred
following the establishment of technological feasibility, but prior to
general release, have been insignificant.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the
period from inception to December 31, 1997 and for the year ended December
31, 1998 were $0 and $1,140,000, respectively.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", which prescribes accounting and
reporting standards for all stock-based compensation plans, including
employee stock options. As allowed by SFAS No. 123, the Company accounts for
its employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized and
measured using enacted tax rates in effect for the year in which the
differences are expected to be realized. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. The primary sources of temporary differences are
depreciation of equipment, furniture and fixtures.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the financial statements and accompanying notes. Actual results
could differ from the estimates.
Net Loss Per Share
Basic net loss per common share and diluted net loss per common share are
presented in conformity with SFAS No. 128, "Earnings Per Share," for all
periods presented. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock
issued or granted for nominal consideration prior to the anticipated
effective date of the Company's initial public offering must be included in
the calculation of basic and diluted net loss per common share as if they
had been outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.
In accordance with SFAS No. 128, basic net loss per common share has been
computed using the weighted-average number of shares of common stock
outstanding during the period. Because the Company has incurred net losses
since inception, the effect of all common stock equivalent shares (2,702,983
common equivalent shares as of December 31, 1998) is anti-dilutive;
therefore basic and diluted loss per share are equivalent. Basic pro forma
net loss per common share, as presented in the statement of operations, has
been computed as described above and also gives effect, under Securities and
Exchange Commission guidance, to the conversion of the convertible and
convertible redeemable preferred stock and the convertible note payable to
stockholder and to common stock issued subsequent to December 31, 1998 to
satisfy in full a purchase option and anti-dilution right held by a
stockholder (using the if-converted method) from the original date of
issuance.
F-9
<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 loss attributable to common stockholders. The denominator in the pro forma
net loss per share calculation is comprised of the following weighted average
shares at December 31, 1998:
<TABLE>
<S> <C>
Weighted average number of common shares
outstanding................................... 3,240,108
Effect of convertible securities:
Convertible preferred stock.................... 1,271,227
Common stock issued to satisfy purchase option
and anti-dilution right held by a
stockholder................................... 322,844
Convertible note payable to stockholder........ 963
---------
Shares used in pro forma calculation......... 4,835,142
=========
</TABLE>
New Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". The Company adopted the statement effective at
inception.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income and its components in a financial statement with the same prominence
as other financial statements. Comprehensive income is defined as net income
adjusted for changes in stockholders' equity resulting from events other
than net income or transactions related to an entity's capital instruments.
The Company adopted SFAS No. 130 effective January 1, 1998. There were no
differences between net loss and comprehensive loss in the periods
presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for
reporting information about operating segments. Generally, SFAS No. 131
requires that financial information be reported on the basis that is used
internally for evaluating performance. The Company adopted SFAS No. 131
effective January 1, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which provides guidance concerning the
capitalization of costs related to such software. SOP 98-1 must be adopted
by the Company effective January 1, 1999 and is not expected to have a
material impact to the Company's results of operations or financial
position.
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.
F-10
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
4. Equipment, Furniture and Fixtures, Net
Equipment, furniture and fixtures are comprised of the following at December
31, 1997 and December 31, 1998:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
<S> <C> <C>
------- --------
Computer equipment........................................ $42,145 $324,695
Furniture and fixtures.................................... -- 40,144
Leasehold improvements.................................... -- 12,264
------- --------
42,145 377,103
Accumulated depreciation.................................. (6,941) (70,564)
------- --------
$35,204 $306,539
======= ========
</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 statement of operations.
5. Convertible Note Payable to Stockholder
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 all
other indebtedness of the Company. The principal and accrued interest of the
note is convertible, at the option of the holder and until such time as the
Company closes a firm commitment for an underwritten public offering, into
Series C preferred stock, at a conversion price of $11.95 per share.
In connection with the convertible note payable, the Company issued stock
purchase warrants to acquire the number of Series C preferred stock shares
equating to twenty percent of the face amount of the note divided by the
exercise price. At December 31, 1998, warrants to acquire 8,371 shares of a
total of 13,393 shares were deemed outstanding based upon the cash received
as of that date. Warrants for the remaining 5,022 shares were deemed
outstanding upon funding of the remaining $300,000. The exercise price is
$11.95 per share, subject to anti-dilution provisions. The warrants expire
December 24, 2003.
The proceeds from the note payable have been allocated to the note and the
warrants based upon the relative fair values of the instruments.
6. Commitments and Contingencies
Leases
The Company is obligated through December 31, 2000 under operating lease
agreements covering certain facilities and computer equipment.
F-11
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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.
As of December 31, 1998, the Company was not a party to any material legal
proceedings.
7. Income Taxes
The Company did not incur any income taxes for the period from July 17, 1997
(inception) to December 31, 1997 and for the year ended December 31, 1998 as
a result of operating losses.
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $9,189,000. These net operating loss and tax
credit carryforwards will expire from 2012 through 2019 if not utilized.
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>
F-12
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
The Company has established valuation allowances equal to the net deferred
tax assets due to uncertainties regarding the realization of deferred tax
assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $3,050,000 during the year ended
December 31, 1998.
The Company's provision for income taxes differs from the expected tax
benefit amount computed by applying the statutory federal income tax rate of
34% to income before income taxes as a result of permanent differences and
the increase in the valuation allowance.
8. Mandatorily Redeemable Convertible (Series B) Preferred Stock
The Company has authorized various classes of preferred stock, up to a
maximum of 15,000,000 shares. As of December 31, 1998, the Company had
designated 5,512,458 shares as $.001 par value Series B Convertible Non-
Voting Preferred Stock ("Series B"). On April 28, 1998, the Company issued
1,540,239 shares of Series B to Superior Consultant Holdings Corporation
("Superior") for consideration of $6.0 million. Each share of Series B is
convertible into 1.029 shares of common stock. In the event that the
Company's board of directors elects to declare a dividend on the shares of
common stock, Superior is entitled to received dividends as if the Series B
shares had been converted to common stock. In the event of any liquidation,
dissolution or winding up of the Company, the holders of each share of
Series B then outstanding are entitled to receive a liquidation preference
over common stockholders and preferred stockholders other than Series A
holders. At December 31, 1998, this liquidation preference was $2,998,408,
which is equivalent to $1.95 per share plus an amount in cash equal to all
accumulated and unpaid dividends thereon. 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.
At the date of closing, Superior was granted an option to purchase up to
1,584,906 shares of common stock, or the number of shares of preferred stock
convertible into 1,584,906 shares of common stock. The exercise price per
share shall be a price, subject to adjustment for dilution, equal to 70% of
the fair market value per share of common stock into which each share of
preferred stock is convertible. The option expires on April 28, 2000.
Superior was granted a right to require the Company to repurchase the Series
B shares, or the shares of common stock into which the Series B shares may
have been converted, for the current fair market price per share. The put
option may only be exercised during each of the 90-day periods following
April 28, 2000 and April 28, 2001. If the Company is unable to complete the
purchase of the shares under the put option, Superior may elect nominees
representing a majority of the Company's board of directors. Upon completion
of an underwritten public offering by the Company of not less than $20.0
million after which the common stock is listed on a national securities
exchange or admitted for quotation on the Nasdaq National Market, Superior
has agreed to terminate the provisions of the aforementioned option and put
agreements in exchange for 484,266 shares of common stock (an additional
53,808 shares will be issued to the Series C holder pursuant to antidilution
protection provisions).
In conjunction with the January 1999 equity financing (Note 13), Superior
received voting rights and certain anti-dilution protection.
The Company has a purchase commitment with Superior whereby the Company is
obligated to purchase a minimum of $3.0 million in consulting services from
Superior by September 30, 1999. As of December 31, 1998, the Company had
purchased approximately $1.5 million of such services from Superior.
F-13
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
9. Capital Stock
The authorized capital stock of the Company consists of 15,000,000 shares of
common stock, par value $0.001 per share, and 15,000,000 shares of preferred
stock, par value $0.001 per share.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and they do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the board of
directors out of funds legally available therefor, subject to any
preferential dividend rights of any outstanding preferred stock. Upon the
liquidation, dissolution or winding up of the Company the holders of common
stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities and subject
to the prior rights of any outstanding preferred stock. Holders of the
common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock which the Company may designate
and issue in the future. Upon the closing of this Offering, there will be no
shares of preferred stock outstanding.
Series A Preferred Stock
The Company designated 300,000 shares of its authorized preferred stock as
Series A 8% convertible preferred stock ("Series A"). From March 1, 1998
through April 6, 1998, the Company issued 247,641 Series A preferred shares
for $742,923. Each share of Series A is senior to all other preferred stock
and common stock and is convertible into 1.085 shares of common stock.
Conversion is automatic in the event of an initial public offering. Holders
of Series A shares have the right to vote on all matters, except the
election of directors, with the number of votes equal to the number of
shares into which the Series A is convertible. Series A shares have a
cumulative dividend, which are payable when and if declared, prior to any
class or series of the Company's equity, at the per annum rate of 8%, or
$0.24 per share. Dividends are cumulative and accrue on each share from the
date of issuance. In the event of any liquidation, dissolution or winding up
of the Company, the holders of each share of Series A then outstanding have
a liquidation preference over other preferred and common stockholders. The
liquidation preference of $790,639 at December 31, 1998 is equivalent to
$3.00 per share plus an amount equal to all accumulated and unpaid dividends
thereon which totaled $47,716 at December 31, 1998.
10. Stock Option Plan
The Company has established the 1997 Stock Option Plan (the "1997 Plan")
under which 1,500,000 shares of common stock were reserved for issuance.
During 1998, the Company amended the 1997 Plan and increased the number of
shares of common stock reserved under the 1997 Plan by 3,000,000 shares to
4,500,000 shares. Under the 1997 Plan, incentive options can be issued to
employees, officers and directors of the Company at an exercise price not
less than 100% of the fair market value of the Company's common stock at the
date of grant as determined by the board of directors or by a committee of
the board appointed to administer the 1997 Plan, except for incentive option
grants to a stockholder that owns greater than 10% of the Company's
outstanding stock in which case the exercise price per share is not less
than 110% of the fair market value of the Company's common stock at the date
of grant. Non-statutory stock options can be issued to employees, officers,
directors or consultants of the Company at exercise prices determined by the
board of directors or by a committee of the board appointed to
F-14
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
administer the 1997 Plan but not less than 85% of the fair market value of
the Company's common stock at the date of grant. The 1997 Plan provides
that options are exercisable no later than ten years from the date of
grant. Generally 25% of the options granted are exercisable after one year,
and then ratably over the remaining three years.
Option activity under the 1997 Plan for the period from inception to
December 31, 1997 and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Options Options Exercise
Authorized Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Options authorized........................... 1,500,000 -- $ --
Options granted.............................. -- 1,140,600 0.05
Options canceled............................. -- -- --
Options exercised............................ -- -- --
--------- --------- -----
Balances, December 31, 1997.................. 1,500,000 1,140,600 0.05
Options authorized........................... 3,000,000 -- --
Options granted.............................. 2,683,805 0.33
Options canceled............................. (27,672) 0.25
Options exercised............................ -- --
--------- --------- -----
Balances, December 31, 1998.................. 4,500,000 3,796,733 $0.25
========= ========= =====
</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>
$0.01 347,298 8.50 $0.01 173,515 $0.01
$0.07 788,130 9.00 0.07 737,131 0.07
$0.30 - $0.33 2,063,880 9.25 0.31 1,184,347 0.31
$0.39 597,425 9.75 0.39 73,500 0.39
--------- ---------
$0.01 - $0.39 3,796,733 9.21 $0.25 2,168,493 $0.20
========= =========
</TABLE>
At December 31, 1997 and 1998, 788,100 and 2,168,493 options were vested,
respectively.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
plan, which are described below. Had compensation cost for the Company's
stock option plans been determined based on the fair market value at the
grant dates for awards under the Plan consistent with the method provided
by SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
loss would have been increased to the following pro forma amounts for the
periods ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Period from Year Ended
Inception to December
December 31, 31,
1997 1998
------------ -----------
<S> <C> <C>
Net loss: As reported.............................. $(621,958) $(8,997,000)
Pro forma...................................... $(643,973) $(9,129,200)
</TABLE>
F-15
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
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................................ 0.5 0.5
Risk-free rate of return........................... 5.9% 5.9%
Weighted average expected life..................... 3.1 years 3.6 years
</TABLE>
11. Concentrations of Credit Risk
The Company maintains its cash and cash equivalent balances in high credit
quality financial institutions and has not experienced any material losses
relating to cash or cash equivalent balances.
At December 31, 1997 and December 31, 1998, the financial instruments which
subject the Company to significant concentrations of credit risk consist
principally of cash investments and trade receivables.
For the year ending December 31, 1998, sales to individual customers
constituting 10% or more of revenue were as follows:
<TABLE>
<S> <C>
Customer A............................................................... 63%
Customer B............................................................... 23%
Customer C............................................................... 12%
</TABLE>
12. Related Party Transactions
Related party payables are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ----------
<S> <C> <C>
Accounts payable to stockholder for consulting
services (Note 8).................................... $ -- $1,032,219
Stockholder note payable.............................. 216,043 --
Other payables to employees and stockholders.......... 321,265 160,906
-------- ----------
$537,308 $1,193,125
======== ==========
</TABLE>
On March 16, 1998, the Company issued 720,144 shares of common stock to its
stockholder/CEO in exchange for cancellation of the $216,043 note payable.
The Company has entered into a royalty agreement with a stockholder, whereby
the Company pays the stockholder a 2% royalty on all revenues.
The Company paid a stockholder professional fees of $95,000 in 1998.
13. Subsequent Events
On January 29, 1999, the Company received $3.5 million in cash and acquired
10% of the outstanding stock of HealthMagic, Inc. ("HealthMagic"), a
subsidiary of Adventist Health System Sunbelt Healthcare
F-16
<PAGE>
drkoop.com, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements--(Continued)
Corporation ("Adventist"), in exchange for 1,046,271 shares of Series C
convertible preferred stock (which will be converted into an equivalent
number of shares of common stock upon the closing of this Offering). The
Company also established a technology relationship with HealthMagic, a
supplier of applications to Internet companies, whereby the Company
contributed certain technology and received from HealthMagic a license to
use a broad range of Internet technologies, including a web-enabled personal
medical record, personalization tools, security and authentication features.
HealthMagic will develop, implement and support these technologies for the
Company.
The Series C is senior to common stock and upon the closing of this Offering,
each share of Series C will convert into one share of common stock. Holders
of Series C are entitled to one vote for each share held.
Series B and Series C stockholders were given certain anti-dilution
protections as a result of this transaction. In connection with these
provisions, Series B stockholders received 8,793 shares of Series C
preferred stock and Series C stockholders received 53,808 shares of Series C
preferred stock.
In addition, on January 29, 1999, the Company entered into a content
subscription and software licensing agreement with Adventist for $500,000.
On March 4, 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 3, 1999, the Company entered into loan agreement with a preferred
stockholder and a new investor whereby these investors are irrevocably
obligated to loan the Company up to $2.5 million at an interest rate of 7%
per annum. Upon the closing of this Offering, borrowings under these
agreements plus accrued interest will, solely at the option of each
investor, either be due and payable or convert into common stock at a
conversion price of $18.56 per share.
* * *
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this
Prospectus. Neither drkoop.com, Inc. nor any underwriter has authorized anyone
to provide prospective investors with different or additional information.
This Prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
The information contained in this Prospectus is correct only as of the date of
this Prospectus, regardless of the time of the delivery of this Prospectus or
any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this Prospectus in any such jurisdiction. Persons who come into possession of
this Prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this Prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 32
Management............................................................... 49
Principal Stockholders................................................... 58
Certain Transactions..................................................... 60
Description of Securities................................................ 62
Shares Eligible for Future Sale.......................................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 70
Experts.................................................................. 70
Available Information.................................................... 70
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF DRKOOP APPEARS HERE]
drkoop.com, Inc.
Shares
Common Stock
----------------
PROSPECTUS
----------------
Bear, Stearns & Co. Inc.
William Blair & Company
Wit Capital Corporation
as e-Manager(TM)
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
---------
<S> <C>
SEC registration fee............................................... $13,900
NASD filing fee.................................................... 5,500
Nasdaq National Market listing fee................................. *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Printing and engraving............................................. *
Blue sky fees and expenses (including legal fees).................. *
Transfer agent fees................................................ *
Miscellaneous...................................................... *
-------
Total.......................................................... *
=======
</TABLE>
*To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Restated Certificate of Incorporation in effect as of the date hereof,
and our Restated Certificate of Incorporation to be in effect upon the closing
of this offering (collectively, the "Certificate") provides that, except to the
extent prohibited by the Delaware General Corporation Law, as amended (the
"DGCL"), 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 the DGCL, 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 the DGCL
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 the DGCL. 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 the DGCL 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 the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL 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 the DGCL 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 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.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since July 17, 1997
(inception):
(1) Since July 17, 1997, we have granted options to purchase 4,024,233 shares
of common stock to a total of 107 employees, consultants and non-employee
directors at a weighted average exercise price of $0.47 per share pursuant to
the Amended and Restated 1997 Stock Option Plan.
(2) On July 17, 1997, we issued an aggregate of 2,700,000 shares of common
stock to five directors and officers for an aggregate purchase price of $9,000.
(3) On March 16, 1998, we issued 720,144 shares of common stock to Donald W.
Hackett in exchange for cancellation of indebtedness in the amount of $216,043.
(4) On April 28, 1998, we issued 1,540,239 shares of Series B Non-Voting
Preferred Stock to Superior Consultant Holdings Corporation for a purchase
price of $6.0 million. These shares will be converted into 1,584,906 shares of
common stock upon the closing of this Offering. In connection with this
transaction, we also gave Superior the right to require us to repurchase their
shares prior to our initial public offering and the right to purchase an
additional 1,540,239 shares of either Series B Non-voting Preferred Stock or
common stock at a per share exercise price equal to 70% of the fair market
value of the common stock on the date of exercise. All substantive provisions
of these rights will terminate at the closing of this Offering for the issuance
of an additional 484,266 shares of common stock to Superior and 53,808 shares
to Adventist Health System Sunbelt Healthcare Corporation.
(5) From March 1, 1998 through April 6, 1998, we issued 247,641 shares of
Series A 8% Convertible Preferred Stock to 17 accredited investors, including
one of our officers, for an aggregate purchase price of $742,923. These shares
will be converted into 268,691 shares of common stock upon the closing of this
Offering.
(6) On December 24, 1998, we issued a convertible note payable to
stockholders in the original principal amount of $800,000 ($500,000 of which
was received in 1998) bearing interest at 6% per annum due December 24, 1999
along with five year warrants to purchase 13,393 shares of Series C preferred
stock for an exercise price of $11.95 per share (which will become the right to
purchase 13,393 shares of common stock for $11.95 per share upon the closing of
this Offering). Interest on the note is payable at the maturity. At any time
prior to maturity any unpaid principal and interest may be converted into
Series C preferred stock at a conversion price of $11.95 per share.
(7) On January 29, 1999, we received $3.5 million in cash and acquired 10% of
the outstanding stock of Healthmagic, Inc., a subsidiary of Adventist Health
System Sunbelt Healthcare Corporation ("Adventist"), a supplier of applications
to Internet companies, in exchange for 1,046,271 shares of Series C convertible
preferred stock (which will be converted into an equivalent number of shares of
common stock upon the closing of this Offering.)
(8) On February 24, 1999, the reincorporation of our predecessor as a
Delaware corporation was approved by the Board of Directors and the requisite
stockholders.
(9) On March 3, 1999, we entered into loan agreements with two accredited
investors. Pursuant to these agreements, the investors are irrevocably
obligated to loan to us the aggregate principal amount of up to $2.5 million at
an interest rate of 7% per annum. Upon the closing of this Offering, the
principal amount borrowed under these agreements and all accrued interest will,
solely at the option of each investor, either be due and payable or convert
into common stock at a conversion price of $18.56 per share. As of March 5,
1999, we had borrowed $0.
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
II-2
<PAGE>
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 the Company or had adequate access, through
their relationships with the Company, 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* Certificate of Incorporation of drkoop.com, Inc., a Delaware
corporation, as in effect immediately following reincorporation
3.2* Bylaws of drkoop.com, Inc., a Delaware corporation, as in effect
immediately following reincorporation
3.3* Form of Bylaws of drkoop.com, Inc., a Delaware corporation, as in
effect after the closing of the offering made under this
Registration Statement
3.4* Form of Restated Certificate of Incorporation of drkoop.com, Inc., a
Delaware corporation, to be filed after the closing of the Offering
made under this Registration Statement
4.1* Specimen Common Stock certificate
5.1* Opinion of Latham & Watkins
10.1 Amended and Restated 1997 Stock Option Plan
10.2* 1999 Equity Participation Plan
10.3* Amended and Restated Investors' 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* Advertiser Agreement dated February 26, 1999 by and between Company
and Infoseek
10.10 Reserved
10.11+ D.A.R.T. Service Agreement dated November 15, 1998 by and between
Company and DoubleClick, Inc.
10.12+ Content License Agreement dated December 11, 1998 by and between
Company and Excite, Inc.
10.13+* Software Sale, License and Development Agreement dated January 29,
1999 by and between Company and HealthMagic, Inc.
10.14 Reserved
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------- --------------------------------------------------------------------
<C> <S>
10.19* Preferred Partner Agreement dated March 5, 1999 by and between
Company and PlanetRx, Inc.
10.20+ Interim Linking Agreement dated January 28, 1999 by and between
Company and Quotesmith.com
10.21 Reserved
10.22 Tradename License Agreement dated June 1, 1998 by and between
Company and Nancy Snyderman, M.D.
10.23+* Master Community Partner Program dated January 29, 1999 by and
between Company and Adventist Health System Sunbelt Healthcare
Corporation
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
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Latham & Watkins (included in Exhibit 5.1)
24.1 Powers of Attorney (See Signature Page on Page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules.
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses 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.
II-4
<PAGE>
(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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Austin,
State of Texas, on this 5th day of March, 1999.
drkoop.com, Inc.
By: /s/ Donald W. Hackett
--------------------------
Name: Donald W. Hackett
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Donald W.
Hackett and Susan M. Georgen-Saad, and each of them individually, as attorney-
in-fact, with the power of substitution, for him or her in any and all
capacities, to sign any amendment to this Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule
462 and otherwise), and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting to said attorneys-in-fact, and each of the individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as her or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or each of them individually, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald W. Hackett President, Chief Executive March 5, 1999
______________________________________ Officer and Director
Donald W. Hackett (Principal Executive
Officer)
/s/ Susan M. Georgen-Saad Chief Financial Officer March 5, 1999
______________________________________ (Principal Financial and
Susan M. Georgen-Saad Accounting Officer)
/s/ C. Everett Koop, M.D. Chairman of the Board March 5, 1999
______________________________________
C. Everett Koop, M.D.
/s/ John F. Zaccaro Vice Chairman of the Board March 5, 1999
______________________________________
John F. Zaccaro
/s/ Mardian J. Blair Director March 5, 1999
______________________________________
Mardian J. Blair
/s/ Richard D. Helppie, Jr. Director March 5, 1999
______________________________________
Richard D. Helppie, Jr.
/s/ Nancy L. Snyderman, M.D. Director March 5, 1999
______________________________________
Nancy L. Snyderman, M.D.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director March 5, 1999
______________________________________
Jeffrey C. Ballowe
Director March 5, 1999
______________________________________
</TABLE> G. Carl Everett, Jr.
II-7
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of drkoop.com, Inc., a Delaware
corporation, as in effect immediately following reincorporation
3.2* Bylaws of drkoop.com, Inc., a Delaware corporation, as in effect
immediately following reincorporation
3.3* Form of Bylaws of drkoop.com, Inc., a Delaware corporation, as in
effect after the closing of the offering made under this Registration
Statement
3.4* Form of Restated Certificate of Incorporation of drkoop.com, Inc., a
Delaware corporation, to be filed after the closing of the offering
made under this Registration Statement
4.1* Specimen Common Stock certificate
5.1* Opinion of Latham & Watkins
10.1 Amended and Restated 1997 Stock Option Plan
10.2* 1999 Equity Participation Plan
10.3* Amended and Restated Investors' 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* Advertiser Agreement dated February 26, 1999 by and between Company
and Infoseek.
10.10 Reserved
10.11+ D.A.R.T. Service Agreement dated November 15, 1998 by and between
Company and DoubleClick, Inc.
10.12+ Content License Agreement dated December 11, 1998 by and between
Company and Excite, Inc.
10.13+* Software Sale, License and Development Agreement dated January 29,
1999 by and between Company and HealthMagic, Inc.
10.14 Reserved
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* Preferred Partner Agreement dated March 5, 1999 by and between Company
and PlanetRx, Inc.
10.20 Interim Linking Agreement dated January 28, 1999 by and between
Company and Quotesmith.com
10.21* Reserved
10.22 Tradename License Agreement dated June 1, 1998 by and between Company
and Nancy Snyderman, M.D.
10.23+* Master Community Partner Program dated January 29, 1999 by and between
Company and Adventist Health System Sunbelt Healthcare Corporation
10.24 Agreement for Sub-Sublease dated May 20, 1998 by and between Company
and The Software Atelier L.L.C.
10.25 Reserved
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ ------------------------------------------------------------------
<C> <S>
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
23. Consent of PricewaterhouseCoopers LLP
23.2* Consent of Latham & Watkins (included in Exhibit 5.1)
24.1 Powers of Attorney (See Signature Page on Page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 10.1
EMPOWER HEALTH CORPORATION
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
-------------------------------------------
PURPOSE. The purpose of this Plan is to promote the interest of Empower
-------
Health Corporation, a Texas corporation, (the "Company") and its shareholders by
providing an effective means to attract, retain and increase the commitment of
certain individuals and to provide such individuals with additional incentive to
contribute to the success of the Company.
1. ELIGIBILITY. Options may be granted under the Plan to directors and
-----------
employees of, and advisors and consultants to, the Company, or of any parent or
subsidiary of the Company (if any), provided, however, in the case of
consultants or advisors, that such grant be in consideration of bona fide
services rendered by such consultant or advisor and such services not be in
connection with the offer or sale of securities in a capital-raising
transaction. The Board of Directors or the Committee (defined below), as the
case may be, shall select from such eligible class the individuals to whom
Options shall be granted from time to time.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board of
--------------------------
Directors, or, if the board of Directors shall unanimously agree, by a committee
(the "Committee") consisting of at least two "non-employee directors," as
defined in Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). In any event, at such time as the Company
becomes a reporting company pursuant to registration of a class of its
securities under Section 12 of the Exchange Act, the Plan shall be administered
by such a Committee. A quorum of such Committee shall consist of a majority of
the members of such Committee, or as may be otherwise provided in the Company's
bylaws. The Committee shall hold meetings at such times and places and conduct
its business at such meetings as it may determine, subject to any express
provisions of the Company's bylaws. Acts of a majority of the Committee members
attending at a meeting at which a quorum is present, or such acts as are reduced
to or approved in writing by the majority of the members of the Committee, shall
be the valid acts of the Committee. The Board of Directors or the Committee, as
the case may be, shall from time to time in its discretion determine which
individuals shall be granted Options, the amount of shares covered by such
Options, and certain other specific terms and conditions of such Options subject
to the terms and conditions contained herein. Notwithstanding anything in this
Plan to the contrary, the full Board of Directors of the Company shall determine
whether any member of the Committee shall be granted Nonqualified Stock Options
(as defined below) under the Plan, the terms and provisions of the respective
agreements evidencing such Options, the times at which such Options shall be
granted, and the number of shares of Common Stock subject to each such Option
and shall make all determinations under the Plan with respect to such Options
(which determinations of the Board of Directors shall be conclusive).
The Board of Directors or the Committee, as the case may be, shall
have the sole authority and power, subject to the express provisions and
conditions hereof, to construe this Plan and the Options granted hereunder, and
to adopt, prescribe, amend, and rescind rules and regulations relating to this
Plan, and to make all determinations necessary or advisable for administering
this Plan. The Board or Committee shall also have the authority and power to
<PAGE>
modify any provision of this Plan to render the Plan consistent with any
amendments to Rule 16b-3 or Form S-8 of the Securities Act of 1933, as amended
(the "Securities Act"), including amendments which permit the grant of Options
on terms which are less restrictive than the terms set forth herein. The
interpretation by the Board or Committee of any provision of this Plan with
respect to any incentive stock option granted hereunder shall be in accordance
with section 422 of the Internal Revenue Code of 1986 and the regulations issued
thereunder, as amended from time to time (the "Internal Revenue Code"), in order
that the incentive stock options granted hereunder ("Incentive Stock Options")
shall constitute "incentive stock options" within the meaning of section 422 of
the Internal Revenue Code. Options granted under the Plan which are not
intended to be Incentive Stock Options are referred to herein as "Nonqualified
Stock Options." The term "Options" as used herein shall refer to Incentive
Stock Options and Nonqualified Stock Options, either collectively or without
distinction. The interpretation and construction by the Board or Committee, if
any, of any provisions of the Plan or of any Option granted hereunder shall be
final and conclusive. No member of the Board or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option granted hereunder.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 6, the
-------------------------- ---------
number of shares subject to Options granted hereunder shall not exceed 1,500,000
shares of the Company's authorized but unissued or reacquired Common Stock (the
`Common Stock"). Such number of shares shall be subject to adjustment as
provided in Section 5. Shares that by reason of the expiration, termination,
---------
cancellation or surrender of an Option are no longer subject to purchase
pursuant to an Option granted under the Plan (other than by reason of exercise
of such Option) may be reoptioned hereunder.
4. TERMS AND CONDITIONS.
--------------------
(A) Option Price. Each Option shall state the number of shares that may be
purchased thereunder, shall expressly designate such Option as an Incentive
Stock Option or a Nonqualified Stock Option, and shall state the option price
per share (the "Option Price") which shall be paid in the manner specified in
this Section 4(A) in order to exercise such Option. The Option Price Shall not
-----------
be less than 100% of the fair market value of the shares on the day the Option
is granted with respect to any incentive Stock Option granted hereunder, and not
less than 85% of the fair market value of the shares on the date the Option is
granted with respect to any Nonqualified Stock Option.
For purposes of the Plan, the fair market value per share of the
Common Stock on any date shall be deemed to be the closing price of the Common
Stock on the principal national securities exchange on which the Common Stock is
then listed or admitted to trading, if the Common Stock is then listed or
admitted to trading on any national securities exchange. The closing price
shall be the last reported sale price regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices regular
way, as reported by said exchange. If the Common Stock is not then so listed on
a national securities exchange, the fair market value per share of the Common
Stock on any date shall be deemed to be the closing price (the last reported
sale price regular way) in the over-the-counter market as reported by the
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Nasdaq National Market, if the Common Stock closing price is then reported on
the Nasdaq National Market, or, if the Common Stock closing price of the Common
Stock is not then reported by the Nasdaq National Market, shall be deemed to be
the mean of the highest closing bid and lowest closing asked price. of the
Common Stock in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), or, if
the Common Stock is not then quoted by Nasdaq, the quote as furnished by any
member of the National Association of Securities Dealers, Inc. selected from
time to time by the Company for this purpose. If no member of the National
Association of Securities Dealers, Inc. furnishes quotes with respect to the
Common Stock of the Company, such fair market value shall be determined by
resolution of the Board of Directors or the Committee, as the case may be.
Notwithstanding the foregoing provisions of this Section 4(A), if the Board of
------------
Directors (or the Committee) shall at any time determine that it is
impracticable to apply the foregoing methods of determining fair market value,
the Board of Directors (or the Committee) is empowered to adopt other reasonable
methods for such purpose. The Board of Directors (or the Committee) may engage
the services of an independent qualified expert or experts to appraise the value
of the Common Stock.
Options under the Plan may be exercised by payment of the Option Price
in cash, or, if there is an established trading market for the Common Stock, by
delivery of the equivalent fair market value of Common Stock or by a "cashless
exercise" procedure in which an Optionee is permitted to exercise an Option by
arranging with the Company and his or her broker to deliver the appropriate
Option Price from the concurrent market sale of the acquired shares, or by a
combination of the foregoing procedures (as determined by the Committee or the
Board of Directors). An employee's withholding tax due upon exercise of a
Nonqualified Stock Option may be satisfied by a cash payment or, if permitted by
the Committee or the Board of Directors, by delivery of the equivalent fair
market value of the Common Stock or the retention from the exercise of a number
of shares of Common Stock with a fair market value equal to the required
withholding tax, as the Committee or the Board may permit.
With respect to the exercise of any Nonqualified Stock Option, the
Board or the Committee (or an authorized representative) shall advise the
Optionee, upon receipt of notice of intent to exercise such Option, of the
income tax withholding consequences to such Optionee of such exercise, the
amount of the appropriate withholding tax and any other payments due by reason
thereof. Such Optionee must satisfy all of the preceding payment requirements
in order to receive stock upon exercise of such Option.
(B) Option Period. Any Options granted pursuant to this Plan must be
-------------
granted within ten years from the date the Plan was adopted by the Board of
Directors of the Company.
Each Option shall state the date upon which it is granted. Each
Option shall be exercisable during such period as is provided under the terms of
the Option, but in no event shall an Option be exercisable after the expiration
of ten years from the date of grant. Except in the case of death or disability,
Incentive Stock Options may be exercised within three months (or for such
shorter period as may be specified in the particular Option Agreement) after
termination of
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<PAGE>
employment to the extent such Options were exercisable at the date of
termination, and Nonqualified Stock Options may be exercised after termination
of employment or other service to the Company for such period as may be
specified in the particular Option. In the event of the disability of an
Optionee, Incentive Stock Options may be exercised for up to one year after
disability of the Optionee, to the extent exercisable prior to the date of
disability. NonquaIified Stock Options may be exercised following the Optionee's
death or disability and Incentive Stock Options may be exercised following the
Optionee's death by such Optionee or by his or her estate, heirs, or devisees,
as the case may be, for such period thereafter as may be specified in the
particular Option. Notwithstanding the foregoing, the Board of Directors or the
Committee, as the case may be, shall have the power to change the vesting
schedule or to extend the period of exercise (but not later than 10 years from
the date of grant) of any Option which is then outstanding, subject to
consultation with the Company's principal accounting officer regarding the
accounting and tax consequences thereof
(C) Assignability. An Incentive Stock Option granted under the Plan shall,
-------------
by its terms, be non-transferable by the Optionee and shall be exercisable
during the Optionee's lifetime only by such Optionee. A Nonqualified Stock
option granted under the Plan shall be non-transferable by the Optionee other
than by will or the laws of descent and distribution or, if approved in writing
by the Committee and provided for in the Option Agreement, by transfer to a
charitable organization, a family trust, or an immediate member of the
Optionee's family. No Option shall be subject to levy, attachment or similar
process. Upon any other attempt to transfer, assign, pledge or otherwise dispose
of any Option, except as expressly permitted in this Section 4(C), such Option
------------
shall immediately terminate and become null and void.
(D) Limit on 10% Shareholders. No Incentive Stock Option may be granted
-------------------------
under this Plan to any individual who would, immediately after the grant of such
Incentive Stock Option directly or indirectly own more than 10% of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary corporation unless (i) such Incentive Stock Option is granted at an
Option Price not less than 110% of the fair market value of the shares on the
date the Incentive Stock Option is granted, and (ii) such Incentive Stock Option
expires on a date not later than five years from the date the Incentive Stock
Option is granted.
(E) Limits on Options. An individual may be granted one or more Options,
-----------------
provided that the aggregate fair market value (determined as of the time the
Option is granted) of Common Stock for which an individual may be granted
Incentive Stock Options that are first exercisable in any calendar year (under
all stock option plans of the Company and any parent or subsidiary corporations,
if any) may not exceed $100,000.
(F) Rights as Shareholder. An Optionee, or a holder of an Option by transfer
---------------------
or assignment pursuant to Section 4(C), shall have no rights with respect to any
------------
shares covered by an Option until the date of the issuance of a stock
certificate for such shares and the recording of such issuance upon the
Company's stock ledger by its duly appointed, regular transfer agent. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities
4
<PAGE>
or other property) or distributions or other rights for which the record date is
prior to such date, except as provided in Section 5 hereof.
---------
(G) Additional Provisions. The Options authorized under this Plan shall
---------------------
contain such other provisions as the Board or Committee shall deem advisable,
including, without limitation, further restrictions upon the exercise of the
Option. Any Incentive Stock Option shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
the Option shall be an "incentive stock option" as defined in section 422 of the
Internal Revenue Code.
(H) Compliance With Securities Laws. At the time of exercise of any
-------------------------------
Option, the Company may require the Optionee to execute any documents or take
any action which may then be necessary to comply with the Securities Act and the
rules and regulations adopted thereunder, or any other applicable federal or
state laws regulating the sale and issuance of securities, and the Company may,
if it deems necessary, include provisions in the Options to assure such
compliance. The Company may from time to time change its requirements with
respect to enforcing compliance with federal and state securities laws,
including the request for, or insistence upon, letters of investment intent,
such requirements to be determined by the Company in its judgment as necessary
to assure compliance with said securities laws. Such changes may be made with
respect to any particular Option or to any stock issued upon exercise thereof.
5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change in
------------------------------------------
the number of issued and outstanding shares of Common Stock which results from a
stock split, reverse stock split, the payment of a stock dividend or any other
change in the capital structure of the Company, such as a merger, consolidation,
reorganization or recapitalization, the Board or Committee shall appropriately
adjust (a) the maximum number of shares which may be issued under this Plan, (b)
the number of shares subject to each outstanding Option, and (c) the Option
Price per share thereof, so that upon exercise of the Option the Optionee shall
receive the same number of shares the Optionee would have received had the
Optionee been the holder of all shares subject to such outstanding Options
immediately before the effective date of such change in the number of issued
shares of the Common Stock of the Company. Any such adjustment shall not result
in or entitle the Optionee to the issuance of fractional shares. Instead,
appropriate adjustments to any such Option and, in the aggregate, all other
options of the Company of the same class (that is, Incentive Stock Options or
Nonqualified Options) held by each Optionee shall be made so that such Option
and other options of the same class, if any, held by any such Optionee cover the
greatest whole number of shares of the Common Stock which does not exceed the
number of shares which would be covered applying such adjustments in the absence
of any restriction on the issuance of fractional shares. Any excess fractional
share shall be redeemed in cash at the then-current fair market value of the
Common Stock (determined as provided in Section 4(A) hereof) multiplied by the
------------
appropriate fraction of a share.
6. TERMINATION OR AMENDMENT OF THE PLAN. The Board of Directors or the
------------------------------------
Committee, as the case may be, may at any time suspend, amend, or terminate
5
<PAGE>
this Plan; provided, however, that except as set forth in Section 6 hereof, no
---------
amendment may, be adopted that will change the requirement that the Option Price
be at least a specified percentage of the fair market value of the Common Stock
or change the provisions required for compliance with section 422 of the
Internal Revenue Code, except to conform to a change in the requirements of such
law or regulations thereof. Except as otherwise specifically provided herein,
neither the Board of Directors nor the Committee shall, without the approval of
the shareholders of the Company, increase the aggregate number of shares that
may be issued under this Plan or materially modify the requirements for
eligibility for participation in this Plan. No amendment or termination of the
Plan shall, without the consent of the Optionee, alter or impair any rights or
obligations under any Option previously granted under the Plan.
7. ADJUSTMENTS UPON LIQUIDATION OR MERGER.
--------------------------------------
(A) Liquidation or Dissolution. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, the Board of Directors or the Committee shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Board of Directors or the Committee, in its
discretion, may provide for an Optionee to have the right to exercise his or her
Option until fifteen (15) days prior to such transaction as to all of the
Optioned Stock covered thereby, including shares as to which the Option would
not otherwise by exercisable. In addition, the Board of Directors or the
Committee may provide that any Company repurchase option applicable to any
shares of Common Stock purchased upon exercise of an Option or Stock Purchase
Right shall lapse as to all such shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action.
(B) Merger or Asset Sale. In the event of a merger of the Company with or
--------------------
into another corporation in which the shareholders of the company immediately
prior to the merger own less than a majority of the voting power of the Company
immediately following the merger, or the sale of all or substantially all of the
assets of the Company (each an "Acquisition"), each outstanding Option shall be
assumed or an equivalent option or right substituted by the successor
corporation or a parent or subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option,
the Board of Directors or the Committee shall have the right (but not any
obligation) to accelerate all or a portion of the vesting and exercisability of
any Option, including shares of Common Stock as to which it would not otherwise
be vested or exercisable. If an Option becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board of Directors or the Committee shall notify the Optionee in writing or
electronically that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate
upon the expiration of such period. Any Option shall terminate upon the
consummation if it is not assumed, substituted or exercised prior to such
consummation.
For purposes of this subsection, the Option shall be considered assumed
if, following the merger or sale of assets, the Option confers the right to
purchase or receive, for
6
<PAGE>
each share of Common Stock subject to the Option immediately prior to the merger
or sale of assets, the consideration (whether stock, cash or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
merger or sale of assets is not solely common stock of the successor corporation
or its parent, the Board of Directors or the Committee, may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each share of Common Stock subject to an Option, to
be solely common stock of the successor corporation or its parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
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<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated January 27, 1999, is
made by and between Empower Health Corporation a Texas corporation (the
"Company" or "Employer"), and Susan M. Georgen-Saad, an individual residing in
Travis County, Texas (the "Employee").
PRELIMINARY STATEMENTS
Employer desires to secure the services of Employee, and Employee desires
to be engaged by Employer, in accordance with the terms and conditions herein
set forth.
STATEMENT OF AGREEMENT
NOW, THEREFORE in consideration of the premises and the covenants contained
herein, and for other good, valuable and binding consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I. POSITION
Section 1.1 Position. Employer hereby employs Employee in the position of
Chief Financial Officer. Employee shall also be a member of the Office of the
President.
