<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 0-26345
CareInsite, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3630930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
669 River Drive, Center Two 07407-1361
Elmwood Park, New Jersey (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (201) 703-3400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No _____
-----
The number of shares of the registrant's common stock outstanding at
November 8, 1999 was 70,410,134.
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
Index
-----
PART I FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
Consolidated Balance Sheets - September 30, 1999 and June 30, 1999.............................. 3
Consolidated Statements of Operations - Three months ended
September 30, 1999 and 1998 and Cumulative from Inception
(December 24, 1996) through September 30, 1999............................................. 5
Consolidated Statements of Changes in Stockholders' Equity -
for the Period from Inception (December 24, 1996) through
June 30, 1997, the Years ended June 30, 1998 and June 30, 1999
and the three months ended September 30, 1999.............................................. 6
Consolidated Statements of Cash Flows -Three months ended
September 30, 1999 and 1998 and Cumulative from Inception
(December 24, 1996) through September 30, 1999............................................. 7
Notes to Consolidated Financial Statements...................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 17
PART II OTHER INFORMATION:
Item 1. Legal Proceedings..................................................................... 18
Item 2. Changes In Securities and Use of Proceeds............................................ 18
Item 6. Exhibits and Reports of Form 8-K...................................................... 18
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this report, the words "anticipate",
"believe", "estimate", "expect", and similar expressions, as they relate to the
Company or the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events, are not guarantees of future performance and are subject to
certain risks and uncertainties. These risks and uncertainties may include:
product demand and market acceptance risks; the feasibility of developing
commercially profitable Internet healthcare services; the effect of economic
conditions; user acceptance; success of transactions with third parties; the
impact of competitive products, services and pricing; product development,
commercialization and technological difficulties; the effect of government
regulation of the Internet or healthcare e-commerce services; the outcome of
litigation; and other risks described elsewhere herein, including those set
forth in "--Management's Discussion and Analysis of Financial Condition and
Results of Operations" below, and in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, or expected. The Company does not intend to update these
forward-looking statements.
2
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------------ ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 1,384 $ 64,019
Marketable securities......................................................... 54,378 54,670
Accounts receivable, net of allowances of $16 and $6
at September 30, 1999 and June 30, 1999, respectively........................ 637 532
Receivable from affiliates.................................................... 2,971 1,448
Current portion of prepaid marketing and licensing agreements................. 9,272 -
Other current assets.......................................................... 1,957 697
------------------ ---------------
Total current assets.................................................... 70,599 121,366
------------------ ---------------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements........................................................ 755 732
Equipment..................................................................... 8,217 3,454
Furniture and fixtures........................................................ 437 427
------------------ ---------------
9,409 4,613
Less: Accumulated depreciation................................................ (2,307) (2,033)
------------------ ---------------
Property, plant and equipment, net...................................... 7,102 2,580
------------------ ---------------
CAPITALIZED SOFTWARE DEVELOPMENT COSTS................................................. 31,330 31,330
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $2,734 and
$1,902 at September 30, 1999 and June 30, 1999, respectively................. 21,807 22,475
Marketable securities......................................................... 50,000 -
Investment.................................................................... 2,000 2,000
Prepaid marketing and licensing agreements.................................... 4,878 -
Other......................................................................... 937 202
------------------ ---------------
Total other assets...................................................... 79,622 24,677
------------------ ---------------
$ 188,653 $ 179,953
================== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................................... $ 5,554 $ 764
Payable to Parent.......................................................... 743 853
Payable to affiliate....................................................... 1,972 497
Accrued liabilities........................................................ 3,256 4,415
-------- --------
Total current liabilities........................................ 11,525 6,529
-------- --------
CONVERTIBLE REDEEMABLE PREFERRED STOCK 4,791 -
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 30,000,000 shares authorized;
100 shares issued and outstanding....................................... - -
Common stock, $.01 par value, authorized 300,000,000 shares;
70,410,134 shares issued and outstanding............................... 704 704
Additional paid-in capital................................................. 254,405 247,932
Deficit accumulated during the development stage........................... (82,757) (75,490)
Accumulated other comprehensive (loss) income.............................. (15) 278
-------- --------
Total stockholders' equity....................................... 172,337 173,424
-------- --------
$188,653 $179,953
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Cumulative From
Inception
(Dec. 24, 1996)
Three Months Ended September 30. Through
----------------------------------------
1999 1998 September 30, 1999
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net revenue...................................................... $ 780 $ - $ 1,151
Service revenue to affiliates.................................... 877 - 1,870
----------------- ----------------- ---------------------
Total revenues.................................... 1,657 - 3,021
----------------- ----------------- ---------------------
Costs and Expenses:
Cost of revenues....................................... 254 - 323
Cost of services to affiliates......................... 877 - 1,870
Research and development expenses...................... 3,123 508 26,040
Sales and marketing expenses........................... 1,912 311 6,705
General and administrative expenses.................... 2,556 831 10,538
Litigation costs....................................... 650 - 4,950
Acquired in-process research and development........... - - 32,185
Depreciation and amortization.......................... 1,173 452 5,107
----------------- ----------------- ---------------------
Total costs and expenses......................... 10,545 2,102 87,718
----------------- ----------------- ---------------------
Loss from operations............................................. (8,888) (2,102) (84,697)
Other income, net................................................ 1,679 44 1,998
----------------- ----------------- ---------------------
Net loss......................................................... (7,209) (2,058) (82,699)
Accretion on Series A Preferred Stock............................ (58) - (58)
----------------- ----------------- ---------------------
Net loss available to common stockholders........................ $ (7,267) $ (2,058) $ (82,757)
================= ================= =====================
Net loss per share available to common stockholders,
basic and diluted............................................... $ (0.10) $ (0.04) $ (1.54)
================= ================= =====================
Weighted average shares outstanding, basic and diluted........... 70,410 50,063 53,825
================= ================= =====================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Deficit Accumulated
----------------- Accumulated Other
Number Additional Stock During the Comprehensive Total
of Paid- In Subscription Development Income Stockholders'
Shares Amount Capital Receivable Stage (Loss) Equity
------- ------ ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capitalization at Inception, December 24, 1996 50,063 $ 501 $ 9,499 $ (10,000) $ - $ - $ -
Contribution of Avicenna assets............. - - 28,817 - - - 28,817
Contribution of CareAgents stock............ - - 3,250 - - - 3,250
Net loss.................................... - - - - (42,357) - (42,357)
Capital contributions from Parent........... - - 11,856 - - - 11,856
------ ------- ----------- --------- ------------ ---------- --------
Balance at June 30, 1997......................... 50,063 501 53,422 (10,000) (42,357) - 1,566
------ ------- ----------- --------- ------------ ---------- --------
Net loss.................................... - - - - (10,335) - (10,335)
Capital contributions from Parent........... - - 16,567 - - - 16,567
------ ------- ----------- --------- ------------ ---------- --------
Balance at June 30, 1998......................... 50,063 501 69,989 (10,000) (52,692) - 7,798
------ ------- ----------- --------- ------------ ---------- --------
Net loss.................................... - - - - (22,798) - (22,798)
Unrealized gains on marketable securities... - - - - - 278 278
--------
Total comprehensive loss............... (22,520)
Settlement of stock subscription receivable. - - - 10,000 - - 10,000
Common stock issued to Cerner............... 13,148 131 32,455 - - - 32,586
Issuance of warrants to THINC............... - - 1,700 - - - 1,700
Issuance of warrants to Horizon............. - - 6,725 - - - 6,725
Sale of common stock in initial public
offering, net of underwriting discount
and offering expenses of $10,509.......... 6,498 65 106,381 - - - 106,446
Common stock issued to Parent............... 701 7 11,207 - - - 11,214
Capital contributions from Parent........... - - 19,475 - - - 19,475
------ ------- ----------- --------- ------------ ---------- --------
Balance at June 30, 1999......................... 70,410 704 247,932 - (75,490) 278 173,424
------ ------- ----------- --------- ------------- ---------- --------
Net loss applicable to common stockholders - - - - (7,267) - (7,267)
Unrealized losses on marketable securities - - - - - (293) (293)
--------
Total comprehensive loss............... (7,560)
Issuance of warrants........................ - - 555 - - - 555
Issuance of Series A Preferred Stock........ - - 5,268 - - - 5,268
Contributions from Parent................... - - 650 - - - 650
------ ------- ----------- --------- ------------ ---------- --------
Balance at September 30, 1999 (unaudited)........ 70,410 $ 704 $ 254,405 $ - $ (82,757) $ (15) $172,337
====== ======= =========== ========= ============ ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
From Inception
(Dec. 24, 1996)
Through
Three Months Ended September 30, September 30,
--------------------------------
1999 1998 1999
------------- --------------- --------------
<S> <C> <C> <C>
Cash Flows (Used In) Provided By Operating Activities:
Net loss available to common stockholders............................ $ (7,267) $ (2,058) $ (82,757)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization..................................... 1,173 452 5,107
Accretion on Series A Preferred Stock............................. 58 - 58
Write-off of acquired in-process research and development costs... - - 32,185
Write-off of acquired intellectual property and
software technologies........................................... - - 5,228
Write-off of capitalized software costs........................... - - 2,381
Net loss from investment in unconsolidated affiliate.............. 391 - 987