ARTICLE II. COMPENSATION
Section 2.1 Base Salary. During her employment, Employee shall be paid at
the rate of $150,000 per year (subject to applicable withholding) or such
higher amount, if applicable, as determined pursuant to the provisions of
subsections (a) and (b) herein ("Base Pay"), payable in accordance with
Employer's regular payroll practices.
Section 2.2 Stock Options.
(a) Employee shall be granted an initial option to purchase 45,000 shares
of Employer's Common Stock pursuant to Employer's stock option plan on such
terms as shall be established by the Board of Directors.
(b) In the event Employer consummates a firm commitment underwritten public
offering of Employer's securities (the "IPO") or (ii) the acquisitionof the
Employer (the "Acquisition") whether by merger, regornization, sale of all or
substantially all of its assets, or by other means (collectively, the IPO and
the Acquisition are the Liquidation"), Employee shall be granted an option to
purchase an additional 20,000 shares of Employer's Common Stock prusuant to
Employer's stock option plan on such terms as shall be established by the Board
of Directors.
(c) The exercise price for each option granted pursuant to this Section 2.2
shall be the fair market value of Employer's Common Stock on the date of grant
as established by the Board of Directors in its sole discretion. Employee shall
be required to enter into any stock purchase or
1
<PAGE>
related agreement that the Board of Directors approves as a condition to the
issuance of such Common Stock. Any option granted pursuant to this Agreement
shall become fully vested and immediately exercisable upon the occurrence of any
event set forth in Sections 4.3(a), (b), (e) or (f) herein.
Section 2.3 Bonus. In addition to Employee's Base Salary, Employee shall
be entitled to such bonus compensation as Employee may be awarded, from time to
time, by the Board of Directors (or appropriate committee) of Employer.
Section 2.4 Car Allowance. During her employment, Employee will be
entitled to a car allowance of $600 per month, payable in accordance with
Employer's regular payroll practices.
Section 2.5 Benefits. Employee shall be entitled to a total of six weeks
per year paid time-off which may be used at the discretion of Employee and which
shall be in lieu of any paid vacation and sick time. Such time-off shall accrue
monthly. In addition, Employee shall be eligible to participate in the employee
benefit plans and executive compensation programs applicable to other key
executives of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, stock option, incentive or other bonus plans,
life, disability, health, accident and other insurance programs, and similar
plans or programs, subject, in each case, to the generally applicable terms and
conditions of the applicable plan or program in question and to the
determination of any committee administering such plan or program.
ARTICLE III. DUTIES AND RESPONSIBILITIES
Section 3.1 Duties and Responsibilities. Employee shall properly perform
the duties as may be assigned to her or laid out by Employer as duties or
responsibilities of the Employee. Employee shall devote all of her business time
to the performance of her duties hereunder.
ARTICLE IV. TERM AND TERMINATION
Section 4.1 Term. Subject to the rights of either party to terminate this
Agreement as set forth in Section 4.2 of this Agreement, Employer shall employ
Employee on an exclusive basis. Employee hereby agrees to be employed
exclusively by the company for the term of this Agreement and such employment
shall commence on the date hereof and shall continue for a period of twenty-four
months (the "Term"), unless terminated earlier in accordance with Section 4.2.
Section 4.2 Termination. In the event Employee is discharged or in the
event Employee resigns, then, upon such occurrence, this Agreement shall be
deemed terminated and the Employer shall be released from all obligations to
Employee with respect to this Agreement, including, but not limited to,
compensation to Employee, except obligations accrued prior to such date of
termination or resignation and except as provided in Section 4.3.
Notwithstanding anything to the contrary contained in this Agreement, either
party shall have the right to terminate this Agreement at any time.
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<PAGE>
Section 4.3 Severance Pay. In the event of termination and in exchange
for entering into a General Release of Claims and Settlement Agreement with the
Company, Employee shall be entitled to compensation equal to six (6) months of
Base Pay and continuation of any health care insurance for a period of six (6)
months (collectively, the "Severance Benefits"), in accordance with the
following:
(a) If this Agreement is terminated by the Company prior to the expiration
of the Term of this Agreement and such termination is not for Cause (as defined
below), Employee shall be entitled to Severance Benefits, payable in accordance
with the Company's normal and customary policies.
(b) If Employee's employment is terminated by reason of a disability,
Employee shall be entitled to Severance Benefits, payable in accordance with the
Company's normal and customary policies.
(c) If (i) Employee voluntarily terminates her employment, (ii) the Company
terminates this Agreement for Cause, or (iii) if Employee's employment is
terminated by reason of her death, Employee shall not be entitled to receive any
additional salary, bonus or benefits beyond those earned or accrued as of the
effective date of the termination of her employment.
(d) For purposes of this Agreement, "Cause" means (i) Employee's repeated
material neglect of her duties on a general basis (other than as a result of
illness or disability), notwithstanding the expiration of a thirty (30) day cure
period, (ii) the commission by Employee of any acti of fraud, theft or criminal
dishonesty with respect to the Company or any of its subsidiaries or affiliates,
or the conviction of Employee of any felony, (iii) the commission of any act
involvin gmoral turpitude which (A) brings the Company or any of its affiliates
into public disrepute or disgrace, or (B) causes material injury to the customer
relations, operations or the business prospects of the Company or any of its
affiliates, and (iv) any material breach by Employee of this Agreement.
(e) If Employee voluntarily terminates her employment within ninety (90)
days after (i) a material reduction in Employee's compensation or benefits
(other than a reduction that generally effects all Employees entitled to such
benefits) or (ii) a requirement to relocate her principal place of employment
outside a radius of fifty (50) miles from her place of employment immediately
prior to such requirement, then such termination shall be deemed to be a
termination by the Company not for Cause.
(f) Notwithstanding the provisions set forth in Section 4.3(a), in the
event Employee is terminated without Cause by the Company at any time during the
period commencing on the closing date of an Acquisition and ending on the first
anniversary thereof, Employee shall be entitled to receive twelve (12) months of
Base Pay and continuation of any health care insurance for a period of twelve
(12) months in lieu of the Severance Benefits.
ARTICLE V. CONFIDENTIAL INFORMATION
Section 5.1 Disclosure of Confidential Information. Employee acknowledges
that certain information, whether written or oral, concerning the Employer
and/or the Business,
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<PAGE>
including, but not limited to, general business operations or any other ideas
and or items relating to the business of the Employer (referred to herein as
"Confidential Information"), whether prepared or generated by Employee or the
Employer pursuant to this Agreement, or otherwise coming into the possession or
knowledge of Employee, shall remain the exclusive, confidential property of the
Employer except to the extent expressly authorized in writing by the Employer
for dissemination. Employee further acknowledges and agrees that all such
Confidential Information constitutes trade secrets of the Employer.
During the term of this Agreement and the Restricted Period (as defined in
Section 5.8 hereof) Employee shall not disclose any of such Confidential
Information to any third party without the prior written consent of the
Employer, and shall take all reasonable steps and actions necessary to maintain
the confidentiality of such Confidential Information. Employee shall not use
any of such Confidential Information in any manner whatsoever during the
Restricted Period, without the Employer's express prior written consent. In
consideration of the obligations undertaken by the Employer herein, Employee
will not, at any time during or after her employment hereunder, reveal divulge
or make known to any person, any Confidential Information acquired by Employee
during the course of her employment. Without in any manner limiting the
generality of the foregoing obligation, Employee agrees that Employee shall not,
directly or indirectly, undertake or attempt to undertake any of the following
activities:
(a) disclose any Confidential Information to any other person or entity;
(b) use any Confidential Information for Employee's own purposes;
(c) authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or
(d) undertake or attempt to undertake any activity the Company is
prohibited from undertaking or attempting to undertake by any of its present or
future clients, customers. suppliers, vendors. consultants, agents or
contractors.
As used in this Agreement, the term "Confidential Information" means any
knowledge, information or property relating to, or used or possessed by, the
Company, and includes, without limitation, the following: trade secrets,
patents, copyrights, software (including, without limitation, all programs,
specifications, applications, routines, subroutines, techniques and ideas for
formulae); concepts, data, drawings, designs and documents; names of clients,
customers, Employees, agents, contractors. and suppliers; marketing information;
financial information and other business records- and all copies of any of the
foregoing, including notes, extracts, memoranda prepared or suffered or directed
to be prepared by Employee based on any Confidential Information. Employee
agrees that all information possessed by him/him, or disclosed to her or to
which Employee obtains access during the course of Employee's employment with
the Company shall be presumed to be Confidential Information under the terms of
this Agreement, and the burden of proving otherwise shall rest with Employee.
Section 5.2 Return of Confidential Information. Upon termination of
Employee's employment with the Company for any reason, Employee agrees not to
retain or remove from the Company's premises any records, files or other
documents or copies thereof or any other
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Confidential Information whatsoever, and Employee agrees to surrender same to
the Company, wherever it is located, immediately upon termination of Employee's
employment.
Section 5.3 Assignment of Intellectual Property. During the period of
Employee's employment with the Company, all processes, products, methods,
improvements, discoveries, inventions, ideas, creations, trade secrets, know-
how, machines, programs, designs, routines, subroutines, techniques, ideas for
formulae, writings, books and other works of authorship, business concepts,
plans, projections and other similar items as well as all business
opportunities, conceived, designed, devised, developed, perfected or made by the
Employee, whether alone or in conjunction with others, and related in any manner
to the actual or anticipated business of the Company or to actual or anticipated
areas of research and development (collectively, the "Intellectual Property"),
shall be promptly disclosed to and become the property of the Company, and
Employee hereby assigns. transfers and conveys the Intellectual Property to the
Company. Employee further agrees to make and provide to the Company any
documents, instruments or other materials necessary or advisable to vest,
secure, evidence or maintain the Company's ownership of the Intellectual
Property, and patents, copyrights, trademarks and foreign and domestic property
rights with respect to the Intellectual Property. The term "Intellectual
Property" shall be given the broadest interpretation possible and shall include
any Intellectual Property conceived, designed, devised, developed, perfected, or
made by the Employee during off-duty hours and away from the Company's premises,
as well as to those conceived, designed, devised, developed, perfected, or made
in the regular course of Employee's performance.
Section 5.4 Non-competition Agreement. Employee acknowledges that the
Company has provided and may provide additional special training (including,
without limitation, training relating to programming, servicing or marketing of
sophisticated computer programs and services related to healthcare and to the
Internet) to Employee to enable Employee to perform Employee's duties as an
employee of the Company. As a result, Employee agrees that, during the
restricted period (as herein defined) (if such termination is with Cause, or
results from Employee's resignation or disability) Employee shall not, in the
United States (the "Geographic Area") (i) directly or indirectly engage in,
consult with, be employed by or be connected with any business or activity with
a third party, in the field of consumer healthcare software products and
services, which directly or indirectly competes with the Company's business (a
"Competing Business"), (ii) solicit any business from any of the Company's
current or former clients, (iii); assist others to open or operate any Competing
Business; or (iv) solicit, recommend or induce employees of the Company to
terminate their employment with the Company.
Section 5.5 Nonsolicitation Agreement. During the Restricted Period,
Employee will not without the express prior written approval of the Board of
Directors of the Company (i) directly or indirectly, in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, supplier, customer, agent, representative or any
other person which has a business relationship with the Company to discontinue,
reduce or modify such employment, agency or business relationship with the
Company, or (ii) employ or seek to employ or cause any Competing Business to
employ or seek to employ any person or agent who is then (or was at any time
within six (6) months prior to the date the Employee or the Competing Business
employs or seeks to employ such person) employed or retained by the Company.
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Notwithstanding the foregoing, nothing herein shall prevent the Employee from
providing a letter of recommendation to an employee with respect to a future
employment opportunity.
Section 5.6 Reasonableness of Covenants. Employee has carefully read this
Article 5 and agrees and acknowledges that the limitations as to time,
geographical area and scope of activity to be restrained are reasonable and do
not impose a greater restraint than is necessary to protect the goodwill and
business interests of the Company. Employee has agreed to the foregoing
covenants because (a) Employee recognizes that the Company has a legitimate
interest in protecting the confidentiality of its business secrets (including
the Confidential Information), (b) Employee agrees that such non-competition
agreement is not oppressive to him nor injurious to the public, (c) the Company
bas provided specialized and valuable training and information to Employee, and
(d) the Company would not have entered into this Agreement without Employee's
agreement the covenants set forth in this Article 5. Employee further
understands and agrees that, if at some later date, a court of competent
jurisdiction determines the scope, duration or geographic area of any covenant
set forth in this Article 5 to be over broad or unenforceable for any reason.
these covenants shall be reformed by the court, pursuant to Tex. Bus. & Co.
Code Am. Section 15.50(2) (or any successor provision) and enforced to the
maximum extent permissible under Texas law.
Section 5.7 Remedies. If Employee breaches the agreement set forth in
Article 5 of this Agreement, the Employer will be entitled to the following
remedies:
(a) damages from Employee; and
(b) in addition to its right to damages and any other rights the Employer
may have, Employer shall be entitled to obtain injunctive or other equitable
relief to restrain any breach or threatened breach or otherwise to specifically
enforce the provisions of Article 5 of this Agreement, it being agreed that
money damages alone may be inadequate to compensate the Employer and would be an
inadequate remedy for such breach.
Section 5.8 Restricted Period. The term "Restricted Period" as used in
this Agreement, shall mean the period of Employee's actual employment hereunder,
plus one year after the date Employee is actually no longer employed by the
Employer as a consequence of the expiration or termination of this Agreement,
Employee's resignation, or termination for any reason.
ARTICLE VI. MISCELLANEOUS
Section 6.1 Entire Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement between the parties with respect to the
subject matter herein set forth, and supersedes all prior agreements by and
between the parties.
Section 6.2 Amendments. This Agreement may not be amended, altered or
terminated except in writing.
Section 6.3 Invalidity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not invalidate, make
unenforceable or otherwise effect any other provision of this Agreement, which
shall remain in full force and effect.
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Section 6.4 Further Assurances. The parties agree that they will at any
time and from time to time, upon request of the other, do, execute, acknowledge
and deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the purpose
or intent of the provisions of this Agreement.
Section 6.5 Inurement. This Agreement shall be binding upon the parties
hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns.
Section 6.6 Notices. All notices of requests, demands or other
communications required or to be given hereunder shall be delivered by hand,
overnight courier, facsimile transmission, or by United States Mail postage
prepaid, by registered or certified mail (return receipt requested), to the
address or addresses indicated below and shall be deemed given when received by
the address thereof:
To Employer: Donald W. Hackett, President
Empower Health Corporation
8920 Business Park Drive
Longhorn Suite
Austin, TX 78759
To Employee: Susan M. Georgen-Saad
4906 Mantle Drive
Austin,Texas 78746
--------------------------------------
Or at such other address or addresses as may be expressly designated by either
party by notice given in accordance with the foregoing provision.
Section 6.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 6.8 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Rules of the American Arbitration
Association in Austin, Travis County, Texas, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof and shall not be appealable.
Section 6.9 Gender. Wherever herein the singular number is used, the same
shall include the plural and the masculine gender shall include the feminine and
neuter genders, and vice versa, as the context may require.
Section 6.10 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original but all of which taken together shall
constitute but one agreement.
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Section 6.11 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.12 Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver of any subsequent breach by either party. No waiver by either party of
any provision or condition to be performed shall be deemed a waiver of similar
or dissimilar provisions or conditions at the time or any prior or subsequent
time.
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first written above.
EMPLOYER:
EMPOWER HEALTH CORPORATION
By: \s\ D. Hackett
------------------------------
Name: Don Hackett
Title: CEO
EMPLOYEE:
By: \s\ Susan M. Georgen-Saad
------------------------------
Name: Susan M. Georgen-Saad
Empower Health - Employment Agreement
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 1, 1997, by and among PMRi, a
Texas corporation with offices at 4008 River Place Blvd., Austin, Texas 78730
(the "Company"), and Donald Hackett, an individual having an address at 4008
River Place Blvd., Austin, Texas 78730 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ and retain the experience, ability
and exclusive services of Executive, and to prevent any other competitive
business from securing his services, in utilizing his experience, background and
know-how; and
WHEREAS, the Executive desires to be so employed by the Company upon the
terms and conditions herein below set forth.
NOW, THEREFORE, in consideration of the mutual premises herein set forth,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto mutually agree as follows:
1.1 Employment. The Company shall employ Executive on an exclusive basis, and
Executive hereby agrees to such exclusive employment for a period of three (3)
years, commencing on August 1, 1997, and ending on July 31, 2000 (the "Initial
Term"). This Agreement may be extended for successive one (1) year terms upon
the mutual agreement of the parties (the Initial Term, as same may be extended,
is hereinafter referred to as the "Term"). In the event the Company wishes to
renew this Agreement upon the expiration of the Term (or upon the expiration of
any subsequent one (1) year extension of this Agreement) the Company shall give
Executive written notice thereof (the "Extension Notice") no later than ninety
(90) days prior to the expiration of the Term. Thereafter, Executive shall
notify the Company in writing of his desire to continue to be employed by the
Company no later than thirty (30) days after Executive's receipt of the
Extension Notice.
1.2 Duties and Responsibilities of Executive. Executive shall serve in such
positions as may be designated by the Board of Directors, and shall properly
perform such duties as may be assigned to him from time to time by the Board of
Directors of the Company. Executive shall also serve on any committee to which
the Company's Board of Directors may appoint him. Executive shall devote all of
his business time to the performance of his duties hereunder unless otherwise
authorized by the Board of Directors.
2. Compensation of Executive.
2.1 Base Salary. Commencing upon the date hereof, the Company shall pay to
Executive a base salary of One Hundred Ninety Five Thousand ($195,000) per
annum, subject to adjustment as set forth in Sections 2.2 and 2.3 below (the
"Base Salary"). Such compensation shall be paid to Executive with the same
frequency as other executives of the Company are compensated.
<PAGE>
Such Base Salary shall be subject to withholding for the prescribed federal
income tax, social security, Medicare, and other items as required by law, and
for other items consistent with the Company's policy with respect to health
insurance and other benefit plans for similarly situated employees.
2.2 Salary Adjustments. The Executive's Base Salary set forth in Section 2.1
above (and as same may have been previously adjusted in accordance with the
provisions hereof) will be increased twenty percent (20%) upon completion of
each one year period of the Initial Term.
2.3 Discretionary Bonus. In addition to Executive's Base Salary, Executive
shall be entitled to such bonus compensation as Executive may be awarded, from
time to time, by a majority vote of the disinterested members of the Board of
Directors (or appropriate committee) of the Company.
2.4 Expenses. In addition to those expenses expressly set forth herein, the
Company shall pay or reimburse Executive for all ordinary and necessary out-of-
pocket expenses actually incurred by Executive in connection with performing his
duties hereunder, consistent with the Company's policies then in effect.
2.5 Automobile. The Company will provide Executive with an automobile
allowance in an amount of seven hundred dollars ($700) per month, during the
Initial Term.
2.6 Benefits. Executive shall be entitled to participate in the Company's
pension, profit sharing, group insurance, option plans, hospitalization, and
group health and benefit plans and all other benefits and plans as the Company
provides to its senior executives to the extent such plans are established by
the Company and to the extent that Executive is eligible to participate in such
plans. Such benefits shall be subject to the terms of the applicable plan
documents, summary plan descriptions and/or employment policies and shall be
subject to modification, amendment or revocation in accordance with the terms of
such documents, policies and procedures.
2.7 Stock Options. Executive shall also be entitled to receive stock options
to purchase a total of shares of the Company pursuant to the Company's stock
option plan on such terms as shall be established by disinterested members of
the Board of Directors. The purchase price for the shares shall be the fair
market value thereof as established by the Board of Directors in its sole
discretion. Executive shall be required to enter into any shareholders
agreement that the Board of Directors approves as a condition to the issuance of
common stock.
3. Termination.
3.1 Termination Without Cause. Either the Company or Executive may terminate
this Agreement at any time, without Cause (as that term is defined below), by
giving the other thirty (30) days prior written notice of termination.
3.2 Death; Disability. This Agreement shall be automatically terminated on the
death of Executive or in the event of the permanent disability of Executive if
he is no longer able, with reasonable accommodation, to perform the essential
functions of his position. In the event of
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Executive's disability, this Agreement shall not terminate unless and until
Executive has been unable to perform the essential functions of his position for
a period of three (3) consecutive months as a result of his disability.
3.3 Termination for Cause or Resignation. In the event Executive is discharged
for Cause (as that term is defined below) or in the event Executive resigns,
then upon such occurrence, this Agreement shall be deemed terminated and the
Company shall be released from all obligations to Executive with respect to this
Agreement, including but not limited to compensation to Executive, except
obligations accrued prior to such date of termination or resignation.
3.4 Definition of Cause. As used herein, the term "Cause" shall mean
(a) the commission of any act of fraud on the part of Executive;
(b) misappropriation, embezzlement, theft or willful and material damage of or
to any asset of the Company or the use of the Company's funds or assets for any
illegal purpose;
(c) a good faith determination by the Board of Directors of the Company that
Executive has violated this Agreement or committed an act of gross negligence or
willful misconduct that has or is reasonably expected to have a material adverse
effect on the business or affairs of the Company; or
(d) the conviction of Executive of any felony, or the commission of any
criminal or illegal act on the part of Executive which materially and adversely,
whether directly or indirectly, affects the name or goodwill of the Company.
3.5 Severance Pay. In the event of termination, Executive shall be entitled to
compensation (the "Severance Pay") in accordance with the following:
(a) If this Agreement is terminated by the Company prior to the expiration of
the Initial Term of this Agreement or any renewal or extension hereof, and such
termination is not for Cause, Employee shall be entitled to Severance Pay of one
(1) year salary, payable in accordance with the Company's normal and customary
policies.
(b) If Executive's employment is terminated by reason of a disability,
Executive shall be entitled to Severance Pay as set forth in 3.5(a), payable in
accordance with the Company's normal and customary policies.
(c) If (i) Executive voluntarily terminates his employment, (ii) the Company
terminates this Agreement for Cause, or (iii) if Executive's employment is
terminated by reason of his death, Executive shall not be entitled to receive
any additional salary, bonus or benefits beyond those earned or accrued as of
the effective date of the termination of his employment.
3.6 Effect of Termination on Agreement. Any termination of Executive's
employment shall not release either the Company or Employee from their
respective obligations under this
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Agreement that are required to be performed subsequent to the date of such
termination, including but not limited to those obligations set forth under
Sections 3 and 6.
4. Flex Time Off. Executive shall be entitled to Flex Time Off ("FTO") of six
(6) weeks per year, during which period his Base Salary shall be paid in full.
Executive shall take his FTO at such times as Executive and the Company shall
determine is mutually convenient.
5. Confidentiality and Noncompetition.
5.1 Confidential Information. During the period of Executive's employment with
the Company, and after the termination thereof for any reason, Executive agrees
that, because of the valuable nature of the Confidential Information, Executive
shall use Executive's best efforts to maintain and protect the secrecy of the
Confidential Information. Without in any manner limiting the generality of the
foregoing obligation, Executive agrees that Executive shall not, directly or
indirectly, undertake or attempt to undertake any of the following activities:
(a) disclose any Confidential Information to any other person or entity;
(b) use any Confidential Information for Executive's own purposes;
(c) authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or
(d) undertake or attempt to undertake any activity the Company is prohibited
from undertaking or attempting to undertake by any of its present or future
clients, customers, suppliers, vendors, consultants, agents or contractors.
As used in this Agreement, the term "Confidential Information" means any
knowledge, information or property relating to, or used or possessed by, the
Company, and includes, without limitation, the following: trade secrets;
patents, copyrights, software (including, without limitation, all programs,
specifications, applications, routines, subroutines, techniques and ideas for
formulae); concepts, data, drawings, designs and documents; names of clients,
customers, employees, agents, contractors, and suppliers; marketing information;
financial information and other business records; and all copies of any of the
foregoing, including notes, extracts, memoranda prepared or suffered or directed
to be prepared by Executive based on any Confidential Information. Executive
agrees that all information possessed by him, or disclosed to him, or to which
Executive obtains access during the course of Executive's employment with the
Company shall be presumed to be Confidential Information under the terms of this
Agreement, and the burden of proving otherwise shall rest with Executive.
5.2 Return of Confidential Information. Upon termination of Executive's
employment with the Company for any reason, Executive agrees not to retain or
remove from the Company's premises any records, files or other documents or
copies thereof or any other Confidential Information whatsoever, and Executive
agrees to surrender same to the Company, wherever it is located, immediately
upon termination of Executive's employment.
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<PAGE>
5.3 Assignment of Intellectual Property. During the period of Executive's
employment with the Company, all processes, products, methods, improvements,
discoveries, inventions, ideas, creations, trade secrets, know-how, machines,
programs, designs, routines, subroutines, techniques, ideas for formulae,
writings, books and other works of authorship, business concepts, plans,
projections and other similar items, as well as all business opportunities,
conceived, designed, devised, developed, perfected or made by the Executive,
whether alone or in conjunction with others, and related in any manner to the
actual or anticipated business of the Company or to actual or anticipated areas
of research and development (collectively, the "Intellectual Property"), shall
be promptly disclosed to and become the property of the Company, and Executive
hereby assigns, transfers and conveys the Intellectual Property to the Company.
Executive further agrees to make and provide to the Company any documents,
instruments or other materials necessary or advisable to vest, secure, evidence
or maintain the Company's ownership of the Intellectual Property, and patents,
copyrights, trademarks and similar foreign and domestic property rights with
respect to the Intellectual Property. The term "Intellectual Property" shall be
given the broadest interpretation possible and shall include any Intellectual
Property conceived, designed, devised, developed, perfected, or made by the
Executive during off-duty hours and away from the Company's premises, as well as
to those conceived, designed, devised, developed, perfected, or made in the
regular course of Executive's performance.
5.4 Noncompetition Agreement. Executive acknowledges that the Company has
provided and may provide additional special training (including, without
limitation, training relating to programming, servicing or marketing of
sophisticated computer programs and services) to Executive to enable Executive
to perform Executive's duties as an employee of the Company. As a result,
Executive agrees that, during the term of Executive's employment and for a
period (the "Restricted Period") of twelve (12) months after the termination of
the Executive's employment with the Company (if such termination is with Cause,
or results from Executive's resignation or disability) Executive shall not, in
the United States (the "Geographic Area") (i) directly or indirectly engage in,
consult with, be employed by or be connected with any business or activity with
a third party which directly or indirectly competes with the Company's business
(a "Competing Business"), (ii) canvass any business from any of the Company's
current or former clients, (iii) assist others to open or operate any Competing
Business; or (iv) solicit, recommend or induce employees of the Company to
terminate their employment with the Company.
5.5 Nonsolicitation Agreement. During the Restricted Period, Executive will
not without the express prior written approval of the Board of Directors of the
Company (i) directly or indirectly, in one or a series of transactions, recruit,
solicit or otherwise induce or influence any proprietor, partner, stockholder,
lender, director, officer, employee, sales agent, joint venturer, investor,
lessor, supplier, customer, agent, representative or any other person which has
a business relationship with the Company to discontinue, reduce or modify such
employment, agency or business relationship with the Company, or (ii) employ or
seek to employ or cause any Competing Business to employ or seek to employ any
person or agent who is then (or was at any time within six (6) months prior to
the date the Executive or the Competing Business employs or seeks to employ such
person) employed or retained by the Company. Notwithstanding the
5
<PAGE>
foregoing, nothing herein shall prevent the Executive from providing a letter of
recommendation to an employee with respect to a future employment opportunity.
5.6 Reasonableness of Covenants. Executive has carefully read this Section 6
and agrees and acknowledges that the limitations as to time, geographical area
and scope of activity to be restrained are reasonable and do not impose a
greater restraint than is necessary to protect the goodwill and business
interests of the Company. Executive has agreed to the foregoing covenants
because (a) Executive recognizes that the Company has a legitimate interest in
protecting the confidentiality of its business secrets (including the
Confidential Information), (b) Executive agrees that such noncompetition
agreement is not oppressive to him nor injurious to the public, (c) the Company
has provided specialized and valuable training and information to Executive, and
(d) the Company would not have entered into this Agreement without Executive's
agreement the covenants set forth in this Section 6. Executive further
understands and agrees that, if at some later date, a court of. competent
jurisdiction determines the scope, duration or geographic area of any covenant
set forth in this Section 6 to be over broad or unenforceable for any reason,
these covenants shall be reformed by the court, pursuant to Tex. Bus. & Co. Code
Ann. Section 15.50(2) (or any successor provision) and enforced to the maximum
extent permissible under Texas law.
6. Miscellaneous.
6.1 Assignment. Executive shall not have the right to assign this Agreement.
The Company shall have the right to assign this Agreement to any party that
purchases all or substantially all of the assets of the Company.
6.2 Injunctive Relief. Executive acknowledges that the services to be rendered
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, Executive agrees that any breach or threatened
breach by him of the covenants contained in Section 6 of this Agreement may
cause irreparable harm to the Company for which monetary damages may not be
adequate and accordingly, any such breach or threatened breach of Section 6 of
this Agreement shall entitle Company, in addition to all other legal remedies
available to it at law or in equity, to seek a temporary or permanent injunction
to enjoin such breach or threatened breach. Such injunction shall be available
without the posting of any bond or other security, and the Executive hereby
consents to the issuance of such injunction.
6.3 Binding Effect. This Agreement shall inure to the benefit of, be binding
upon and enforceable against, the parties hereto and their permitted, respective
successor, heirs, beneficiaries and permitted assigns.
6.4 Headings. The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
6.5 Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage
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<PAGE>
prepaid, or by private overnight mail service (e.g. Federal Express) to the
party at the address set forth above or to such other address as either party or
the Company may hereafter give notice of in accordance with the provisions
hereof. Notices shall be deemed given on the sooner of the date actually
received or the third business day after sending.
6.6 Waiver. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a continuing waiver of any
subsequent breach by either party. No waiver by either party of any provision
or condition to be performed shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time. No
waiver by either party of any provisions or condition to be performed shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
time or any prior or subsequent time.
6.7 Governing Law; Jurisdiction and Venue. Regardless of the place of
performance, this Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without giving effect to such State's
conflicts of laws provisions.
6.8 Severability. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of this Agreement
not held so invalid, and each such other provision shall to the full extent
consistent with law continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
6.9 Counterparts. This Agreement maybe executed simultaneously in one or more
original or facsimile counterparts, each of, which shall be deemed an original,
but all of which together shall constitute one of the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth above.
COMPANY: Personal Medical Records, Inc.
By: /s/ Don Hackett
------------------------------
Name: Don Hackett
------------------------------
Title: CEO and President
------------------------------
EXECUTIVE: /s/ Louis Scalpati
----------------------------
8/1/97
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 1, 1997, by and among PMRi, a
Texas corporation with offices at 4008 River Place Blvd., Austin, Texas 78730
(the "Company"), and Robert C. Hackett, Jr., an individual having an address at
641 Radnor Valley Drive, Villanova, Pennsylvania, 19085 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ and retain the experience, ability
and exclusive services of Executive, and to prevent any other competitive
business from securing his services, in utilizing his experience, background and
know-how; and
WHEREAS, the Executive desires to be so employed by the Company upon the
terms and conditions herein below set forth.
NOW, THEREFORE, in consideration of the mutual premises herein set forth,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto mutually agree as follows:
1. Employment. The Company shall employ Executive on an exclusive basis, and
Executive hereby agrees to such exclusive employment for a period of three (3)
years, commencing on August 1, 1997, and ending on July 31, 2000 (the "Initial
Term). This Agreement may be extended for successive one (1) year terms upon
the mutual agreement of the parties (the Initial Term, as same may be extended,
is hereinafter referred to as the "Term"). In the event the Company wishes to
renew this Agreement upon the expiration of the Term (or upon the expiration of
any subsequent one (1) year extension of this Agreement) the Company shall give
Executive written notice thereof (the "Extension Notice") no later than ninety
(90) days prior to the expiration of the Term. Thereafter, Executive shall
notify the Company in writing of his desire to continue to be employed by the
Company no later than thirty (30) days after Executive's receipt of the
Extension Notice.
1.1 Duties and Responsibilities of Executive. Executive shall serve in such
positions as may be designated by the Board of Directors, and shall properly
perform such duties as may be assigned to him from time to time by the Board of
Directors of the Company. Executive shall also serve on any committee to which
the Company's Board of Directors may appoint him. Executive shall devote all of
his business time to the performance of his duties hereunder unless otherwise
authorized by the Board of Directors.
2. Compensation of Executive.
2.1 Base Salary. Commencing upon the date hereof, the Company shall pay to
Executive a base salary of One Hundred Sixty Five Thousand ($165,000) per annum,
subject to adjustment as set forth in Sections 2.2 and 2.3 below (the "Base
Salary"). Such compensation shall be paid to Executive with the same frequency
as other executives of the Company are compensated. Such
<PAGE>
Base Salary shall be subject to withholding for the prescribed federal income
tax, social security, Medicare, and other items as required by law, and for
other items consistent with the Company's policy with respect to health
insurance and other benefit plans for similarly situated employees.
2.2 Salary Adjustments. The Executive's Base Salary set forth in Section 2.1
above (and as same may have been previously adjusted in accordance with the
provisions hereof) will be increased twenty percent (20%) upon completion of
each one year period of the Initial Term.
2.3 Discretionary Bonus. In addition to Executive's Base Salary, Executive
shall be entitled to such bonus compensation as Executive may be awarded, from
time to time, by a majority vote of the disinterested members of the Board of
Directors (or appropriate committee) of the Company.
2.4 Expenses. In addition to those expenses expressly set forth herein, the
Company shall pay or reimburse Executive for all ordinary and necessary out-of-
pocket expenses actually incurred by Executive' in connection with performing
his duties hereunder, consistent with the Company's policies then in effect.
2.5 Automobile. The Company will provide Executive with an automobile
allowance in an amount of six hundred dollars ($600) per month, during the
Initial Term.
2.6 Benefits. Executive shall be entitled to participate in the Company's
pension, profit sharing, group insurance, option plans, hospitalization, and
group health and benefit plans and all other benefits and plans as the Company
provides to its senior executives to the extent such plans are established by
the Company and to the extent that Executive is eligible to participate in such
plans. Such benefits shall be subject to the terms of the applicable plan
documents, summary plan descriptions and/or employment policies and shall be
subject to modification, amendment or revocation in accordance with the terms of
such documents, policies and procedures.
2.7 Stock Options. Executive shall also be entitled to receive stock options
to purchase a total of ________ shares of the Company pursuant to the Company's
stock option plan on such terms as shall be established by disinterested members
of the Board of Directors. The purchase price for the shares shall be the fair
market value thereof as established by the Board of Directors in its sole
discretion. Executive shall be required to enter into any shareholders
agreement that the Board of Directors approves as a condition to the issuance of
common stock.
3. Termination.
3.1 Termination Without Cause. Either the Company or Executive may terminate
this Agreement at any time, without Cause (as that term is defined below), by
giving the other thirty (30) days prior written notice of termination.
3.2 Death; Disability. This Agreement shall be automatically terminated on the
death of Executive or in the event of the permanent disability of Executive if
he is no longer able, with reasonable accommodation, to perform the essential
functions of his position. In the event of Executive's disability, this
Agreement shall not terminate unless and until Executive has been
2
<PAGE>
unable to perform the essential functions of his position for a period of three
(3) consecutive months as a result of his disability.
3.3 Termination for Cause or Resignation. In the event Executive is discharged
for Cause (as that term is defined below) or in the event Executive resigns,
then upon such occurrence, this Agreement shall be deemed terminated and the
Company shall be released from all obligations to Executive with respect to this
Agreement, including but not limited to compensation to Executive, except
obligations accrued prior to such date of termination or resignation.
3.4 Definition of Cause. As used herein, the term "Cause" shall mean
(a) the commission of any act of fraud on the part of Executive;
(b) misappropriation, embezzlement, theft or willful and material damage of or
to any asset of the Company or the use of the Company's funds or assets for any
illegal purpose;
(c) a good faith determination by the Board of Directors of the Company that
Executive has violated this Agreement or committed an act of gross negligence or
willful misconduct that has or is reasonably expected to have a material adverse
effect on the business or affairs of the Company; or
(d) the conviction of Executive of any felony, or the commission of any
criminal or illegal act on the part of Executive which materially and adversely,
whether directly or indirectly, affects the name or goodwill of the Company.
3.5 Severance Pay. In the event of termination, Executive shall be entitled to
compensation (the "Severance Pay") in accordance with the following:
(a) If this Agreement is terminated by the Company prior to the expiration of
the Initial Term of this Agreement or any renewal or extension hereof, and such
termination is not for Cause, Employee shall be entitled to Severance Pay of one
(1) year salary, payable in accordance with the Company's normal and customary
policies.
(b) If Executive's employment is terminated by reason of a disability,
Executive shall be entitled to Severance Pay as set forth in 3.5(a), payable in
accordance with the Company's normal and customary policies.
(c) If (i) Executive voluntarily terminates his employment, (ii) the Company
terminates this Agreement for Cause, or (iii) if Executive's employment is
terminated by reason of his death, Executive shall not be entitled to receive
any additional salary, bonus or benefits beyond those earned or accrued as of
the effective date of the termination of his employment.
3.6 Effect of Termination on Agreement. Any termination of Executive's
employment shall not release either the Company or Employee from their
respective obligations under this Agreement that are required to be performed
subsequent to the date of such termination, including but not limited to those
obligations set forth under Sections 3 and 6.
3
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4. Flex Time Off. Executive shall be entitled to Flex Time Off ("FTO") of six
weeks per year, during which period his Base Salary shall be paid in full.
Executive shall take his FTO at such times as Executive and the Company shall
determine is mutually convenient.
5. Confidentiality and Noncompetition.
5.1 Confidential Information. During the period of Executive's employment with
the Company, and after the termination thereof for any reason, Executive agrees
that, because of the valuable nature of the Confidential Information, Executive
shall use Executive's best efforts to maintain and protect the secrecy of the
Confidential Information. Without in any manner limiting the generality of the
foregoing obligation, Executive agrees that Executive shall not, directly or
indirectly, undertake or attempt to undertake any of the following activities:
(a) disclose any Confidential Information to any other person or entity;
(b) use any Confidential Information for Executive's own purposes;
(c) authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or
(d) undertake or attempt to undertake any activity the Company is prohibited
from undertaking or attempting to undertake by any of its present or future
clients, customers, suppliers, vendors, consultants, agents or contractors.
As used in this Agreement, the term "Confidential Information" means any
knowledge, information or property relating to, or used or possessed by, the
Company, and includes, without limitation, the following: trade secrets;
patents, copyrights, software (including, without limitation, all programs,
specifications, applications, routines, subroutines, techniques and ideas for
formulae); concepts, data, drawings, designs and documents; names of clients,
customers, employees, agents, contractors, and suppliers; marketing information;
financial information and other business records; and all copies of any of the
foregoing, including notes, extracts, memoranda prepared or suffered or directed
to be prepared by Executive based on any Confidential Information. Executive
agrees that all information possessed by him, or disclosed to him, or to which
Executive obtains access during the course of Executive's employment with the
Company shall be presumed to be Confidential Information under the terms of this
Agreement, and the burden of proving otherwise shall rest with Executive.
5.2 Return of Confidential Information. Upon termination of Executive's
employment with the Company for any reason, Executive agrees not to retain or
remove from the Company's premises any records, files or other documents or
copies thereof or any other Confidential Information whatsoever, and Executive
agrees to surrender same to the Company, wherever it is located, immediately
upon termination of Executive's employment.
5.3 Assignment of Intellectual Property. During the period of Executive's
employment with the Company, all processes, products, methods, improvements,
discoveries, inventions, ideas, creations, trade secrets, know-how, machines,
programs, designs, routines, subroutines,
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techniques, ideas for formulae, writings, books and other works of authorship,
business concepts, plans, projections and other similar items, as well as all
business opportunities, conceived, designed, devised, developed, perfected or
made by the Executive, whether alone or in conjunction with others, and related
in any manner to the actual or anticipated business of the Company or to actual
or anticipated areas of research and development (collectively, the
"Intellectual Property"), shall be promptly disclosed to and become the property
of the Company, and Executive hereby assigns, transfers and conveys the
Intellectual Property to the Company. Executive further agrees to make and
provide to the Company any documents, instruments or other materials necessary
or advisable to vest, secure, evidence or maintain the Company's ownership of
the Intellectual Property, and patents, copyrights, trademarks and similar
foreign and domestic property rights with respect to the Intellectual Property.
The term "Intellectual Property" shall be given the broadest interpretation
possible and shall include any Intellectual Property conceived, designed,
devised, developed, perfected, or made by the Executive during off-duty hours
and away from the Company's premises, as well as to those conceived, designed,
devised, developed, perfected, or made in the regular course of Executive's
performance.
5.4 Noncompetition Agreement. Executive acknowledges that the Company has
provided and may provide additional special training (including, without
limitation, training relating to programming, servicing or marketing of
sophisticated computer programs and services) to Executive to enable Executive
to perform Executive's duties as an employee of the Company. As a result,
Executive agrees that, during the term of Executive's employment and for a
period (the "Restricted Period") of twelve (12) months after the termination of
the Executive's employment with the Company (if such termination is with Cause,
or results from Executive's resignation or disability) Executive shall not, in
the United States (the "Geographic Area") (i) directly or indirectly engage in,
consult with, be employed by or be connected with any business or activity with
a third party which directly or indirectly competes with the Company's business
(a "Competing Business"), (ii) canvass any business from any of the Company s
current or former clients, (iii) assist others to open or operate any Competing
Business; or (iv) solicit, recommend or induce employees of the Company to
terminate their employment with the Company.