Changes in operating assets and liabilities:
Accounts and affiliate receivable, net.......................... (1,628) - (2,897)
Prepaid and other current assets................................ (10,533) - (10,943)
Other assets.................................................... (5,612) (21) (6,202)
Accounts, Parent and affiliate payables......................... 6,156 4,408 7,743
Accrued liabilities............................................. (1,160) (229) (1,651)
------------- --------------- --------------
Net cash (used in) provided by operating activities........... (18,422) 2,552 (50,761)
------------- --------------- --------------
Cash Flows Used In Investing Activities:
Purchases of property, plant and equipment........................ (4,863) (2,633) (8,259)
Software development costs........................................ - - (12,741)
Purchases of marketable securities................................ (50,000) - (104,392)
Acquisition of Med-Link net of cash acquired...................... - - (13,980)
Investment in unconsolidated affiliate............................ - - (1,350)
------------- --------------- --------------
Net Cash used in investing activities........................ (54,863) (2,633) (140,722)
------------- --------------- --------------
Cash Flows Provided By Financing Activities:
Proceeds from stock subscription receivable...................... - - 10,000
Proceeds from sale of Series A Preferred Stock and Option........ 10,000 - 10,000
Net proceeds from initial public offering........................ - - 108,366
Proceeds from sale of common stock to Parent..................... - - 11,214
Proceeds from sale of common stock to Cerner..................... - - 11,786
Contributions from Parent........................................ 650 - 41,501
------------- --------------- --------------
Net cash provided by financing activities.................... 10,650 - 192,867
------------- --------------- --------------
Change in cash and cash equivalents....................................... (62,635) (81) 1,384
Cash and cash equivalents, beginning of period............................ 64,019 315 -
------------- --------------- --------------
Cash and cash equivalents, end of period.................................. $ 1,384 $ 234 $ 1,384
============= =============== ==============
Supplemental disclosure of non-cash investing and financing activities:
Contribution of Avicenna assets from Parent.......................... $ - $ - $ 28,817
============= =============== ==============
Contribution of CareAgents stock from Parent......................... $ - $ - $ 3,250
============= =============== ==============
Contribution of acquired intellectual property and software
technologies from Parent.......................................... $ - $ - $ 5,228
============= =============== ==============
Contribution of note receivable from Parent.......................... $ - $ - $ 2,000
============= =============== ==============
Issuance of equity for software technology licensed from Cerner...... $ - $ - $ 20,800
============= =============== ==============
Conversion of note receivable into a stock investment................ $ - $ - $ 2,000
============= =============== ==============
Issuance of warrants................................................. $ 555 $ - $ 8,980
============= =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of CareInsite, Inc. and its subsidiaries ("CareInsite" or the
"Company"), after elimination of intercompany accounts and transactions. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended June 30, 1999. The
results of the interim periods presented herein are not necessarily indicative
of the results to be expected for any other interim period or the full year. In
the opinion of management, the information furnished reflects all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation of the results for the reported interim periods.
On December 24, 1996, Medical Manager Corporation (formerly known as
Synetic, Inc., herein referred to as "Medical Manager" or the "Parent") acquired
Avicenna Systems Corporation, a privately held, development stage company that
marketed and built Intranets for managed healthcare plans, integrated healthcare
delivery systems and hospitals. The acquisition of Avicenna marked the inception
of Medical Manager's healthcare electronic commerce business (the "Inception").
On January 23, 1997, Medical Manager acquired CareAgents, Inc. ("CareAgents"), a
privately held, development stage company engaged in developing Internet-based
clinical commerce applications. On November 24, 1998, Medical Manager formed
Synetic Healthcare Communications, Inc., which was subsequently renamed
CareInsite, Inc. On January 2, 1999, Medical Manager contributed the stock of
CareAgents to Avicenna. Concurrently, Avicenna contributed the stock of
CareAgents and substantially all of Avicenna's other assets and liabilities to
the Company (the "Formation"). Medical Manager also contributed $10,000,000 in
cash to the Company. The Formation has been accounted for using the carryover
basis of accounting and the Company's financial statements include the accounts
and operations of Avicenna and CareAgents for all periods presented from the
date each entity was acquired. As of November 8, 1999, Medical Manager owned
72.1% of the outstanding common stock of the Company.
On June 16, 1999, the Company completed its initial public offering of
6,497,500 shares of its common stock (the "Offering"). The net proceeds of the
Offering were $106,446,000.
The Company is in the development stage. The Company intends to provide a
broad range of healthcare electronic commerce services which it believes will
leverage Internet technology to improve communication among physicians, payers,
suppliers and patients. The provision of products and services using Internet
technology in the healthcare electronic commerce industry is subject to risks,
including, but not limited to, those associated with competition from existing
companies offering the same or similar services, uncertainty with respect to
market acceptance of its products and services, rapid technological change,
management of growth, availability of future capital and minimal previous record
of operations or earnings.