5.5 Nonsolicitation Agreement. During the Restricted Period, Executive will
not without the express prior written approval of the Board of Directors of the
Company (i) directly or indirectly, in one or a series of transactions, recruit,
solicit or otherwise induce or influence any proprietor, partner, stockholder,
lender, director, officer, employee, sales agent, joint venturer, investor,
lessor, supplier, customer, agent, representative or any other person which has
a business relationship with the Company to discontinue, reduce or modify such
employment, agency or business relationship with the Company, or (ii) employ or
seek to employ or cause any Competing Business to employ or seek to employ any
person or agent who is then (or was at any time within six (6) months prior to
the date the Executive or the Competing Business employs or seeks to employ such
person) employed or retained by the Company. Notwithstanding the foregoing,
nothing herein shall prevent the Executive from providing a letter of
recommendation to an employee with respect to a future employment opportunity.
5
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5.6 Reasonableness of Covenants. Executive has carefully read this Section 6
and agrees and acknowledges that the limitations as to time, geographical area
and scope. of activity to be restrained are reasonable and do not impose a
greater restraint than is necessary to protect the goodwill and business
interests of the Company. Executive has agreed to the foregoing covenants
because (a) Executive recognizes that the Company has a legitimate interest in
protecting the confidentiality of its business secrets (including the
Confidential Information), (b) Executive agrees that such noncompetition
agreement is not oppressive to him nor injurious to the public, (c) the Company
has provided specialized and valuable training and information to Executive, and
(d) the Company would not have entered into this Agreement without Executive's
agreement the covenants set forth in this Section 6. Executive further
understands and agrees that, if at some later date, a court of competent
jurisdiction determines the scope, duration or geographic area of any covenant
set forth in this Section 6 to be over broad or unenforceable for any reason,
these covenants shall be reformed by the court, pursuant to Tex. Bus. & Co. Code
Ann. Section 15.50(2) (or any successor provision and enforced to the maximum
extent permissible under Texas law.
6. Miscellaneous.
6.1 Assignment. Executive shall not have the right to assign this Agreement.
The Company shall have the right to assign this Agreement to any party that
purchases all or substantially all of the assets of the Company.
6.2 Injunctive Relief. Executive acknowledges that the services to be rendered
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, Executive agrees that any breach or threatened
breach by him of the covenants contained in Section 6 of this Agreement may
cause irreparable harm to the Company for which monetary damages may not be
adequate and accordingly, any such breach or threatened breach of Section 6 of
this Agreement shall entitle Company, in addition to all other legal remedies
available to it at law or in equity, to seek a temporary or permanent injunction
to enjoin such breach or threatened breach. Such injunction shall be available
without the posting of any bond or other security, and the Executive hereby
consents to the issuance of such injunction.
6.3 Binding Effect. This Agreement shall inure to the benefit of, be binding
upon and enforceable against, the parties hereto and their permitted, respective
successor, heirs, beneficiaries and permitted assigns.
6.4 Headings. The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
6.5 Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage prepaid, or by private overnight mail
service (e.g. Federal Express) to the party at the address set forth above or to
such other address as either party or the Company may hereafter give notice of
6
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in accordance with the provisions hereof. Notices shall be deemed given on the
sooner of the date actually received or the third business day after sending.
6.6 Waiver. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a continuing waiver of any
subsequent breach by either party. No waiver by either party of any provision
or condition to be performed shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time. No
waiver by either party of any provisions or condition to be performed shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
time or any prior or subsequent time.
6.7 Governing Law; Jurisdiction and Venue. Regardless of the place of
performance, this Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without giving effect to such State's
conflicts of laws provisions.
6.8 Severability. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of this Agreement
not held so invalid, and each such other provision shall to the full extent
consistent with law continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
6.9 Counterparts. This Agreement may be executed simultaneously in one or more
original or facsimile counterparts, each of, which shall be deemed an original,
but all of which together shall constitute one of the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth above.
COMPANY: Personal Medical Records, Inc.
By: /s/ Robert C. Hackett Jr.
-------------------------
Name: Robert C. Hackett Jr.
---------------------
Title: Executive Vice President
-------------------------
EXECUTIVE: Donald Hackett
--------------
8/1/97
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 1, 1997, by and among PMRi, a
Texas corporation with offices at 4008 River Place Blvd., Austin, Texas 78730
(the "Company"), and Louis A. Scalpati, an individual having an address at 3508
Ambleside Drive, Austin, Texas, 78759 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ and retain the experience, ability
and exclusive services of Executive, and to prevent any other competitive
business from securing his services, in utilizing his experience, background and
know-how; and
WHEREAS, the Executive desires to be so employed by the Company upon the
terms and conditions herein below set forth.
NOW, THEREFORE, in consideration of the mutual premises herein set forth,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto mutually agree as follows:
1. Employment. The Company shall employ Executive on an exclusive basis, and
Executive hereby agrees to such exclusive employment for a period of three (3)
years, commencing on August 1, 1997, and ending on July 31, 2000 (the "Initial
Term"). This Agreement may be extended for successive one (1) year terms upon
the mutual agreement of the parties (the Initial Term, as same may be extended,
is hereinafter referred to as the "Term"). In the event the Company wishes to
renew this Agreement upon the expiration of the Term (or upon the expiration of
any subsequent one (1) year extension of this Agreement) the Company shall give
Executive written notice thereof (the "Extension Notice") no later than ninety
(90) days prior to the expiration of the Term. Thereafter, Executive shall
notify the Company in writing of his desire to continue to be employed by the
Company no later than thirty (30) days after Executive's receipt of the
Extension Notice.
1.1 Duties and Responsibilities of Executive. Executive shall serve in such
positions as may be designated by the Board of Directors, and shall properly
perform such duties as may be assigned to him from time to time by the Board of
Directors of the Company. Executive shall also serve on any committee to which
the Company's Board of Directors may appoint him. Executive shall devote all of
his business time to the performance of his duties hereunder unless otherwise
authorized by the Board of Directors.
2. Compensation of Executive.
2.1 Base Salary. Commencing upon the date hereof, the Company shall pay to
Executive a base salary of One Hundred Forty Five Thousand ($145,000) per annum,
subject to adjustment as set forth in Sections 2.2 and 2.3 below (the "Base
Salary"). Such compensation shall be paid to Executive with the same frequency
as other executives of the Company are compensated. Such
<PAGE>
Base Salary shall be subject to withholding for the prescribed federal income
tax, social security, Medicare, and other items as required by law, and for
other items consistent with the Company's policy with respect to health
insurance and other benefit plans for similarly situated employees.
2.2 Salary Adjustments. The Executive's Base Salary set forth in Section 2.1
above (and as same may have been previously adjusted in accordance with the
provisions hereof) will be increased twenty percent (20%) upon completion of
each one year period of the Initial Term.
2.3 Discretionary Bonus. In addition to Executive's Base Salary, Executive
shall be entitled to such bonus compensation as Executive may be awarded, from
time to time, by a majority vote of the disinterested members of the Board of
Directors (or appropriate committee) of the Company.
2.4 Expenses. In addition to those expenses expressly set forth herein, the
Company shall pay or reimburse Executive for all ordinary and necessary out-of-
pocket expenses actually incurred by Executive in connection with performing his
duties hereunder, consistent with the Company's policies then in effect.
2.5 Automobile. The Company will provide Executive with an automobile
allowance in an amount of six hundred dollars ($600) per month, during the
Initial Term.
2.6 Benefits. Executive shall be entitled to participate in the Company's
pension, profit sharing, group insurance, option plans, hospitalization, and
group health and benefit plans and all other benefits and plans as the Company
provides to its senior executives to the extent such plans are established by
the Company and to the extent that Executive is eligible to participate in such
plans. Such benefits shall be subject to the terms of the applicable plan
documents, summary plan descriptions and/or employment policies and shall be
subject to modification, amendment or revocation in accordance with the terms of
such documents, policies and procedures.
2.7 Stock Options. Executive shall also be entitled to receive stock options
to purchase a total of 50,000 shares of the Company pursuant to the Company's
stock option plan on such terms as shall be established by disinterested members
of the Board of Directors. The purchase price for the shares shall be the fair
market value thereof as established by the Board of Directors in its sole
discretion. Executive shall be required to enter into any shareholders
agreement that the Board of Directors approves as a condition to the issuance of
common stock.
3. Termination.
3.1 Termination Without Cause. Either the Company or Executive may terminate
this Agreement at any time, without Cause (as that term is defined below), by
giving the other thirty (30) days prior written notice of termination.
3.2 Death; Disability. This Agreement shall be automatically terminated on the
death of Executive or in the event of the permanent disability of Executive if
he is no longer able, with reasonable accommodation, to perform the essential
functions of his position. In the event of Executive's disability, this
Agreement shall not terminate unless and until Executive has been
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<PAGE>
unable to perform the essential functions of his position for a period of three
(3) consecutive months as a result of his disability.
3.3 Termination for Cause or Resignation. In the event Executive is discharged
for Cause (as that term is defined below) or in the event Executive resigns,
then upon such occurrence, this Agreement shall be deemed terminated and the
Company shall be released from all obligations to Executive with respect to this
Agreement, including but not limited to compensation to Executive, except
obligations accrued prior to such date of termination or resignation.
3.4 Definition of Cause. As used herein, the term "Cause" shall mean
(a) the commission of any act of fraud on the part of Executive;
(b) misappropriation, embezzlement, theft or willful and material damage of or
to any asset of the Company or the use of the Company's funds or assets for any
illegal purpose;
(c) a good faith determination by the Board of Directors of the Company that
Executive has violated this Agreement or committed an act of gross negligence or
willful misconduct that has or is reasonably expected to have a material adverse
effect on the business or affairs of the Company; or
(d) the conviction of Executive of any felony, or the commission of any
criminal or illegal act on the part of Executive which materially and adversely,
whether directly or indirectly, affects the name or goodwill of the Company.
3.5 Severance Pay. In the event of termination, Executive shall be entitled to
compensation (the "Severance Pay") in accordance with the following:
(a) If this Agreement is terminated by the Company prior to the expiration of
the Initial Term of this Agreement or any renewal or extension hereof, and such
termination is not for Cause, Employee shall be entitled to Severance Pay of one
(1) year salary, payable in accordance with the Company's normal and customary
policies.
(b) If Executive's employment is terminated by reason of a disability,
Executive shall be entitled to Severance Pay as set forth in 3.5(a), payable in
accordance with the Company's normal and customary policies.
(c) If (i) Executive) voluntarily terminates his employment, (ii) the Company
terminates this Agreement for Cause, or (iii) if Executive's employment is
terminated by reason of his death, Executive shall not be entitled to receive
any additional salary, bonus or benefits beyond those earned or accrued as of
the effective date of the termination of his employment.
3.6 Effect of Termination on Agreement. Any termination of Executive's
employment shall not release either the Company or Employee from their
respective obligations under this Agreement that are required to be performed
subsequent to the date of such termination, including but not limited to those
obligations set forth under Sections 3 and 6.
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4. Flex Time Off. Executive shall be entitled to Flex Time Off ("FTO") of six
(6) weeks per year, during which period his Base Salary shall be paid in full.
Executive shall take his FTO at such times as Executive and the Company shall
determine is mutually convenient.
5. Confidentiality and Noncompetition.
5.1 Confidential Information. During the period of Executive's employment with
the Company, and after the termination thereof for any reason, Executive agrees
that, because of the valuable nature of the Confidential Information, Executive
shall use Executive's best efforts to maintain and protect the secrecy of the
Confidential Information. Without in any manner limiting the generality of the
foregoing obligation, Executive agrees that Executive shall not, directly or
indirectly, undertake or attempt to undertake any of the following activities:
(a) disclose any Confidential Information to any other person or entity;
(b) use any Confidential Information for Executive's own purposes;
(c) authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or
(d) undertake or attempt to undertake any activity the Company is prohibited
from undertaking or attempting to undertake by any of its present or future
clients, customers, suppliers, vendors, consultants, agents or contractors.
As used in this Agreement, the term "Confidential Information" means any
knowledge, information or property relating to, or used or possessed by, the
Company, and includes, without limitation, the following: trade secrets;
patents, copyrights, software (including, without limitation, all programs,
specifications, applications, routines, subroutines, techniques and ideas for
formulae); concepts, data, drawings, designs and documents; names of clients,
customers, employees, agents, contractors, and suppliers; marketing information;
financial information and other business records; and all copies of any of the
foregoing, including notes, extracts, memoranda prepared or suffered or directed
to be prepared by Executive based on any Confidential Information. Executive
agrees that all information possessed by him, or disclosed to him, or to which
Executive obtains access during the course of Executive's employment with the
Company shall be presumed to be Confidential Information under the terms of this
Agreement, and the burden of proving otherwise shall rest with Executive.
5.2 Return of Confidential Information. Upon termination of Executive's
employment with the Company for any reason, Executive agrees not to retain or
remove from the Company's premises any records, files or other documents or
copies thereof or any other Confidential Information whatsoever, and Executive
agrees to surrender same to the Company, wherever it is located, immediately
upon termination of Executive's employment.
5.3 Assignment of Intellectual Property. During the period of Executive's
employment with the Company, all processes, products, methods, improvements,
discoveries, inventions, ideas, creations, trade secrets, know-how, machines,
programs, designs, routines, subroutines,
4
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techniques, ideas for formulae, writings, books and other works of authorship,
business concepts, plans, projections and other similar items, as well as all
business opportunities, conceived, designed, devised, developed, perfected or
made by the Executive, whether alone or in conjunction with others, and related
in any manner to the actual or anticipated business of the Company or to actual
or anticipated areas of research and development (collectively, the
"Intellectual Property"), shall be promptly disclosed to and become the property
of the Company, and Executive hereby assigns, transfers and conveys the
Intellectual Property to the Company. Executive further agrees to make and
provide to the Company any documents, instruments or other materials necessary
or advisable to vest, secure, evidence or maintain the Company's ownership of
the Intellectual Property, and patents, copyrights, trademarks and similar
foreign and domestic property rights with respect to the Intellectual Property.
The term "Intellectual Property" shall be given the broadest interpretation
possible and shall include any Intellectual Property conceived, designed,
devised, developed, perfected, or made by the Executive during off-duty hours
and away from the Company's premises, as well as to those conceived, designed,
devised, developed, perfected, or made in the regular course of Executive's
performance.
5.4 Noncompetition Agreement. Executive acknowledges that the Company has
provided and may provide additional special training (including, without
limitation, training relating to programming, servicing or marketing of
sophisticated computer programs and services related to the Internet) to
Executive to enable Executive to perform Executive's duties as an employee of
the Company. As a result, Executive agrees that, during the term of Executive's
employment and for a period (the "Restricted Period") of twelve (12) months
after the termination of the Executive's employment with the Company (if such
termination is with Cause, or results from Executive's resignation or
disability) Executive shall not, in the United States (the "Geographic Area")
(i) directly or indirectly engage in, consult with, be employed by or be
connected with any business or activity with a third party which directly or
indirectly competes with the Company's business (a "Competing Business"), (ii)
canvass any business from any of the Company s current or former clients, (iii)
assist others to open or operate any Competing Business; or (iv) solicit,
recommend or induce employees of the Company to terminate their employment with
the Company.
5.5 Nonsolicitation Agreement. During the Restricted Period, Executive will
not without the express prior written approval of the Board of Directors of the
Company (i) directly or indirectly, in one or a series of transactions, recruit,
solicit or otherwise induce or influence any proprietor, partner, stockholder,
lender, director, officer, employee, sales agent, joint venturer, investor,
lessor, supplier, customer, agent, representative or any other person which has
a business relationship with the Company to discontinue, reduce or modify such
employment, agency or business relationship with the Company, or (ii) employ or
seek to employ or cause any Competing Business to employ or seek to employ any
person or agent who is then (or was at any time within six (6) months prior to
the date the Executive or the Competing Business employs or seeks to employ such
person) employed or retained by the Company. Notwithstanding the foregoing,
nothing herein shall prevent the Executive from providing a letter of
recommendation to an employee with respect to a future employment opportunity.
5
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5.6 Reasonableness of Covenants. Executive has carefully read this Section 6
and agrees and acknowledges that the limitations as to time, geographical area
and scope. of activity to be restrained are reasonable and do not impose a
greater restraint than is necessary to protect the goodwill and business
interests of the Company. Executive has agreed to the foregoing covenants
because (a) Executive recognizes that the Company has a legitimate interest in
protecting the confidentiality of its business secrets (including the
Confidential Information), (b) Executive agrees that such noncompetition
agreement is not oppressive to him nor injurious to the public, (c) the Company
has provided specialized and valuable training and information to Executive, and
(d) the Company would not have entered into this Agreement without Executive's
agreement the covenants set forth in this Section 6. Executive further
understands and agrees that, if at some later date, a court of competent
jurisdiction determines the scope, duration or geographic area of any covenant
set forth in this Section 6 to be over broad or unenforceable for any reason,
these covenants shall be reformed by the court, pursuant to Tex. Bus. & Co. Code
Ann. Section 15.50(2) (or any successor provision) and enforced to the maximum
extent permissible under Texas law.
6. Miscellaneous.
6.1 Assignment. Executive shall not have the right to assign this Agreement.
The Company shall have the right to assign this Agreement to any party that
purchases all or substantially all of the assets of the Company.
6.2 Injunctive Relief. Executive acknowledges that the services to be rendered
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, Executive agrees that any breach or threatened
breach by him of the covenants contained in Section 6 of this Agreement may
cause irreparable harm to the Company for which monetary damages may not be
adequate and accordingly, any such breach or threatened breach of Section 6 of
this Agreement shall entitle Company, in addition to all other legal remedies
available to it at law or in equity, to seek a temporary or permanent injunction
to enjoin such breach or threatened breach. Such injunction shall be available
without the posting of any bond or other security, and the Executive hereby
consents to the issuance of such injunction.
6.3 Binding Effect. This Agreement shall inure to the benefit of, be binding
upon and enforceable against, the parties hereto and their permitted, respective
successor, heirs, beneficiaries and permitted assigns.
6.4 Headings. The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
6.5 Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage prepaid, or by private overnight mail
service (e.g. Federal Express) to the party at the address set forth above or to
such other address as either party or the Company may hereafter give notice of
6
<PAGE>
in accordance with the provisions hereof. Notices shall be deemed given on the
sooner of the date actually received or the third business day after sending.
6.6 Waiver. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a continuing waiver of any
subsequent breach by either party. No waiver by either party of any provision
or condition to be performed shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time. No
waiver by either party of any provisions or condition to be performed shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
time or any prior or subsequent time.
6.7 Governing Law; Jurisdiction and Venue. Regardless of the place of
performance, this Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without giving effect to such State's
conflicts of laws provisions.
6.8 Severability. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of this Agreement
not held so invalid, and each such other provision shall to the full extent
consistent with law continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
6.9 Counterparts. This Agreement may be executed simultaneously in one or more
original or facsimile counterparts, each of, which shall be deemed an original,
but all of which together shall constitute one of the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth above.
COMPANY: Personal Medical Records, Inc.
By: /s/ Louis A. Scalpati
---------------------------------
Name: Louis A. Scalpati
-------------------------------
Title: VP Technology and Operations
------------------------------
EXECUTIVE: Donald Hackett
---------------------------
8/1/97
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7
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated January 15, 1999, is
made by and between Empower Health Corporation a Texas corporation (the
"Company" or "Employer"), and Dennis Upah, an individual residing in Travis
County, Texas (the "Employee").
PRELIMINARY STATEMENTS
Employer desires to secure the services of Employee, and Employee desires
to be engaged by Employer, in accordance with the terms and conditions herein
set forth.
STATEMENT OF AGREEMENT
NOW, THEREFORE in consideration of the premises and the covenants contained
herein, and for other good, valuable and binding consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I. POSITION
Section 1.1 Position. Employer hereby employs Employee in the position of
Chief Operating Officer.
ARTICLE II. COMPENSATION
Section 2.1 Base Salary. During his employment, Employee shall be paid at
the rate of $140,000 per year, subject to applicable withholding ("Base Pay"),
payable in accordance with Employer's regular payroll practices.
Section 2.2 Stock Options.
(a) Employee shall be granted pursuant to Employer's stock option plan an
option to purchase the greater of 45,000 shares of 1% (of that which is
available on the date of issuance) of Employer's Common Stock. Such option
shall be subject to approval by the Board of Directors and shall be on such
terms as established by the Board of Directors. Any option granted pursuant to
this Agreement shall become fully vested and immediately exercisable upon the
occurrence of any event set forth in Section 4.3(a) or (b) herein.
(b) The exercise price for the option granted pursuant to this Section 2.2
shall be the fair market value of Employer's Common Stock on the date of grant
as established by the Board of Directors in its sole discretion. Employee shall
be required to enter into any stock purchase or related agreement that the Board
of Directors approves as a condition to the issuance of such Common Stock.
Section 2.3 Bonus. In addition to Employee's Base Salary, Employee shall
be entitled to annual bonus compensation (the "Annual Bonus") equal to at least
(i) $140,000 (subject to applicable withholding) commencing on the date of this
agreement and (ii) $105,000
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(subject to applicable withholding) commencing on the first and second
anniversaries of the date of this agreement. The Annual Bonus shall be parceled
and paid in equal increments throughout the calendar year in addition to Base
Pay and in accordance with Employer's regular payroll practices as applied to
Base Pay.
Section 2.4 Car Allowance. During his employment, Employee will be
entitled to a car allowance of $600 per month, payable in accordance with
Employer's regular payroll practices.
Section 2.5 Benefits. Employee shall be entitled to a total of six weeks
per year paid time-off which may be used at the discretion of Employee and which
shall be in lieu of any paid vacation and sick time. Such time-off shall accrue
monthly. In addition, Employee shall be eligible to participate in the employee
benefit plans and executive compensation programs applicable to other key
executives of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, stock option, incentive or other bonus plans,
life, disability, health, accident and other insurance programs, and similar
plans or programs, subject, in each case, to the generally applicable terms and
conditions of the applicable plan or program in question and to the
determination of any committee administering such plan or program.
ARTICLE III. DUTIES AND RESPONSIBILITIES
Section 3.1 Duties and Responsibilities. Employee shall properly perform
the duties as may be assigned to his or laid out by Employer as duties or
responsibilities of the Employee. Employee shall devote all of his business time
to the performance of his duties hereunder.
ARTICLE IV. TERM AND TERMINATION
Section 4.1 Term. Subject to the rights of either party to terminate this
Agreement as set forth in Section 4.2 of this Agreement, Employer shall employ
Employee on an exclusive basis. Employee hereby agrees to be employed
exclusively by the company for the term of this Agreement and such employment
shall commence on or before February 17, 1999 and shall continue for a period of
thirty-six months (the "Term"), unless terminated earlier in accordance with
Section 4.2.
Section 4.2 Termination. In the event Employee is discharged or in the
event Employee resigns, then, upon such occurrence, this Agreement shall be
deemed terminated and the Employer shall be released from all obligations to
Employee with respect to this Agreement, including, but not limited to,
compensation to Employee, except obligations accrued prior to such date of
termination or resignation and except as provided in Section 4.3.
Notwithstanding anything to the contrary contained in this Agreement, either
party shall have the right to terminate this Agreement at any time.
Section 4.3 Severance Pay. In the event of termination and in exchange
for entering into a General Release of Claims and Settlement Agreement with the
Company, Employee shall be entitled to compensation equal to the Annual Bonus in
effect as of the date of termination and twelve (12) months of Base Pay and
continuation of any health care insurance for a period of twelve (12) months
(collectively, the "Severance Benefits") in accordance with the following:
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(a) If this Agreement is terminated by the Company prior to the expiration
of the Term of this Agreement and such termination is not for Cause, Employee
shall be entitled to Severance Benefits, payable in accordance with the
Company's normal and customary policies.
(b) If Employee's employment is terminated by reason of a disability,
Employee shall be entitled to Severance Benefits, payable in accordance with the
Company's normal and customary policies.
(c) If (i) Employee voluntarily terminates his employment, (ii) the Company
terminates this Agreement for Cause, or (iii) if Employee's employment is
terminated by reason of his death, Employee shall not be entitled to receive any
additional salary, bonus or benefits beyond those earned or accrued as of the
effective date of the termination of his employment.
(d) For purposes of this Agreement, "Cause" means (i) Employee's repeated
and intentional disregard for his material duties with respect to the Company
(other than as a result of illness or disability) which continues for thirty
(30) days after a written demand for substantial performance is delivered to
Employee, (ii) the commission by Employee of any act of fraud, theft or criminal
dishonesty with respect to the Company or any of its subsidiaries or affiliates,
or the conviction of Employee of any felony, (iii) the commission of any act
involving moral turpitude which (A) brings the Company or any of its affiliates
into public disrepute or disgrace, or (B) causes material injury to the customer
relations, operations or the business prospects of the Company or any of its
affiliates, and (iv) any material breach by Employee of this Agreement.
(e) If Employee voluntarily terminates his employment within ninety (90)
days after (i) a material reduction in the nature or scope of Employee's
responsibilities, (ii) a material reduction in Employee's compensation or
benefits (other than a reduction that generally effects all Employees entitled
to such benefits) or (iii) a requirement to relocate his principal place of
employment outside a radius of fifty (50) miles from his place of employment
immediately prior to such requirement, then such termination shall be deemed to
be a termination by the Company not for Cause.
ARTICLE V. CONFIDENTIAL INFORMATION
Section 5.1 Disclosure of Confidential Information. Employee acknowledges
that certain information, whether written or oral, concerning the Employer
and/or the Business, including, but not limited to, general business operations
or any other ideas and or items relating to the business of the Employer
(referred to herein as "Confidential Information"), whether prepared or
generated by Employee or the Employer pursuant to this Agreement, or otherwise
coming into the possession or knowledge of Employee, shall remain the exclusive,
confidential property of the Employer except to the extent expressly authorized
in writing by the Employer for dissemination. Employee further acknowledges and
agrees that all such Confidential Information constitutes trade secrets of the
Employer.
During the term of this Agreement and the Restricted Period (as defined in
Section 5.8 hereof) Employee shall not disclose any of such Confidential
Information to any third party without the prior written consent of the
Employer, and shall take all reasonable steps and actions necessary to maintain
the confidentiality of such Confidential Information. Employee shall not
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<PAGE>
use any of such Confidential Information in any manner whatsoever during the
Restricted Period, without the Employer's express prior written consent. In
consideration of the obligations undertaken by the Employer herein, Employee
will not, at any time during or after his employment hereunder, reveal divulge
or make known to any person, any Confidential Information acquired by Employee
during the course of his employment. Without in any manner limiting the
generality of the foregoing obligation, Employee agrees that Employee shall not,
directly or indirectly, undertake or attempt to undertake any of the following
activities:
(a) disclose any Confidential Information to any other person or entity;
(b) use any Confidential Information for Employee's own purposes;
(c) authorize or permit any other person or entity to use, copy, disclose,
publish or distribute any Confidential Information; or
(d) undertake or attempt to undertake any activity the Company is
prohibited from undertaking or attempting to undertake by any of its present or
future clients, customers. suppliers, vendors. consultants, agents or
contractors.
As used in this Agreement, the term "Confidential Information" means any
knowledge, information or property relating to, or used or possessed by, the
Company, and includes, without limitation, the following: trade secrets,
patents, copyrights, software (including, without limitation, all programs,
specifications, applications, routines, subroutines, techniques and ideas for
formulae); concepts, data, drawings, designs and documents; names of clients,
customers, Employees, agents, contractors. and suppliers; marketing information;
financial information and other business records- and all copies of any of the
foregoing, including notes, extracts, memoranda prepared or suffered or directed
to be prepared by Employee based on any Confidential Information. Employee
agrees that all information possessed by him/him, or disclosed to his or to
which Employee obtains access during the course of Employee's employment with
the Company shall be presumed to be Confidential Information under the terms of
this Agreement, and the burden of proving otherwise shall rest with Employee.
Section 5.2 Return of Confidential Information. Upon termination of
Employee's employment with the Company for any reason, Employee agrees not to
retain or remove from the Company's premises any records, files or other
documents or copies thereof or any other Confidential Information whatsoever,
and Employee agrees to surrender same to the Company, wherever it is located,
immediately upon termination of Employee's employment.
Section 5.3 Assignment of Intellectual Property. During the period of
Employee's employment with the Company, all processes, products, methods,
improvements, discoveries, inventions, ideas, creations, trade secrets, know-
how, machines, programs, designs, routines, subroutines, techniques, ideas for
formulae, writings, books and other works of authorship, business concepts,
plans, projections and other similar items as well as all business
opportunities, conceived, designed, devised, developed, perfected or made by the
Employee, whether alone or in conjunction with others, and related in any manner
to the actual or anticipated business of the Company or to actual or anticipated
areas of research and development (collectively, the "Intellectual Property"),
shall be promptly disclosed to and become the property of the Company,
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<PAGE>
and Employee hereby assigns. transfers and conveys the Intellectual Property to
the Company. Employee further agrees to make and provide to the Company any
documents, instruments or other materials necessary or advisable to vest,
secure, evidence or maintain the Company's ownership of the Intellectual
Property, and patents, copyrights, trademarks and foreign and domestic property
rights with respect to the Intellectual Property. The term "Intellectual
Property" shall be given the broadest interpretation possible and shall include
any Intellectual Property conceived, designed, devised, developed, perfected, or
made by the Employee during off-duty hours and away from the Company's premises,
as well as to those conceived, designed, devised, developed, perfected, or made
in the regular course of Employee's performance.
Section 5.4 Non-competition Agreement. Employee acknowledges that the
Company has provided and may provide additional special training (including,
without limitation, training relating to programming, servicing or marketing of
sophisticated computer programs and services related to healthcare and to the
Internet) to Employee to enable Employee to perform Employee's duties as an
employee of the Company. As a result, Employee agrees that, during the
restricted period (as herein defined) (if such termination is with Cause, or
results from Employee's resignation or disability) Employee shall not, in the
United States (the "Geographic Area") (i) directly or indirectly engage in,
consult with, be employed by or be connected with any business or activity with
a third party, in the field of consumer healthcare software products and
services, which directly or indirectly competes with the Company's business (a
"Competing Business"), (ii) solicit any business from any of the Company's
current or former clients, (iii); assist others to open or operate any Competing
Business; or (iv) solicit, recommend or induce employees of the Company to
terminate their employment with the Company.
Section 5.5 Nonsolicitation Agreement. During the Restricted Period,
Employee will not without the express prior written approval of the Board of
Directors of the Company (i) directly or indirectly, in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, supplier, customer, agent, representative or any
other person which has a business relationship with the Company to discontinue,
reduce or modify such employment, agency or business relationship with the
Company, or (ii) employ or seek to employ or cause any Competing Business to
employ or seek to employ any person or agent who is then (or was at any time
within six (6) months prior to the date the Employee or the Competing Business
employs or seeks to employ such person) employed or retained by the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Employee from
providing a letter of recommendation to an employee with respect to a future
employment opportunity.
Section 5.6 Reasonableness of Covenants. Employee has carefully read this
Article 5 and agrees and acknowledges that the limitations as to time,
geographical area and scope of activity to be restrained are reasonable and do
not impose a greater restraint than is necessary to protect the goodwill and
business interests of the Company. Employee has agreed to the foregoing
covenants because (a) Employee recognizes that the Company has a legitimate
interest in protecting the confidentiality of its business secrets (including
the Confidential Information), (b) Employee agrees that such non-competition
agreement is not oppressive to him nor injurious to the public, (c) the Company
bas provided specialized and valuable training and information to Employee, and
(d) the Company would not have entered into this Agreement without Employee's
agreement the covenants set forth in this Article 5. Employee further
understands
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<PAGE>
and agrees that, if at some later date, a court of competent jurisdiction
determines the scope, duration or geographic area of any covenant set forth in
this Article 5 to be over broad or unenforceable for any reason. these covenants
shall be reformed by the court, pursuant to Tex. Bus. & Co. Code Am. Section
15.50(2) (or any successor provision) and enforced to the maximum extent
permissible under Texas law.
Section 5.7 Remedies. If Employee breaches the agreement set forth in
Article 5 of this Agreement, the Employer will be entitled to the following
remedies:
(a) damages from Employee; and
(b) in addition to its right to damages and any other rights the Employer
may have, Employer shall be entitled to obtain injunctive or other equitable
relief to restrain any breach or threatened breach or otherwise to specifically
enforce the provisions of Article 5 of this Agreement, it being agreed that
money damages alone may be inadequate to compensate the Employer and would be an
inadequate remedy for such breach.
Section 5.8 Restricted Period. The term "Restricted Period" as used in
this Agreement, shall mean the period of Employee's actual employment hereunder,
plus one year after the date Employee is actually no longer employed by the
Employer as a consequence of the expiration or termination of this Agreement,
Employee's resignation, or termination for any reason.
ARTICLE VI. MISCELLANEOUS
Section 6.1 Entire Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement between the parties with respect to the
subject matter herein set forth, and supersedes all prior agreements by and
between the parties.
Section 6.2 Amendments. This Agreement may not be amended, altered or
terminated except in writing.
Section 6.3 Invalidity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not invalidate, make
unenforceable or otherwise effect any other provision of this Agreement, which
shall remain in full force and effect.
Section 6.4 Further Assurances. The parties agree that they will at any
time and from time to time, upon request of the other, do, execute, acknowledge
and deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the purpose
or intent of the provisions of this Agreement.
Section 6.5 Inurement. This Agreement shall be binding upon the parties
hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns.
Section 6.6 Notices. All notices of requests, demands or other
communications required or to be given hereunder shall be delivered by hand,
overnight courier, facsimile transmission, or by United States Mail postage
prepaid, by registered or certified mail (return
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<PAGE>
receipt requested), to the address or addresses indicated below and shall be
deemed given when received by the address thereof:
To Employer: Donald W. Hackett, President
Empower Health Corporation
8920 Business Park Drive
Longhorn Suite
Austin, TX 78759
To Employee: Dennis Upah
10009 China Garden Cove
Austin, TX 78730
--------------------------------------
Or at such other address or addresses as may be expressly designated by either
party by notice given in accordance with the foregoing provision.
Section 6.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 6.8 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Rules of the American Arbitration
Association in Austin, Travis County, Texas, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof and shall not be appealable.
Section 6.9 Gender. Wherever herein the singular number is used, the same
shall include the plural and the masculine gender shall include the feminine and
neuter genders, and vice versa, as the context may require.
Section 6.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original but all together shall
constitute but one agreement.
Section 6.11 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.12 Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver of any subsequent breach by either party. No waiver by either party of
any provision or condition to be performed shall be deemed a waiver of similar
or dissimilar provisions or conditions at the time or any prior or subsequent
time.
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first written above.
EMPLOYER:
EMPOWER HEALTH CORPORATION
By: \s\ D.Hackett
------------------------------
Name:
Title: CEO/Pres.
EMPLOYEE:
By: \s\ Dennis Upah
------------------------------
Name:
Empower Health - Employment Agreement
<PAGE>
EXHIBIT 10.11
D.A.R.T. SERVICE AGREEMENT
--------------------------
Company Name: Empower Health Corporation
-------------------------------------------
Address: 8920 Business Park Drive, Suite 200
-------------------------------------------
Austin, TX 78759
-------------------------------------------
Web Site(s): drkoop.com
-------------------------------------------
Effective Date: November 15, 1998
-------------------------------------------
DoubleClick Inc. hereby grants to the above named Company the right to use
DoubleClick's DART Service on the terms and conditions provided below:
I. Grant of Rights: DoubleClick grants to Company the non-exclusive and non-
---------------
transferable right to use DoubleClick's DART Service which allows for the
targeted delivery of Advertising to Internet users accessing web sites
designated by Company based on a set of criteria selected by advertisers.
To deliver the Advertising, Company will use DoubleClick's Ad Management
System which Company can access by using a unique password issued by
DoubleClick. Company will have access to on-line reports that include
reporting at the advertiser, campaign and site level. Reports will
include, but not be limited to, impressions, clicks and click rates.
Company shall be solely responsible for soliciting all advertisers and web
sites, trafficking of Advertising (which shall include the input of
Advertisements into the Ad Management System) and handling all inquiries of
any type or nature. DoubleClick's sole obligation hereunder shall be to
make the DART Service available to Company for the delivery of Advertising.
No rights are being granted hereunder except those specifically set forth
herein.
As used herein, "Advertising," "Advertisement" and "Ads" shall include
"banners," "pop-up windows," "buttons," "roadblocks," "tickers,"
"intermercials," "incentives," "sponsorships" and other form of
advertisements and their contents intended for placement on Company's web
site(s) for use of the DART Service.
II. Training and Support: DoubleClick shall provide to Company at no additional
--------------------
charge six full day training sessions at either DoubleClick's New York or
Silicon Valley offices to explalin the proper use of the DART Service.
Additional training (including training on-site at Company's offices) is
available at rates to be mutually agreed upon by the parties. Company shall
not permit any of its employees to access and use of the DART Service
unless any such employee has successfully completed the trainiong session
and has been so certified by DoubleClick. DoubleClick also will make
customer service personnel available by telephone for support twenty-four
hours per day, seven days per week at no additional charge.
III. Fee: Company shall pay DoubleClick:
---
A. * * * payable upon execution of this Agreement, plus
B. a service fee (the "Service-Fee") as follows/1/:
- ----------------
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * * *. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
/1/ The number of ads delivered will be determined by aggregating impression
levels from all WinStar properties and WinStar repaid sites. Volume from all
sites represented by WinStar Interactive will be aggregated on a monthly basis
and
<PAGE>
RATE STRUCTURE FOR ADS FILE SIZE 15K AND SMALLER (OTHER THAN PROMOTIONAL ADS)
- -----------------------------------------------------------------------------
Number of Ad Impressions
Delivered by DART Service Per Month Cost Per Thousand (CPM) Ad Impressions
- ----------------------------------- --------------------------------------
* * *
C. rate structure for promotional ads: for any Advertisements delivered to a
web site using the DART Service which promote either that web site or one
of the other web sites owned or controlled by Company ("Promotional Ads"),
DoubleClick shall receive a fee * * *. It is understood and agreed that
all Promotional Ads will not be removed from DoubleClick's server, but
shall be redirected by DoubleClick to the Company's server for delivery
from each server.
Company acknowledges that the Service Fee set forth above with respect to
non-Promotional Ads applies when the average file size for non-promotional
Ads is 15K and smaller. Company further acknowledges that DoubleClick's
cost in delivering Ads of a file size larger than 15K is increased due to
the increased bandwidth necessary to deliver such Ads. Accordingly, the
Service Fee with respect to non-promotional Ads shall be increased as
follows in the event that the average size for non-promotional Ads
delivered in a given month is over 15K, Company agrees to pay DoubleClick a
surcharge in an amount equal to the percentage increase of file size above
15K.
The Service Fee for each month shall be paid to DoubleClick within thirty
(30) days of Company's receipt of the applicable invoice.
IV. Term: One (1) year from the Effective Date. The minimum Service Fee
----
billed for any given month shall be * * *
V. Ownership/Limitations on Use/Confidentiality of Data: DoubleClick shall
----------------------------------------------------
have the sole and exclusive ownership of all right, title and interest in
and to the DART Service, any enhancements thereto and any materials and
data provided to Company by DoubleClick. Except as expressly provided
herein, Company may not use, copy, modify, alter, sell, distribute or
sublicense the DART Service. Under no circumstance may Company reverse
assemble, reverse compile or otherwise attempt by any other method to
create or derive the source programs of the DART Service, nor authorize any
third parties to do the same. It is understood and agreed that Company
shall have sole and exclusive ownership of all right, title and interest in
and to all user data derived from Company's use of the DART Service,
provided that Company hereby grants to DoubleClick an irrevocable,
perpetual and royalty-free license to use such user data in connection with
DoubleClick's business provided, however, that DoubleClick agrees that it
shall not disclose such user data to third parties except with Company's
prior written consent or except if such user data is appreciated with user
data derived by DoubleClick's, or other companies,' use of the DART Service
so that Company-specific user data shall not be identifiable by such third
parties. In addition, DoubleClick agrees that any information by which
individual users accessing Company's web site(s) through the DART Service
can be identified by name or e-mail address shall not be disclosed to any
third party without Company's prior written consent.
- -----------------
billed separately. Each WinStar repped site will be required to sign a
separate DART Service Agreement in order to qualify for the DART/WinStar
pricing.
* * * 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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VI. Representations and Warranties:
------------------------------
A. DoubleClick represents and warrants that: (i) it has full power and right
to enter into this Agreement, to carry out the terms and conditions
contained herein and to grant the rights granted hereunder; (ii) the DART
Service, including any software and hardware owned by DoubleClick and
used in connection with such DART Service, will not violate or infringe
any copyright or other intellectual property right (other than patent
right) of any third party; and (iii) the DART Service will be operated
and maintained by DoubleClick with professional diligence and skill and
in a manner consistent with high industry standards.
B. Company represents and warrants that: (i) it has full power and right to
enter into this Agreement and to carry out the terms and conditions
contained herein; (ii) its use of the DART Service and its delivery of
Advertising shall be in accordance with the terms hereof and Company's
agreements with Advertisers and web sites and shall not violate or
infringe the rights of any third parties; and (iii) any Advertising
delivered and placed by Company hereunder and any web site on which said
Advertising is placed will not violate or infringe the rights of any
third parties or any applicable statute, law or regulation.
VII. Indemnification:
----------------
A. DoubleClick agrees to indemnify and hold Company harmless from and
against any and all claims, actions, losses, damages, liability, costs
and expenses, including reasonable attorneys' fees (collectively,
"Losses") arising out of or in connection with the breach of any
representation, warranty or agreement made by DoubleClick hereunder.
B. Company agrees to indemnify and hold DoubleClick harmless from and
against any and all Losses arising out of or in connection with the
breach of any representation, warranty or agreement made by Company
hereunder or its delivery of Advertising using the DART Service.