(2) America Online Agreement
In September 1999, the Company entered into a strategic alliance with
America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's 18 million members, as well
as CompuServe members and visitors to AOL's Web-based services, Netcenter,
AOL.COM and Digital City (collectively, "AOL Members"), to physicians, health
plans, pharmacy benefit managers, covered pharmacies and labs. Under the
agreement, the Company and
8
<PAGE>
AOL have agreed to create co-branded sites which will enable AOL Members to
manage their healthcare through online communication with their physicians,
health plans, pharmacy benefit managers, covered pharmacies and labs. The
agreement has an initial term of four years. Through this arrangement, AOL
Members will have access to the Company's secure, real-time services being
developed that allow them, among other things, to select and enroll in health
plans, choose their providers, schedule appointments, renew and refill plan
approved prescriptions, view lab results, review claims status, receive
explanation of benefits, review patient education materials provided by their
health plans, understand plan policies and procedures and receive plan treatment
authorizations. The Company and AOL have also agreed to collaborate in sales and
marketing to the healthcare industry, and they intend to leverage their alliance
into cross-promotional and shared advertising revenue initiatives. Under the
financial terms of the arrangement, the Company has agreed to make $30,000,000
of guaranteed payments to AOL over three years. The Company made the first
payment of $10,000,000 in September 1999.
The Company also entered into a four year agreement with Netscape
Communications Corporation ("Netscape") under which the Company acquired a
nonexclusive and nontransferable right and license for the use of an unlimited
quantity of the Netscape and Sun Microsystems software offered via the Sun
Microsystems-Netscape Alliance. The cost of the products was $3,750,000, with a
maintenance fee of $750,000 in the initial year and an option to purchase
maintenance at $1,000,000 per year in the second, third, and fourth years of the
agreement.
Under a separate agreement entered into in September 1999, AOL purchased
100 shares of the Company's newly issued Series A Convertible Redeemable
Preferred Stock ("Series A Preferred Stock") at a price of $100,000 per share,
or $10,000,000 of Series A Preferred Stock in the aggregate, with an option to
purchase up to an additional 100 shares of Series A Preferred Stock in September
2000 ("Series A Preferred Option") at the same price. At the option of AOL, in
March 2002, the Series A Preferred Stock is either redeemable in whole for
$100,000 per share in cash or convertible in whole, on a per share basis, into
(i) the number of shares of the Company's common stock equal to $100,000 divided
by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the same number
of shares of the Company's common stock, or 2,030.5 shares, at a price of $49.25
per share. In the event that AOL elects to convert the 100 shares of Series A
Preferred Stock it purchased in September 1999, it would receive 203,046 shares
of the Company's common stock and a warrant exercisable into an additional
203,046 shares at $49.25 per share. Prior to March 2002, AOL has the right to
require the Company to redeem the Series A Preferred Stock in whole at $100,000
per share in the event of a change in control of the Company. The Series A
Preferred Stock is non-voting except under certain extraordinary circumstances
and no dividend is payable on the Series A Preferred Stock unless the Company
declares a dividend on its common stock.
The proceeds received of $10,000,000 were allocated based on the relative
fair values of the Series A Preferred Stock and the Series A Preferred Option,
as determined by management. Accordingly, $7,608,000 was allocated to the Series
A Preferred Stock and $2,392,000 was allocated to the Series A Preferred Option.
Additionally, as the Series A Preferred Stock is convertible into equity
securities with a value in excess of $10,000,000 (the "beneficial conversion
feature"), a portion of the proceeds has been allocated to the beneficial
conversion feature and is reflected as a discount to the Series A Preferred
Stock. The value of the beneficial conversion feature, as determined by
management was $5,268,000. The discount is being amortized through March 2002
using the effective interest method and is reflected in the accompanying
statement of operations as accretion on Series A Preferred Stock. The Series A
Preferred Stock and Series A Preferred Option are classified as Convertible
Redeemable Preferred Stock in the accompanying balance sheets.
9
<PAGE>
(3) Fair Value of Financial Instruments
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term and
long-term marketable securities and accounts receivable. Cash, cash equivalents
and short-term and long-term marketable securities are deposited with high
quality financial institutions. All highly liquid investments with an original
maturity from date of purchase of three months or less are considered to be cash
equivalents. The Company's cash, cash equivalents and short-term marketable
securities are invested in various investment-grade commercial paper, money
market accounts and certificates of deposit. All of the short-term marketable
securities mature within twelve months. The Company's long-term marketable
securities are invested in U.S. Federal Agency notes maturing in June 2001. The
carrying value of the Company's cash and cash equivalents, short-term and long-
term marketable securities is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- ----------
(unaudited)
<S> <C> <C>
Cash and Cash equivalents:
Corporate and other non-government debt securities........................ $ - $ 9,918
Cash and money market funds............................................... 1,384 54,101
-------- --------
1,384 64,019
-------- --------
Short-term marketable securities:
Corporate and other non-government debt securities........................ 19,379 19,253
U.S. Federal Agency notes................................................. 34,999 35,417
-------- --------
54,378 54,670
-------- --------
Long-term marketable securities:
U.S. Federal Agency notes................................................. 50,000 -
-------- --------
$105,762 $118,689
======== ========
</TABLE>
Gross unrealized losses on the marketable securities were $15,000 at
September 30, 1999 and gross unrealized gains on the marketable securities were
$278,000 at June 30, 1999 and are included as part of accumulated other
comprehensive income.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Marketable debt and equity securities are considered
available-for-sale, and are carried at their fair value, with the unrealized
gains and losses reported net-of-tax as other comprehensive income or loss.
Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in other income. The
cost of securities sold is based on specific identification. Interest and
dividends on securities classified as available-for-sale are included in other
income.
(4) Commitments and Contingencies
10
<PAGE>
On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco Managed
Care, L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of New
Jersey against the Company, Medical Manager, Martin J. Wygod, Chairman of the
Company and Medical Manager, and three officers and/or directors of the Company
and Medical Manager, Paul C. Suthern, Roger C. Holstein and Charles A. Mele. The
plaintiffs assert that the Company, Medical Manager and the individual
defendants are in violation of certain non-competition, non-solicitation and
other agreements with Merck and Merck-Medco, and seek to enjoin the Company and
them from conducting the Company's healthcare e-commerce business and from
soliciting Merck-Medco's customers. Medical Manager's and Mr. Wygod's agreements
expired on May 24, 1999. Mr. Suthern's, Mr. Mele's and Mr. Holstein's agreements
expire in December 1999, March 2000 and September 2002, respectively.
A hearing was held on March 22, 1999 on an application for preliminary
injunction filed by Merck and Merck-Medco. On April 15, 1999, the Superior Court
denied this application. The Company believes that Merck's and Merck-Medco's
positions in relation to it and the individual defendants are without merit and
the Company intends to vigorously defend the litigation. However, the outcome of
complex litigation is uncertain and cannot be predicted at this time. Any
unanticipated adverse result could have a material adverse effect on the
Company's financial condition and results of operations.
The Company recorded $650,000 in litigation costs associated with the Merck
and Merck-Medco litigation in the three-months ended September 30, 1999.
Pursuant to an existing indemnification agreement between the Company and
Medical Manager, the agreement provides that Medical Manager will bear both
actual costs of conducting the litigation and monetary damages that may be
awarded to Merck and Merck-Medco in the litigation. The costs borne by Medical
Manager of $650,000 for the three months ended September 30, 1999 are reflected
as a contribution from Parent in the accompanying consolidated statements of
changes in stockholders' equity.
In the normal course of business, the Company is involved in various claims
and legal proceedings. While the ultimate resolution of these matters has yet to
be determined, the Company does not believe that their outcome will have a
material adverse effect on its financial condition or results of operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company's healthcare e-commerce services are still under development
and no revenues have been generated from the sale of these services.
Additionally, the market for the Company's services is unproven. These factors
make it difficult to evaluate the Company's business and prospects. The Company
has incurred substantial operating losses since the Company's inception and
there can be no assurance that the Company will generate significant revenues or
profitability in the future. The Company intends to significantly increase its
expenditures primarily in the areas of development, sales and marketing, data
center operations and customer support. As a result, the Company expects to
incur substantial operating losses for at least the next two fiscal years.
The Company expects to generate a significant portion of its revenue from
payers and suppliers who are expected to pay initial set-up and ongoing
maintenance fees associated with organizing, loading and maintaining their
content and transaction fees associated with the processing of healthcare
transactions. The Company also expects to generate revenue from physicians who
are expected to pay a monthly fee for access to a range of the Company's
services.
Management believes that they have a unique understanding of the economic
leverage inherent in facilitating the automation of certain clinical,
administrative and financial processes. Accordingly, the Company also has
contracted with certain payers and in the future may contract with other payers
and suppliers to guarantee them incremental cost savings from the use of certain
of the Company's services. If any of these payers or suppliers do not realize
the guaranteed level of cost savings, the Company will be obligated to make a
payment to that payer or supplier, which payment may exceed the Company's
charges to that payer or supplier. In some cases, the Company intends to share
in any cost savings in excess of the guaranteed cost savings. The amount and
timing of transaction revenue generated under these arrangements may be impacted
by the Company's guarantee of cost savings.