VIII. Disclaimer of Liability: EXCEPT AS EXPRESSLY PROVIDED HEREIN, DOUBLECLICK
MAKES NO WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OF THE DART SERVICE
FOR A PARTICULAR PURPOSE. DOUBLECLICK SHALL NOT BE LIABLE FOR OR TO
COMPANY OR ANY THIRD PARTY FOR ANY LOSS, COST, DAMAGE OR EXPENSE
(INCLUDING COUNSEL FEES) INCURRED IN CONNECTION WITH COMPANY'S USE OF THE
DART SERVICE, INCLUDING, WITHOUT LIMITATION, FOR ANY TECHNICAL
MALFUNCTION, COMPUTER ERROR OR LOSS OF DATA OR OTHER INJURY, DAMAGE OR
DISRUPTION OF ANY KIND. IN NO EVENT SHALL DOUBLECLICK BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES EVEN IF
SUCH DAMAGES ARE FORESEEABLE AND WHETHER OR NOT DOUBLECLICK HAS BEEN
ADVISED OF THE POSSIBILITY THEREOF NOR SHALL DOUBLECLICK'S LIABILITY
EXCEED TWICE THE TOTAL AMOUNT PAID TO DOUBLECLICK BY COMPANY HEREUNDER.
COMPANY SHALL REQUIRE ALL ADVERTISERS AND EACH WEB SITE OWNER TO SIGN AN
ACKNOWLEDGMENT WITH RESPECT TO THE FOREGOING.
IX. Termination: Either party may terminate this Agreement if the other party
-----------
is in breach hereunder and fails to cure such breach within thirty (30)
of notice. Either party may terminate this Agreement for any reason
within thirty (30) days' advanced written notice to other party.
DoubleClick shall also have the right to terminate this Agreement if it
reasonably determines that Company is using the DART Service
3
<PAGE>
in such a manner that could damage or cause injury to the DART Service or
reflects unfavorably on the reputation of DoubleClick.
X. Confidentiality: Any information provided hereunder by either party which
---------------
is marked as "confidential" or should be reasonably understood to be
confidential or proprietary to such party shall not be used, disclosed or
reproduced by the other party without the consent of the party providing
said information. It is agreed that any reference manuals compiled or
provided hereunder are confidential.
XI. Independent Contractor Status: Each party shall be and act as an
-----------------------------
independent contractor and not as partner, joint venturer or agent of the
other.
XII. Modifications and Waivers: This Agreement represents the entire
-------------------------
understanding between DoubleClick and Company, supersedes all prior
agreements and cannot be modified except by a written instrument signed
by the parties hereto.
XIII. Applicable Law: This Agreement shall be governed by New York law.
--------------
Accepted: Approved:
- --------- ---------
EMPOWER HEALTH CORPORATION DOUBLECLICK INC.
By: /s/ Neal Longwell By: /s/ Christopher D. Snikkis
------------------------------- --------------------------
Neal Longwell Christopher D. Snikkis
Title: Senior Vice President Sales Title: General Manager
----------------------------- ------------------------
Date: December 16, 1998 Date: January 6, 1998
----------------------------- ------------------------
(A faxed copy of this agreement shall be deemed signed and executed.)
4
<PAGE>
EXHIBIT 10.12
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.
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.
- -------------
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>
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.
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.
- -------------------------
* * * 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>
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
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
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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
(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
<PAGE>
(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
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
<PAGE>
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 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.
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
<PAGE>
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 10.15
AGREEMENT
This Agreement is made and entered into this 5th day of January, 1999 by
and among C. Everett Koop, M.D. ("Koop") and Empower Health Corporation, a Texas
corporation (EHC").
WITNESSETH:
WHEREAS Koop has/is assisting EHC in the development of its consumer-
centric healthcare management information system for use on EHC's web site
drkoop.com, and elsewhere, and, which is specifically set forth in EHC's
Business Plan, dated October 6, 1997;
NOW THEREFORE for and in consideration of the premises, and the mutual
covenants and promises herein set forth, the parties hereto hereby agree as
follows:
1. Term and Termination: The term of this Agreement will begin effective
on the date hereof and will extend for an initial term of five years. Unless
otherwise terminated as provided for below, the Agreement will automatically
renew for consecutive three-year terms. The Agreement may be terminated by
either party upon written notice 120 days before the expiration of any Term.
This Agreement may also be terminated by either party in the event of a breach
or default by the other party. Provided termination is not the result of a
breach or default by EHC, EHC shall have the right on a non-exclusive basis for
three years following termination to rebrand and sell approved Products bearing
the Koop Name (the "Rebranding Period"). In the event that termination occurs as
a result of a breach or default by EHC all rights to use the Koop Name shall
cease immediately upon termination.
2. Right To Use Services: During the Term and subject to all other
provisions of this Agreement, Koop agrees that EHC shall have the right to use
the Koop name, image or likeness (hereinafter the "Koop Name") in connection
with the Company's healthcare related software services and products
(collectively the "Products") in accordance with Clause 5 below.
3. Fees and Payment: For all rights and privileges and services
rendered or provided for hereunder by Koop, EHC shall pay Koop a royalty on
all EHC's Revenues as reflected on EHC's Profit and Loss Statement
(thereinafter "EHC's Revenues"). EHC will pay Koop a 2% royalty on all
Revenues received from all gross revenues, including, but not limited to,
sales of Direct to Consumer advertising revenues, hospital partnership
programs, "Dr. Koop's Community" software, products and services. The 2%
royalty will be paid to Koop for the commercial life of the aforementioned
products or until termination of this Agreement and expiration of the
Rebranding Period, if any. Future EHC products which bear the Koop Name shall
pay a royalty between 2% and 4% of Net Sales. For future EHC products, the EHC
Board of Directors will determine the actual royalty percentage paid to Koop,
not less than 2%.
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<PAGE>
and not more than 4% in its reasonable discretion. Said royalties will be
paid quarterly with a lag term of less than ninety days.
4. Competitive Protection: Effective as of the date of this Agreement and
continuing throughout the Term, Koop agrees that except as provided for herein,
Koop will not render services in the form of advertising and/or publicizing of
any items, products or services which are directly competitive with EHC's
Products sold pursuant to this Agreement (hereinafter collectively the
"Competitive Products") nor will Koop permit or authorize the use of the Koop
name and/or likeness (photograph and/or drawing), voice, signature and/or
endorsement in connection with any such Competitive Products, except as may be
used for the non-profit activities of the Koop Institute.
(i) Dr. Koop shall not participate in the development, production
or promotion of any Competitive Products during the term of this Agreement or
any renewal term or during the rebranding period, if any.
5. Right of Review: The following elements of each Product shall be
subject to Koop's prior review and written approval, which approval shall not be
unreasonably withheld and shall be rendered within ten working days of receipt
of the element of the Product. Koop shall have the right to delegate his
approval rights hereunder to another person in consultation with and after
notice to EHC. During the term of the Agreement, should Koop die, the executor
of his estate will manage all rights, royalties and any other considerations
related to this Agreement.
(i) Content and format, including manuscripts and other written
materials included with the Products, including drafts, and the final version.
(ii) Extent and content of all medical and technical information.
(iii) Professional medical consultants and advisors.
(iv) Title.
(v) Credit.
(vi) Means of advertising, promoting and selling the product,
including the Koop Name.
(vii) All advertising and promotional materials created, developed or
used in connection with the Products.
(viii) Any use of the Koop Name.
2 of 6
<PAGE>
(ix) Any use not expressly contemplated by this Agreement.
EHC and Koop shall work together to establish systems and procedures for
updating the Products based on advances in the field of medicine.
6. Default Provisions:
(a) In the event that either party ("Defaulting Party")
(i) Materially or repeatedly defaults in the performance of
any of its duties or obligations set forth in this Agreement and such
default is not substantially cured within thirty (30) days after
written notice is given by the other party specifying the default; or
(ii) Defaults in the payment of any amount due to the other
party under this Agreement and does not cure the default within thirty
(30) days after written notice is given by the other party specifying
the default; and
(iii) Provided, that upon a default under Section 6(i) and/or
(ii) by one party under this Agreement, the cure period for the next
default by such party shall be reduced (but not below zero days) by
ten (10) days.
Then the other party may, by giving written notice to such effect to
the Defaulting Party, terminate this Agreement as of the date
specified in such notice of termination.
(b) Notwithstanding anything to the contrary herein contained, the
termination of the Agreement shall not relieve the parties of their obligations
to make payments previously earned.
7. Obligations Limited to Payments: The obligations to Koop hereunder
shall be fully performed and discharged as stipulated in Section 3, except for
those obligations that arise pursuant to the provisions for indemnifications
contained in Section 9. It is understood that Koop is not an employee of EFIC
and shall not be entitled to any rights or benefits granted to employees of EHC
and by reason of the rendering hereunder of services by Koop.
8. Covenant of EHC: EHC covenants and agrees that it will not knowingly
permit, do or commit any act or thing that would degrade, tarnish or deprecate
Koop or the Koop public image in society or standing in the community, or
prejudice Koop.
9. Indemnity: EHC agrees to indemnify and hold harmless Koop, his
employees, assignees, and heirs against any and all claims, damages, liabilities
(including, but not limited to, liability for personal injury and liability for
breach of confidentiality), costs and expenses, including without limitation,
reasonable legal fees and costs arising out of the use of any material furnished
by EHC in connection with the services performed, or resulting from any patient
or third party action of any kind, or resulting in any way from the sale of
Products pursuant to this
3 of 6
<PAGE>
Agreement, or incurred for or by reason of the breach of EHC of any of the
obligations, warranties, agreements, covenants or representations herein
contained. Koop shall provide prompt written notice of any claim hereunder and
EHC shall have the right to defend same.
10. Notices: Any notice or other communication (including payment
hereunder) required or permitted to be given hereunder shall be in writing and
shall be hand delivered or sent next-day delivery by a company where a receipt
is given to the address as follows:
To EHC: Empower Health Corporation
Attention: President
8920 Business Park Drive
Suite 200
Austin, TX 78759
To Koop: C. Everett Koop, M.D.
Koop Institute at Dartmouth
College Street
Hanover, NH 03755
and
C. Everett Koop, M.D.
3 Ivy Pointe Way
Hanover, NH 03755
Any such notice, direction or other instrument aforesaid, if delivered,
shall be deemed to have been given or made on the date on which it was delivered
or if sent next-day delivery shall be deemed to have been given or made on the
day following the day on which it was sent provided that any one of the parties
hereto may change its address by written notice to the other according to the
terms hereof and in such event this paragraph shall be deemed to be amended
accordingly.
11. Informed Consent, Confidentiality and Security: EHC represents and
warrants that when and if it introduces a program identified here as "Personal
Medical Records" that it will obtain appropriate and fully informed patient
consent to the receipt, retention, use and transfer of that patient's personal
or medical data and that such informed consent complies with all applicable
federal, state and local laws and regulations. EHC further represents and
warrants that it shall take reasonable precautions to assure accuracy of and to
protect against negligent disclosure of and unauthorized access to all patients'
personal and medical data.
12. Other Representations and Warranties:
By Koop: EHC may apply for trademarks which incorporate the Dr. Koop
name. Koop represents and warrants that he has the right to enter into this
Agreement and that he is free to grant the rights granted herein.
By EHC: EHC represents and warrants that:
4 of 6
<PAGE>
1. It has the right to enter into this Agreement and that it is free
to grant the rights granted herein.
2. The Products will not infringe the patent, copyright, trade
secret, or property rights of any third party.
3. All aspects of the product, distribution and promotion of the
Products shall comply with all applicable laws and regulations.
4. It is not a party to any agreement that will be breached by or
that prohibits it entering into or performing this Agreement.
13. Trademark Assignment and License: EHC represents and warrants that it
has filed applications based on actual use with the United States Trademark
Office to register various marks, the status of which are as follows:
(i) PERSONAL MEDICAL RECORDS: the United States Trademark Office
pending number is 75/404,948;
(ii) DR. KOOP'S COMMUNITY: application filed with no pending number
assigned as of the execution of this Agreement; and
(iii) drkoop.com: application filed with no pending number assigned
as of the execution of this Agreement.
All of the above, hereinafter the "Trademarks," are referenced for the
good and services described herein. Upon termination of the Agreement and
rebranding period (if any), EHC shall assign its right, title and interest in
the Trademarks including the goodwill contained therein to Koop and any other
marks registered by EHC pursuant to this Agreement. Except as set forth
herein, EHC acknowledges that it has no rights in the Trademarks and that
nothing contained in this Agreement or in any other document shall vest any
ownership rights in the Koop name.
14. Miscellaneous:
(a) Ownership and Publicity: EHC does not and may not claim any
right, title or interest in or to Koop's name or likeness, and acknowledges that
all rights therein are and remain the property of Koop.
(b) Insurance: Prior to sale, promotion or distribution of any
Product other than reasonable, limited test marketing, EHC shall secure all
necessary and customary insurance, including a standard comprehensive general
liability insurance policy providing standard product liability protection,
directors and officers insurance and errors and omissions insurance listing Koop
as a named insured. Such insurance shall be in a form reasonably acceptable to
counsel for
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Koop and shall require the insurer to give Koop at least thirty (30) days' prior
written notice of any modifications or cancellations.
(c) Entire Agreement: This Agreement constitutes the complete and
exclusive statement of the agreement between Koop and EHC with respect to the
subject matter herein set forth and supersedes all prior agreements by and
between the parties.
(d) Amendments: This Agreement may not be amended, altered or
terminated except in writing.
(e) Inurement: This Agreement shall be binding upon the parties
hereto and their respective heirs, executors, administrators, legal
representatives, successors and permitted assigns.
(f) Language: The language used in this agreement shall be deemed to
be language chosen by the parties thereto to express their mutual intent and no
rule of strict construction against any party shall apply to any term or
condition thereof
(g) Governing Law: THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(h) Termination: Upon any termination and except as provided for
herein, all rights to use Dr. Koop's name and likeness shall terminate.
(i) Arbitration: Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a single arbitrator in a location to be agreed to by the parties,
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof and shall not be appealable.
(j) Gender: Wherever herein the singular number is used, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders and vice versa, as the context may require.
(k) Counterparts: This Agreement may be executed in counterparts,
each of which shall constitute an original but all of which taken together shall
constitute but one agreement.
15. Records: EHC shall keep company books and accounts in accordance with
generally accepted accounting practices and grants to Dr. Koop the right, upon
reasonable notice, to examine EHC's books of account.
16. Assignment and Change of Control: Neither party may assign its rights
and obligations under this Agreement without the prior written consent of the
other. In the event of a change of control as hereinafter defined, this
Agreement shall terminate and all rights in the
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Koop Name granted hereunder immediately revert to Koop. A Change of Control
shall be defined and agreed to by the Parties hereto.
IN WITNESS WHEREOF THIS AGREEMENT IS EXECUTED AS OF THE DATE FIRST WRITTEN
ABOVE.
Empower Health Corporation
\s\ C. Everett Koop \s\ Donald W. Hackett
- ------------------------------ ------------------------------
C. Everett Koop, M.D. Donald W. Hackett, President
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EXHIBIT 10.16
October 1, 1997
C. Everett Koop, M.D.
Chairman
Personal Medical Records, Inc.
5924 Maplewood Park Place
Bethesda, MD 20814
Dear Dr. Koop,
This letter shall reduce to writing our various conversations regarding your
efforts as a consultant for Personal Medical Records, Inc. (PMRi). It is
understood by the parties to this agreement that this agreement is separate and
apart from the likeness agreement between you and PMRi.
This agreement, when fully executed, shall obligate PMRi and yourself, as
follows:
1. TERM OF AGREEMENT: The term of this consulting agreement shall be for three
years starting on October 1, 1997 effective through September 30, 2000.
2. SERVICES TO BE RENDERED BY DR. C. EVERETT KOOP (Koop):
a. Koop shall be a Director and assume the position of Chairman of the
Board of PMRi for the term of this agreement.
b. Koop shall help organize and manage PMRi's Medical Advisory Board.
c. From time to time, at the request of PMRi, Koop shall be asked to speak
at health, medical or computer conferences and at PMRi client's and
potential client's headquarters; in such cases, Koop shall have the
option to refuse any and all such requests.
Page 1 of 3
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d. Koop shall have the right to review and approve content developed by
third parties for use by PMRi in their business development.
3. COMPENSATION:
a. For services rendered, Koop shall be paid a consulting fee as follows:
YEAR ONE:
October 1997 through September 1998 $100,000
Payable monthly as follows:
October 1997 - August 1998 $8333.33
September 1998 $8333.37
YEAR TWO:
October 1998 through September 1999 $135,000
Payable monthly as follows:
October 1998 - September 1999 $11,250.00
YEAR THREE:
October 1999 through September 2000 $150,000
Payable monthly as follows:
October 1999 - September 2000 $12,500.00
Monthly fees will be paid from this agreement; no invoices will be
sent by Koop to PMRi.
Payment will be made to C. Everett Koop and mailed to:
Dr. C. Everett Koop
5924 Maplewood Park Place
Bethesda, MD 20814
4. EXPENSES: Travel and lodging expenses shall be reimbursed monthly; Koop
shall provide receipts for all expenses when available; expenses shall be
submitted to PMRi and paid monthly to Koop.
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<PAGE>
5. This agreement constitutes the entire agreement between the parties and
supersedes any and all previous consulting agreements written or oral.
6. This agreement shall be construed under the laws of the State of Texas.
Agreed to and Accepted By:
\s\ C. Everett Koop Date October 1, 1997
- -------------------------- ---------------
C. Everett Koop
Agreed to and Accepted By:
\s\ Donald Hackett Date October 1, 1997
- -------------------------- ---------------
Donald Hackett
President/CEO, PMRi
Page 3 of 3
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EXHIBIT 10.17
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into this 13th day of
July, 1998 (the "Effective Date'), by and between Empower Health Corporation,
located at 3006 Longhorn Boulevard, Suite 105, Austin, Texas ("Empower Health
Corporation"), and Maltum Information Services, Inc., located at 3200 Cherry
Creek South Drive, Suite 300, Denver, Colorado 80209 ("Multum"), a wholly-owned
subsidiary of Cerner Corporation ("Cerner").
BACKGROUND
Empower Health Corporation is in the business of providing patient-centric,
health care tools via the Internet to the consumer market. Multum is in the
business of providing expert clinical information services to the healthcare
industry. The parties desire to enter into a non-exclusive relationship whereby
Empower Health Corporation will embed Multum's SDK drug information service
together with all Updates (as defined below) (the "Service"), described in
Exhibit A, as an integral part of Empower Health Corporation's Dr. Koop's
Community(TM) ("Dr. Koop's Community"), described in Exhibit B (and all future
releases and modifications), which will be accessible via the Internet (the
"Integrated Service") and made Available to Empower Health Corporation's
licensed users ("End-Users"). The "Integrated Service" shall include the
Service as made available through Dr. Koop's Community.
In consideration of the foregoing, the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. TERM
The initial three (3) year term ("Initial Term") of this Agreement will
commence on the Effective Date and will automatically renew for two (2)
successive one (1) year periods thereafter ("Renewal Terms"), unless prior
written notice of termination is provided by either party not less than
sixty (60) days prior to or thirty days (30) after the end of the then
current term. The Initial Term and any Renewal Terms are referred to
herein as the "Term."
2. LICENSE GRANT
A. Multum hereby grants to Empower Health Corporation a non-exclusive non-
transferable license to use the Service in the United States during the
Term of this Agreement in the manner contemplated by this Agreement.
This license shall include but not be limited to the right to: (i) copy
the Service for use and distribution by Empower Health Corporation to
End-Users, solely as permitted by this Agreement; (ii) use the Service
for internal purposes in a non-clinical setting for backup, archival,
support, testing, training and demonstration purposes; (iii) install
the Service through "Dr. Koop's Community" for each Empower Health
Corporation End-User; (iv) license/sublicense the Service to Empower
Health Corporation's End-Users; (v) market and demonstrate the Service
to End-
- ----------
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.
Empower Health Corporation License Agreement 7/16/98 1
<PAGE>
Users or potential End-Users of "Dr. Koop's Community," and (vi)
advise End-Users or potential End-Users to the availability of the
Service through "Dr. Koop's Community."
The Service is for use by Empower Health Corporation only as
contemplated by this Agreement. Empower Health Corporation shall not,
other then as specifically contemplated by this Agreement, knowingly
cause or permit others to copy, duplicate, redistribute, loan, rent,
retransmit, publish, license or sublicense or otherwise transfer, or
commercially exploit, the Service or the Integrated Service, in whole
or part. Empower Health Corporation shall not, and shall not knowingly
cause or permit others to, prepare derivative works or incorporate the
Service, in whole or part, in any other system or work or reverse
engineer, decompile, disassemble, decrypt, translate, alter, adapt or
modify the Service or the Integrated Service, in whole or part, other
than as is specifically contemplated by this Agreement.
B. The parties acknowledge that the Integrated Service is made available
freely on-line via the Internet and that End-Users may access the
Integrated Service without restriction (subject to the provisions of
Section 3 herein).
C. The parties agree that this license grant does not extend for use of
the Service as part of a bundled package sold by Empower Health
Corporation ("Interactive Care Community," or such other name as
Empower Health Corporation may call it) to any entity, relative to "Dr.
Koop's Community" co-branded web site sales (or a similar bundled
package sale). The parties agree to mutually negotiate in good faith a
separate fee and payment structure that will cover a license grant for
use of the Service as part of an "Interactive Care Community." In the
event the parties are unable to agree on a mutually acceptable fee and
payment structure, access to the Service on "Dr. Koop's Community"
shall be deleted as part of such bundled package sale.
3. RESPONSIBILITIES OF EMPOWER HEALTH CORPORATION
Subject to the terms and conditions stated herein, Empower Health
Corporation will:
A. Pay all fees set forth in Schedule II attached hereto, along with any
taxes relating thereto.
B. Provide to and support the use of (subject to Multum's obligation as
set forth in Schedule I of this Agreement) the Integrated Service by
Empower Health Corporation End-Users during the term of this Agreement
at its own expense in accordance with Empower Health Corporation's
standard terms and conditions applicable to End-Users.
C. Include the Service as part of the Integrated Service in sales to all
End-Users of "Dr. Koop's Community," in exchange for payment of the
fees set forth in Schedule II of this Agreement; provided, however,
that Multum acknowledges
Empower Health Corporation License Agreement 7/16/98 2
<PAGE>
that any End-User not wishing to use the Service may request Empower
Health Corporation to exclude the Service from the license or turn off
its functionality.
D. Provide to Multum quarterly usage (including number of users and number
of times used), marketing and demographic information ("Usage Data')
for End-Users, of the Integrated Service. Usage Data is defined as the
number of interactions with the Service and the number of data sheets
per drug requested by End-Users. Both parties agree that disclosure of
Usage Data shall be subject to all applicable laws related to privacy
and confidentiality.
E. Provide to Multum identification of any End-User usage pattern for the
Integrated Service that is an outlier to the average usage pattern.
F. Ensure that the license or use agreements to which End-Users adhere
("On-Line Service Agreement") shall provide for the use of the
Integrated Service.
G. Empower Health Corporation will receive from Multum delivery of Service
drug updates, enhancements, material clinical updates and new versions
("Updates"). Empower Health Corporation is responsible for prompt
delivery of such Updates to End-Users.
H. Include in all forms of the Integrated Service, whether it be displayed
electronically or printed, the Service text without modification and in
its entirety as provided to by Multum,
I. Include Multum's copyright notice on the first page of any text or
reports printed that involve data or functionality from the Service, as
follows: "Copyright (appropriate year) Multum Information Services,
Inc."
J. Provide to the End-User, upon first use, the language found in Exhibit
C ("End-User Service Agreement") regarding Multum's warranty of the
Service and limitation of damages, or such language as is modified from
time to time by Multum. Empower Health Corporation shall have the right
to approve and/or modify such language insofar as it refers to Empower
Health Corporation's products or services. Any such modifications shall
be made only with the prior written approval of Multum. The parties
agree that the language to be included shall clearly specify that the
Service and "Dr. Koop's Community" are separate products provided by
separate entities.
K. Provide to the End-User the following language ("End-User Service
Advisory"), at the bottom of each page of the Service, in connection
with any use of the Integrated Service.
"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
Empower Health Corporation License Agreement 7/16/98 3
<PAGE>
and should not be utilized as a reference resource beyond date
hereof.
Multum's drug information does not endorse drugs, diagnose
patients, or recommend therapy. Multum's drug information is a
reference resource designed as supplement to, and not a
substitute for, the expertise, skill, knowledge and judgment of
healthcare practitioners in patient care. The absence of a
warning for a given drug or drug combination in no way should be
construed to indicate that the drug or drug combination is safe,
effective or appropriate for any given patient.
Multum Information Services, Inc. does not assume any
responsibility for any aspect of healthcare administered with the
aid of information Multum provides.
Copyright 1998 Multum Information Services, Inc. The information
contained herein is not intended to cover all possible uses,
directions, precautions, warnings, drug interactions, allergic
reactions, or adverse effects. If you have questions about the
drugs you are taking, check with your doctor, nurse, or
pharmacist."
L. Provide End-User warranties relating to those portions of the
Integrated Service as are comprised of "Dr. Koop's Community" and
warrant any work performed by Empower Health Corporation as required
under the terms of this Agreement .
M. Be responsible for all third-party license fees for software necessary
to run the Integrated Service, as may be required for proper
implementation.
4. EXTERNAL COMMUNICATIONS AND MARKETING MATERIALS
All materials developed by Empower Health Corporation and/or Multum for
marketing, distribution, public relations and promotion of the relationship
with the other party, must first be approved by the other party, which
approval shall not be unreasonably withheld and provided in a mutually
agreeable format. Review of materials by both parties will occur within
ten (10) business days of receipt of the marketing materials by the other
party. All marketing materials referencing the Integrated Service for
distribution to End-Users shall be submitted to the other party for
approval prior to such distribution, which approval shall not be
unreasonably withheld. Multum will provide pre-approved marketing
materials and text which, if used by Empower Health Corporation in their
entirety, will not require further approval. All such materials shall be
deemed to have been received within three (3) days after mailing to the
address set forth in Section 14 below.
Empower Health Corporation License Agreement 7/16/98 4
<PAGE>
5. CONTRACT/LICENSE
The On-Line Service Agreement, purchase order and billing for the Integrated
Service will be between the End-User and Empower Health Corporation and Multum
shall have no liability or obligation to such End-User except as expressly
provided in this Agreement. Empower Health Corporation shall indemnify, defend
and hold Multum and its officers, directors, parent company and agents harmless
from any claims, liabilities, obligations. judgments, causes of actions, costs
and expenses (including reasonable attorney's fees) of an End-User relating to
such On-Line Service Agreement, purchase order or billing (unless such claims
relate solely to the Service and/or Multum's actions or omissions).
6. OWNERSHIP AND USE
A. This Agreement pertains to the license of rights to use software, and
does not provide for the sale or other transfer of title to software.
B. Empower Health Corporation has and will have exclusive title to and
ownership of all of its products, including "Dr. Koop's Community" and
of all of its sub-parts and components, and of all modifications,
alterations, customizations, or revisions thereof, and of all software,
source code, and trade secrets, and proprietary research, equations,
screens, techniques, methodology, analysis programming or know-how
thereof.
C. Multum has and shall have exclusive title to and ownership of all of
its products, including the Service and of all of its sub-parts and
components, and of all updates, modifications, alterations,
customizations, or revisions thereof, and of all software, source code,
and trade secrets, and proprietary research, equations, screens,
techniques, methodology, analysis, programming or know-how thereof.
D. Each party retains all rights not expressly granted herein. Nothing in
this Agreement constitutes a waiver of either party's rights to its
property under U.S. Copyright laws, under any other federal or state
law, or under the laws of any other country or territory. Neither party
has any right, permission or license to use or disclose any of the
other party's products or confidential information, including "Dr.
Koop's Community," the Service or any sub-part, component, module,
modification or output thereof, or associated information or product,
other than as is expressly set forth in this Agreement or as is
subsequently agreed to by the parties in writing. This Agreement shall
not result in either party's being obligated to grant the other party
any other rights in any product, program, software or business entity.
7. WARRANTY, INDEMNITY AND DAMAGE LIMITATION
A. Warranty and Indemnity Regarding Licensed Software
1. Multum warrants that it has authority to grant Empower Health
Corporation a license to use the Service as contemplated by this
Agreement. Multum also warrants that it shall deliver the Service
free
Empower Health Corporation License Agreement 7/16/98 5
<PAGE>
from the rightful claims of any third party for infringement of
U.S. patents, trademarks and copyrights.
2. Empower Health Corporation's exclusive remedy with respect of
breach of the foregoing warranties shall be that Multum will hold
Empower Health Corporation harmless and defend at Multum's own
expense, and will pay the costs and damages incurred by Empower
Health Corporation and/or made in settlement or awarded as a result
of, any action brought against Empower Health Corporation based on
an allegation of such infringement with respect to any item of the
Service. If Multum is notified promptly by Empower Health
Corporation in writing of any such action or allegation of
infringement, and if Multum shall have had sole control of the
defense of any such action and all negotiations for its settlement
or compromise.
3. Multum shall not have any obligation to Empower Health Corporation
under any provision in this Section 7.A if the alleged infringement
claim is (i) based upon the use of the Service in a manner or
environment, or for any purpose, for which Multum did not design or
license it or (ii) based on information incorporated into the
Service by Empower Health Corporation or (iii) the result of a
modification or addition made by Empower Health Corporation. Multum
disclaims all other liability for violation, misappropriation or
infringement of intellectual property rights, including but not
limited to incidental and consequential damages.
B. Software Warranty
1. Multum warrants that all services provided to Empower Health
Corporation shall be performed in a competent and workmanlike
manner and the Service as delivered to Empower Health Corporation
meets and shall continue to meet substantially all functionality
described herein as Exhibit A in all material respects and the
Service will be substantially free from defects in materials and
workmanship when operated in accordance with the documentation and
intended use as contemplated by this Agreement.
2. Empower Health Corporation warrants that all services provided to
End-Users shall be performed in a competent and workmanlike manner
and the Integrated Service as delivered to End-Users will perform
in accordance to documentation for as long as Empower Health
Corporation supports End-User.
C. Limitation of Damages
Except in the case of fraud or willful misconduct by a party, the
parties agree that in the event that either party brings a claim or
action against the other party arising out of the terms of this
Agreement, in no event shall either party be liable
Empower Health Corporation License Agreement 7/16/98 6
<PAGE>
to the other party for special, punitive, exemplary, indirect,
incidental or consequential damages, whether or not such damages are
foreseeable, and irrespective of the theory or cause of action upon
which the damages might be based.
8. FORCE MAJEURE
Neither Empower Health Corporation nor Multum shall have the
responsibility for any delay or failure of performance resulting from
causes beyond its control and without its fault or negligence.
9. TERMINATION
A. This Agreement and License shall terminate upon the earlier of:
1. Termination by either party in accordance with the provisions of
Section 9.B below; or
2. A party's failure to comply with any material provision of this
Agreement in which case termination shall be subject to the
provisions of Section 9.C below.
B. Either party may terminate this Agreement and the license granted
hereunder by giving written notice of the intended termination to the
other party in accordance with the provisions of Section 1 of this
Agreement. Giving written notice in accordance with the provisions of
Section 14 below shall effect such termination.
C. If either party fails or becomes unable to observe or perform a
material contractual obligation under this Agreement, the non-
defaulting party may give written notice to the non-performing party
specifying the material failure. The non-performing party shall have
thirty (30) days from the date the non-defaulting party notified it of
the material failure in which to cure the default or remedy the
inability to perform. If said party is unable to do so, the other party
may terminate this Agreement upon the expiration of the thirty (30) day
period by giving written notice of said termination in accordance with
the provisions of Section 14 below.
D. Upon termination of this Agreement by Multum pursuant to the provisions
of Section 9.C herein, or Schedule II, 1.A, each party shall, within
ten (10) business days, return to the other party, at its own expense,
all documents, software and other materials or deliverables (including
all copies of manuals, demo units and client lists) received from the
other party or containing any of the other party's products or trade
secret, in whole or in part (and all copies thereof), and shall certify
in writing to the other party that all such materials have been so
returned. Each party shall also delete all electronically stored
versions of the other party's software and/or products and destroy all
copies of such software and/or products, and shall certify in writing
to the other party that this has been done. Empower Health Corporation
will prevent further End-User access to the Service and remove the
Service from "Dr. Koop's Community."
Empower Health Corporation License Agreement 7/16/98 7
<PAGE>
All such certifications shall be provided within thirty (30) days of
the date of termination of the Agreement.
E. Except in the case of termination of this Agreement by Multum pursuant
to the provisions of Section 9.C herein, Empower Health Corporation
retains the right to continue to support End-User use of and access to
the Integrated Service for a period of sixty (60) days. Fees owed to
Multum for use of the Service shall continue to be paid during this
period. Upon the expiration of the sixty (60) day period, Empower
Health Corporation shall delete the Service from "Dr. Koop's
Community," thus preventing End-User use of and access to the Service.
F. Upon termination of this Agreement by either party, payment for
services performed by Multum, license fees and expenses incurred
through the date of termination shall become immediately due and
payable by Empower Health Corporation to Multum.
10. ARBITRATION
The parties shall submit any dispute under this Agreement to binding
arbitration in Denver, Colorado under the then-prevailing rules of the
American Arbitration Association. Judgment upon any award in such
arbitration may be entered and enforced in any court of competent
jurisdiction.
11. CONFIDENTIALITY
A. Multum and Empower Health Corporation
1. Each party hereto shall hold, and cause its respective officers,
directors, employees, stockholders, consultants and advisors
(collectively, "party representatives") to hold, in strict
confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of applicable law
or judicial decree, all written documents and information
concerning the other party furnished to it by any other party or
its party representatives in connection with the parties'
respective duties and obligations contemplated by this Agreement
(except to the extent that such information can be shown to have
been (i) previously known by the party to which it was furnished,
(ii) in the public domain through no fault of such party, (iii)
later lawfully acquired from other sources by the party to which it
was furnished), or (iv) independently developed by or for the
receiving party without any use of the confidential information of
the disclosing party. Neither party shall release, or disclose to
any other person or entity (or otherwise use) such information
except strictly in connection with the parties' duties and
obligations contemplated hereby.
2. Notwithstanding the foregoing, nothing in this Section 11 shall
prohibit the parties from disclosing the Integrated Service,
associated End-User
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<PAGE>
documentation and sales and marketing materials to End-Users of the
Integrated Service its contemplated by this Agreement.
3. Due to the sensitive nature of Multum's pricing, Empower Health
Corporation shall only disclose the fees paid to Multum for the
Service on a need to know basis to Empower Health Corporation
employees who have confidentiality agreements with Empower Health
Corporation and shall require such employees to treat such fees
confidentially. Empower Health Corporation shall not otherwise
disclose the fees to Empower Health Corporation End-Users or any
other parties.
4. The fact that either party has entered into agreements, including
this Agreement, concerning the use or license of any of its
products shall not be deemed to place any confidential information
or trade secret of that party in the public domain or to cause the
same to be considered to be public knowledge.
5. The receiving party shall notify the disclosing parry of the
identity of any consultant or independent contractor to whom the
receiving party wishes to disclose any of the disclosing party's
Confidential Information. The receiving party agrees not to
disclose the disclosing party's confidential information to any
consultant and/or independent contractor without the prior written
consent of the disclosing party and unless and until such
consultant or independent contractor has signed a Confidentiality
Agreement in a form acceptable to the disclosing party,
6. Each party's obligations under this Section 11 shall survive the
termination and/or the full performance of this Agreement.
7. Empower Health Corporation understands that Cerner (including its
affiliates) may be in a business similar to or the same as Empower
Health Corporation. Cerner (including its affiliates) and Empower
Health Corporation may already have developed, be in the process of
developing, or plan to develop products, services and information
similar to those owned or developed by the other. Nothing contained
herein shall be construed to prohibit either Cerner (including its
affiliates) or Empower Health Corporation from so doing as long as
it does so independently and without using confidential information
disclosed by the other hereunder.
12. SEVERABILITY
If any provision of this Agreement shall be deemed by a court of competent
jurisdiction to be unenforceable or illegal, then the remaining terms and
provisions of this Agreement shall remain in full force and effect and such
unenforceable or illegal provision shall be deemed stricken for so long as
it remains unenforceable or illegal.
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<PAGE>
13. GENERAL
A. This Agreement constitutes the entire agreement of Empower Health
Corporation and Multum with respect to the subject matter hereof and
supersedes all other prior and contemporary agreements and
understandings regarding the subject matter hereof. No provision of
this Agreement may be terminated, modified or waived unless such
termination, modification or waiver is set forth in writing executed by
authorized representatives of Empower Health Corporation and Maltum.
B. This Agreement and the license issued hereunder shall be binding upon
and inure to the benefit of the parties, their respective successors
and/or assigns. This Agreement and the license issued hereunder shall
not be assigned without prior written consent of the other party, and
any attempted assignment shall be void without such written consent.
Such consent will not be unreasonably withheld.
C. The terms of this Agreement shall in all respects be governed by,
construed, and interpreted in accordance with the laws of the State of
Colorado without regard to the conflict of laws principles thereof.
D. Empower Health Corporation and Multum agree that as Multum adds new
product/service(s) to its consumer-focused product line to be made
available to third parties, the new product/service(s), upon approval
by both parties, may be incorporated, by addendum, as part of the
Integrated Service offered pursuant to this Agreement along with any
fees associated with such products and/or services.
E. Each party represents and warrants that it:
1. Is not subject to, and will not assume, any obligation inconsistent
with its obligations hereunder; and
2. Is not subject to any restriction that is violated by any
disclosure of information it makes or receives hereunder.
F. Each party warrants and affirms that the person signing this Agreement
on behalf of that party is duly authorized and empowered by that party
to do so, and that such person has the right and the authority to bind
that party to this Agreement.
G. This Agreement may be executed in several counterparts and may be
executed by different parties on different counterparts, all of which
together shall constitute one and the same instrument, and shall become
effective when one or more counterparts have been signed by each of the
parties,
H. The Headnotes throughout this Agreement are for convenient reference
only, and shall in no way be deemed to limit, modify, or add to the
interpretation, construction or meaning or any provision of this
Agreement.
Empower Health Corporation License Agreement 7/16/98 10
<PAGE>
I. In performing their obligations hereunder, the parties are acting as
separate and independent entities and neither party is an agent or
employee of the other party. This Agreement shall not be interpreted so
as to cause either party to be responsible to any third party for the
acts, omissions or products of the other party.
14. NOTICES
All notices and communications required or permitted under this Agreement
shall be in writing and any communication or delivery hereunder shall be
deemed to have been duly made if actually delivered, or three (3) days
after mailing, if mailed by registered or certified mail, postage prepaid,
addressed as follows:
If to Empower Health Corporation:
3006 Longhorn Boulevard, Suite 105
Austin, Texas 78758
Fax:______________________________
Attn:_____________________________
If to Multum Information Services, Inc.:
Multum Information Services, Inc.
3200 Cherry Creek South Drive
Suite 300
Denver, Colorado 80209
Fax: 303-733-4434
Attn: Managing Director
Either party may, by written notice so delivered to the other, change the
address to which delivery shall thereafter be made.
IN WITNESS WHEREOF, Empower Health Corporation and Multum have executed this
Agreement this ____ day of July, 1998.
Executed on behalf of Executed on behalf of
Empower Health Corporation Multum Information Services, Inc.
By: \s\ Donald Hackett By: \s\ Clifford W. Illig
------------------------------ ------------------------------
Name: Donald Hackett Name: Clifford Illig
---------------------------- ----------------------------
Title: Chief Executive Officer Title: President
--------------------------- ---------------------------
Empower Health Corporation License Agreement 7/16/98 11
<PAGE>
SCHEDULE I -BASIC
CORPORATE SERVICE AND SUPPORT
1. Multum will provide the following Corporate Service and Support services to
Empower Health Corporation (subject to the Corporate Service and Support
fees set forth in Schedule II of this Agreement).
A. During the Initial Term of this Agreement, Maltum shall provide the
following Corporate Services and Support:
- --------------------------------------------------------------------------------
Emergency Technical Support 24 hours per day, 7 days per week
- --------------------------------------------------------------------------------
B. During the Term of the Agreement, Consulting Services will be
available from Multum, upon request by Empower Health Corporation at a
rate of * * * . All travel and living expenses related to providing
the requested Consulting Services will be the responsibility of
Empower Health Corporation. * * *
C. Multum will provide a twenty-four (24) hour telephone support hotline.
In the event that the Service is unavailable to Dr. Koop's Community
through reasons that are solely controlled by Multum, Multum agrees to
remedy the problem within a forty-eight (48) hour period from the time
of notification.
2. Optional Corporate Service and Support Package:
In addition to the foregoing services, Empower Health Corporation may elect
to purchase from Multum the following optional services on an annual basis
for an additional * * * .
8 hours of training
12 hours of customer support/consulting
If elected, please initial and date
- ------------------------------ -----------------------
Empower Health Corporation 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.
<PAGE>
SCHEDULE II - BASIC SDK
FEES AND PAYMENTS
1. FEES
A. Basic SDK License Fees:
Based on the provision of Section 3.A herein, the license fee for
Empower Health Corporation * * * . The parties agree to mutually
negotiate in good faith (within six (6) months of the Effective Date) a
transaction license fee derived from Usage Data provided by Empower
Health Corporation to Multum pursuant to the provisions of Section 3.D
of the Agreement, which will be used in calculating license fees to be
applied for use of the Service for the following twelve months. Within
30 days of the end of each subsequent twelve month period, the parties
agree to mutually negotiate in good faith a transaction fee for the
following twelve month period. In the event the parties are unable to
mutually agree on a transaction fee for any period, either party may
terminate the Agreement with 30 days' notice in accordance with
provisions in Section 14 of the Agreement, without penalty. The parties
agree that the minimum license fee for any subsequent twelve month
period will be * * *.