In September 1999, the Company entered into a strategic alliance with
America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's 18 million members, as well
as CompuServe members and visitors to AOL's Web-based services, Netcenter,
AOL.COM and Digital City (collectively, "AOL Members"), to physicians, health
plans, pharmacy benefit managers, covered pharmacies and labs. Under the
agreement, the Company and AOL have agreed to create co-branded sites which will
enable AOL Members to manage their healthcare through online communication with
their physicians, health plans, pharmacy benefit managers, covered pharmacies
and labs. The agreement has an initial term of four years. Through this
arrangement, AOL Members will have access to the Company's secure, real-time
services being developed that allow them, among other things, to select and
enroll in health plans, choose their providers, schedule appointments, renew and
refill plan approved prescriptions, view lab results, review claims status,
receive explanation of benefits, review patient education materials provided by
their health plans, understand plan policies and procedures and receive plan
treatment authorizations. The Company and AOL have also agreed to collaborate in
sales and marketing to the healthcare industry, and they intend to leverage
their alliance into cross-promotional and shared advertising revenue
initiatives. Under the financial terms of the arrangement, the Company has
agreed to make $30,000,000 of guaranteed payments to AOL over three years. The
Company made the first payment of $10,000,000 in September 1999.
The Company also entered into a four year agreement with Netscape
Communications Corporation ("Netscape") under which the Company also acquired a
nonexclusive and nontransferable
12
<PAGE>
right and license for the use of an unlimited quantity of the Netscape and Sun
Microsystems software products, offered via the Sun Microsystems--Netscape
Alliance. The cost of the products was $3,750,000, with a maintenance fee of
$750,000 in the initial year and an option to purchase maintenance at $1,000,000
per year in the second, third, and fourth years of the agreement.
Results of Operations
Total revenues for the three months ended September 30, 1999 were
$1,657,000 and were comprised of (i) $780,000 of revenue attributable to the
Company's electronic data interchange services and (ii) revenues of $877,000
consisting of management services provided to THINC.
Cost of revenues, other than to affiliates, was $254,000. Cost of
services to affiliates of $877,000 consisted primarily of employee compensation
and benefits expense for those employees supporting the THINC business.
Research and development expenses consist primarily of employee
compensation, the cost of consultants and other direct expenses. Total research
and development expenditures were $3,123,000 for the three months ended
September 30, 1999 as compared to $2,874,000 in the prior year period. Of these
expenditures, $2,366,000 were capitalized in the prior year period. There were
no capitalized costs for the three months ended September 30, 1999. The increase
in research and development expenditures relates to the continuing development
of the Company's services.
Sales and marketing expenses consist primarily of salaries and
benefits, travel for sales, marketing and business development personnel and
promotion related expenses such as advertising, marketing materials, and
tradeshows. Sales and marketing expenses were $1,912,000 for the three months
ended September 30, 1999 compared to $311,000 in the comparable prior year
period. The increase is primarily related to (i) increased staffing, (ii)
inclusion of expenses related to the acquisition of Med-Link, (iii) increased
marketing activities and (iv) expenses related to the AOL agreement for which
there are no comparable amounts in the prior period. Included in sales and
marketing expenses are net charges from Medical Manager of $272,000 for the
three months ended September 30, 1999 and $153,000 for the comparable prior year
period. These charges represent an allocation of compensation costs for Medical
Manager personnel who devoted a significant portion of their time to the
Company, and primarily relate to business development and marketing support
services. The increase in these allocated expenses is due to increased staffing
to support the Company's business.
General and administrative expenses consist primarily of compensation
for legal, finance, management and administrative personnel. General and
administrative expenses were $2,556,000 for the three months ended September 30,
1999 compared to $831,000 in the comparable prior year period. The increase in
general and administrative expenses of $1,725,000 resulted primarily from (i)
increased staffing in the finance, legal, and corporate development groups and
(ii) inclusion of expenses related to the acquisition of Med-Link. Included in
general and administrative expenses are net charges from Medical Manager of
$264,000 for the three months ended September 30, 1999 compared to $84,000 in
the comparable prior year period. These charges represent an allocation of
compensation costs for Medical Manager personnel who devoted a significant
portion of their time to the Company, and primarily relate to administrative and
legal services. The increase in these allocated expenses is due to increased
staffing to support the Company's business.
The Company recorded $650,000 in litigation charges in the three months
ended September 30, 1999, related to the Company's ongoing defense against
assertions that it violated certain agreements with Merck & Co., Inc. ("Merck")
and Merck-Medco Managed Care, L.L.C ("Merck-Medco"). Pursuant to an existing
indemnification agreement between the Company and Medical Manager, the agreement
provides,
13
<PAGE>
among other things, that Medical Manager will bear both actual costs of
conducting the litigation and monetary damages that may be awarded to Merck and
Merck-Medco in the litigation. The costs borne by Medical Manager of $650,000
for the three months ended September 30, 1999 are reflected as a contribution
from Parent in the accompanying consolidated statements of changes in
stockholders' equity.
Depreciation and amortization expense was $1,173,000 in the three
months ended September 30, 1999 and $452,000 in the comparable prior year
period. The increase is primarily due to (i) amortization of goodwill related to
the acquisition of Med-Link and (ii) amortization related to certain contracts
and other intangibles.