B. Software Development Kit (SDK) Fee:
Empower Health Corporation will pay a one-time SDK fee of * * * to
Multum.
C. Corporate Service and Support Fee:
Empower Health Corporation will pay Multum a yearly service and
support fee of * * * per year, beginning in year two of this
Agreement.
D. Optional Service and Support Package Fee:
If elected, Empower Health Corporation will pay Multum a yearly
service and support fee of * * * per year.
E. Multum has the option to change the fee schedule upon renewal of this
Agreement with ninety (90) days' prior written notice to Empower Health
Corporation.
F. Multum reserves the right to conduct an independent audit of Empower
Health Corporation's invoices and billing records relating to the Fees
paid to or due to Multum under this Agreement for the sole purpose of
establishing that the Fees paid to Multum by Empower Health Corporation
are accurate. Multum may conduct such audits no more than quarterly.
Each such audit shall be conducted during normal business hours upon
reasonable notice to and agreement by Empower Health Corporation.
Multum will be responsible for all costs and * * * expenses relating to
each such audit. Empower Health Corporation will maintain records
according to generally accepted accounting principles.
- --------------------
* * * 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>
2. PAYMENTS
A. For years beginning one year from the Effective Date and beyond,
applicable License Fees will be billed quarterly by Multum and will be
due upon receipt. If required, based on the mutually agreed upon fees,
Empower Health Corporation will present Multum with an aggregate number
of licenses used at the end of each quarter and Multum will submit an
invoice for that amount.
B. The SDK fee will be due thirty (30) days after the Effective Date.
C. The Corporate Service and Support Package Fee will be billed quarterly
and due upon receipt.
D. If purchased, the Optional Corporate Service and Support Package Fee
will be billed quarterly and due upon receipt.
2
<PAGE>
EXHIBIT A
Multum Information Services, Inc.
Basic SDK Software Components
For purposes of this Agreement, the SDK drug information services (the
"Service") being offered to Empower Health Corporation are:
The SDK (Software Development Kit) provides extremely powerful development tools
that offer drug knowledge bases and expert drug information to new or existing
clinical information systems. Multum Information Services, Inc. ("Multum") has
developed the SDK as a suite of flexible, modular components that can be
embedded into clinical systems as distinct, functional components. It may be
helpful to think of the SDK as a subsystem and the clinical information system
into which it can be embedded as a parent application.
Multum provides development interfaces that easily blend into the native
environment of the parent application. By designing subsystem components that
fit smoothly into an existing software development environment, Multum products
help to minimize the overall development costs. SDK comes equipped with fully
referenced documentation in several programming languages and databases, all
developed with a three-tiered distributed processing back-end. This API is
supplied in C++ Class Libraries or OLE Automation servers.
SDK - Basic Clinical Components
Drug Component
. Provides clinician-friendly drug names.
. Allows customers to map external drug names to Multum knowledge bases.
Interactions - Drug-Drug & Drug-Food
. Checks for drug-drug and drug-food interactions against a patient's current
medication regimen and against medications about to be ordered.
. Analyzes both active medications and those that might still be active in the
patient (based on the drug's elimination half-life).
. Provides a list of drugs involved when an interaction occurs, along with the
level of severity of the interaction (minor, moderate, severe), a textual
description of the interaction, and on-line references.
. Provides recommended courses of action when appropriate within the textual
information presented.
Drug Allergy Cross-Reactivity Checking
. Provides allergy information checked against the patient's current drug
regimen, against medications about to be ordered, and against the patient's
allergy history.
. Generates a cross-reaction warning for allergic cross-reactivides described
in the medical literature that includes the drug or drug category involved, a
textual description of the reaction, and one or more references for the
cross-reaction.
<PAGE>
Side Effects
. Provides side effect information in descending order of importance based on
both severity and frequency of the side effect.
. Provides side effect information in two levels; the first level consists of
general side effect information organized by organ system and frequency; the
second level of information, when available, incorporates greater detail
including specific studies, case reports, their methodology, and the
differences between study data.
. Includes references to the primary medical literature and has key-word
identifiers.
Pharmacology Information
. Provides a textual description of the pharmacological properties of a
selected drug with primary literature references.
. Provides information regarding the chemical category. mechanism of action and
indications (both labeled and non-labeled with appropriate identification).
. Includes references to the primary medical literature.
Pregnancy and Lactation Precautions
. Identifies and describes both safe and unsafe use of the drug in pregnancy.
. Provides, when appropriate, pregnancy warnings for drugs that are known to
alter reproductive capabilities when taken by male patients.
. Provides lactation warning text that indicates both safe and unsafe use in
lactating women.
. Provides severity flags for two levels of severity and includes primary
literature references.
Warnings
. Provides a description of important warnings and contraindications (not
otherwise addressed by Allergy Checking, Pregnancy and Lactation Precautions)
for particular drugs.
. No severity levels are provided. All presented warnings are considered
significant.
Patient Education Leaflets
. Provides patient teaching information drug monographs in both 6th grade
English and North American Spanish.
. Adheres to the FDA's 1996 MedGuide recommendations.
. Provides the ability to print or display Patient Education Leaflets with each
drug order.
. Includes important side effect, drug interaction, and drug administration
instructions.
. Allows customization and formatting of leaflets by end-user site.
Therapeutic Categories
. Provides a poly-hierarchical classification system for drugs.
. Provides all therapeutic categories and sub-categories for each drug.
. Provides all drugs for any given therapeutic category.
Article References
. Provides article references for all informational services offered--including
Allergies, Pharmacology, Side Effects, Warnings, Pregnancy and Lactation
Precautions, and Interactions.
2
<PAGE>
. Presented in the National Library of Medicine format with unique internal
identifier.
Multum Information Services, Inc. retains all rights for determining what
modifications, amendments or alterations ("Product Changes") shall be made to
any or all of the Services. Any Product Changes shall be determined and made at
Multum Information Service's sole discretion.
3
<PAGE>
EXHIBIT B
Description of Empower Health Corporation
To be provided by Empower Health Corporation
<PAGE>
EXHIBIT C
End-User Language
The Service is a service provided to you by Multum Information Services, Inc.
("Multum"). The Services and "Dr. Koop's Community" are separate products
provided by separate entities.
Disclaimer of Warranties
THE CUSTOMER ACKNOWLEDGES THAT THE SERVICE AND ANY EQUIPMENT ARE PROVIDED ON AN
"AS IS" BASIS. EXCEPT FOR WARRANTIES WHICH MAY NOT BE DISCLAIMED AS A MATTER OF
LAW, MULTUM MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO REPRESENTATIONS OR WARRANTIES REGARDING
THE ACCURACY OR NATURE OF THE CONTENT OF THE SERVICE, WARRANTIES OF TITLE,
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
The CUSTOMER acknowledges that updates to the Service are at the sole discretion
of Multum. Multum makes no representations or warranties whatsoever, express or
implied, with respect to the compatibility of the Service, or future releases
thereof, with any computer hardware or software, nor does Multum represent or
warrant the continuity of the features or the facilities provided by or through
the Service as between various releases thereof.
Any warranties expressly provided herein do not apply if: (i) the CUSTOMER
alters, mishandles or improperly uses, stores or installs all, or any part, of
the Service, (ii) the CUSTOMER uses, stores or installs the Service on a
computer system which fails to meet the specifications provided by Multum, or
(iii) the breach of warranty arises out of or in connection with acts or
omissions of persons other than Multum.
Assumption of Risk Disclaimer of Liability, Indemnity
THE CUSTOMER ASSUMES ALL RISK FOR SELECTION AND USE OF THE SERVICE AND CONTENT
PROVIDED THEREON OR ANY EQUIPMENT FURNISHED IN CONNECTION THEREWITH. MULTUM
SHALL NOT BE RESPONSIBLE FOR ANY ERRORS, MISSTATEMENTS, INACCURACIES OR
OMISSIONS REGARDING CONTENT DELIVERED THROUGH THE SERVICE OR ANY DELAYS IN OR
INTERRUPTIONS OF SUCH DELIVERY.
THE CUSTOMER ACKNOWLEDGES THAT MULTUM: (A) HAS NO CONTROL OF OR RESPONSIBILITY
FOR THE CUSTOMER'S USE OF THE SERVICE OR CONTENT PROVIDED THEREON, (B) HAS NO
KNOWLEDGE OF THE SPECIFIC OR UNIQUE CIRCUMSTANCES UNDER WHICH THE SERVICE OR
CONTENT PROVIDED THEREON MAY BE USED BY THE CUSTOMER, (C) UNDERTAKES NO
OBLIGATION TO SUPPLEMENT OR UPDATE CONTENT OF THE SERVICE, OR (D) HAS NO
LIABILITY TO ANY PERSON FOR ANY DATA OR INFORMATION INPUT ON THE SERVICE BY THE
CUSTOMER TO THE SERVICE.
MULTUM SHALL NOT BE LIABLE TO ANY PERSON (INCLUDING BUT NOT LIMITED TO THE
CUSTOMER AND PERSONS TREATED BY OR ON BEHALF OF THE
<PAGE>
CUSTOMER) FOR, AND THE CUSTOMER AGREES TO INDEMNIFY AND HOLD MULTUM HARMLESS
FROM ANY CLAIMS, LAWSUITS, PROCEEDINGS, COSTS, ATTORNEY'S FEES, DAMAGES OR OTHER
LOSSES (COLLECTIVELY, "LOSSES") ARISING OUT OF OR RELATING TO (A) THE CUSTOMER'S
USE OF THE SERVICE OR CONTENT PROVIDED THEREON OR ANY EQUIPMENT FURNISHED IN
CONNECTION THEREWITH AND (B) ANY DATA OR INFORMATION INPUT ON THE SERVICE BY
CUSTOMER, IN ALL CASES INCLUDING BUT NOT LIMITED TO LOSSES FOR TORT, PERSONAL
INJURY, MEDICAL MALPRACTICE OR PRODUCT LIABILITY. FURTHER, WITHOUT LIMITING THE
FOREGOING, IN NO EVENT SHALL MULTUM BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL, OR INDIRECT DAMAGES, INCLUDING DAMAGES FOR LOSS OF PROFITS, LOSS
OF BUSINESS, OR DOWN TIME, EVEN IF MULTUM HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, THE INFORMATION CONTAINED WITHIN THE SERVICE IS INTENDED FOR USE
ONLY BY PHYSICIANS AND OTHER HEALTHCARE PROFESSIONALS WHO SHOULD RELY ON THEIR
CLINICAL DISCRETION AND JUDGMENT IN DIAGNOSIS AND TREATMENT, AS BETWEEN THE
CUSTOMER AND MULTUM, THE CUSTOMER HEREBY ASSUMES FULL RESPONSIBILITY FOR
INSURING THE APPROPRIATENESS OF USING AND RELYING UPON THE INFORMATION IN VIEW
OF ALL ATTENDANT CIRCUMSTANCES, INDICATIONS, AND CONTRAINDICTIONS.
Liability of Multum to the CUSTOMER
Under no circumstances shall Multum be liable to the CUSTOMER or any other
person for any direct, indirect, exemplary, special or consequential damages
arising out of or relating to the CUSTOMER'S use of or inability to use the
Service or the Content of the Service provided thereon or any Equipment
furnished in connection therewith. Multum's total liabilities in connection
with this Agreement, whether arising under contract or otherwise, are limited to
the fees received by Multum under this Agreement specifically relating to the
CUSTOMER's service or product which is the subject of the claim.
2
<PAGE>
EXHIBIT 10.18
LINKING AGREEMENT
This Linking Agreement (the "Agreement") is made and entered into as of
February 10, 1999 (the "Effective Date") by and between Empower Health
Corporation ("EHC"), with offices at 8920 Business Park Drive, Austin, Texas
78759, and Physicians' Online ("POL"), with its principal place of business
located at 560 White Planes Road, Tarrytown, N.Y. 10591 (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, the Community Partner Program, electronic
commerce, advertising and promotional services on the Internet at the web site
located at URL: http://www.drkoop.com, or and any replacement or successor URL
(the "EHC Web Site");
WHEREAS, POL develops, markets and maintains an Internet site which
provides end user access to a Physician's directory for interactive queries
located on the Internet at the web site at URL: http://www.mydoctor.com and any
replacement or successor URL (the "MyDoctor Web Site"); and
WHEREAS, EHC and POL desire to promote the other party's web site through
cross links and other promotional activities upon the terms and subject to the
conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the obligations set forth below, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement shall have
the meanings given below:
(a) Home Page shall mean the first page of a web site which is
displayed when accessing the associated URL.
(b) Links shall mean hypertext, text, banner, logo and contextual
links ("Graphical Image") which permit a user to go from one party's web site to
another by clicking on the Graphical Image.
- -----------------
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>
ARTICLE 2.
LINKING AND PROMOTIONS
2.1. Linking
(a) POL shall establish and maintain at least one Link from the
(i) MyDoctor.com/resources page (or any replacement or successor page) to the
EHC Web Site Home Page, and (ii) MyDoctor.com/directory (or any replacement or
successor page) to the EHC Web Site Home Page. Further, POL shall establish one
or more Links from the MyDoctor Web Site to the EHC Web Site as POL deems
appropriate.
(b) EHC shall establish and maintain at least one Link from the
EHC Web Site Home Page to the MyDoctor.com/resources page (or any replacement or
successor page). Further, EHC shall establish one or more Links from the EHC Web
Site to the MyDoctor Web Site as EHC deems appropriate.
2.2. Joint Marketing Efforts
(a) POL and EHC agree to release a joint press release within
thirty (30) days of the Effective Date. From time to time thereafter, the
parties may issue joint press releases as mutually agreed upon.
(b) Upon mutual agreement of the parties, EHC and POL shall
participate in opportunities to promote their relationship in marketing and
promotional efforts.
(c) Where appropriate and at EHC's sole discretion, EHC may
periodically feature POL and the MyDoctor Web Site in its drkoop.com newsletter,
on the EHC Web Site Home Page and in other EHC marketing programs and marketing
materials.
(d) Where appropriate and at POL's sole discretion, POL will
periodically feature EHC and the EHC Web Site on the MyDoctor Web Site Home Page
and in its marketing programs and marketing materials.
(e) EHC and POL shall participate in joint sales and marketing
discussions at mutually agreed times and locations to discuss how the parties
can participate in additional joint marketing and business development
opportunities.
2.3. Banner Advertising.
(a) Each party (the "Selling Party") may sell the excess inventory
of banner advertising of the other party (the "Inventory Owner") subject to the
Inventory Owner's acceptance of such advertising. Such banner advertising may
only be sold bundled together with banner advertising of the Selling Party.
* * * (as defined below) generated by either party from such banner advertising
shall be
- -----------
* * * 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>
shared between the parties with * * *. As used herein, "Revenue" means gross
revenue less reasonable amounts of actual, out-of-pocket paid for commissions,
in light of industry standards, and other direct costs. Banner advertising shall
be billed to the customer by the Selling Party.
ARTICLE 3.
PAYMENT AND FEES
3.1. Payment; Reporting. Fees from banner advertising are due and payable
within ten (10) days of receipt of payment by the Selling Party. In connection
with each banner advertisement sold, the Inventory Owner shall provide the
Selling Party on a monthly basis with a report setting forth the number of
impressions delivered of such banner advertisement.
3.2. Audit. Each party shall maintain records of all activities subject
to payments pursuant to this Agreement. Each party shall permit a reputable
independent certified public accounting firm designated by the other party to
have access, at a mutually agreed upon time during normal business hours, to the
records and books of account which relate solely to this Agreement for the
purpose of determining whether the appropriate fees have been paid. Such audits
may not be required more often than once every year; provided, however, that
either party may audit the other within six (6) months of any audit in which a
discrepancy of five percent (5%) or greater is discovered. If a discrepancy is
discovered, the party in whose favor the error was made will promptly pay the
amount of the error to the other. The party requesting the audit will pay the
cost of the audit, provided, that if a discrepancy is discovered of five percent
(5%) or greater, then the audited party will be required to pay the reasonable
costs of the audit.
ARTICLE 4.
TRADEMARKS AND OTHER PROPRIETARY MATTERS.
4.1. EHC Trademark License. Subject to the terms and conditions of this
Agreement, EHC hereby grants to POL a limited license to use the EHC trademarks
as set forth on Exhibit A (the "EHC Marks") on the MyDoctor Web Site solely for
purposes contemplated in this Agreement. If POL desires to use such EHC Marks
other than on the MyDoctor Web Site, POL shall, in each instance, obtain EHC's
prior written approval for use of the EHC Marks, which consent shall not be
unreasonably withheld or delayed.
4.2. Use of Name, Image and Likeness. POL shall not have any right to use
the name, image and/or likeness of Dr. C. Everett Koop or to make any
statements, whether written or oral, which state or otherwise imply, directly or
indirectly, any endorsement from or affiliation with Dr. Koop in any manner
whatsoever without the prior written consent of EHC, which consent may be
withheld in EHC's sole discretion. EHC warrants to POL that it has all necessary
rights and interests to grant such consent.
- -------------------------
* * * 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>
4.3. POL Trademark License. Subject to the terms and conditions of this
Agreement, POL hereby grants to EHC a limited license to use the POL trademarks
as set forth on Exhibit B (the "POL Marks") on the EHC Web Site solely for
purposes contemplated in this Agreement. If EHC desires to use such POL Marks
other than on the EHC Web Site, EHC shall, in each instance, obtain POL's
written approval for use of the POL Marks, which consent shall not be
unreasonably withheld or delayed.
4.4. Reservation of Rights. The parties acknowledge and agree that (i)
each party's Marks are and shall remain the sole property of that party; (ii)
nothing in this Agreement shall convey to either party any right of ownership in
the other party's Marks; (iii) neither party shall now or in the future contest
the validity of the other party's Marks; and (iv) neither party shall in any
manner take any action that would impair the value of, or goodwill associated
with, such Marks. The parties acknowledge and agree that all use of the other
party's Marks by a party shall inure to the benefit of the party whose Marks are
being used.
ARTICLE 5.
INTELLECTUAL PROPERTY
5.1. Retention of Rights. Except as expressly licensed under this
Agreement, each party shall retain all rights and interests in its web site,
trademarks, copyright and other intellectual property rights.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES; LIMITATIONS
6.1. EHC Warranty. EHC represents and warrants for the benefit of POL
that on the Effective Date and during the Term (as defined in Section 9) the:
(i) content developed by EHC, or on its behalf, on the EHC Web Site does not and
will not infringe any copyright, trademarks, or trade secrets of any third party
and does not and will not constitute a defamation or invasion of the rights of
privacy or publicity of any kind of any third party, (ii) EHC Web Site does not
violate the laws, statues or regulations of any jurisdiction, (iii) POL's use of
the EHC Marks pursuant to Article 4 does not violate the rights of any third
party, including without limitation, copyright, trademark, trade secret,
privacy, publicity or other right.
6.2. POL Warranty. POL represents and warrants for the benefit of EHC
that on the Effective Date and during the Term the: (i) content developed by
POL, or on its behalf, on the MyDoctor Web Site does not and will not infringe
any copyright, trademarks, or trade secrets of any third party and does not and
will not constitute a defamation or invasion of the rights of privacy or
publicity of any kind of any third party, (ii) MyDoctor Web Site does not
violate the laws, statues or regulations of any jurisdiction, and (iii) EHC's
use of the POL Marks pursuant to Article 4 does not violate the rights of any
third party, including without limitation, copyright, trademark, trade secret,
privacy, publicity or other right.
6.3. Indemnification By EHC. EHC agrees to indemnify and hold harmless
POL, its officers, directors, employees and agents from and against any claims,
demands, causes of action and judgments (including reasonable attorneys' fees,
court costs and costs of appeal)
4
<PAGE>
(collectively, "POL Claims") by any third party arising out of any breach or
alleged breach of any of EHC's representations and warranties contained in
Section 6.1, provided that POL gives EHC prompt written notice of the assertion
of any such POL Claim. EHC shall have the option to undertake and control the
defense and settlement of any such POL Claim; provided, however, that POL may
participate in any such proceeding at its own expense with counsel of its own
choosing.
6.4. Indemnification By POL. POL agrees to indemnify and hold harmless
EHC, its officers, directors, employees and agents from and against any claims,
demands, causes of action and judgments (including reasonable attorneys' fees
and court costs) (collectively, "EHC Claims") by any third party arising out of
any breach or alleged breach of any of POL's representations and warranties
contained in Section 6.2, provided that EHC gives POL prompt written notice of
the assertion of any such EHC Claim. POL shall have the option to undertake and
control the defense and settlement of any such POL Claim; provided, however,
that EHC may participate in any such proceeding at its own expense with counsel
of its own choosing.
ARTICLE 7.
LIMITATION OF LIABILITY
7.1. Warranty. THIS AGREEMENT IS AN AGREEMENT FOR SERVICES.
NOTWITHSTANDING THE FOREGOING AND EXCEPT AS SET FORTH IN ARTICLE 6, BOTH PARTIES
SPECIFICALLY DISCLAIM ALL WARRANTIES WITH REGARD TO THE MYDOCTOR AND EHC WEB
SITES, INFORMATION AND SERVICES PROVIDED THEREUNDER, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE. IN PARTICULAR, AND NOT BY WAY OF LIMITATION, THE PARTIES
DO NOT WARRANT THAT THE MYDOCTOR AND EHC WEB SITES WILL OPERATE ERROR-FREE OR
WITHOUT INTERRUPTION.
7.2. Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES,
INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA, LOSS OF BUSINESS
OR OTHER LOSS ARISING OUT OR RESULTING FROM THIS AGREEMENT EVEN IF EITHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL APPLY
REGARDLESS OF THE NEGLIGENCE OR OTHER FAULT OF EITHER PARTY AND REGARDLESS OF
WHETHER SUCH LIABILITY SOUNDS IN CONTRACT, NEGLIGENCE, TORT OR ANY OTHER THEORY
OF LIABILITY. Notwithstanding the foregoing, and except as set forth in Article
6, the aggregate liability of either party arising with respect to this
Agreement will not exceed the amount of $50,000.
5
<PAGE>
ARTICLE 8.
CONFIDENTIALITY
8.1. Confidentially Obligations. Either Party (the "Disclosing Party")
may from time to time disclose Confidential Information to the other party (the
"Recipient"). "Confidential Information" is all nonpublic information
concerning the business, technology, internal structure and strategies of the
Disclosing Party which is conveyed to the Recipient orally or in tangible form
and is either marked as "confidential" or which is identified as "confidential"
prior to disclosure. During the Term of this Agreement and for a period of two
(2) years thereafter, Recipient will keep in confidence and trust and will not
disclose or disseminate, or permit any employee, agent or other person working
under Recipient's direction to disclose or disseminate, the existence, source,
content or substance of any Confidential Information to any other person.
Recipient will employ at least the same methods and degree of care, but no less
than a reasonable degree of care, to prevent disclosure of the Confidential
Information as Recipient employs with respect to its own confidential patent
data, trade secrets and proprietary information. Recipient's employees and
independent contractors will be given access to the Confidential Information
only on a need-to-know basis, and only if they have executed a form of non-
disclosure agreement with Recipient which imposes a duty to maintain the
confidentiality of information identified or described as confidential by
Recipient and after Recipient has expressly informed them of the confidential
nature of the Confidential Information. Recipient will not copy or load any of
the Confidential Information onto any computing device or store the Confidential
Information electronically except in circumstances in which Recipient has taken
all 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.
8.2. Permitted Disclosures. The commitments in this Section 8 will not
impose any obligations on Recipient with respect to any portion of the received
information which: (i) is now generally known or available or which, hereafter
through no act or failure to act on the part of Recipient, becomes generally
known or available; (ii) is rightfully known to Recipient at the time of
receiving such information; (iii) is furnished to Recipient by a third party
without restriction on disclosure and without Recipient having actual notice or
reason to know that the third party lacks authority to so furnish the
information; (iv) is independently developed by Recipient; or (v) is required
to be disclosed by operation of law or by an instrumentality of the government,
including but not limited to any court, tribunal or administrative agency.
ARTICLE 9.
TERM AND TERMINATION
9.1. Term. The term of this Agreement shall commence upon the Effective
Date and shall continue for one year (the "Term"). Thereafter, this Agreement
may be renewed for successive terms of one year each by mutual agreement of the
parties.
9.2. Termination for Convenience. Either party shall have the right to
terminate this Agreement, with or without cause, upon ninety (90) days prior
written notice to the other party. The parties hereto may also terminate this
Agreement with mutual written consent at any time.
6
<PAGE>
9.3. Termination for Breach. If either party is in default of any
material provision of this Agreement and such default is not cured within thirty
(30) days of receipt of written notice, the non-breaching party shall have the
right to terminate this Agreement. The remedy set forth in this Section 9.3
shall be non-exclusive and the non-terminating party shall have all other
remedies available at law and in equity.
9.4. Termination for Insolvency. Either party shall have the right to
terminate this Agreement in writing immediately if the other party (i)
voluntarily or involuntarily becomes the subject of a petition in bankruptcy or
of any proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (ii) admits in writing its
inability to pay its debts as they become due.
9.5. Survival. The rights and obligations under Articles 5, 6, 7, 8 and
10 and Section 4.4 shall survive after the expiration or earlier termination of
this Agreement.
ARTICLE 10.
MISCELLANEOUS PROVISIONS
10.1. Assignment. Neither party may sell, assign, transfer or otherwise
convey any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the other party, except that a party's
rights hereunder may be transferred to a successor of all or substantially all
of the business and assets of the party (no matter how the transaction or series
of related transactions is structured).
10.2. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties, and supersedes all previous
agreements (whether written or oral) concerning the subject matter hereof. This
Agreement may not be amended or supplemented except by a written document
executed by the parties to this Agreement.
10.3. Arbitration. Any and all disputes, controversies and claims arising
out of or relating to this Agreement or concerning the respective rights or
obligations of the parties hereto shall be settled and determined by arbitration
before a panel of one (1) arbitrator pursuant to the Commercial Rules then in
effect of the American Arbitration Association. Each party shall have no longer
than 3 days to present its position. Judgment upon the award rendered may be
entered in any court having jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of enforcement. The
parties agree that the arbitrators shall have the power to award damages,
injunctive relief and reasonable attorneys' fees and expenses to any party in
such arbitration, subject to the limitations of Article 7.
10.4. 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.
10.5. 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
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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 EHC: For POL:
Empower Health Corporation Physicians' Online
8920 Business Park Drive 560 White Planes Road
Austin, TX 78759 Tarrytown, N.Y. 10591
Attn: Chief Financial Officer Attn: Chief Technology Officer
Either party may change its address for the purpose of this paragraph by notice
given pursuant to this paragraph.
10.6. Force Majeure. Neither party hereto shall be in default hereunder by
reason of its delay in the performance or failure to perform any of its
obligations hereunder for any event, circumstance, or cause beyond its control
such as, but not limited to, acts of God, strikes, lock-outs, general
governmental orders or restrictions, war, threat of war, hostilities,
revolution, riots, epidemics, power shortages, fire, earthquake, or flood. The
party affected by any such event shall notify the other party within a maximum
period of fifteen (15) days from its occurrence. The performance of this
Agreement shall then be suspended for as long as any such event shall prevent
the affected party from performing its obligations under this Agreement.
10.7. Severability. The provisions of this Agreement are severable, and
in the event any provision hereof is determined to be invalid or unenforceable,
such invalidity or unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
10.8. Headings. The headings of the articles and several paragraphs of
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
10.9. Waiver. The waiver of a default hereunder by one party may be
effected only by a written acknowledgment signed by the other party and shall
not constitute a waiver of any other default. The failure of either party to
enforce any right or remedy for any one default shall be deemed a waiver of said
right or remedy if the party persists in such default or commits any other
default, nor shall such failure in any way affect the validity of this Agreement
or any part hereof.
10.10. Independent Parties. Nothing in this Agreement shall be deemed to
constitute, create, give effect to or otherwise recognize a partnership, joint
venture or formal business entity of any kind or create a fiduciary or similar
relationship among the parties; and the rights and obligations of the parties
shall be limited to those expressly set forth herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
Empower Health Corporation: Physicians' Online
Signature: \s\ Robert C.Hackett Jr. Signature: \s\ Jean Louis Ecochard
--------------------------- -----------------------------
Name: Robert C. Hackett Jr. Name: Jean Louis Ecochard
-------------------------------- ----------------------------------
Title: Executive Vice President Title: Chief Technology Officer
------------------------------- ---------------------------------
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EXHIBIT A
EHC Trademarks
Trademarks:
[LOGO]
<PAGE>
EXHIBIT B
POL Trademarks
Physicians' Online, U.S. Reg. 1,945,952
Physicians' Online and Logo
<PAGE>
Exhibit 10.20
INTERIM LINKING AGREEMENT
This Interim Linking Agreement (the "Agreement") is entered into as of the
28th day of January, 1999 (the "Effective Date") by and between Empower Health
Corporation, a Texas corporation, located at 8920 Business Park Drive, Longhorn
Suite, Austin Texas 78759 ("EHC"), and Quotesmith.com, a Delaware corporation,
located at 8205 South Cass Avenue, Suite 102, Darien, IL 60561 ("QS").
WHEREAS, EHC desires to establish a link (the "Link") from the Dr. Koop
Site to the QS Site to promote the Services to Dr. Koop Site patrons
(hereinafter referred to as "Users"). QS desires to have EHC establish such a
Link and to pay to EHC a referral fee based on the revenue generated from such
Users purchasing the Services on the QS Site in accordance with the terms and
conditions of this Agreement.
1.1.2 On the Dr. Koop home page (such "home page" being the page a user's
web browser will generate as the result of requesting the following Uniform
Resource Locator ("URL"): http://www.drkoop.com, or any new URL with which EHC
---------------------
replaces the above-stated URL), a tab (the "Image") consisting of the words
"INSTANT INSURANCE QUOTES" or "INSTANT HEALTH QUOTES" shall appear on the
drkoop.com home page. The QS "co-branded" Web page shall appear within one (1)
hypertext link from the home page of the Dr. Koop Site. The Image is not
limited to this one location, and may be used in other sites and linkages as
well. EHC will create the Link from the Dr. Koop Site to the QS in accordance
with QS' reasonable instructions. Violation of above agreement will result in
termination of said Link between QS and EHC.
1.2.1 Referral Fees. QS shall pay to EHC a referral fee (the "Referral
Fees") on all "Eligible Services" consisting of * * * of the "Transaction
Revenue." For a transaction to generate a Referral Fee, a User must follow a
Link from the Dr. Koop Site to the QS Site and purchase a Service. Referral
Fees will also be paid on any Services that are subsequently purchased by a User
after the User has reentered the site, even though such User may not have
followed a Link on the subsequent visit. EHC warrants to Quotesmith.com that
it, or one of its officers or employees is, and will maintain its status as, a
duly licensed insurance agency or insurance broker and that, as such, is legally
authorized to receive insurance commission payments from Quotesmith.com
hereinafter referred to as "referral fees." Services that are entitled to earn
Referral Fees under this Agreement are hereinafter referred to as `Eligible
Services." As used herein, "Transaction Revenues" shall mean the bona fide fee
charged to a user for any Services. Packaging, transportation and insurance
charges, import export, excise, sales and value added taxes, custom duties, and
other similar amounts, may be deducted from the Transaction Revenues only if
separately invoiced to such User.
- -------------
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * * *. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
* * * Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<PAGE>
1.2.2 Time of Payment and Referral Fee Statement. Referral Fees are due
and payable on the thirtieth (30th) day of the month following the month in
which revenue is received on an Eligible Service. If a Service that generated a
Referral Fee is returned or canceled, the corresponding Referral Fee will be
deducted from the next monthly payment. Referral Fee checks shall be
accompanied by a report setting forth the total number of Users who accessed the
QS Site through a Link during the month, the number and type of Qualified
Services sold during the month, a calculation of the Referral Fees, any
information relating to refunds or cancellations and such other information as
the parties may agree.
2.1 Content. QS agrees to notify EHC of any significant changes in the
type of content or Services offered on the QS Site within five (5) days of the
change. EHC may terminate this Agreement on five (5) days notice after such
significant change, if EHC determines in its sole discretion that such changes
are inconsistent with the Dr. Koop image.
2.1.B EHC agrees that the content on the QS Site is solely at the
discretion of QS, subject to above termination. EHC agrees to not specify
certain service providers or attempt to arrange any exclusive provider
arrangements. QS cannot change the Site on an exclusive basis to fit EHC
desires. QS cannot change the database promoting the Service in any way to
accommodate an EHC request.
3.1 Press Releases. Both parties agree to issue press releases at the
earliest possible date, no later than March 1, 1999 unless agreed upon by both
parties. Such press releases are to be approved by both parties as to content,
accuracy, and timing. Additional advertising and promotions are expected and
coordinated between both EHC and QS.
6.1 Damages. EXCEPT AS SET FORTH IN SECTION 5, IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY 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) OR OTHERWISE AND
IRRESPECTIVE OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY
SUCH LOSS OR DAMAGE.
6.2 Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL WARRANTIES WITH REGARD TO THEIR
RESPECTIVE WEB SITES, 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 WEB SITE WILL OPERATE ERROR-FREE OR WITHOUT
INTERRUPTION.
7.1 Term. This Agreement shall commence on the Effective Date, and shall
continue for a period of ninety (90) days (the "Term").
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7.2 Follow-on Agreement. EHC and QS shall at the end of the Term
negotiate, execute and deliver on or before April 6, 1999, a Linking Agreement
which shall have a contract term of at least one year. EHC and QS agree to
negotiate reasonably and in good faith towards such a definitive Linking
Agreement; provided, however, that either party may terminate negotiations in
its sole discretion at any time after April 6, 1999. Unless and until the
definitive agreement is executed and delivered, neither EHC and QS will have any
rights or obligations after the Term, except under this paragraph, which shall
be fully enforceable.
8.1 Governing Law. This Agreement shall be governed in all respects by
the substantive laws of the State of Texas, United States of America (excluding
conflict of laws rules) as applied to agreements entered into and to be
performed entirely within the State of Texas between Texas residents.
8.2 Entire Agreement. This Agreement reflects the entire agreement of the
parties regarding the subject matter hereof, and supersedes all prior and
contemporaneous agreements between the parties, whether written or oral. This
Agreement shall not be amended, altered or changed except by written agreement
signed by both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
This Agreement is a subset of the final agreement to be executed upon its
completion. Acceptance of this Agreement does not assume acceptance of the
final agreement.
ACCEPTED BY:
EMPOWER HEALTH CORPORATION
By: /s/ Neal Longwill
-----------------
Name: Neal Longwill
Title: Senior Vice President Sales
QUOTESMITH.COM
By: /s/ Grant F. Kuphall
--------------------
Name: Grant F. Kuphall
Title: Vice President
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EXHIBIT 10.22
AGREEMENT
This Agreement is made and entered into this 1st day of June, 1998, by
and among Nancy Snyderman, MD (Snyderman) and Empower Health Corporation, a
Texas Corporation (EHC).
WITNESSETH
Whereas, Snyderman wishes to assist EHC in the development of a
consumercentric healthcare management information system on the Internet, which
is described in the EHC Business Plan.
NOW, THEREFORE for and in consideration of the premises, and the
mutual covenants and promises herein set forth, the parties hereto hereby agree
as follows:
1. Terms and Termination. The term of this Agreement will begin effective
on the date hereof and will extend for an initial term of three (3) years.
Unless otherwise terminated as provided for below, the Agreement will
automatically renew for consecutive three-year terms. The Agreement may be
terminated by either party upon written notice sixty (60) days before the
expiration of any Term. This Agreement may also be terminated by either party in
the event of a breach or default by the other party. Provided termination is not
the result of a breach or default by EHC, EHC shall have the right on a non-
exclusive basis for two (2) years following termination of the initial Term and
any subsequent Term thereafter to rebrand and promote Snyderman's Name. In the
event that termination occurs as a result of a breach or default by either party
all rights to use the Snyderman Name shall cease immediately upon termination.
2. Right to Use Services. During the Term and subject to all other
provisions of this Agreement, Snyderman agrees that EHC shall have the right to
use the Snyderman name, image or likeness on the Internet in connection with the
Company's healthcare related software services and programs (collectively, the
"programs") in accordance with Clause 5 below.
3. Compensation. For all rights and privileges and services rendered or
provided for hereunder by Snyderman, EHC shall grant to Snyderman, an option to
acquire 24,000 shares of the common stock of Empower Health Corporation at a
strike price of $1.17 per share.
4. Competitive Protection. Effective as of the date of this Agreement and
continuing throughout the Term, Snyderman agrees that, other than those
obligations which are so stated in an agreement(s) which she is a party to and
which was executed prior to the effective date of this Agreement, and, except as
provided for herein, Snyderman will not render services in the form of
advertising and/or publicizing of any programs, products or services which are
directly competitive with EHC's Internet based programs nor will Snyderman
permit or authorize the use of the Snyderman name and/or likeness (photograph
and/or drawing), voice, signature and/or endorsement in connection with any such
competitive programs on the Internet.
(i) Snyderman shall not participate in the development, production
or promotion of any competitive internet programs during the term of this
Agreement, or any subsequent terms of this Agreement, and for a period of one
(1) year thereafter except as provided for above.
<PAGE>
5. Right of Review. Each program developed by EHC utilizing Snyderman's
name and/or likeness shall be subject to Snyderman's prior review and written
approval, which approval shall not be unreasonably withheld and shall be
rendered within ten (10) working days of receipt of the program. EHC and
Snyderman agree herein that Snyderman shall have the right to review all aspects
of those programs bearing her name and likeness, including:
(i) Content and format, including manuscripts and other written
materials including drafts and the final version.
(ii) Extent and content of all medical and technical information.
(iii) Program Title.
(iv) Credit.
(v) Means of advertising, promoting and selling programs,
including the Snyderman name.
(vi) All advertising and promotional materials created, developed
or used in connection with the programs.
(vii) Any use of the Snyderman Name.
(viii) Any use not expressly contemplated by this Agreement.
EHC and Snyderman shall work together to establish systems and procedures for
updating the program based on advances in the field of medicine.
6. Development Costs. All costs related to the development of any
programs which utilize Snyderman's name and/or likeness, shall be at EHC's
expense; more specifically, air travel shall be first class; lodging shall be
selected by Snyderman, and other expenses directly related to the promotion of
EHC's programs utilizing Snyderman's name and/or likeness, shall also be at
EHC's expense and shall be reimbursed within two (2) weeks of receipt by EHC of
expense reports related thereto.
7. Default Provisions. In the event that either party to this Agreement
defaults on any obligation contained herein, then the other party may, by giving
written notice to such effect to the defaulting Party, terminate this Agreement
as of the date specified in such notice of termination.
8. Obligations Limited to Grant of Options. The obligations to Snyderman
hereunder shall be fully performed and discharged as stipulated in Sections 3
and 6 and those obligations that arise pursuant to the provisions for
indemnification contained in Section 9(a). It is understood that Snyderman is
not an employee of EHC and shall not be entitled to any rights or benefits
granted to employees of EHC and by reason of the rendering hereunder of services
by Snyderman.
9. Covenants and EHC. EHC covenants and agrees that it will not knowingly
permit,
2
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do or commit any act or thing that would degrade, tarnish or depreciate
Snyderman or the Snyderman public image in society or standing the in community,
or prejudice Snyderman.
10. Indemnity. EHC agrees to indemnify and hold harmless Snyderman, her
employees, assignees and heirs against any and all claims, damages, liabilities
(including, but not limited to, liability for personal injury and liability for
breach of confidentiality), costs and expenses, including without limitation,
reasonable legal fees and costs arising out of the use of any material furnished
by EHC and Dr. Snyderman in connection with the services performed, or resulting
from any third party action of any kind, or resulting in any way from the
viewing of EHC program on the Internet pursuant to this Agreement, or incurred
for or by reason of the breach of EHC of any of the obligations, warranties,
agreements, covenants of representations herein contained. Snyderman shall
provide prompt written notice of any claim hereunder and EHC shall have the
right to defend same.
11. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be hand delivered or sent next day
delivery by a company where a receipt is given to the address as follows:
To: Empower Health Corporation
Attention: Donald Hackett, President
8920 Business Park Drive
Longhorn Suite #200
Austin, TX 78759
To: Nancy Snyderman, MD
80 Laurel Grove
Ross, CA 94957
Any such notice, direction or other instrument aforesaid, if delivered
shall be deemed to have been given or made on the date on which it was delivered
or if sent next day delivery shall be deemed to have been given or made on the
day following the day on which it was sent provided that any one of the parties
hereto may change its address by written notice to the other according to the
terms hereof and in such event this paragraph shall be deemed to be amended
accordingly.
12. Other Representatives and Warranties
By Snyderman. Snyderman represents and warrants that she has the
right to enter into this Agreement and that she is free to grant the rights
granted herein.
By Empower Health Corporation. EHC represents and warrants that:
1. It has the right to enter into this Agreement and that it has
the right to grant to Snyderman the option to acquire 24,000 shares of EHC
common stock as is so stated in Clause 3 herein.
2. The programs will not infringe the copyright, trade secret, or
property rights of any third party.
3
<PAGE>
3. All aspects of the programs, distribution and promotion of the
programs shall, comply with all applicable laws and regulations.
4. It is not a party to any agreement that will be breached by or
that prohibits its entering into or performing this Agreement.