Other income was $1,679,000 in three months ended September 30, 1999
and $44,000 in the comparable prior period. The increase is a due to interest
income on the funds raised in connection with the Company's initial public
offering on June 16, 1999.
Liquidity and Capital Resources
Prior to completing its initial public offering on June 16, 1999, the
Company's operations since Inception (December 24, 1996) were funded through
capital contributions from its parent company Medical Manager. On June 16, 1999,
the Company completed its initial public offering of 6,497,500 shares of its
common stock at $18.00 per share (the "Offering"). The net cash proceeds of the
Offering were approximately $106,446,000, after deducting anticipated amounts
for underwriting discounts and commissions and Offering expenses. As of
September 30, 1999 the Company had $107,286,000 of cash and cash equivalents and
short and long-term marketable securities, including accrued interest thereon.
Cash used in operating activities was $18,422,000 for the three months
ended September 30, 1999 compared to cash provided by operating activities of
$2,552,000 in the comparable prior year period. The cash used during this period
was primarily attributable to the losses associated with the development of the
Company's business activities and the payment of $10,000,000 in connection with
the Company's strategic alliance and agreement with AOL.
Cash used in investing activities was $54,863,000 for the three months
ended September 30, 1999 compared to $2,633,000 in the comparable prior year
period. The cash used during the three months ended September 30, 1999 was
primarily related to the purchases of marketable securities for $50,000,000 and
the purchase of computer equipment primarily related to the establishment of
Company's data center for $4,863,000. The Company's marketable securities are
invested in various investment-grade commercial paper, money market accounts,
certificates of deposit and Federal Agency Notes.
Cash provided by financing activities was $10,650,000 for the three
months ended September 30, 1999 and primarily relates to the purchase by AOL of
100 shares of the Company's newly issued Series A Convertible Redeemable
Preferred Stock ("Series A Preferred Stock") at a price of $100,000 per share,
or $10,000,000 of Series A Preferred Stock in the aggregate, with an option to
purchase up to an additional 100 shares of Series A Preferred Stock in September
2000 ("Series A Preferred Option") at the same price. At the option of AOL, in
March 2002, the Series A Preferred Stock is either redeemable in whole for
$100,000 per share in cash or convertible in whole, on a per share basis, into
(i) the number of shares of the Company's common stock equal to $100,000 divided
by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the same number
of shares of the Company's common stock, or 2,030.5 shares, at a price of $49.25
per share. In the event that AOL elects to convert the 100 shares of Series A
Preferred Stock it purchased in September 1999, it would receive 203,046 shares
of the Company's common stock and a warrant exercisable into an additional
203,046 shares at $49.25 per share. Prior to March 2002, AOL has the right to
require the Company to redeem the Series A Preferred Stock in whole at $100,000
14
<PAGE>
per share in the event of a change in control of the Company. The Series A
Preferred Stock is non-voting except under certain extraordinary circumstances
and no dividend is payable on the Series A Preferred Stock unless the Company
declares a dividend on its common stock.
Under the terms of the strategic alliance and agreement with AOL, the
Company is required to make guaranteed payments of $10,000,000 in August 2000
and 2001, respectively.
The Company currently anticipates that its available cash resources,
will be sufficient to meet the Company's presently anticipated working capital,
capital expenditure and business expansion requirements for the next 18 - 24
months. There can be no assurance that the Company will not require additional
capital prior to the expiration of this 18 - 24 month period. Even if such
additional funds are required, the Company may seek additional equity or debt
financing. There can be no assurance that such financing will be available on
acceptable terms, if at all, or that such financing will not be dilutive to the
Company's stockholders.
The Company continues to pursue an acquisition program pursuant to
which it seeks to effect one or more acquisitions or other similar business
combinations with businesses it believes have significant growth potential.
Financing for such acquisitions may come from several sources, including,
without limitation, (a) the Company's cash, cash equivalents and marketable
securities and (b) proceeds from the incurrence of additional indebtedness or
the issuance of common stock, preferred stock, convertible debt or other
securities. There can be no assurance that the Company's acquisition program
will be successful.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries for the year in the date
code field. These systems and software products will need to accept four digit
year entries to distinguish 21st century dates from 20th century dates. 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. The Company has made an assessment of the Year 2000
readiness of its information technology systems, including the hardware and
software that enable the Company to develop and deliver its healthcare
e-commerce services as well as its non-information technology systems. The
Company's assessment consisted of:
. quality assurance testing of the Company's internally developed
proprietary software;
. contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
developing the Company's healthcare e-commerce network
. contacting vendors of material non-IT systems;
. assessment of repair or replacement requirements;
. repair or replacement; and
. implementation.