13. Trademark Assignment and License. EHC represents and warrants that it
has filed applications based on actual use with the United States Trademark
Office to register the marks of "Ask Dr. Nancy Snyderman" and other programs
which will include the Snyderman name and/or likeness (hereinafter the
"Trademarks") for the goods and services described herein. Upon execution of
this Agreement, EHC hereby assigns its right title and interest in the
Trademarks including the goodwill contained herein to Snyderman. Snyderman
hereby grants to EHC an exclusive license during the Term of the Agreement to
use the Trademarks and any other marks registered by Snyderman pursuant to this
Agreement. EHC acknowledges that it has no rights in the Trademarks and that
nothing contained in this Agreement or in any other document shall vest any
ownership rights in the Trademarks or any other marks owned by Snyderman in EHC.
14. Miscellaneous
(a) Ownership and Publicity. EHC does not and may not claim any
right, title or interest in or to Snyderman's name or likeness and acknowledges
that all rights therein are and remain the property of Snyderman.
(b) Insurance. Prior to the promotion or distribution of any
program other than reasonable, limited test marketing, EHC shall secure a
necessary and customary insurance, including a standard comprehensive general
liability insurance policy providing standard product liability protection,
directors and officers insurance and errors and omissions insurance, listing
Snyderman as a named insured. Such insurance, shall be in a form reasonably
acceptable to counsel for Snyderman and shall require the insurer to give
Snyderman at least thirty (30) days prior written notice of any cancellations.
(c) Entire Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement between Snyderman and EHC with respect to
the subject matter herein set forth and supersedes all prior agreements by and
between the parties.
(d) Amendments. This Agreement may not be amended, altered or
terminated except in writing.
(e) This Agreement shall be binding upon the parties hereto and
their respective heirs, executors, administrators successors and permitted
assigns.
(f) Language. The language used in this Agreement shall be deemed
to be language chosen by the parties thereto to express their mutual intent, and
no rule of strict construction against any party shall apply to any term or
condition thereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
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(h) Termination. Upon any termination and except as provided for
herein, all rights to use Snyderman's name and likeness shall terminate.
(i) Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof shall be settled by binding
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a single arbitrator in a location to be agreed upon by the
parties, and judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof and shall not be appealable.
(j) Gender. Whenever herein the singular number is used, the same
shall include the plural and the masculine gender shall include the feminine and
neuter genders and vice versa, as the content may require.
(k) Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original but all of which taken together shall
constitute by one agreement.
15. Assignment and Change of Control. Neither party may assign its rights
and obligations under this Agreement without the prior written consent of the
other.
IN WITNESS WHEREOF THIS AGREEMENT IS EXECUTED AS OF THE DATE FIRST WRITTEN
ABOVE.
EMPOWER HEALTH CORPORATION
\s\ Nancy Snyderman \s\ Donald W. Hackett
- --------------------------------- ----------------------------------
Nancy Snyderman, MD Donald W. Hackett
President
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EXHIBIT 10.24
AGREEMENT FOR SUB-SUBLEASE
This AGREEMENT FOR SUB-SUBLEASE (the "Agreement") is made this 20th
day of May 1998 at Travis County, Texas by and between The Software Atelier
L.L.C., a Texas limited liability company ("Software Atelier") and Empower
Health Corporation ("Empower Health") (together the "Parties").
RECITALS
WHEREAS on March 20, 1998, RGK Rentals Ltd., a Texas limited
partnership and the fee owner of the building at 8920 Business Park Drive,
Austin, Texas ("RGK") (the "Building"), as lessor, has entered into a lease with
ASF, a Delaware corporation ("ASF"), as lessee, for the whole Building together
with the related parking, driveways and landscaped areas, more particularly
described in such lease (the "Premises") attached hereto as Exhibit A to
Appendix 1 (the "Main Lease"); and
WHEREAS Software Atelier, as sublessee, has entered into a sublease
agreement attached hereto as Appendix 1, with ASF, as sublessor, on April 20,
1998 for two floors of office space in the Building (the "Subleased Premises")
(the "Main Sublease"); and
WHEREAS Empower Health, as sub-sublessee, desires to lease a portion
of the. premises subleased by Software Atelier, as sub-sublessor, under the Main
Lease and Software Atelier desires to grant such demise,
NOW THEREFORE the Parties enter into this Agreement to formalize their
intentions.
AGREEMENT
1. Interpretation.
1.1. Capitalized terms used in this Agreement shall have the
same meanings as those terms in. the Main Lease, unless otherwise defined
herein.
1.2. Headings used in this Agreement are for convenience only
and should not be used to interpret the provisions of this Agreement.
1.3. References to paragraphs and appendices are to paragraphs
and appendices of this Agreement unless otherwise noted.
1.4. Words of any gender used in this Agreement shall be
construed to include any other gender, and words in the singular shall include
the plural and vice versa, unless the context requires otherwise.
1.5. Definitions. As used in this Agreement, the following
terms shall have the following meanings:
1.5.1. "Annual Rent Per Square Foot Rates" shall mean
the annual rent per square foot rates for the time periods shown in paragraph
7.1.
1.5.2. "Base Area" shall mean the area defined in
paragraph 9.1.
1.5.3. "Common Areas" shall mean and include all areas,
facilities,
<PAGE>
equipment, directories and signs of the Building made available for the common
and joint use and benefit of occupants of the Building including, but not
limited to, lobbies, public washrooms, hallways, sidewalks, parking areas,
landscaped areas and service entrances. Common Areas may further include such
areas in adjoining properties under reciprocal easement agreements, operating
agreements or other such agreements now or hereafter in effect and which are
available to ASF, Software Atelier, Empower Health and Empower Health's
employees and invitees.
1.5.4. "Date of this Agreement" shall mean the date
first above written.
1.5.5. "Empower Health Premises" shall mean the
premises demised under this Agreement, more particularly defined in paragraph 2.
1.5.6. "Hazardous Substance" shall mean any. substance
that has toxic, corrosive, flammable or reactive properties and that is
regulated by the State of Texas or the United States Government. Hazardous
Substances include, but are not limited to, asbestos, polychlorobiphenyls
(PCBs), flammable explosives, radioactive materials, chemical carcinogens,
pollutants, effluent contanimants, emmissions and petroleum.
1.5.7. "Member Companies" shall mean those companies
who rent space in the Building from Software Atelier and may be provided other
services by Software Atelier.
1.5.8. "Pro Rata Share" shall mean the ratio of Empower
Health Premises total rentable area to the total rentable area of the Building
(53,984 square feet);
1.5.9. "Rent" shall mean the sum of the Base Rent (as
defined in paragraphs 7.1 to 7.4) and Empower's Add-On (as defined in paragraph
7.5).
1.5.10. "Software Atelier Private Equity Fund" or "Fund"
shall mean the fund related to the venture limited partnership which Software
Atelier is attempting to form in which Software Atelier will be the General
Partner and may consist of between $4 million and $ 10 million.
1.5.11. "Security Deposit" shall mean the security
deposit of $10,633 (ten thousand six hundred thirty-three dollars) pre-paid to
Software Atelier by Empower Health on May 6, 1998 under the Letter of Donald
Hackett of May 6, 1998, a copy of which is attached hereto as Appendix 2.
1.5.12. "Term" shall mean the term of this Agreement as
defined in paragraph 3;
1.5.13. "Utilities" shall mean the utilities provided by
RGK and ASF under the Main Lease and Main Sublease, respectively, including but
not limited to 24 hour heating, ventilation and air conditioning, gas, water and
electricity for the Building;
2. Demise. In consideration for the mutual promises contained
herein, Software Atelier hereby demises and leases exclusively to Empower Health
and Empower Health hereby takes sections of that portion of the Building known
as the "Second Floor North" as shown on the plan attached hereto as Exhibit 13
to Appendix 1 to Empower Health during the Term, subject to the terns of the
Main Lease, Main Sublease and the provisions of this Agreement, according to the
following schedule (the "Empower Health Premises"), TO HAVE AND HOLD:
<PAGE>
Rentable Space
Period (square feet)
The Date of this Agreement - Sept. 30, 1998 5,800* (Base Area)
Oct. 1, 1998 - Dec. 31, 1998 8,120*
Jan. 1, 1999 - Oct. 31, 2000 11,020*
*Rentable space shall include a common area factor of 16%, which
relates to the 16% ratio of the common area of the Building to the total space
of the Building.
3. Term. The Term of this Sublease shall commence on the Date of
this Agreement and end on October 31, 2000, unless otherwise terminated under
this Agreement.
4. Covenants of Main Lease and Main Sublease. This Agreement is
subject to and subordinated to the Main Lease and Main Sublease. Except as may
be inconsistent with the terms hereof, all the covenants of RGK under the Main
Lease and ASF under the Main Sublease are applicable to this Agreement with the
same force and effect as if Software Atelier was the landlord under the Main
Lease and Main Sublease.
5. Duty to Prevent Forfeiture. Software Atelier shall perform all of
the tenant's obligations under the Main Sublease during the Term. including the
payment of all rent and its pro rata share of increases in Forecast Additional
Rental and Additional Rental (as defined in the Lease) in excess of the Forecast
Additional Rental for 1998 and the Additional Rental for 1998. 1998 shall be the
base year for measuring such increases. Software Atelier shall neither do nor
permit anything to be done, nor omit to do anything which would cause the Main
Sublease to be terminated or forfeited by reason of `my right of termination or
forfeiture reserved or vested in ASF under the Main Lean.
6. Warranty. Software Atelier represents and warrants that:
6.1. it is the sole owner of the sublessee's interest under the
Main Sublease and it has not sold, assigned, sublet, transferred, mortgaged or
otherwise conveyed or encumbered its interest as sublessee in the Main Sublease;
6.2. it has all right power, legal capacity and authority to
enter into and perform its obligations under this Agreement;
6.3. except for the approval of ASF under the Main Sublease
which Software Atelier shall obtain on the Date of this Agreement, no approvals
and consents are necessary for Software Atelier to perform its obligations under
the Main Sublease;
6.4. execution of this Agreement and performance of the
obligations of Software Atelier herein will not violate any law applicable to
Software Atelier,
6.5. as of the date hereof, no event of default exists under
the Main Sublease, nor is Software Atelier aware of any default or breach of any
of the provisions of the Main Lease;
6.6. Software Atelier has not undertaken any act or omission,
which may, after the passage of time, constitute a default under the Main
Sublease; and
<PAGE>
6.7. the Utilities shall be provided to the Empower Health
Premises in such amounts and quality as is adequate for Empower Health's
intended use.
7. Payment of Rent.
7.1. Empower Health agrees to pay Software Atelier base rent
for the Empower Health Premises in accordance with the rent schedule set forth
below (the "Base Rent"):
Annual Rent Per
Period Monthly Rent Square Foot
The Date of this Agreement - $10,633 $22.00
Sept. 30, 1998
Oct. 1, 1998 - Dec. 1, 1998 $14,887 $22.00
Jan. 1, 1999 - July 31, 1999 $20,203 $22.00
Aug. 1, 1999 - Oct. 31, 2000 $20,663 $22.50
7.2. For the rental period commencing on the Date of this
Agreement and ending on the eve of 7.2. the day marking one month from the Date
of this' Agreement (the "First Month Anniversary"), Software Atelier shall apply
the $10,633 (ten-thousand six hundred thirty-three dollars) paid to Software
Atelier by Empower Health's prepayment of rent on May 6, 1998 under the Letter
of Donald Hackett of May 6, 1998, a copy of which is attached hereto as Appendix
2. Thereafter, Rent shall be payable monthly in advance on the first day of each
calendar month during the Term. The second payment of Rent (minus any deductions
for failure to deliver the Empower Health Premises on the a Delivery Date as
described in paragraph 8) therefore shall be due on June 1, 1998 and shall be
applied to the period of the First Month Anniversary through the eve of the day
marking the second month from the Date of this Agreement. If the Term ends on a
day other than the first or last day of a rental month, the Rent for the partial
months shall be prorated on a per them basis.
7.3. Payment of Base Rent shall cover the Pro Rata Share of the
following services which Empower Health shall receive and Software Atelier shall
provide as part of this Agreement during the Term: all Utilities for the Empower
Health Premises and the Common Areas; janitorial service for the Empower Health
Premises and the Common Areas; security for the Empower Health Premises and the
Common Areas; Building receptionist; maintenance for the Common Areas; Building
taxes; use of the following Common Areas: breakroom, workout room and showers
located on the second. floor, use of PBX, voice mail systems and installed
computer cabling.
7.4. Base Rent shall not include the following: any build-out;
telephone handsets, inbound and outbound telephone circuits; communications
moves, adds or changes. These items may be arranged through Software Atelier for
additional charges.
7.5. Empower Health shall pay its Pro Rata Share of any
increases in Forecast Additional Rental and Additional Rental (as defined such
terms are defined in the Main Lease) from the Forecast Additional Rental for
1998 and the Additional Rental for 1998 (together, "Empower's Add-On").
7.6. Empower Health may rent additional space in the Building
during the Term,
<PAGE>
subject to the execution of a mutual agreement of the Parties as evidenced by an
amendment to this Agreement and ASF's consent to such amendment. For each square
foot of additional space rented by Empower Health during the Term beyond that
set forth in schedule shown in paragraph 7.1, Empower Health shall pay Base Rent
at the Annual Rent Per Square Foot Rates.
8. Software Atelier's Work.
8.1. Software Atelier shall fit out the Empower Health Premises
in accordance with Software Atelier's obligations as set forth in the work
letter in Appendix 3 ("Software Atelier's Work").
8.2. Software Atelier shall deliver the Empower Health Premises
to Empower Health with all of Software Atelier's Work completed on or before the
date falling ten (10) calendar days from the Date when Empower Health provides
the Software Atelier with specifications or requirements for work outlined in
appendix 3. For every day after the Delivery Date, on which Software Atelier's
Work is not complete, the Parties have negotiated and agreed `deducted from the
because of the difficulty of ascertaining damages that there shall be Rent the
money which would otherwise be due as Rent on a per diem basis (e.g., $354 per
day).
8.3. If Software Atelier is delayed in completing Software
Atelier's Work by strike, shortages of labor or materials, delivery delays or
other matters beyond the reasonable control of Software Atelier, then Software
Atelier shall give notice thereof to Empower Health and the Delivery Date shall
be postponed for an equal number of days as the delay as set forth in the
notice.
8.4. If, however, delays exceed thirty (30) days, then Empower
Health upon notice to Software Atelier shall have the right to terminate this
Agreement without liability to Empower Health. In case of such termination, the
Parties have negotiated and agreed that Empower Health's fair and reasonable
damages shall be all the actual expenses which Empower Health has incurred in
negotiating this Agreement in reliance upon Software Atelier's representation
that Software Atelier's Work would be completed by the Delivery Date (the
"Termination Damages"). Software Atelier shall pay Empower Health such
Termination Damages upon presentation of an invoice with supporting
documentation by Empower Health.
9. Software Atelier's Covenants.
9.1. Upon notice from Empower Health given preferably 60 days
in advance, that Empower Health will not need all of the Empower Health Premises
beyond the base am of 5800 rentable square feet (the "Base Area"), Software
Atelier shall make an aggressive best faith effort to lease the unneeded portion
of the Empower Health Premises ("Unneeded Premises") to third parties. Software
Atelier shall offer any of its prospective tenants the Unneeded Premises as a
priority before any of the other available Subleased Premises. Software Atelier
shall. endeavor to make such third party leases consistent in term with Empower
Health's expected future needs for space.
9.1.1. If Software Atelier can lease the whole of such
Unneeded Premises, any rent from third party leases shall be applied to reduce
Empower Health's obligations to Pay Rent for space in excess of the Base Area.
9.1.2. If Software Atelier cannot lease any of such
Unneeded Premises, then at any time after October 1, 1998 and contingent on the
creation of the Fund, Software Atelier shall reduce by half Empower Health's
obligations to pay Rent for such Unneeded Premises.
9.1.3. If Software Atelier can only lease a part of
such Unneeded Premises,
<PAGE>
then (i) with regard to the portion of such Unneeded Premises occupied under a
third party lease or leases, Empower Health shall not be obliged to pay Rent and
(ii) with regard to the remaining portion of the Unneeded Premises and
contingent on. the creation of the Fund, Software Atelier shall reduce by half
Empower Health's obligations to pay Rent.
9.2. Software Atelier shall notify Empower Health if it obtains
knowledge that ASF has committed a default or breach of the Main Lease such that
RGK could elect to exercise one of its "Remedies in Default" under section 15 of
the Main Lease.
9.3. If ASF under the Main Sublease or RGK under the Main Lease
fail to perform any of their respective obligations, including without
limitation any obligations to maintain, repair or restore any portion of the
Empower Health Premises, or to operate, maintain, repair or restore the Common
Areas, Software Atelier shall, immediately upon receipt of notice from Empower
Health, use diligent efforts to compel ASF to (i) perform its obligations under
the Main Sublease or (ii) compel RGK to perform RGK's obligations under the Main
Lease. Without limiting the foregoing, Empower Health shall have the same right
to bring suit, jointly with Software Atelier or, with Software Atelier's prior
consent (which shall not be unreasonably withheld, delayed or conditioned),
unilaterally, against ASF to specifically enforce such obligations. Software
Atelier agrees upon the request of Empower Health to assign to Empower Health,
during the Term jointly the right or claim which Software Atelier may have under
the Main Sublease to specifically enforce such obligations.
10. Empower Health's Covenants. Empower Health shall comply with the
Rules and Regulations of the Building provided in Exhibit B attached to the Main
Lease in so far as such Rules and Regulations relate to the Empower Health
Premises.
11. Quiet Enjoyment. So long as Empower Health is not in default
under the terms and provisions of this Agreement, Empower Health shall peaceably
hold and enjoy the Empower Health Premises during the Term.
12. Signs. Empower Health shall have all of the rights of Software
Atelier as tenant under the Sublease to place its exterior signs on the Building
subject to ASF and City of Austin design approval.
13. Parking. During the Term, Software Atelier shall provide and
Empower Health shall have the right to occupy a minimum of fifty (50) parking
spaces in the parking area adjacent to the Building at no cost to Empower
Health.
14. Hazardous Substances. Software Atelier warrants and represents to
Empower Health as follows:
14.1. During the period that Software Atelier has subleased the
Empower Health premises, there has been no storage, production, transportation,
disposal, treatment or release of any Hazardous Substances on or in the Empower
Health Premises. There are no sources of Hazardous Substances on the grounds of
the Building..
14.2. Software Atelier, its agents, employees, contractors, have
complied in all respects with all laws. (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
which have jurisdiction over the Empower Health Premises concerning pollution or
protection of the environment.
<PAGE>
14.3. Without limiting the generality of the preceding paragraph
14.2, Software Atelier and its agents, employees, contractors have obtained and
been in compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under such laws, and has
complied, in all respects, with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in such laws.
14.4. Software Atelier hereby agrees to indemnify and hold
harmless Empower Health from and against and to reimburse Empower Health with
respect to, any and all claims, causes of action, loss, damage, liabilities,
costs and expenses (including attorneys' fees and court costs) of any and every
character, known or unknown, fixed or contingent, asserted against or incurred
by Empower Health at any time arising out of the presence of any Hazardous
Substances on the Empower Health Premises or in, on or under the Building, the
presence of which was caused by an act or omission of Software Atelier or its
agents, employees, contractors or its former tenants and those tenants'
respective agents, employees or contractors. Software Atelier's agreement to so
indemnify and hold harmless Empower Health under this paragraph 14.4 shall
survive the termination of this Agreement.
15. Indemnity for Software Atelier. Provided (i) Software Atelier is
not in default in the performance of its obligations under this Agreement, (ii)
ASF and Software Atelier are not in default in the performance of their
obligations in the Main Sublease, and (iii) ASF is not in default in the
performance of its obligations in the Main Lease, Empower Health agrees that:
15.1. it will indemnify and hold Software Atelier harmless from
all suits, claims and actions of every kind by reason of any breach, violation
or nonperformance of any term or condition on the part of the Empower Health
under this Agreement,
15.2. it will indemnify and hold Software Atelier harmless from,
and against all. suits, claims, actions, damages, liabilities and expenses,
asserted against Software Atelier on account of injuries to persons or damage to
property to the extent that any such damage or injury may be caused, either
proximately or remotely, by any act or omission of Empower Health or any of its
agents, servants, employees, contractors or invitees on the Empower Health
Premises, or if any such injury or damage may in any other way arise from or out
of the occupancy or use of the Empower Health Premises by Empower Health, its
agents, servants, employees, contractors or invitees, except in all instances as
may be caused in whole or in part by the negligence or willful misconduct of
Software Atelier or ASF.
15.3. The provisions of this paragraph 15 are for the benefit of
Software Atelier in relation to the Empower Health Premises only, and no right
of action shall accrue under this paragraph 15 to any third party by way of
subrogation or otherwise.
16. Indemnity for Empower Health.
16.1. Software Atelier and ASF, by ASF's consent to this
Agreement agree to indemnify and hold Empower Health harmless for all suits,
claims, actions, damages, liabilities and expenses asserted against Empower
Health arising out of or attributable to:
16.1.1. any breach, violation or non performance of any
terms or conditions on the part of Software Atelier under this Agreement or as
tenant under the Main Sublease and on the part of the ASF as tenant under the
Lease and as landlord under the Main Sublease; and
16.1.2. injuries to persons or damage to property in or
about the Premises which
<PAGE>
are not a part of the Empower Health Premises.
16.2. Software Atelier shall indemnify and hold Empower Health
harmless from and against all claims of any kind whatsoever by reason of any
breach or default on the part of Software Atelier by reason of which the Main
Sublease or Main Lease may be terminated.
17. Security Deposit.
17.1. Software Atelier shall use the Security Deposit only for
the purposes described -in paragraph 10 of the Lease, provided however that such
Security Deposit shall be used only to secure the performance of Empower Health
in this Agreement and shall not be applied to cure any default of ASF or
Software Atelier under the Main Lease or Main Sublease, respectively.
17.2. As set forth in paragraph 10 of the Lease and by ASF's
consent to this Agreement, ASF agrees that the Security Deposit shall be placed
in an interest bearing account or other interest bearing instruments in the name
of ASF.
17.3. If Empower Health performs all of its obligations under
this Agreement, the Security Deposit or as much thereof as has not been applied,
for reasons set forth in paragraph 10 of the Lease in relation only to the
Empower Health Premises, by Software Atelier shall be returned to Empower Health
with accrued interest at the end of the Term.
18. Default In the event Software Atelier breaches any warranty
herein, or fails to observe or perform any covenants, conditions or provisions
of the Main Sublease or this Agreement within fifteen (15) days after notice to
Software Atelier and ASF of such default from Empower Health (or such longer
period as may be necessary to complete said performance, not to exceed thirty
(30) days, provided Software Atelier or ASF has commenced `same within said
period and is diligently proceeding to complete same), during the continuance of
such default, Empower Health shall have the right in addition to any and all
other remedies to which it may be entitled at law or in equity, to terminate
this Agreement and be relieved of all duties and obligations of Empower Health
hereunder, or may, without being under any obligation to do so, at any time
after such default notice and opportunity to cure, cure such default for the
account of and at the expense of Software Atelier. Empower Health may withhold
from the payment of rents or any other sum payable to Software Atelier hereunder
next coming due all costs, expenses and disbursements (including attorneys'
fees) incurred by Empower Health in taking such curative actions, plus interest
at the rate of 10% per annum. All rights and remedies set forth in this
paragraph 18 may be exercised whenever and as often as necessary.
19. Assignments and Subleases. Empower Health shall have the right to
assign or sublet any interest in this Agreement upon written consent of Software
Atelier, not to be unreasonably delayed or withheld.
20. Conditions Precedent. This Agreement shall be of no force and
effect unless and until the following conditions precedent have been met:
20.1. ASF has executed the Sublessor Consent to Sub-sublease and
Estoppel Certificate attached as Appendix 4;
20.2. RGK has executed the Lessor's Covenant to Notify Sublessee
of a Default on the Lease I attached as Appendix 5;
20.3. ASF has established an account for the Security Deposit to
the satisfaction of
<PAGE>
Empower Health as set forth in paragraph 17; and
20.4. Software Atelier has caused the Sublease or a memorandum
about it to be recorded in the real property records in Travis County, Texas.
21. Recording. Empower Health shall be entitled to record this
Agreement or a memorandum about it in the real property records in Travis
County, Texas.
22. Brokerage Commissions. Software Atelier and Empower Health each
represent and warrant to the other that there are no agreements or claims for
brokerage or finder's fees in connection with the execution of the Agreement and
Software Atelier. Empower Health each agree to indemnify the other against, and
hold it harmless from, all liabilities arising from any such claim (including,
without limitation, the reasonable cost of attorneys' fees and other costs in
connection therewith).
23. Miscellaneous Provisions.
23.1. Texas Law to Apply. This Agreement shall be construed
under and in accordance with the laws of the State of Texas, and all obligations
of the parties created hereunder are capable of performance in Travis County,
Texas.
23.2. Parties Bound. This Agreement shall be binding on and
inure to the benefit of the Parties and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
23.3. Waivers. One or more waivers of any covenant, term or
condition of this Agreement by either party shall not be construed as a waiver
of a subsequent breach of the same covenant term or condition. The consent or
approval of either party to, or of any act by, the other party requiring such
consent or approval, shall not be deemed to waive or render unnecessary consent
to or approval of any subsequent similar act.
23.4. Legal Construction. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, that invalidity, illegality or
unenforceability y shall not affect any other provision and this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been included.
23.5. Relationship of the Parties. Nothing contained in this
Agreement shall be deemed or construed as creating the relationship of principal
and agent or of partnership or joint venture. Neither the method of computing
rent nor any other provision contained herein nor any acts of the parties hereto
shall be deemed to create any relationship between the parties other than that
of landlord and tenant.
23.6. Prior Agreements Superseded. This Agreement constitutes
the sole agreement of the parties and supersedes any prior understandings or
written or oral agreements between the parties respecting this subject matter.
23.7. Attorney's Fees. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover all costs of court including, without limitation, reasonable attorneys'
fees from the other party, which attorneys' fees may be set out by a court in a
trial ` of such action or may be enforced in a separate action brought for that
purpose, and which fees shall be in addition to any other relief which may be
awarded.
<PAGE>
23.8. Counterparts, One Agreement. This Agreement and all other
copies of this Agreement, insofar as they relate to the rights, duties and
remedies of the parties, shall be deemed to be one agreement. This Agreement may
be executed concurrently in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
23.9. Notice. Unless otherwise provided in this Agreement, any
notice, tender or delivery to be given by either party to the other may be
effected by personal delivery in writing or by registered or certified mail,
postage prepaid, return receipt requested.
23.10. Time Of Essence. Time is of the essence in this Agreement.
23.11. Notices. Any notice or designation to be given hereunder
shall be given by placing the notice or designation in the United States mail,
certified or registered, properly stamped and addressed to the address shown
below or such other address as the respective party may direct in writing to the
other, or by personal delivery to such address by a party, or by a delivery
service which documents delivery and such notice or designation shall be deemed
to be received upon such placing in the mails or such delivery:
Software Atelier: The Software Atelier
8920 Business Park Drive, #100
Austin, Texas 78759
Attn: Ken Bresnen
Empower Health: Empower Health Corporation
4008 River Place Blvd.
Austin, Texas 78730
Attn: Donald W. Hackett
ASF: 8920 Business Park Drive
Suite 300
Austin, Texas 78759
Attention: Mark Fuchs
Facilities Services, Inc.
P.O. Box 830849
Richardson, Texas 75083
Attention: Jimmie Mayhew
IN WITNESS `WHEREOF, the Parties have executed this Agreement to be
effective as of the date first above written.
SOFTWARE ATELIER
By: \s\ Ken Bresnen
-------------------------
Name: Ken Bresnen
-------------------------
Title: Managing Partner
-------------------------
<PAGE>
EMPOWER HEALTH
By: \s\ D. Hackett
-------------------------
Names: Donald Hackett
-------------------------
Title: Chief Executive Officer
-------------------------
<PAGE>
SUBLEASE AGREEMENT
This Sublease is made this 20th day of April, 1998 at Travis County,
Texas by and between Applied Science Fiction, Inc., (herein, "Sublessor"), and
The Software Atelier, LLC (herein, "Sublessee").
Sublessor is the Lessee under that certain Lease, (the "Main Lease"),
by and between RGK Rentals, Ltd., as Landlord, (herein "Lessor"), and Applied
Science Fiction, Inc., as Tenant, (herein "Sublessor"), executed on or about
March 20,1998 for the portion of the premises described in the Main Lease, known
as 8920 Business Park Drive (herein, "Lease Premises"), a true and correct copy
of which Main Lease is attached hereto as Exhibit "A" and incorporated herein by
this reference.
In consideration of the mutual promises contained herein, Sublessor
hereby subleases the Leased Premises to Sublessee, subject to the terms of the
Main Lease, and subject further to the provisions of this Sublease Agreement, as
follows:
1. Sublessee hereby agrees to abide by and observe all the terms,
covenants and conditions of the Main Lease.
2. The term of this Sublease shall commence May 12, 1998, and end
October 31, 2000, provided, however, that this Sublease shall sooner terminate
upon the termination for any cause whatsoever of the Main Lease.
3. Insofar as the provisions of the Main Lease do not conflict with
the specific provisions of this Sublease Agreement, they and each of them are
incorporated Into this Sublease as If fully completely rewritten herein, and
Sublessee agrees to be bound to the Sublessor by all the terms of the Main Lease
and to assume towards Sublessor and perform all the obligations and
responsibilities that Sublessor, by the Main Lease, assumes towards the Lessor
with respect to the Leased Premises only, except for the payment of rent by
Sublessee to Sublessor, which is governed by Paragraph 4 herein. Sublessee
further agrees to Indemnify and hold harmless Sublessor from any claim or
liability under the Main Lease or arising from the sublease for the premises
located In the Building. The.. relationship between Sublessee and Sublessor
shall be the same as that between Sublessor and Lessor under the Main Lease.
4. Sublessee agrees to pay Sublessor, as total rent for the Leased
Promises, per the rent schedule listed below, payable in advance on- the first
day of each calendar month during the term of this Sublease. In addition,
Sublessee shall pay pro rata share of Increases In Operating Expenses (1998 Base
Year), If any. Rental Rate is to Include janitorial service, HVAC service,
after-hours HVAC, and all other Operating Expenses referred to in the Lease
(again, using 1998 as Bass Year). The following rental schedule Is based upon
the square footages indicated in parentheses it is understood that the then-
current rental rate for the period will apply to any additional square footage
subleased in excess of the following takedown schedule.
May 12,1998 - July 11, 1998 $13,600/mo *(8,868- sf, $20)
July 12,1998 - Sep 30, 1998 $14,780/mo (8,868 sf, $20)
Oct 1,1998 - Dec 3l,1998 $23,752/mo (14,251 sf, $20)
Jan 1, 1999 - Jul 31, 1999 $28,585/mo (17,151 sf, $20)
Aug 1, 1999 - Oct 31, 2000 $29,300/mo (17,151 sf, $20.50)
<PAGE>
*(First two months' rent does not include the approximate 600 square
feet being provided as conference rooms to Software Atelier members, as well as
one administrative office.)
5. The following events shall be deemed to be events of default by
Sublessee under the Sublease, any event of default by Sublessee noted as events
of default by Tenant set forth in the Main Lease, or any default in the
provisions of this Sublease Agreement. Upon the occurrence of any such events of
default, and in addition to any other available remedies provided by law or in
equity, Sublessor shall have all remedies granted to Lessor In the Main Lease.
6. Upon Execution of this Sublease, Sublessee shall deposit with
Sublessor the sum of Thirteen Thousand Six Hundred Dollars ($13,600), as a
security deposit to be held by Sublessor pursuant to the provisions of the Main
Lease.
7. Time is of the essence of this Sublease, and each and all terms
hereof.
8. Any notice or other communication required or permitted to be
given under this Sublease or under the Main Lease shall be In writing and shall
be deemed to be delivered on the date It Is hand delivered to the party to whom
such notice is given, at the address set forth below, or if such notice Is
mailed, on the date on which it Is deposited in the United States Mail, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the party to whom such notice is directed, at the address set forth below:
Sublessor shall immediately forward to Sublessee copies of all notices it
receives from Lessor regarding the Leased Premises.
If to Sublessor:
SERVICES, INC.
P. 0. Box 830849
Richardson, Texas 75083
Attention: Jimmie Mayhew
APPLIED SCIENCE FICTION, INC.
8920 Business Park Drive #300
Austin, Texas 78759
Attention: Mark Fuchs
If to Sublessee:
THE SOFTWARE ATELIER
8920 Business Park Drive #300
Austin, Texas 78759
Attention: Ken Bresnen
9. Sublessee shall have no right to assign or sublet any interest in
this Sublease without first obtaining written consent of the Lessor and
Sublessor, which consent shall not be reasonably withheld.
10. Sublessor shall have no liability to Sublessee for any wrongful
action or default on the part of Lessor pursuant to the terms of the Main Lease,
and Sublessee hereby agrees to look solely to Lessor in event of any of any such
default, the liability and obligations of Sublessor being solely pursuant to the
terms and conditions of this Sublease Agreement.
<PAGE>
11. In the event any one or more of the provisions contained in this
Sublease Agreement shall for any reason be held Invalid, Illegal, or
unenforceable In any respect, such Invalidity, illegality, or unenforceability
shall not affect any other provision hereof and this agreement shall be
construed as H such Invalid, illegal or unenforceable provisions had never been
contained herein.
12. This agreement constitutes the sole and only agreement of the
parties hereto and supersedes any prior understandings and written or oral
agreements between the parties respecting -the subject matter of this Sublease
Agreement.
13. Upon the consent of Lessor as set forth below, Sublessor
represents that it has the authority to enter Into this Lease and that, so long
as Sublessee pays all amounts due hereunder and performs all other covenants and
agreements herein set forth, Sublessee shall peaceably and quietly have, hold
and enjoy the Leased Premises for the term hereof without hindrance or
molestation, subject to the terms and provisions of this Sublease.
14. Sublessee shall have right of first refusal on space labeled as
Area A on attached Floorplan ("Exhibit B") and shall have three business days to
match an offer to lease such space by a third party. If such space Is taken by
Sublessee, terms and conditions consistent with Sublessee's other space In the
building shall apply.
15. It is understood that Sublessee will have use of break area,
workout area and showers on second floor of building, which is included as a
part of common area.
16. It is understood that Sublessee will be signing for the subleased
space and responsible for payment. However, it is also understood that
organizations under the Software Atelier umbrella will be subleasing from
Sublessee.
17. Sublessee shall have the right for 90-day increment periods of
renewal should Sublessor not need the space.
18. PMRI (a member of The Software Atelier) will provide a written
guaranty (attached as Exhibit "D") of the portion of space it will be occupying.
This will be approximately 5800 square feet upon occupancy, growing to
approximately 8120 square feet by October 1, 1998, taking the remainder of the
north wing of the second floor January 1, 1999.
19. It is understood that if Sublessor needs any portion of the space
occupied by the Sublessee for the use of Sublessor, the Sublessee will make
every effort to relocate. If requested, the Sublessee will relocate member
companies (or affiliates) within the building. Upon 90 days' notice, the
Sublessee will relocate up to 50% of its then current occupied space to outside
the building. Upon 180 days' notice, the Sublessee will relocate up to 100% of
all Sublessee space (members and affiliates) outside the building. The space
occupied and guaranteed by PMRI is excluded from this moveout provision. Rent
will be adjusted accordingly to reflect diminished space.
20. Sublessor will provide a receptionist for the building on the
ground floor. It is anticipated that receptionist will require sign-in of all
guests to the building. It is also understood that entrance to the building will
be limited to card key access after normal business hours.
21. Incorporated as a part of this Sublease Agreement as Exhibit "C"
pertaining to telephone and computer writing, telephone service, computer
network service and telephone and network service
<PAGE>
availability.
EXECUTED on the day and year first above written.
SUBLESSOR: Applied Science Fiction, Inc.
By:
--------------------------------
Title:
SUBLESSEE: The Software Atelier, LLC
By: \s\ K.C. Bresnen Jr.
--------------------------------
Title: Managing Member
<PAGE>
CONSENT BY LESSOR
8920 Business Park Drive, Lessor under the Main Lease. referred to in
this Sublease Agreement, hereby consents to the foregoing Sublease Agreement and
agrees to be bound by the provisions of 13 thereof.
LESSOR:
--------------------------------
By:
--------------------------------
Title:
--------------------------------
<PAGE>
BALCONES NORTH
OFFICE BUILDING
OFFICE LEASE AGREEMENT
LEASE AGREEMENT
BY AND BETWEEN
RGK RENTALS, LTD., AS LESSOR
AND
APPLIED SCIENCE FICTION, INC.
AS LESSEE
March 19, 1998
<PAGE>
LEASE AGREEMENT
STATE OF TEXAS (S)(S)
(S)
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TRAVIS
1. PARTIES. This Lease Agreement (the "Lease") is made and entered
into by and between RGK RENTALS, LTD., a Texas limited partnership (hereinafter
referred to as the "Lessor") and APPLIED SCIENCE FICTION, INC., a Delaware
corporation (hereinafter referred to as "Lessee").
2. LEASED PREMISES. In return for the consideration, covenants and
agreements hereinafter set forth to be paid, observed and/or performed by
Lessee, Lessor hereby demises * and lets unto Lessee, and Lessee does hereby
lease from Lessor, that certain real property and improvements including an
approximately 53,984 rentable square foot building (the "Building") together
with the related parking, driveways and landscaped. areas, locally known: as
8920 Business Park Drive in Austin, Travis County, Texas, legally described as
Lot 1, Block A, North Crossing Subdivision, Section I-B, City of Austin,
recorded at Volume 80, Page 286 of the Plat Records of Travis County, Texas (all
of which is hereinafter collectively referred to as the "Leased Premises")
indicated on the Site Plan attached hereto as Exhibit A.
3. TERM, RENEWAL AND CANCELLATION. The term of this Lease shall
commence on April 1, 1998, ("Commencement Date") and shall end on March 31, 2003
(the. "Term"). Lessee shall have two (2) two-year renewal options at then market
rates. Market rates shall be governed by Exhibit D attached hereto. In the event
Lessee desires to exercise such option to renew this Lease, Lessee shall give
Lessor 180 days prior written notice of such exercise. After the first thirty-
six (36) months of this Lease, Lessee shall have the night to cancel the Lease
by giving Lessor one-hundred and eighty (180) days written notice and by paying
Lessor Two Hundred and Fifty Thousand Dollars ($250,000) plus the then
unamortized portion of the cost of Lessor's -Allowance for Improvements (as
defined in paragraph 22 herein) and brokerage fees. Any ` sublease agreements,
pursuant to paragraph 18 below, shall contain appropriate. cancellation
provisions, reflecting Lessees right to terminate this Lease contained in this
Paragraph 3.
4. COMMENCEMENT OF LESSEE'S POSSESSION. On -March 20, 1998, -Lessee
has possession of the Leased Premises subject to all the terms of this Lease,
with the exception of the payment of rent which will commence on April 1, 1998,
as more fully described below.
5. RENTAL PAYMENTS.
(a) Commencing on the Commencement Date and continuing
throughout the Term, Lessee hereby agrees to pay the Base Rental as described in
paragraph 6, plus Forecast Additional Rental and Additional Rental as described
in paragraph 7. The Base Rental and Forecast Additional Rental shall be due and
payable in equal installments on the first day of each calendar month during the
Term and any renewals extensions thereof, and Lessee hereby agrees to make such
payments monthly in advance to Lessor at Lessor's address as provided herein (or
such other address as may be designated by Lessor from time to time).
(b) If the Term commences or term month or terminates on other
than the last day of a calendar month, then tile installments of Base Rental and
Forecast Additional Rental for such month or months shall be prorated: and the
installment or installments so prorated shall be paid in advance. The payment
<PAGE>
for such prorated month shall be calculated by multiplying the monthly
installment by a fraction, the numerator of which shall be the number of days of
the Term occurring during said commencement or' termination month, as the case
may be, and the denominator of which shall be the total number of days occurring
in said commencement or termination month. Also, if. the Term commences or
terminates on other than die first day of a calendar year, Additional Rent shall
be. prorated for such commencement or termination year, as the case may be, by
multiplying each by a fraction,. the numerator of which shall be the number of
days of the Term during the commencement or termination year, as the case may
be, and the denominator of which shall be 3.65.
(c) Lessee shall pay all rent and other sums of money as they
shall become due and payable to Lessor under this Lease at tile time and in the
manner provided herein, without demand, set-off or counterclaims. At Lessor's
option, Lessee shall pay (i) five percent (5%) of the monthly rent (including
Base Rental, Forecast Additional Rental and all other sums owed by Lessee to
Lessor under the provisions this Lease), if same are not fully paid within ten
(10) days of the due date as specified herein, or (ii) $25.00 per day from due
date (if not paid within ten (10) days of due date) until all sums due,
including late charges, are paid in full. The parties hereby agree that such
charges represent a fair and reasonable estimate of expenses Lessor would incur
by reason of Lessee's late payments. Acceptance of such late charge by Lessor
shall neither constitute a waiver of Lessee's default nor, in the event of
Lessee's default, shall it prevent Lessor from exercising any rights or remedies
specified herein or otherwise.
6. BASE RENTAL. (Beginning -on April 1, 1998, Lessee shall pay td
Lessor a monthly rental (the "Base Rental') as follows:
April 1, 1998 until September 30,1998 $20,625.00 per month
October 1, 1998 until December 31, 1998 $35,291.67 per month
January 1, 1999 until March 31, 1999 $49,485.33 per month
April 1, 1999 until March 31, 2000 $58,482.67 per month
April 1, 2000 until March 31, 2002 $62,981.33 per month
April 1, 2002 until March 31, 2003 $71,978.67 per month
7. ADDITIONAL RENTAL.
(a) Beginning on the Commencement Date and continuing
thereafter for each calendar year during the Term, Lessor shall present to
Lessee, prior to the beginning of said period, a statement of Forecast
Additional Rental. Lessee shall pay Forecast Additional Rental in equal monthly
installments in advance. "Forecast Additional Rental shall mean Lessor's
reasonable estimate of Additional Rental. Lessee shall be liable also for any
Additional Rental.
(b) The term "Additional Rental" shall mean Lessor's Actual
Operating Expenses (defined below in paragraph 8) for the Leased Premises
incurred during each calendar year.
(c) By April 1 of each year during the Term, or as soon as
possible thereafter, Lessor shall provide Lessee a statement showing the Actual
Operating Expenses for the twelve-month period then ended, and a statement
prepared by Lessor comparing Forecast Additional Rental with Additional Rental.
In the event that Forecast Additional Rental exceeds Additional Rental for said
calendar year, Lessor shall pay Lessee
<PAGE>
(in the form of a credit against rentals next due) an amount equal to such
excess. In the event that the Additional Rental exceeds Forecast Additional
Rental for said calendar year, Lessee shall pay Lessor, within thirty (30) days
of receipt of the statement, an amount equal to such difference. The calculation
described in this paragraph 6(c) shall be made as soon as possible after the
termination of the Lease, and all provisions of this Lease relating to said
calculation shall survive the termination of this Lease.
8. LESSOR'S ACTUAL OPERATING EXPENSES. Lessor shall pay all of
Lessor's Actual Operating Expenses," which term shall include solely the
following:
(a) Ad valorem taxes for the Leased Premises.
(b) Casualty insurance on the Leased Premises to be carried by
Lessor as described in paragraph 12 below.
9. LESSEES OPERATING EXPENSES. Lessee is responsible for paying when
due Lessee's Operating Expenses for the Leased Premises. The term "Lessee's
Operating Expenses" shall mean the aggregate all of operating and maintenance
expenses incurred by Lessor or Lessee in connection with the Leased Premises,
other than Lessor's Actual Operating Expenses, and shall include without
limitation the following:
(a) The cost of all wages, salaries and any ancillary expenses
of all employees actually engaged in operation and maintenance of the. Leased
Premises, including taxes, insurance and benefits relating thereto.
(b) The cost of all supplies and material used in operation
and maintenance of the Leased Premises.
(c) The cost of all utilities, including but not limited to
electric, gas, water, heating, lighting, air conditioning and ventilation of the
Building.
(d) The cost -of all maintenance, service and operating
agreements for the Leased Premises and related equipment including but not
limited to security service, window cleaning, elevator maintenance and
janitorial service.
(e) The gross cost of liability insurance applicable to the
Leased Premises and Lessor's personal property used in connection therewith;
excluding however cost of casualty insurance on the Building included in Lessors
Actual Operating Expenses.
(f) The cost of all taxes and assessments and governmental
charges whether federal, state, county or municipal, whether they be by taxing
district or authorities presently taxing the Leased Premises or by others,
subsequently -created or otherwise, and any other taxes and assessments
attributable to the Leased Premises or its operator and maintenance or its
operation, excluding only Lessor's federal and state taxes on income, franchise
tax and inheritance tax. Lessee will be responsible for all ad valorem taxes on
its personal property and on the Leased Premises not covered by Lessor's Actual
. Operating Expenses as described above. If any such taxes,' assessments or
charges are paid by Lessor, Lessee will reimburse Lessor therefor, upon Lessor's
demand accompanied by a supporting statement setting forth Lessor's reasonable
calculation of the amount of such taxes chargeable to the Leased Premises.
(g) The cost of repairs, replacements and maintenance on or of
the Leased Premises
<PAGE>
(excluding repairs to the structure, foundation and the exterior walls of the
Building or replacement of the roof membrane). Lessee's obligation to maintain,
repair and make replacements to the Leased Premises shall cover, but not be
limited to, pest control (including termites), roof repairs, trash removal and
the maintenance, repair and replacement of all window glass, HVAC, electrical,
plumbing, fire and security and other mechanical systems.
(h) The cost of expenditures, capital or otherwise, made for
the specific purpose of installing equipment, devices or materials intended to
reduce operating expenses of the Building if required by law or regulation of a
governmental authority.
(i) The cost of landscaping and any other costs necessary to
maintain the Leased Premises in a first class condition.
10. SECURITY DEPOSIT. Upon the execution of this Lease, Lessee shall
pay Lessor a security deposit in the amount of Three Hundred Thousand Dollars
($300,000) as security for Lessee's MI performance of all the provisions of this
Lease. If Lessee fails to pay rent or otherwise defaults with respect to any
provision of this Lease, Lessor may use, apply or retain all or any portion of
the security deposit for the payment of Base Rent, Additional Rent, or any other
charge in default, or for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's. default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or -applies
all or any portion of the security deposit, Lessee must within five days after
written demand, deposit cash with Lessor in any amount sufficient to restore the
security deposit to the original amount and Lessees failure to do so is a
material breach of this Lease. The security deposit shall be placed in an
interest bearing account or other instruments chosen by Lessee in Lessor's name
at a bank chosen by Lessee. if Lessee performs all of Lessee's obligations
hereunder, the security deposit, or as much thereof as has not been applied by
Lessor shall be returned to Lessee with accrued interest. the end of the twenty-
fourth month of this lease, so long as Lessee has paid all Base Rental and
Additional Rental amounts on or before the due date each month, Lessor will
refund $75,000 of Lessee's security deposit. At the end of the thirty-sixth
month of this lease, so long as Lessee has paid all Base Rental and Additional
Rental amounts on before the due date each month, Lessor will refund $50,000 of
Lessee's security deposit' plus one-half of the accrued interest on Lessee's
security deposit. At the end of the forty-eighth month of this lease, so long as
Lessee has paid all Base Rental and Additional Rental amounts on or before the
due date each month, Lessor will refund 350,000 of Lessee's security deposit
plus one-half of the accrued interest over the last twelve months. Lessee will
request in writing any refunds of its security deposit. Lessee's security
deposit shall never drop below $150,000.
11. LESSEE'S DUTIES.
(a) Use of Leased Premises. The Leased Premises are to be used
and occupied by the Lessee solely for the purpose of general office, engineering
labs and computer rooms and for no other purpose without the prior written
consent of Lessor, which consent shall not be unreasonably withheld. Lessee
agrees not to commit or suffer to be committed on the Leased Premises any
nuisance or other act or thing against public policy or which violates any law
or governmental regulation or which is disreputable or which may disturb the
quiet enjoyment of any sublease of the Building. Lessee will not use, occupy, or
permit the use or occupancy of the Leased Premises for any unlawful,
disreputable, immoral, or hazardous purpose, `or maintain or permit the
maintenance of any public or private nuisance; or keep any substance or carry on
or permit any operation which might emit offensive odors into other portions of
the Building or permit anything to be done which would increase the fire
insurance rate of the Building or contents or which could lead to tile
cancellation of the -fire insurance coverage.
<PAGE>
(b) Condition of the Leased Premises. Lessee shall not damage
the Leased Premises and will maintain the Leased Premises in a clean, attractive
condition and in good repair, ordinary wear and tear excepted. Upon termination
of this Lease, Lessee will surrender mid deliver up the Leased Premises in good
order and repair and in the same condition as upon the Commencement Date of this
Lease, ordinary wear and tear excepted.
(c) Compliance with Laws. Lessee will comply with all
applicable federal, state. municipal and other laws, ordinances, rules, and
regulations applicable to the Leased Premises and to the business conducted
therein by Lessee, including without limitation the Americans with Disabilities
Act (collectively, "Applicable Laws"). Within fourteen (14) days of receipt,
Lessee shall forward to Lessor copies of any notices received from any
governmental authority regarding noncompliance with any Applicable Laws. Lessor
represents and warrants to Lessee, that to the -best of Lessor's knowledge, that
at the commencement of the Lease, the Leased Premises are in compliance with all
applicable laws.
(d) Liens. Lessee shall allow no liens to be filed against the
Leased Premises, or any part thereof, and shall promptly cause the release any
liens that are filed against die Leased Premises, or any part thereof
(e) Alterations, Addition and Improvements. Lessee covenants
and agrees not to permit the Leased Premises to be used for any purpose other
than that stated in paragraph 10(a) hereof, or make or allow to be made any
alterations or physical additions in or to the Leased Premises, or place on the
Leased Premises any signs visible from outside the Leased Premises, or place any
safes or vaults (whether movable or not) upon or in the Leased Premises, without
first obtaining the written consent of Lessor. All plans and drawings pertaining
to buildout or remodeling of the Building exterior, corridors or core, shall
first be submitted to Lessor for review and reasonable determination of Lessor's
approval or disapproval. Remodeling and buildout of the general office and lab
areas are excluded from Lessor review. Within 7 days of any and all remodeling,
Lessee will provide Lessor an electronic file and blue line drawing of changes
to the as-built of the Building. Any and all such alterations, physical
additions, or improvements made to the Leased Premises shall at once become the
property of Lessor and shall be surrendered to Lessor upon the termination of
this Lease, whether by lapse of time or otherwise; however, this clause shall
not apply to movable equipment or furniture owned by Lessee, provided no damage
is caused to the Leased Premises by the removal thereof If not in default at the
termination of this Lease, Lessee may remove all such fixtures, equipment,
decoration, furniture or other such items installed by Lessee. Any' damage
occasioned and caused by the installation or removal of such fixtures and
equipment shall be repaired at Lessee's expense. Upon written request ~y Lessor,
Lessee shall remove all such furniture and equipment and repair the damage
caused by the removal of same. In the event Lessee does not remove such
fixtures, equipment and other installed items, Lessor shall have the right to
remove the same and to repair any damage caused by such removal, and Lessee
shall be obligated to pay the cost of such removal and repair.
(f) Rules and Regulations. Lessee shall comply with the Rules
and Regulations of the Building provided in Exhibit B attached hereto and made i
part hereof Lessor reserves the right from time to time, after consultation with
Lessee and upon written notice to Lessee, to make such `changes, additions or
amendments to the Rules and Regulations as it may deem necessary or advisable.
Lessor shall have no liability to Lessee for any failure of any sublessees or
lessees of the Building to comply with such Rules and Regulations.
(g) Operation Lessee shall not place, install, or operate on
the Leased Premises or in any part of the Building any engine, refrigerating,
heating or air conditioning apparatus, stove, or machinery, or
<PAGE>
conduct mechanical operations, or place or use in or about the Leased Premises
any inflammable, explosive, hazardous, or odorous solvents or materials without
the prior written consent of Lessor. No portion of the Leased Premises shall at
any time be used for cooking; residential quarters; provided, however, that
Lessee may place refrigerators and microwave ovens in the Building.
(h) Repair and Maintenance. Lessee shall, at its own cost,
repair/replace any damage or injury done to the Leased Premises or any part
thereof caused by Lessee or Lessee's agents, contractors, employees, invitees,
or visitors: If Lessee fails promptly to make such repairs/replacements to the
Leased Premises, Lessor may make such repairs/replacement, and Lessee shall
repay the cost of such repairs/replacement plus ten percent (10%) thereof to
Lessor on demand.
(i) Telephone System.
(i) As part of this Lease, Lessor hereby Leases to
Lessee, the existing telephone system "as is where is", including without
limitation all cabling, telephone switch, telephone instruments, voice mail
system, network cabling in the Building (collectively called the "Telephone
System") as more particularly described on Exhibit C attached hereto for all
purposes. Lessee may, at its own cost, add upgrades to the Telephone System at
any time during the Tenn. Any such upgrades shall become the property of Lessor
and shall remain with the Telephone System after departure of Lessee from the
Leased Premises.
(ii) Lessee shall maintain and pay for telephone
service provided by a third party approved by Lessor. Any existing unexpired
service agreements at the commencement or termination of this Lease shall be
paid in Rill by Lessee or shall be paid by Lessor and reimbursed to Lessor by
Lessee.
(iii) Lessee must not sell, mortgage or part with
possession or control, or attempt to sell, mortgage or part with possession or
control of die' Telephone System, except is provided in paragraph 18 hereof.
(iv) Lessee may not pledge, encumber, create a
security interest in, or permit any lien to become effective on all or any
portion of the Telephone System. On the occurrence of any of these events,
Lessee will be in default. Lessee must promptly notify Lessor of any such liens,
charges, or other encumbrances of which Lessee has knowledge. Lessee must
promptly pay or satisfy any obligation from which any such lien or encumbrance
arises. Lessee must deliver to Lessor appropriate satisfactions, waivers, or
evidence of payment of any such lien or encumbrance.
(v) On the expiration of the Term, or on any earlier
termination of this Lease, Lessee must return the Telephone System to Lessor in
good repair, condition and working order normal wear and tear excepted. In
addition, Lessee will provide Lessor a complete and updated inventory of the
Telephone System.
(j) Signage. Lessee shall be allowed exterior signage on the
Building subject to Lessor and City of Austin design approval.
(k) Lessor Access. Lessor shall have the right to enter upon
and inspect the Leased Premises following reasonable notice to Lessee in
accordance with paragraph 21 (b).
12. QUIET ENJOYMENT. So long as Lessee is not in default under the
terms and provisions of this Lease, Lessee shall peaceably hold and enjoy the
Leased Premises during the said term.
<PAGE>
13. INSURANCE; INDEMNITY.
(a) Lessee's Insurance. Lessee shall, at Lessee's; expense,
obtain and keep in force during the term of this Lease:
(i) Comprehensive general liability insurance with
broad form general liability endorsement, in an amount of not less than
$1,000,000 per occurrence of bodily injury and property damage combined, or in a
greater amount as reasonably determined by Lessor, and shall insure Lessee with
Lessor as an additional insured against liability arising out of the use,
occupancy or maintenance of the Leased Premises. Compliance with the above
requirement shall not, however, limit the liability of Lessee hereunder.
(ii) Worker's compensation coverage as required by
law, together with employer's liability coverage, with a limit of not less than
$500,000.
(iii) Fire and extended coverage insurance, with
vandalism and malicious mischief, in an amount sufficient to cover not less than
100% of the full replacement cost, as the same may exist from time to time, of
all Lessees personal property, fixtures, equipment, and tenant improvements.
(b) Insurance Policies. Lessee shall deliver to Lessor copies
of liability insurance policies required under (a) above, or certificates
evidencing the existence and amounts'. of such insurance, within seven (7) days
after- the Commencement Date. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days prior
written notice to Lessor. Lessee. shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals thereof.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this Paragraph 13 are adequate to cover Lessees property or obligations under
this Lease.
(d) Hazard Insurance. During the Lease term, Lessor shall
maintain policies of insurance covering loss of or damage to the Leased Premises
in an amount equal to 100% of the replacement value of the Building.. Such
policies shall provide protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), and Inflation Guard endorsement, and any
other perils (except flood and earthquake, unless required by any lender holding
a security interest in the Leased Premises) which Lessor deems necessary.
(e) INDEMNITY. LESSEE, SHALL INDEMNIFY, AND HOLD HARMLESS
LESSOR AND LESSOR'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, GUESTS, INVITEES,
AND LENDERS FROM AND AGAINST ALL LOSSES, CLAIMS, COSTS, DAMAGE, LIABILITY OR
EXPENSES, INCLUDING BUT NOT. LIMITED TO REASONABLE ATTORNEYS' FEES, ARISING OUT
OF- ANY AND ALL INJURIES TO OR DEATH OF ANY PERSON OR DAMAGE TO ANY PROPERTY
ARISING OUT OF ANY OCCURRENCE ON OR IN THE PREMISES, INCLUDING THAT CAUSED BY
THE NEGLIGENCE OF LESSOR, BUT NOT TO THE EXTENT CAUSED BY THE INTENTIONAL ACT OR
GROSS NEGLIGENCE OF LESSOR, OR ARISING FROM ANY BREACH OR DEFAULT IN THE
PERFORMANCE OF ANY OF LESSEE'S OBLIGATIONS UNDER THIS LEASE, OR ARISING FROM ANY
ACT OR OMISSION OF LESSEE OR LESSEE'S DIRECTORS, OFFICERS, CONTRACTORS,
CUSTOMERS, INVITEES, EMPLOYEES. IF ANY ACTION OR PROCEEDING IS BROUGHT AGAINST
LESSOR BY REASON OF ANY SUCH MATTER, LESSEE UPON NOTICE FROM LESSOR SHALL DEFEND
THE SAME AT LESSEES EXPENSE BY COUNSEL REASONABLY SATISFACTORY TO
<PAGE>
LESSOR AND LESSOR SHALL COOPERATE WITH LESSEE IN SUCH DEFENSE. LESSOR- NEED NOT.
HAVE FIRST PAID ANY. SUCH CLAIM IN ORDER TO BE SO INDEMNIFIED; LESSEE, AS A
MATERIAL PART OF THE CONSIDERATION TO LESSOR, HEREBY ASSUMES ALL RISK OF DAMAGE
TO PROPERTY OF LESSEE OR INJURY TO PERSONS, IN, UPON OR ABOUT THE LEASED
PREMISES ARISING FROM ANY CAUSE AND LESSEE HEREBY WAIVES ALL CLAIMS IN RESPECT
THEREOF AGAINST LESSOR, EXCEPT TO THE EXTENT CAUSED BY THE INTENTIONAL ACT OR
GROSS NEGLIGENCE OF LESSOR.
(f) Exemption of Lessor from Liability. Lessee hereby agrees
that except to the extent caused by the intentional act or gross negligence of
Lessor, Lessor shall not be liable to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any. other
person in or about the Leased Premises, nor shall Lessor be liable for injury to
the person of lessee, Lessee's employees, agents or contractors, regardless of
whether such damage or injury is caused by or results from theft fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air-
conditioning or lighting fixtures, or from any other cause, including the
negligence of Lessor. regardless of whether said damage or injury results from
conditions arising upon the Leased Premises, or of the equipment, fixtures or
appurtenances applicable thereto, and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible. Lessor
shall not be liable for any damages arising from any act or neglect of any other
tenant, occupant or user of the Leased Premises, nor from the failure of Lessor
to enforce the provisions of any lease of any other sublessee of the Leased
Premises.
(g) Waiver of Subrogation. Anything in this Lease to the
contrary notwithstanding, as and to the extent permitted by applicable insurance
policies, Lessor and Lessee each hereby waive any and all rights of recovery,
claim, action, or cause, of action, against the other, its agents, officers, or
employees,- for any loss or damage that may occur to the Leased Premises, or any
improvements thereto, or the Building, or any improvements thereto, or any
personal property of such party therein, by reason of fire, the elements, or any
other cause to the extent but only to the extent the foregoing are insured
against under the terms of standard fire and extended coverage insurance
policies, regardless of cause or origin, including negligence of the other party
hereto, its agents, officers, or employees, and covenants that no insurer shall
hold any right of subrogation against such other' party.
(h) Fire or Other Casualty. The parties hereto mutually agree
that if any time during the Term the Leased Premises or any portion of the
Building are partially (mom than 20% of replacement cost) or totally- destroyed
by fire or other casualty covered by the fire and extended coverage insurance,
the Lessor may, at its option, upon written notice to Lessee, delivered within
sixty (60) days after such occurrence, elect either (i) to promptly repair and
restore the Leased Premises and the Building, as soon as it. is reasonably
practicable, to substantially the same conditions in which the Leased Premises
and the Building were before such damage, or (ii) to terminate the Lease with
such termination to be effective on the date of such fire or other casualty;
provided, however in the event Lessee has occupied and conducted business on the
Leased Premises during the interim between the fire or other casualty and the
delivery of the written notice, the termination will be effective on the date
Lessee last occupied and. conducted business on the Leased Premises.
In the event the Leased Premises are completely destroyed or so
damaged by fire or other casualty covered by the fire and extended coverage
insurance to be carried by Lessor under the terms hereof that it cannot
reasonably be used by Lessee for the purposes herein provided and this Lease is
not, terminated as above provided, then there shall be a total abatement of rent
until the Leased Premises are made usable. In the event the Leased Premises are
substantially destroyed or damaged by fire or other hazard so that the Leased
<PAGE>
Premises can be only partially used by Lessee for the purposes herein provided,
then there shall be a partial abatement in the rent corresponding to the time
and extent to which the Leased Premises cannot be used by Lessee.
If the Leased Premises shall be damaged by fire or other casualty
resulting from the fault or negligence of Lessee, or the agents employees,
licensees, or invitees of Lessee, then, to the extent not covered by insurance,
such damage shall be repaired by and at the expense of Lessee, under the
direction and supervision of Lessor, and rent shall continue without abatement.
(i) Condemnation and Loss or Damage. If the Leased Premises.
or any part thereof shall be taken or condemned for any public purpose to such
an extent as to render the remainder of the Leased Premises, in the opinion of
Lessor and Lessee, not reasonably suitable for Lessees .occupancy, this Lease
shall, at the option of either party, forthwith cease and terminate. All
proceeds from any taking or condemnation of the Leased Premises shall belong to
and be paid to Lessor. In addition, Lessor shall not be liable or responsible to
Lessee for any loss or damage to any property or persons occasioned by theft,
fire, act of God, public enemy, -injunction, riot, strike, insurrection, war,.
court order, requisition or order of governmental body or authority, force
majeure `or any other cause beyond the control of Lessor, or for any damage or
inconvenience which may arise through repair or alteration- of any part of the
Buildin& or failure to make repairs, except to the extent caused by the
intentional act or gross negligence of Lessor.
14. DEFAULT BY LESSEE. The occurrence of any one or more of the
following events shall constitute a default and breach of the Lease by Lessee.
(a) The vacating or abandonment of the Leased Premises by
Lessee. Such vacating or abandonment shall be deemed to have occurred upon the
absence of the Lessee from the Leased Premises for ten (10) consecutive days
while Lessee is in default in the payment of any sum to be paid by Lessee
hereunder, during the term of the Lease or any renewals or extensions thereof
(b) The failure by Lessee to make any payment of Monthly
Rental, Additional Rental or Forecast Additional Rental or any other payment
required to be made by Lessee hereunder as and when due, provided such failure
shill continue for a period of ten (10) business days after written notice
thereof by Lessor to Lessee.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or- performed
by the Lessee, other than described in Paragraph 13 (a) and (b) above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof by Lessor to Lessee; provided, however, that if the nature of
Lessee's default is such that more than thirty (30) days are reasonably required
for its cure, then * Lessee shall not be deemed to be in default if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(d) The making 6y Lessee, or any guarantor of Lessees
obligations under this Lease, of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Lessee, or any
guarantor of Lessee's obligations under this Lease, of a petition to have
Lessee, or any guarantor of Lessee's obligations under this Lease, adjudged a
bankrupt, or a petition for reorganization or arrangement under any laws
relating to bankruptcy (unless, in the case of a petition filed against Lessee,
or any guarantor of Lessee's obligations under this Lease, the same is dismissed
within thirty (30) days); or the appointment of a trustee or a receiver to take
possession of substantially all of Lessee's assets located at the Leased
Premises or of interests in this Lease, where possession' is not restored to
Lessee within thirty (30) days; or the attachment,
<PAGE>
execution or other judicial seizure of substantially all of Lessees assets
located at the Leased Premises or -of Lessees interest in this Lease, where such
seizure is not discharged in thirty (30) days.
15. REMEDIES IN DEFAULT BY LESSEE. Except as otherwise required
herein, in the event of any such default or breach by Lessee, from time to time,
in its sole discretion, and without notice and without limiting Lessor in the
exercise of any -other right or remedy which Lessor may be entitled to exercise-
at law or in equity, Lessor may elect to:
(a) Terminate this Lease, after ten (10) business days written
notice to Lessee, and forthwith repossess the Leased Premises and be entitled to
recover as damages a sum of money equal to the total of (1) the cost of
recovering the Leased Premises; (2) all unpaid Base Rental, Additional Rental
and Forecast Additional Rental earned at the time of termination, plus interest
thereon at the. maximum lawful rate; (3) an amount equal to the difference
between (i) the total rental (Base Rental, Additional Rental and Forecast
Additional Rental computed as stated in this Lease) for the remaining portion of
the Term; and (ii.) the then present value of the fair rental value of the
Leased Premises for such period (the parties hereto agreeing that the fair
rental value of the Leased Premises shall be the sum of all rentals to be paid
during such period discounted at the rate of ten percent (10%) per annum); (4)
the cost of repairs or of alteration of the Leased Premises that are the
Lessee's responsibility under this -Lease; (5) that portion of any leasing
commission paid by Lessor applicable to the unexpired term of Lease; and (6) any
other sum of money and damages owed by Lessee to Lessor.
(b) Terminate, after five (5) days written notice to Lessee,
Lessee's right of possession (but not the Lease) and repossess the Leased
Premises by forcible entry or otherwise, without demand or notice of any kind to
Lessee and without terminating this Lease, in which event Lessor may, but shall
be under no obligation to do so, re-let the same for the account of Lessee for
such rent and upon such terms as shall be satisfactory to Lessor. For the
purpose of such re-letting Lessor is authorized to make any repairs, changes,
alterations, or additions in or to Leased Premises that may be desirable,
necessary-or convenient, and, if the same are re-let and a sufficient sum shall
not be realized from such re-letting after paying the unpaid Rental, Additional
Rental or Forecast Additional Rental due hereunder earned but unpaid at the,
time of re-letting, plus interest thereon at a maximum lawful rate, the cost of
recovering possession, and all of the costs and expenses of such repairs,
changes, alterations, and additions and the expenses of such re-letting and of
the collection of the rent accruing therefrom to satisfy all rent provided for
in this Lease to be paid, the Lessee shall satisfy and pay any such deficiency
upon demand therefor from time to time. If Lessor is unable to re-let the Lease
Premises, then Lessee shall pay to Lessor as damages a sum equal to the amount
of all rentals specified in this Lease for the term thereof. Lessee agrees that
Lessor may file suit to recover any sums falling due under the terms of this
paragraph from time to time, and that no delivery or recovery of any portion due
Lessor hereunder shall be any defense to any subsequent action brought for any
amount not previously reduced to judgment in favor of Lessor, nor shall such
reletting be construed as an election on the part of the Lessor to terminate
this Lease unless a written notice of such intention be given to Lessee by
Lessor. Notwithstanding any such re-letting without termination, Lessor may at
any time thereafter elect to terminate this lease for any previous breach.
(c) In the event of Abandonment as defined in paragraph 14(a)
above, of the Leased Premises by Lessee, Lessor may enter the premises to make
inspections, to show prospective tenants and to remove and store any property of
Lessee in the Leased Premises, without terminating this Lease or limiting any
other remedy of Lessor under this Lease. In addition to any' other rights of
Lessor, Lessor may dispose of the stored property if Lessee does not claim such
property within sixty (60) days after the property is stored. Lessor shall
deliver by certified mail to Lessee at Lessee's last known address a notice
stating that Lessor may dispose
<PAGE>
of Lessee's property if Lessee does not claim the property within sixty (60)
days after the date the property is stored. Lessee's rights in and to such
stored property and Lessor's obligations as herein set forth with regard to such
stored property-are subject to and subordinated to the landlords lien in and to
all personal property of Lessee on the Leased Premises as set forth in paragraph
15(g). Notwithstanding anything herein to the contrary, upon an abandonment of
the Leased Premises by Lessee, Lessor shall be under no obligation to re-enter
the Leased Premises, store any property or take any other action. In an y such
event Lessor may continue this Lease and recover the full amount of the rent to
be paid hereunder as it comes due.
(d) Pursuit of any remedy by Lessor, whether hereunder or
otherwise, shall never be deemed an election of remedies. Lessee further agrees
that failure by Lessor to use diligence in enforcing its rights against Lessee,
or in requiring performance by Lessee of any of its obligations hereunder or in
preserving the liability of Lessee hereunder, shall not impair, reduce or in any
mariner affect Lessor's rights or remedies hereunder, or Lessee's liability or
obligations hereunder.
(e) Exercise by Lessor of any one or more remedies hereunder
granted or. otherwise available shall not be deemed to be an acceptance of
surrender of the Leased Premises by Lessee, whether by agreement or by operation
of law, it being understood that such surrender can be effected only by the
written agreement of Lessor and Lessee. No removal or other exercise of dominion
by. Lessor over the property of Lessee or others on the Leased Premises shall be
deemed unauthorized or constitute a conversion, Lessee hereby consenting, after
any event of default, to the aforesaid exercise of dominion over Lessee's
property within the Leased Premises. All claims for damages, except to the
property of Lessee or others on. the Leased Premises, by reason of such re-entry
and/or repossession are hereby waived, as are all claims for damages by reason
of any distress warrant, forcible entry and detainer proceedings, sequestration
proceedings or other legal process. Lessee agrees that any re-entry by Lessor
may be pursuant to judgment contained in forcible entry and detainer proceedings
or -other legal proceedings or without the necessity for any legal- proceedings
if such re-entry may be accomplished without force, as Lessor may elect, and
Lessor shall not be liable in trespass or otherwise.
(f) If Lessee should fail to make any payment or cure any
default hereunder within the time herein permitted, Lessor, without being under
any obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Lessee (and enter
the Leased Premises for such purpose), and thereupon Lessee shall be obligated
to, and hereby agrees, to pay Lessor, upon demand, all reasonable costs,
expenses and disbursements (including reasonable attorneys' fees) incurred by
Lessor in taking such remedial action.
(g) In the event that Lessor shall have taken possession of
the Leased Premises pursuant to the authority herein granted, then Lessor shall
have the right to keep in place and use all of the furniture, fixtures,
equipment, and other personal property at the Leased Premises, including that
which is owned by or leased to Lessee, at all times prior to any foreclosure
thereon by Lessor or repossession thereof by any Lessor thereof or third party
having a lien thereon. Lessor shall also hive the right to remove from the
Leased Premises (without notice to Lessee and without the necessity of obtaining
a distress warrant, writ of sequestration or other legal process) all or any
portion of such furniture, fixtures, equipment and other property. located
thereon and place same in storage at any place within Travis County; and in such
even ~ Lessee shall be liable to Lessor for costs incurred by Lessor in
connection with such removal and storage. Lessor shall also have the right to
relinquish possession of all or any portion of such furniture, fixtures,
equipment and other property to any person ("Claimant") claiming to be entitled
to possession thereof who presents to Lessor a copy of any instrument
represented to Lessor by Claimant to have been executed by Lessee granting
Claimant the right under the circumstances to take possession of such furniture,
fixtures, equipment or other property, without the necessity on the part of
Lessor to inquire in . to the authenticity of said instrument and without the
necessity of
<PAGE>
Lessor making any investigation or inquiry as to the validity of the factual or
legal basis upon which Claimant purports to act.
16. HOLDING OVER. In the e vent of holding over by Lessee after
expiration or termination of this Lease without the written consent of Lessor,
Lessee shall pay monthly as liquidated damages a sum equal to one and one-half
(1 1/2) times the amount of the monthly Base Rental, Forecast Additional Rental
and Additional Rental paid, or to be paid, by Lessee to Lessor for the last
month of the' Term for the entire holdover period. No holding over by Lessee
after the Term of the lease shall operate to extend die Lease. In the event of
any unauthorized holding over, Lessee shall indemnify Lessor against all claims
for damages by any other Lessee to whom Lessor may have leased all-or any part-
of the Leased Premises covered hereby effective upon the termination of this
Lease. Any bolding over with the consent of Lessor in writing shall thereafter
constitute this Lease a lease from month to month.
17. NON-WAIVER. Failure of Lessor to declare- any default immediately
upon occurrence thereof, or delay in taking any action in connection therewith,
shall not waive such default, but Lessor shall have the. right to declare any
such default at any time and take such action as might be lawful or authorized
hereunder, either at law or in equity.
18. DEFAULT BY LESSOR. Except as may otherwise be provided herein,
Lessor shall not be in default unless Lessor fails to perform obligations
required of Lessor within a reasonable time, but in no event later than thirty
(30) days after written notice by Lessee to Lessor and to the holder of any
first mortgage or deed of trust covering the Leased Premises whose name and
address shall have been furnished previously to Lessee in writing, specifying
wherein Lessor has failed to perform such obligations; provided, however, that
if the nature of Lessor's obligation is such that more than thirty (30) days are
required for performance, then Lessor shall not be in default if Lessor
commences performance within such thirty. (30) day period and thereafter
diligently prosecutes the same to completion. Except as. may otherwise be
provided herein, Lessee shall not have the right to terminate this Lease, it
being agreed that Lessee's remedies shall be limited to actual damages, without,
any award for incidental or consequential damages.
19. ASSIGNMENT AND SUBLETTING.
(a) Lessee may assign the Leased Premises or any part thereof
or sublease, mortgage, pledge, or hypothecate its leasehold interest only with
die prior express written permission of Lessor. Such permission shall not be
unreasonably withheld or delayed. Any attempt to do any of the foregoing without
the prior express written permission of Lessor, shall be void and of no effect
Lessee must furnish to Lessor the name and terms of any proposed assignment or
sublease of each proposed assignee or sublease.
(b) Any assignment or sublease of the leasehold, whether or
not consent is required under the terms of this Lease, and consent to any
assignment or sublease by Lessor, shall not operate to release Lessee " of any
obligation hereunder and Lessee shall remain liable for the performance of all
of the covenants, duties, and obligations hereunder including without limitation
the obligation to pay all rent and other sums herein provided to be paid, and
Lessor-shall be entitled to enforce the provisions of this instrument against
the Lessee and/or against any assignee or sublessee, or either of them, at the
election of Lessor.
(c) Lessee shall give Lessor written notice of the
consummation. of any assignment or sublease consented to by Lessor, shall
furnish to Lessor copies of all assignments,' transfers, subleases, and other
documents executed in connection with such assignment or sublease, and shall
notify Lessor in writing of die date the assignee or sublessee takes possession
of the Leased Premises or a portion thereof.
<PAGE>
(d) Lessee shall require or any sublessee a security deposit
equal to at least one month's rent with Lessor to be held pursuant to the terms
of paragraph 9 above.
20. SUBORDINATION. This Lease and Lessee's rights hereunder are and
will remain subordinate to any ground lease, mortgage, deed of trust or any
other hypothecation for security now or hereafter placed upon the Leased
Premises, and to all increases, renewals, modifications, consolidations,
replacements, and extension thereof (collectively referred to as the
"Mortgage'). If the holder of a Mortgage becomes die owner of the Leased
Premises by reason of foreclosure or acceptance of a deed in lieu of
foreclosure, at such holder's election Lessee will be bound to such holder or
its successor-in-interest under all terms and conditions of this Lease, and
Lessee will be deemed to have attorned to and recognized such holder or
successor as Lessor's successor-in-interest for the remainder of the Lease term
or any extension thereof. In such event, the holder of such Mortgage will agree
that, so long as Lessee is not then in default hereunder, such holder will
recognize this Lease and will not disturb Lessee in its possession of the Leased
Premises for any reason other than one which would entitle the Lessor to
terminate this Lease under its terms. The foregoing is self-operative and no
further instrument of subordination and/or attornment will be necessary unless
required by Lessor or the holder of a Mortgage, in which case Lessee will,
within ten (10) days after written request, execute and deliver without charge
any documents reasonably required by Lessor or such holder in order to confirm
the subordination and attornment set forth above. Should the holder of a
Mortgage request that this Lease and Lessee's rights hereunder be made superior;
rather than subordinate, to the Mortgage, then Lessee will, within ten ( 10)
days after written request, execute and deliver without charge such agreement as
may be reasonably required by such holder in order to effectuate and evidence
such superiority of the Lease to the Mortgage.
21. MISCELLANEOUS.
-------------
(a) Attorney's Fees. In case it should be necessary or proper
for Lessor or Lessee to bring any action under this Lease, then the prevailing
party in any such action shall be entitled to reasonable attorneys, fees,
expenses and court costs from the non-prevailing party.
(b) Lessor's Entry/Inspections. With 4 hours' notice, Lessor's
agents and representatives shall have the right to enter the Leased Premises at
any reasonable time during business hours (or at any time in case of emergency)
(i) to inspect the Premises, (ii) to make such repairs as may be required or
permitted pursuant to this Lease, and/or (iii) during the last 180 day period
prior to expiration of this Lease or following notice from Lessee of Lessee's
intent to cancel this Lease pursuant to paragraph 3 `above, for showing the
Leased Premises to any prospective tenant In addition, Lessor shall have the
right to erect a suitable sign on the Leased Premises stating the Leased
Premises are available -for lease. Lessee will provide Lessor with all keys
necessary to enter the Leased Premises in case of an emergency.
(c) No Partnership or Agency. Lessor does not in any way or
for any purpose become a partner of Lessee in the conduct of its business or
otherwise, or a joint venturer with Lessee. Lessee shall not be deemed an agent
of Lessor for any purpose.
(d) Accord and Satisfaction. No payment by Lessee or receipt
by Lessor of a lesser amount than the monthly consideration or other payments
herein stipulated shall be deemed to be other than an account of the earliest
stipulated monthly consideration or other payments then due, or shall any check
or writing accompanying any check or payment as monthly consideration or other
payment provided for herein be deemed an accord or satisfaction; and Lessor may
accept such check or payment without prejudice to Lessor's right to recover the
balance of such monthly consideration or other payments or to pursue other
remedies provided in this Lease or by law.
<PAGE>
(e) Acceptance of Leased Premises and Building by Lessee. In
consideration of the Allowance granted by Lessor to Lessee under paragraph 22
hereof, the taking of possession of the Leased Premises by Lessee shall be
conclusive evidence as against Lessee (1) that Lessee accepts the Leased
Premises in "AS IS" condition and as suitable for the purpose for which same is
leased; (2) that it accepts the Building and the' land and each and every part
and appurtenance thereof as being in a good and satisfactory condition; and (3)
that Lessee waives any defects in the Leased Premises and its appurtenances.
Lessor shall not be liable, except in the event of negligence if and to the
extent such liability is indemnified by insurance, and in the event of the
intentional act or gross negligence notwithstanding whether such claim is
indemnified by insurance, to Lessee or any of its agents, employees, and
servants for any injury or damage to person or property due to the condition or
design of or any defect in the Building or its mechanical systems and equipment
which may exist or occur Lessor shall be liable for simple negligence only to
the extent Lessor is indemnified by insurance.
In addition to a visual inspection of the Leased Premises, Lessor
warrants and conveys to Lessee that the Leased Premises are in good working
order at lease commencement including but not limited to: the roof membrane,
HVAC, Telephone System and security system.
(f) Laws Governing. The laws of the State of Texas shall
govern, the interpretation and validity of, and other matters pertaining to,
this lease.
(g) Notice. Any notice which may or shall be given under the
terms of this Lease shall, unless otherwise provided herein, be in writing and
shall be either delivered by hand or sent by United States Registered or
Certified Mail, postage prepaid, to the address below. Such addresses may be
changed from time to time by either party by giving written notice as provided
above. Notice shall be deemed given when delivered (if delivered by Hand) or
when postmarked (if sent by mail).
LESSOR: RGK RENTALS, LTD.
1301 West 25th Street Suite 300
Austin, Texas 78705
LESSEE: APPLIED SCIENCE FICTION, INC.
8920 Business Park Drive
Austin, Texas 78759
Attention: Mark Urdahl
LESSER: FACILITIES SERVICES, INC.
P.O. Box 830849
Richardson, Texas 75083
Attention: Jimmie Mayhew
(h) Severability. If any clause or provision of this Lease is
illegal, invalid, or unenforceable, under present or future laws effective-
during the term hereof, then it is the intention of the parties hereto that the
remainder of this lease shall not be affected thereby, and it is also the
intention of both parties that in lieu of each clause or provision that is
illegal, invalid, or unenforceable, there be added a:5 a party of this Lease a
clause or provision as similar to in terms to such illegal, invalid, or
unenforceable clause or provision as is enforceable..
(i) Entire Agreement and Binding Effect. This Lease Agreement,
including exhibits A, B, C and D all of which are hereby incorporated herein by
reference, constitute the entire agreement between
<PAGE>
Lessor and Lessee; no prior written or prior contemporaneous oral promises or
representations shall be binding. Paragraph captions herein are for convenience
only, and neither limit nor amplify the provisions of this Lease. The provisions
of this Lease shall be binding upon and insure to the benefit of the heirs,
executors, administrator, successors, and assigns of the parties, but this
provision shall * in no way alter the restriction here-in in connection with
assignment and subletting by Lessee.
(j) Assignment by Lessor. Lessor shall have the right to
transfer and assign, in whole or in part, all of its rights and obligations
hereunder and in the Building and the Leased Premises referred to herein.
(k) Alterations. This Lease may not be altered, changed, or'
amended, except by an instrument in writing signed by both parties herein.
(l) Gender. When required for clarity, the masculine gender
shall also include the feminine and neuter.
22. Refurbishment Allowance. Lessor grants to Lessee a refurbishment
allowance of $269,920.00 (the "Allowance) to be used by Lessee for improvements
to and renovation of the Leased Premises (the "Improvements). Upon submission of
invoices and releases by Lessee, Lessor shall promptly reimburse Lessee `for
actual costs incurred in construction' of the Improvements. Lessee is solely
responsible for the cost of any Improvements in excess of the Allowance.
23. Brokerage. Lessor agrees to pay to KAM Properties, Inc. and the
Don Cox Company of Austin, Texas, for services, performed in procurring and
negotiating this agreement as set out in the Commission Agreement executed
February 20, 1998.
EXECUTED this 20th day of March, 1998.
LESSOR: RKG RENTALS, LTD.
By: KMS Ventures, Inc., General Partner
By: \s\ Gregory A. Kozmetsky, President
-----------------------------------
LESSEE: APPLIED SCIENCE FICTION, INC.
By: \s\ Mark Urdahl, President and C.E.O.
-------------------------------------
<PAGE>
EXHIBIT A
(DIAGRAM APPEARS IN ORIGINAL)
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. No signs of any kind or nature, symbol, or identifying mark shall
be put on the Building, elevators, staircases, entrances, parking areas or upon'
the doors or walls, whether plate glass or otherwise of the Leased Premises nor
within the Leased Premises so as to be visible from the public areas or exterior
of the Building, without prior written approval of Lessor. All signs or
lettering shall conform in all respects to the sign and/or lettering criteria
established by Lessor.
2. Lessee shall not make or permit any loud or improper noises in
the building or otherwise interfere in any way with other Lessees.
3. Lessor will not be responsible for any lost or stolen personal
property or equipment from the Leased Premises or public areas, regardless of
whether such loss occurs when the area is locked against entry or not
4. Lessee, or the employees, agents, servants, visitors, or
licensees of Lessee shall not, at any time or place, leave or discard rubbish,
paper, articles, or objects of any kind whatsoever outside the doors of the
Leased Premises or in the corridors or passageways of the Building. No animals
or vehicles of any description shall be brought into or kept in or about the
building.
5. None of the entries, passages, doors, hallways, or stairways in
the building shall be blocked or obstructed.
6. Lessor shall have the right to determine and prescribe the weight
and proper- position of any unusually heavy equipment, including computers,
safes, large files, etc., that -are to be placed in the building, and only those
which in the exclusive judgment of the Lessor will not do damage to the floors,
structure, and/or elevators may be moved into the Building. Any damage caused by
installing, moving, or removing such aforementioned articles in the Building
shall be paid by Lessee.
7. All Christmas and other decorations must be constructed of flame
retardant materials.
8. All doors reading from public corridors to the Leased Premises
are to be kept closed when not in use.
9. Canvassing, soliciting, or peddling in the Building is prohibited
and Lessee shall cooperate to prevent the same.
10. Lessee shall, give immediate notice to Lessor in case of
accidents in the Leased Premises or in the Building or of defects therein or in
any fixtures or equipment or of any known emergency in the Building.
11. Lessee shall not use the Leased Premises or permit the Leased
Premises to be used for photographic multilith, or multigraph reproductions,
except in connection with its own business without Lessor consent and Lessor.
`will not unreasonably withhold consent.
12. Any damages (excepting normal wear and tear). caused to carpet in
the Leased Premises shall be repaired or replaced at the expense of Lessee.
<PAGE>
13. Lessee, or the employees, agent, servants, visitors, or licensees
of Lessee, shall abide by the Rules and Regulations established from time to
time for the parking area.
14. Lessee shall not allow to pass into any sewer, drain, or toilet
serving the Leased Premises or located in the Building any oil, grease or any
other deleterious effluent or substance which may cause an obstruction in or
damage to such sewer, drain, or toilet.
15. All areas within the Building are designated as "no smoking
areas".
16. Lessor reserves the right after consultation with Lessee, to
rescind any of these Rules and Regulations of the Building, and to make such
other and further Rules and Regulations of the Building as in its judgment shall
from time to time be needful for the safety, protection, care and cleanliness of
the Building, the Leased Premises, and the operation thereof, the preservation
of good order therein, and the protection and comfort of the other Lessees in
the Building and their agents, employees, and invitees'. Changes- in these
`Rules and Regulations, when made and written notice thereof is given to Lessee,
shall be binding upon Lessee in like manner as if originally herein prescribed.
Provided, however, such change's shall not operate so as to change the
provisions of the lease agreement between Lessor and Lessee and as long as
changes do not effect normal operations of business that are in place at the
time on a day-to-day basis.
<PAGE>
EXHIBIT C
TELEPHONE SYSTEM
A complete inventory of the Telephone System will be. delivered to
Lessee at Lessee's possession of the Leased Premises
<PAGE>
EXHIBIT D
FAIR.-MARKET RENTAL RATE
If Lessee elects to renew this Lease, Base Rental and Forecasted
Additional Rental for each renewal-term shall be an amount equal to one hundred
percent (100%) of the Fair Market Rental Rate of the Leased Premises in relation
to market conditions at the time of the extension. The Fair Market Rental Rate
of the Leased Premises shall be determined as follows:
After timely receipt by Lessor of Lessee's notice of exercise of
option to renew the Lease, Lessor and Lessee shall have a period of thirty (30)
days in which to agree on the Fair Market Rental Rate as the Base Rental for the
Leased Premises. If Lessor and Lessee agree on the Fair Market Rental Rate for
the Leased Premises, then they shall immediately execute a new lease.
In the event that Lessor and Lessee are unable to agree as to the Fair
Market Rental Rate of the Leased Premises under a renewal of the Lease within
thirty (30) days after such notice of intent to renew was' given by Lessee,
Lessor and Lessee shall each promptly appoint an appraiser, and the two
appraisers so appointed shall select a third, or if they cannot agree upon a
third appraiser, either party may petition a court of competent jurisdiction for
the appointment of a third appraiser; provided, however, that each appraiser
must be an MAI appraiser with at least five (5) years experience in appraising
real property in Travis County, Texas. Each party shall be responsible for the
compensation, if any, of the third appraiser. Such appraisers shall each make a
separate appraisal of the Fair Market Rental Rate of the Leased Premises under a
renewal of the Lease and shall deliver copies of their appraisals to Lessor and
Lessee, and the average of the three appraisals shall be the figure designated
as the Fair Market Rental Rate for the purposes of this renewal option. Lessor
and Lessee shall, separately and collectively and in good faith, take any
necessary steps to insure. that all three appraisals are completed within-thirty
(30) days after the appointment of the first appraiser to be appointed. If
Lessee wishes to renew the Lease at the Fair Market Rental Rate determined by
such appraisal, Lessee shall, within ten (10) days after the last appraisal has
been delivered to it give notice in writing to Lessor of Lessee's agreement to
renew the Lease at a rental rate equal to the average of the three appraisals,
which rental rate shall be specified in such notice. Failure by Lessee to timely
give such notice of agreement shall terminate the right of Lessee to renew the
Lease.
(DIAGRAMS APPEAR IN ORIGINAL)
<PAGE>
EXHIBIT "C"
Telephone and computer wiring: Rental rate shall be inclusive of all existing
data and voice Wiring. Any extra internal voice
or data wiring necessary to accommodate SA's
Initial office space configuration will be
provided by ASF. If relocation is directed by
SA, SA will pay for the wiring costs incurred.
If relocation's directed by ASF, ASF will pay
for the wiring costs incurred.
Telephone service: ASF will provide PBX service to SA to support
telephone line trunks from the Local Exchange
Carrier (LEC) of SA's choice. SA will be
responsible for contracting for local telephone
service directly from a LEC and will pay all
costs associated with (A) the Installation of
the telephone One trunks, (13) any physicial
modification to the PBX required to support
such Ones and (C) the Initial programming of
the PBX (by Southwestem Bell) to add SA to the
system. Once the Ones have been Installed and
programmed, ASF will administer all Internal
PBX moves, adds, and changes for SA.
The rental rate shall include the use of voice
mailboxes on the existing Voice mail system.
These mailboxes will be administered by ASK.
The rental rate shall not Include telephone
handsets. ASF can provide telephone handsets to
SA for an additional cost.
Computer network service: ASF can provide a secure firewalled Internet
connection to SA for an additional cost (based
on SKs bandwidth requirements). This internet
connection will not Include DNS or E Mail
services (which SA must provide themselves or
contract with an Internet service Provider
directly for). ASF can also provide a complete
local area network Infrastructure for SA for an
additional cod (based on SKs network topology
requirements).
Telephone and network service
availability: ASF will make every effort to maintain 0110
highest availability possible on all telephone
and network services provided to SA. However,
ASF will assume no liability for losses due to
telephone or computer network changes.
<PAGE>
ATTORNMENT AND NONDISTURBANCE AGREEMENT
THIS ATTORNMENT AND NONDISTURBANCE AGREEMENT is made this day of May,
1998, between Applied' Science Fiction, a Delaware corporation ("ASF") and
Empower Health Corporation, a Texas corporation ("Empower Health'
RECITALS
A. RGK Rentals Ltd.; a Texas limited partnership, as lessor, has
entered into a lease with ASF, as lessee, dated March 20, 1998, demising a
property located at 8920 Business Park Drive in the City of Austin, County of
Travis, State of Texas, ("Premises") which Premises are more particularly
described in the lease attached hereto as Exhibit-A to Appendix 1 and made a
part hereof (the "Lease").
B. ASF, as sublessor, intends to enter into a sublease with Software
Atelier, as sublessee, substantially in the form attached hereto as Appendix 1
and made a part hereof, dated April 20, 1998 demising a portion of the Premises
(the "Sublease").
C. Software Atelier, as sub-lessor, and Empower Health, as
sublessee, intend to enter into a sub-sublease with Software Atelier for a
portion of the Premises on the second floor north side, as shown in the plan
attached hereto as Exhibit B to Appendix 1 (the "Empower Health Premises") (the
"Sub-psublease").
D. Empower Health requires as a condition of its leasehold estate
that. the Empower Health Premises be free from encumbrances, except, those
approved by it. However, Empower Health will subordinate its Sub-sublease from
time to time at ASF's request subject to ASF's agreement that Empower Health's
possession and rights under the Subsublease shall not be disturbed.
AGREEMENT
In consideration. of the Empower Health Premises and other good and
valuable consideration, receipt. of which is hereby acknowledged, and the mutual
benefits to accrue -to the parties hereto, it is hereby declared understood and
agreed as follows:
1. Amendments to Lease or Sublease.. ASF shall not, in the exercise
of any of its rights arising or which may arise out of the Lease or Sublease or
of any instrument modifying amending the Sublease or entered into in
substitution or replacement thereof, disturb or deprive Empower Health in, or
of, its possession or its rights to possession of the Empower Health Premises or
of any right or privilege granted to or inuring to the benefit -of Empower
Health Corporation under the Sub-sublease.
2. Nondisturbance. In the event of termination of the Sublease for
any reason by reentry, notice, conditional limitation, surrender summary
proceeding or other action or proceeding, and- if immediately prior to such
surrender, termination or expiration, the Sub-sublease shall be in full force
and effect, Empower Health shall not be made a party in any removal or eviction
action or proceeding, nor shall Empower -Health be evicted or removed of its
possession nor shall its right of possession be disturbed, or in any way
interfered with, and the Sub-sublease shall continue in full force and effect as
a direct lease from ASF to Empower Health.
3. Attornment to ASF. In consideration for the covenants made -by
ASF herein, Empower shall attorn to ASF that'in the case of default under the
Sublease by Software Atelier that it shall recognize ASFas its sublessor under
the Sublease.
<PAGE>
4. Election to Continue.
(a) If the Sublease terminates during the term of the sublease
(i) because Software Atelier has exercised an option to terminate the'Sublease,
(ii) by operation of law, (iii) by mutual agreement between the parties to the
Sublease, or (iv) for any other reason except as provided in paragraph 2 above,
then Empower Health may elect to continue the Sub-sublease in full force and
effect notwithstanding such termination of the Sublease, as provided in this
paragraph 4(a)
(b) If the Sublease terminates pursuant to paragraph 4(a)
above, an such election by Empower Helath, the Sub-sublease shall continue as a
direct sublease between it and ASF without the necessity of executing a new
sublease,on the same. terms and conditions as are in effect under the Sub-
sublease immediately preceding the termination of the Sublease.
(c) if software Atelier has elected to' terminate the
Subsublease as a result of fire or other casualty or a condemnation in
accordance with the terms of the Sub-sublease, and Software Atelier has
concurrently exercised a right of termination under the Sublease for the same
reason, ASF shall so notify Empower Health, and Empower Health may, within
twenty (20) days after receipt of such notice from ASF, give ASF notice of the
exercise of Empower Health of any right or option granted to Empower Health
under the Sub-sublease in which event Software Atelier's notice of termination
of the Sub-sublease shall be void, and the provision `of subparagraph 4 (b)
above shall apply.
5. Acknowledgment of Sublease. Empower Health hereby acknowledges
and consents to the existence of the Sublease.
6. Waiver of Lien. ASF hereby waives and relinquishes any and all
rights of remedies against Empower Health, pursuant, to any lien, statutory or
otherwise, that it may have against the property, good or chattels of Empower
Health in or on the Empower Health Premises.
7. Notices. Any notices, consents, approval, submission demands or
other communications (hereinafter collectively referred to as "Notice") given
under this Attornment and Nondisturbance Agreement shall be in writing. Unless
otherwise required by law or governmental regulation, Notices shall be deemed
given if sent by registered or certified mail, return receipt requested, postage
prepaid or by a same day or overnight courier services providing for delivery
upon receipt to any or all parties, at the addresses herein set forth or such
other address as parties may designate by Notice to the other parties. All
Notices shall become effective only on the receipt or rejection of same by the
proper parties.
If to ASF, then to:
FACILITIES SERVICES, INC.
PO Box 830-849
Richardson, Texas 75083
Att: Jimmie Mayhew
APPLIED SCIENCE FICTION, INC.
8920 Business Park Drive, #300
Donald W.Hackett, president
<PAGE>
Austin, Texas 78759
Att: Mark Fuchs
If to EMPOWER HEALTH, then to:
Donald W. Hackett
Empower Health Corporation
4008 River Place Boulevard
Austin, Texas 78730
9. No amendment or modification of this Agreement shall be valid or binding
unless in writing, signed by the party or parties to be bound thereby.
10. This Agreement may be executed in one or more counterparts, each of which
when exchanged shall be considered an original document.
11. This Agreement is intended to be recorded and to run with the land and any
portion thereof.
12. This Attornment and Nondisturbance Agreement shall be binding upon and
inure to the benefit of the subtenants, successors and/or assigns of the
parties hereto (including, without limitation, any person or entity
acquiring title to the Premises by foreclosure or otherwise). In this
Attornment and Nondisturbance Agreement the singular number includes the
plural, and any gender includes all other genders.
IN WITNESS WHEREOF, the parties hereto have each caused this Attornment
and Nondisturbance Agreement to be executed on the date and year first above
written pursuant to the proper authorities which have been duly delegated to
them.
APPLIED SCIENCE FICTION, INC.,
a Delaware corporation
By:
--------------------------------
Name:
-----------------------------
Its:
------------------------------
EMPOWER HEALTH CORPORATION,
a Texas corporation
By:
--------------------------------
Donald W. Hackett, President
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF BEXAR (S)
This instrument was acknowledged before me the______ day of
________________ 1998 by ____________________________________, of Applied
Science Fiction, a Texas corporation, on behalf of said corporation.
--------------------------------------
Notary Public for the State of Texas
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was acknowledged before me on the _________ day of
____________, 1998 by Donald W. Hackett, President of Empower Health
Corporation, Texas corporation on `behalf of said corporation.
--------------------------------------
Notary Public for the State of Texas
<PAGE>
The Software Atelier
3006 Longhorn Boulevard, Suite 105
Austin, Texas 78758
May 6, 1998
Empower Health Corporation
4008 Rivei Place Boulevard
Austin, Texas 78730
Gentlemen:
Oftice Sub-sublease Under Negotiation
Enclosed please find a check for $21,266.00. This money is prepayment
of the first monthis rent and security deposit that will be due under the sub-
sublease being negotiated between us at present for 5,800 square feet (including
a common area factor of 16%) on the first floor north side at 8920 Business Park
Drive, Austin, Texas (the "Premises").
If such sub-sublease negotiations do not result in a binding sub-
sublease agreement in relation to the Premises by May 20, 1998, this money shall
be refunded to Empower Health Corparation on the same day in the form of a
cashier's check.
Sincerely yours,
EMPOWER HEALTH CORPORATION
By: \s\ D. Hackett
------------------------------
David Hackett, President
CERTIFICATE AND ACKNOWLEDGEM[EN OF RECEIPT
I, \s\ Ken Bresner [name], Managing Partner - [title] of Software
Atelier L.L.C., a Texas limited liability company do hereby ageeto the terms of
this letter and hereby acknowledge receipt of Empower Health Corporation
(formerly Personal Medical Records, Inc.) check no 1066 in the amount of
$21,266.00.
(SIGNATURE PAGE FOLLOWS]
<PAGE>
LETTER OF DONALD HACKETT, May 6, 1998
CERTMCATE AND ACKNOWLEDGENmNT OF RECEIPT
SIGNATURE PAGE
THE SOFTWARE ATELIER, L.L.C.
By: \s\ K.C. Bresnen
----------------
Name: K.C. Bresnen
----------------
Title: Managing Partner
----------------
<PAGE>
Appendix 3
SOFTWARE ATELIER'S WORK LETTER
Capitalized terms in this Work Letter shall have the same definitions
as those given to them in the Agreement for Sublease.
1. Painting. The Software Atelier shall paint all walls internal to
the initial rental space.
2. Lighting. The Software Atelier shall provide a total of 24
fluorescent lighting fixtures, similar to the 9 already installed, in the
initial rental space.
3. Cabling. The Software Atelier shall provide electrical power
terminating in boxes in the ceiling and communications cabling of the Base Area
sufficient to serve up to fifty (50) workstation cubicles each with computers,
printers and telephones. The Software Atelier shall not be responsible for
connecting such cubicles to termination boxes.
<PAGE>
Appendix 4
SUBLESSOR CONSENT TO SUB-SMEASE AND
ESTOPPEL CERTIFICATE
The undersigned, Applied Science Fiction, a Delaware corporation
("ASF"), hereby consents to the sub-sublease of a portion of the premises which
ASF has subleased to Software Atelier, L.L.C., a Texas limited liability
company's ("Software Atelier's") under the sub-sublease agreement described
below to Empower Health Corporation, a Texas corporation ("Empower Health") (the
"Agreement") and certifies to Empower Health and agrees as follows:
1. Sublessor and Sublessee entered into that certain sublease dated
April 20, 1998 (the "Sublease"), the demised premises of which are shown on
Exhibit B to Appendix 1 of the Sublease and located in the areas known as "First
Floor North" and "Second Floor North" at 8920 Business Park Drive in the City of
Austin, County of Travis, State of Texas (the "Building") (the "Sublease
Premises").
2. Software Atelier, as sub-sublessor, and Empower Health, as sub-
sublessee, shall enter into the Agreement for portions of that part of the
Sublease Premises known as "Second Floor North"on the second floor north side of
the Building (the "Empower Health Premises").
3. The term of the Agreement shall commence on the date of the
Agreement. Rent under the Agreement shall commence on the same date.
4. Empower Health shall enter into occupancy of the Empower Health
Premises on or about May 20, 1998.
5. The term of the Agreement shall expire on October 31, 2000. The
Agreement provides for no renewal option(s).
6. The amount of fixed monthly base rent under the Agreement shall
be as follows:
May 12,.1998 - Sep. 30,1998 $10,633/mo (5,800 rentable sf $22.00)
Oct. 1, 1998 - Dec. 31, 1998 $14,887/mo (8,120 rentable sf $22.00)
Jan. 1, 1999 - Jul. 31, 1999 $20,203/mo (11,020 rentable st $22.00)
Aug. 1, 1999 - Oct. 31, 2000 $20,663/mo (11,020 rentable sf $22.00)
7. The amount of the. security deposit (if my) deposited by Empower
Health with Software Atelier is $10,633. No other security or other deposits
shall be made.
8. ASF hereby certifies that there are no actions, whether voluntary
or otherwise pending against ASF pursuant to the bankruptcy or insolvency Laws
of the United States or any state thereof.
9. ASF represents and warrants that it has not used, generated,
released, dischargd, stored or disposed of any Hazardous Substances (as such
term is defined in the Agreement) on, under, in or about the Premises (as
defined in paragraph 13 of this Consent and Estoppel Certificate), or
transported any Hazardous Substances to or from the Premises, other than
Hazardous Substances used in the ordinary and commercially reasonable course of
ASF's business in compliance with all applicable laws.
<PAGE>
10. ASF`s address for notices under the terms of the Sublease is:
Applied Science Fiction, Inc.
8920 Business Park Drive
Suite 300
Austin, Texas 78759
Attention: Mark Fuchs
Facilities Services, Inc.
P.O. Box $30849
Richardson, Texas 75083
Attention: Jimmie Mayhew
11. ASF hereby agrees to recognize Empower Health as the sub-
sublessee under the Agreement.
12. ASF acknowledges and agrees that information furnished to Empower
Health is being relied upon by Empower Health in connection with its acquisition
of its interest under the Agreement and that Empower Health, its successors and
assigns may rely on the statements and representations made herein.
13. ASF hereby consents to the demise of Empower Health's interest
under the Agreement to Empower Health in every respect, and hereby acknowledge
the such demise does not cause a default or otherwise violate any of the terms
and conditions of that certain lease with RGK Renttals, Ltd. dated March 20,
1998 for the entire Building, together with the related padding, driveways and
landscaped areas described more particularly in such lease (the "Premise"), or
the Sublease.
DATED this 29 day of May, 1998.
Applied Science Fiction, Inc.
By: \s\ Mark A. Fuchs
------------------
Name: Mark A. Fuchs
---------------
Title:
----------------
<PAGE>
Waiver of Condition 20.2 of Agreement for Sub-sublease
(Empower Health Corporation)
WITNESSETH
WHEREAS, the'Empower Health Corporation, a Texas corporation,
("Empower Health") entered into that certain Agreement for Sub-sublease on May
22, 1998 (the "Agreement") together with The Software Atelier L.L.C., a Texas
limited liability company ("Software Atelier") for sections of the "Second Floor
North" of the building at 8920 Business Park Drive, Austin, Texas (the
"Building") as more particularly described in the Agreement; and
WHEREAS, paragraph 20.3 of the Agreement makes the execution by RGK
Rentals Ltd. ("RGK"), as lessor on the Main Lease for the Building, of the
Lessor's Covenant to Notify Sublessee of a Default on the Lease attached as
Appendix 5 to the Agreement a condition for the effectiveness of the Agreement
("Condition 20.3"); and
WHEREAS Applied Science Fiction, a Delaware corporation, is the
sublessor on the Main Sublease and lessee on Main Lease for the Building and has
executed Sublessor's Covenant to Notify Sublessee and Sub-sublessee of a Default
on the Lease and Provide Monthly Copy of Rental Payment, appended to this Waiver
as the Appendix to Waiver (the "Sublessor's Covenant"); and
WHEREAS, given the existence of the Sublessor's Covenant, the Company
is desirous of waiving Condition 20.3;
NOW, THEREFORE, the Company waives Condition 20.3.
Except as expressly waived hereby, the conditions for effectiveness of
the Agreement are confirmed in every respect and shall remain conditions for
effectiveness of the Agreement
This Waiver shall be construed and enforced in accordance with the
laws of the State of Texas.
The Agreement shall be incorporated in this Waiver by reference.
Capitalized terms in this Waiver shall have the same meanings as those terms in
the Agreement, unless otherwise defined herein.
Executed effective May 29, 1998.
EMPOWER HEALTH CORPORATION
Name: \s\ D. Hackett
--------------
<PAGE>
SUBLESSOR'S COVENANT TO NOTIFY SUBLESSEIECAND SUB-SUBLESSEE OF A
DEFAULT ON THE LEASE AND PROVIDE MONTHLY COPY OF RENTAL PAYMENT
It is hereby understood that Applied Science Fiction, Inc. will
provide to both The Software Atelier and Empower Health a copy of each monthly
rental check paid to RGK Rentals, Ltd, Lessor of 8920 Business Park Drive.
To restate items within the Main Lease, Lessee Applied Science Fiction
incurs a 5% of gross rent late charge if the monthly rent is not paid within the
first ten days of the month. Thus, a copy of such payment will be hand-delivered
each month no later than the 10th day to the Sublesse and Sub-Sublessee. Thus,
Sublessee and Sub-Sublessee would know no later than the 11th day of any month
as to whether the Lessee was in danger of defaulting on the Main Lease.
Further, Lessee has ten business days to cure after written notice from Lessor,
a copy of such notice Lessee is bound by Agreement to provide Sublessee, and via
this letter, Empower Health. In addition, ASF has a $300,000 security deposit
at stake through the term of TSA and Empower Health's sublease and sub-sublease.
Also, in the Sublease Agreement with The Software Atelier, ASF is
committed via the following language, "Sublessor shall immediately forward to
Sublessee copies of all notices it receives from Lessor regarding the Leased
Premises." Via this letter, this directive shall, be expanded to forward all
such notices to Empower Health also.
AGREED TO: AGREED TO:
- ------------------------------ ------------------------------
Applied Science Fiction Software Atelier
Date: May 29, 1998 Date: May 28, 1998
------------------------ ------------------------
AGREED TO:
\s\ D. Hackett
------------------------------
Empower Health
Date: May 28, 1998
<PAGE>
EXHIBIT 10.26
INTERNET ADVERTISING SALES AGREEMENT
Agreement dated as of October 16, 1998 (this "Agreement") between WinStar
Interactive Media Sales, Inc. ("WIMS") and Empower Health Corporation (the
"Company").
A. The Company is the owner of the Web Sites (as defined below).
B. The Company desires to engage WIMS as its exclusive third-party sales
representative with respect to the Web Sites, and WIMS desires to accept such
engagement, each on the terms and conditions provided herein.
C. The parties desire for convenience to set forth certain contract terms
and provide other information in the table below:
<TABLE>
<S> <C>
Impressions per month * * *
-------------------------------------------------
WIMS Commission Percentage * * *
-------------------------------------------------
Payment terms Net 15 business days from receipt of payment
by WIMS
-------------------------------------------------
Company Marketing/Editorial Contact Neal Longwill
-------------------------------------------------
Company E-mail address [email protected]
-------------------------------------------------
Web Site(s), including URL(s) Drkoop.com
-------------------------------------------------
</TABLE>
NOW THEREFORE, in consideration of the provisions hereof, the parties agree
as follows:
1. WIMS' Services.
--------------
During the Term (as defined), WIMS will act as the Company's exclusive third-
party sales representative to sell Advertising (as defined) on the Web Sites and
syndicate content thereon. As the Company's exclusive agent, WIMS will enter
into contracts directly and on the Company's behalf with advertisers and/or
their ad agencies (collectively, "Advertisers") for all Advertising on the Web
Site. "Advertising" means ad banners and other advertisements, including
without limitation promotions, sponsorships, interstitials and microsites.
"Impressions" means, with respect to any advertisement, the screen image(s)
and/or sound that results when an advertisement (i.e., the actual graphic, audio
and/or video file, etc.) is
- --------------------------------
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * * *. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
* * * Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE>
downloaded to an internet viewer. WIMS shall be paid its commission * * * on any
business sold directly by WIMS or on business initiated by Empower Health where
an ad or web development agency is involved. WIMS status as the exclusive third
party sales representative shall not restrict Empower Health to enter into
agreements with portal sites and give said sites sales rights to their co-
branded inventory as long as the rates for such pages are equivalent to the
rates at which WIMS sells. It is also understood that WIMS may in some cases be
asked by Empower Health to also sell some of the co-branded inventory.
In addition, WIMS will:
. Collect creative materials including graphics, audio, video, etc.
(collectively, "Advertising Creative") provided by Advertisers and transfer
Advertising Creative to the Company for purposes of ad serving to the viewers
of the Web Site.
. Review with the Company's designated advertising contact any Advertising
Creative provided by or on behalf of Advertiser that WIMS feels may be
inconsistent with the editorial policy or other criteria provided by the
Company.
. Adhere to the editorial and advertising policies and guidelines as provided
by the Company from time to time.
. Provide the Company with a form to be used to report Impressions as
reasonably requested by the Advertiser.
. Transfer advertising reports received from the Company to the Advertiser.
. Provide the Company with a placement order for each Insertion Order (as
defined) entered into by WIMS, and invoice Advertisers and make payments to
the Company as provided in Section 4.
. Work with the Company to analyze rates against competitive media buys and
evaluate ways in which unique sponsorship opportunities may be available for
existing properties and proposed new components.
WIMS acknowledges that the Company has the right to refuse to place any
advertising on the Web Site at its sole discretion, provided that requested
changes in Advertising Creative used in currently running campaigns require a
minimum of three business days' notice. The Company acknowledges that if it
rejects a particular advertisement or cancels an ad campaign, such rejection or
cancellation may adversely affect WIMS' ability to secure additional campaigns
to cover the Impressions made available as a result of such rejection or
cancellation. Accordingly, WIMS does not provide any assurances that the
Company will be able to implement substitute Advertising Creative or additional
campaigns in such a case.
- ------------------------------------
* * * 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>
2. Company's Responsibilities.
--------------------------
The Company will use good faith efforts to provide the number of Monthly
Impressions as set forth in the table under Recital C of this Agreement. The
Company will list WIMS on its sites as the advertising contact and provide a
link to the WIMS sales site, winstarinteractive.com. The Company will place
Advertising on the Web Site as reasonably requested by WIMS and/or the
Advertiser in order to achieve the goals of the ad campaign and generate the
agreed number of Impressions. The Company agrees to use commercially reasonable
efforts to maintain sufficient ad banner space and ad inventory in order to
provide such number of Impressions. The Company further agrees to generally
maintain the Web Site in a manner consistent with industry standards and its
past practices in order to achieve the target Impressions specified herein. The
Company will promptly notify WIMS if it becomes aware of or foresees any
material decrease in Impressions (e.g., if there is or may be a significant
drop-off in traffic to the Web Site or if the Company's server is not
operational for more than several hours). The Company will be responsible for
serving ads on its Web Site and supplying WIMS with audience and Impression
reports and other related documents as may be reasonably requested by WIMS .
The Company agrees to provide WIMS with all other information reasonably
requested by WIMS relating to the Web Site, the Advertising or as otherwise
needed by WIMS to perform its services hereunder, including available
demographic and psychographic (interest and behavioral) information regarding
the Web Site audience(s), Web Site descriptions and traffic by section, as well
as technical specifications relating to advertising, contact information and
cash remittance information. In connection therewith, the Company agrees to
keep all information provided to WIMS current with immediate notice of material
changes to such information and monthly updates of all information so provided.
The Company's agreement to provide information to WIMS as provided above is
subject to the Company's privacy policies relating to medical or other
confidential information and any applicable laws and regulations. The Company
will provide WIMS with Web Site editorial policies and guidelines, if available,
and will promptly provide WIMS with any changes hereto. In addition, the
Company is responsible for establishing the pricing and CPM (as defined) of all
Impressions, except as otherwise provided in Section 3.
3. Pricing of Impressions.
----------------------
Impressions shall be priced by the Company in United States dollars and
expressed as the cost per thousand Impressions ("CPM"), and any changes thereto
will be made on reasonable notice to WIMS. In addition, the Company will
establish a range within which WIMS may discount the CPM in any contract between
WIMS and an Advertiser for the placement of Advertising on the Web Site
("Insertion Order") without seeking the Company's prior approval. CPM discounts
outside of this range in any Insertion Order will require the Company's prior
approval, such approval not to be unreasonably withheld or delayed. The parties
will use their commercially reasonable efforts to ensure the confidentiality of
negotiated CPM prices.
3
<PAGE>
4. Billing and Collections.
-----------------------
WIMS will invoice Advertisers on a monthly basis, and will specify both a gross
invoice amount and a net invoice amount. * * * Of such invoiced amount, WIMS
will remit to the Company the amount actually received by WIMS , less the WIMS
Commission Percentage. As specified in the payment terms in the table under
Recital C of this Agreement, WIMS' Commission Percentage shall be * * *,
calculated against the net invoice amount (or, if less, the amount actually
received by WIMS in respect thereof). In addition, WIMS will provide reports,
data and other information concerning the sale of Advertising by WIMS on the Web
Site as the Company may reasonably request from time to time.
WIMS agrees that it will use commercially reasonable efforts to collect all
amounts due from Advertisers; provided, however, that WIMS does not in any way
guarantee any such uncollected payments due from Advertisers. The Company
acknowledges that WIMS shall have no liability or other obligation to the
Company with respect to such uncollected amounts. the Company agrees to
cooperate with WIMS with respect to collections and to use commercially
reasonable efforts and take any other actions reasonably requested by WIMS to
facilitate collections of unpaid accounts.
5. Indemnification; Limitation of Liability; Exclusion of Damages.
--------------------------------------------------------------
a. Indemnification. Each party hereby (the "Indemnifying Party") agrees
---------------
to indemnify and hold harmless the other party and its officers, directors,
employees, agents and affiliates (the other party and its officers, directors,
employees, agents and affiliates being referred to as "Indemnified Parties")
from and against any and all claims, costs and expenses (including reasonable
attorneys fees) damages, causes of action, liabilities and losses (collectively,
"Losses") arising out of (i) a breach of any representation or warranty made by
such party or the nonfulfillment of failure by such party to perform any
covenant or agreement of such party contained herein or (ii) any claim brought
by a third-party (a "Third-Party Claim") against any Indemnified Party in
respect of which recovery may be sought under clause (i) above. Any Indemnified
Party shall promptly notify the Indemnifying Party of any Third Party Claim, and
shall set forth the basis on which indemnification is sought in any direct
indemnification claim. With respect to any Third Party Claim, the Indemnifying
Party shall be entitled, at its expense, to control the defense of any such
action, including settlements, provided that the Indemnified Party shall have
such control if it reasonably determines that a conflict of interest may exist
with respect to such claim or if the Indemnifying Party fails to vigorously and
diligently pursue the prosecution of such claim to its final conclusion. If the
Indemnified Party assumes control over any suit or proceeding hereunder, the
Indemnifying Party may participate in such defense at its sole cost and expense.
Each party hereunder shall have the right to approve proposed settlements, such
approval not to 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.
4
<PAGE>
b. Limitation of Liability. WIMS' total liability arising out of this
-----------------------
Agreement or the services provided hereunder, whether based on contract, tort or
otherwise, shall not exceed the lesser of (i) the total amount of commissions
paid by Advertisers to (and actually received by) WIMS hereunder and (ii)
$5,000.
c. EXCLUSION OF DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
--------------------
DAMAGES OF ANY KIND, INCLUDING GENERAL, SPECIAL, INDIRECT, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING BUT NOT LIMITED TO, DAMAGES ALLEGED
TO RESULT FROM LOSS OF DATA, LOSS OF USE OR LOSS OF PROFITS ARISING IN
CONNECTION WITH THE WEB SITE OR ANY ADVERTISING THEREON, THIS AGREEMENT OR THE
PROVISION OF ANY SERVICES HEREUNDER, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
LOSSES OR DAMAGES.
6. Term and Termination.
--------------------
This Agreement shall have an initial term of one year, and shall automatically
renew for successive periods of one year thereafter, unless either party
provides written notice of its intent to terminate the Agreement during the 90-
day period prior to such renewal (such period, including renewals, the "Term").
Notwithstanding the foregoing, either party may terminate this Agreement for any
reason at any time on 60 days' prior written notice. the Company agrees that it
will honor all Impressions covered by Insertion Orders entered into before the
date on which this Agreement terminates, even if entered into after the date on
which notice of termination was given, and regardless of whether the Insertion
Orders are executable before or after such actual termination date. In
addition, either party can terminate this Agreement on 10 days prior notice for
a breach of Section 4 hereof and on 30 days prior notice for a breach of any
other provision hereof, which termination shall become effective at the end of
such 10 or 30 day period, as applicable, if the breach is not cured by the other
party within such time frame.
Notwithstanding the foregoing, WIMS may, at its sole discretion, terminate this
Agreement immediately on notice thereof to the Company if it determines that
representation of the Web Site conflicts with WIMS' standards or the standards
being set by other web sites it represents. Examples of such potential conflicts
include, without limitation: pornography, excessive violence, abusive and/or
foul language, or a pattern of neglect on the Web Site such that it appears the
Company is not updating it regularly or has abandoned it altogether.
7. Miscellaneous Provisions.
------------------------
a. Notices. All notices and approvals desired or required to be given to
-------
either party hereunder shall be in writing and shall be deemed given when
delivered via (i) certified mail, return receipt requested, all charges prepaid,
(ii) express mail or other courier service, with proof of sending, (iii) hand
delivery or (iv) fax, with proof of transmission, in each case to the other
party's address or fax number set forth on the signature pages hereof or to such
other address as either party may designate to the other in writing.
5
<PAGE>
b. Assignments. Neither party may assign this Agreement or any rights or
-----------
obligations hereunder without the prior approval of the other party, such
approval not to be unreasonably withheld or delayed.
c. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the internal law of the State of New York applicable to a
contract executed and performed in such State, without regard to choice of law
principles. In the event any dispute not resolved through good faith
negotiation, the parties hereby consent to exclusive jurisdiction of State
courts of the State of New York, located in New York County and the Untied
States District Court for the Southern District of New York, and irrevocably
designate such courts as the exclusive for a tribunals for the resolution of any
such disputes.
d. Entire Agreement This Agreement represents the entire understanding of
----------------
the parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating thereto, whether written or oral. No
amendments or modifications may be made to this Agreement except in writing
signed by the parties.
e. Defaults; No Waiver. No waiver by either party of any default
-------------------
hereunder shall constitute a waiver by such party of any subsequent default,
whether or not similar. All remedies under this Agreement or under law or
otherwise shall be cumulative and not alternative.
f. Severability. If any term or provision of this Agreement is declared
------------
illegal, invalid or unenforceable, the parties intend that the remainder of this
Agreement shall not e affected thereby and that, in lieu of any such stricken
provision, there shall be added as a part hereof, a substitute provision as
similar in substance to the illegal, invalid or unenforceable term or provision
as may be possible.
g. No Partnership. Nothing contained in this Agreement shall be construed
--------------
to constitute a partnership or joint venture, or either party the employee,
agent, partner or joint venturer of the other, it being understood and agreed
that the relationship of the parties is that of independent contractors.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties as of the date first written above.
WINSTAR INTERACTIVE MEDIA SALES, INC.:
By /s/ Bobbie Halfin
-----------------
Name: Bobbie Halfin
Title: President, WinStar Interactive
230 Park Avenue
33rd floor
New York, NY 10169
Attn: President, WinStar Interactive
Fax: (212) 687-4636
EMPOWER HEALTH CORPORATION
By: /s/ Susan M. Georgen-Saad
-------------------------
Name: Susan M. Georgen-Saad
Title: Chief Financial Officer
8920 Business Park Drive
Austin, Texas 78759
Attn: Neal Longwill
Fax: (512) 726-5130
7
<PAGE>
Exhibit 10.27
October 1, 1997
Donald Hackett
President/CEO
Personal Medical Records Inc.
4008 Riverplace Blvd.
Austin, TX 78730
Dear Don,
This letter shall reduce to writing the agreement between Personal Medical
Records, Inc. (PMRi) and John F. Zaccaro (Zaccaro).
1. TERM OF AGREEMENT: THREE YEARS.
October 1997 through September 30, 2000.
2. SERVICES TO BE RENDERED:
a. Zaccaro shall be a Director and Vice Chairman of the Board of PMRi
b. Coordinate Development of Disease Management Strategy
c. Coordinate Network/ Cable Medical Media Strategies
d. Develop and Manage Health/ Medical Video/ Film Library
+ Liaison with filmmakers /producers/ distributors
e. Act as PMRi liaison with the American Medical Association
f. Chair Board Committees:
+ Compensation Committee
+ Audit Committee
+ And others as agreed upon
g. Interface with PMRi Marketing Department; review all marketing materials
(print to video)
Page 1 of 3
<PAGE>
h. Propose Candidates for and Develop PMRi National Advisory Board (non-
fiduciary directors)
i. Act as primary PMRi liaison with Director's Koop and Snyderman
j. Other services as requested by PMRi's Board and management and which
services are mutually agreed upon.
3. COMPENSATION:
a. For services rendered, consulting fees shall be as follows:
Year One:
October 1, 1997 - September 30,1998 $100,000
Payable monthly as follows:
October, 1997 - August, 1998 $8333.33
September, 1998 $8333.37
Compensation for Year One of this Agreement may be in the form of
additional stock options granted to Zacarro, and/or cash. The parties
must mutually agree on the settlement of payment for services rendered
during Year One of this Agreement.
Year Two:
October 1, 1998 - September 30, 1999 $135,000
Payable monthly as follows:
October, 1998 - September, 1999 $11, 250
Year Three:
October 1, 1999 - September 30, 2000 $150,000
Payable monthly as follows:
October, 1997 - September, 1998 $12,500
Monthly fees will be paid from this agreement; no invoice will be sent.
Payment will be made to John F. Zaccaro and mailed to:
John F. Zaccaro
28531 Palos Verdes Drive East
Rancho Palos Verdes, CA 90275
4. EXPENSES: Travel and lodging expenses shall be reimbursed monthly; Zaccaro
shall provide receipts for all expenses when available and will use PMRi
expense account forms or other acceptable forms; expenses shall be submitted
to and approved by Don Hackett.
Page 2 of 3
<PAGE>
5. This agreement constitutes the entire agreement between the parties and
supersedes any and all previous agreements written or oral.
6. This agreement shall be construed under the laws of the State of Texas.
Agreed To and Accepted By:
\s\ John F. Zaccaro Date October 1, 1997
- ------------------------------ -----------------------------------
John F. Zaccaro
Agreed To and Accepted By:
For PMRi:
\s\ Donald Hackett Date October 2, 1997
- ------------------------------ -----------------------------------
Donald Hackett
President/CEO, PMRi
Page 3 of 3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 4, 1999, relating
to the financial statements of drkoop.com, Inc., a development stage
enterprise, which appears in such Prospectus. We also consent to the reference
to us under the headings "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Austin, Texas
March 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 303
<SECURITIES> 0
<RECEIVABLES> 40,531
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,464
<PP&E> 377,103
<DEPRECIATION> 70,564
<TOTAL-ASSETS> 380,376
<CURRENT-LIABILITIES> 2,967,945
<BONDS> 0
12,835,650
248
<COMMON> 3,420
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 380,376
<SALES> 42,734
<TOTAL-REVENUES> 42,734
<CGS> 0
<TOTAL-COSTS> 9,073,380
<OTHER-EXPENSES> (33,646)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,997,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,997,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (8,715,650)
<CHANGES> 0
<NET-INCOME> 17,712,650
<EPS-PRIMARY> (5.47)
<EPS-DILUTED> (5.47)
</TABLE>