15
<PAGE>
The Company has been informed by its vendors of material hardware and
software components of its IT systems that the products used by the Company are
currently Year 2000 compliant. The Company has also been informed by its non-IT
system vendors that the products used by the Company are currently Year 2000
compliant.
Costs. To date, the Company has not incurred any material expenditures
in connection with identifying or evaluating Year 2000 compliance issues. Most
of the Company's expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent developing a Year 2000
compliant healthcare e-commerce channel.
The Company is not currently aware of any Year 2000 compliance problems
relating to its information technology or non-information technology systems
that the Company believes would have a material adverse effect on its business,
financial condition and results of operations. There can be no assurance that
the Company will not discover Year 2000 compliance problems that will require
substantial revisions to the Company's systems or services. In addition, there
can be no assurance that third-party software, hardware or services incorporated
into the Company's material information technology and non-information
technology systems will not need to be revised or replaced, all of which could
be time consuming and expensive. Any failure to fix the Company's information
technology systems or to replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs, the loss
of customers and other business interruptions, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
In addition, there can be no assurance that physicians, payers,
suppliers, Internet access companies, third-party service providers, vendors,
business partners and others outside the Company's control will be Year 2000
compliant. The failure by such entities to be Year 2000 compliant could result
in a systemic failure beyond the Company's control, such as a prolonged Internet
or communications failure, which could also prevent the Company from delivering
the Company's services to its customers, decrease the use of the Internet or
prevent users from accessing the Company's service. Such a failure could have a
material adverse effect on the Company's business, results of operations and
financial condition. Also, a general Year 2000 systemic failure could require
healthcare companies to spend large amounts of money to correct any such
failures, reducing the amount of money that might otherwise be available to be
spent on the Company's services.
Contingency plan. The Company is continuing to assess and test its
systems for Year 2000 compliance. The Company has also developed contingency
plans for system failure, service disruption and data corruption issues due to
Year 2000 problems. In the event that there is a system problem due to a Year
2000 date, the Company will immediately attempt to diagnose and fix the problem.
At the same time, the Company will change (a) the system clock back to 1999
while separately logging all transactions so affected and/or (b) the dates
within transactions to 1999 while separately logging all transactions so
affected. In the event that a Year 2000 problem occurs at an external entity,
that entity will be informed of the problem and the Company will continue to
review and repair the dates until the problem is fixed. The Company makes no
assurance that it will be able to successfully diagnose and/or fix any Year 2000
problems that occur or that the cost of doing so will not be material.
As the Year 2000 issue has many elements and potential consequences,
some of which are not reasonably foreseeable, the ultimate impact of the Year
2000 on the Company's operations could differ materially from the Company's
expectations.
This discussion contains forward-looking information relating to the
Company's operations that are based on management's current expectations,
estimates and projections about the Company, and the
16
<PAGE>
healthcare e-commerce industry. See "-- Disclosure Regarding Forward
Looking Information" contained in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest rate sensitivity
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investments in marketable securities. The Company
does not use derivative financial instruments in its investments. The Company's
investments consist primarily of U.S. Treasury Notes and Federal Agency Notes.
The following table presents fair value amounts and related weighted-
average interest rates by expected maturity date of the Company's investment
portfolio. This table does not include money market funds because those funds
are not subject to market risk.
Fiscal Years
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
----------- ----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Short term investment:
Fixed rate 54,378 -- -- -- -- --
Average interest rate 5.25% -- -- -- -- --
Long term investment:
Fixed rate -- 50,000 -- -- -- --
Average interest rate -- 6.08% -- -- -- --
</TABLE>
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For legal proceedings, please refer to "Item 3-Legal Proceedings" filed in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 15, 1999 the Company issued to America Online, Inc. ("AOL")
100 shares of newly issued Series A Convertible Redeemable Preferred Stock
("Series A Preferred Stock") at a price of $100,000 per share, or $10,000,000 of
Series A Preferred Stock in the aggregate, with an option to purchase up to an
additional 100 shares of Series A Preferred Stock in September 2000 at the same
price. At the option of AOL, in March 2002, the Series A Preferred Stock is
either redeemable in whole for $100,000 per share in cash or convertible in
whole, on a per share basis, into (i) the number of shares of the Company's
common stock equal to $100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a
warrant exercisable for the same number of shares of the Company's common stock,
or 2,030.5 shares, at a price of $49.25 per share. Prior to March 2002, AOL has
the right to require the Company to redeem the Series A Preferred Stock in whole
at $100,000 per share in the event of a change in control of the Company. The
Series A Preferred Stock is non-voting except under certain extraordinary
circumstances and no dividend is payable on the Series A Preferred Stock unless
the Company declares a dividend on its common stock.
On June 16, 1999, the Company completed the initial public offering (the
"Offering") of 6,497,500 shares of its common stock at a price of $18.00 per
share. The shares of common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (No.
333-75071). The Registration Statement was declared effective by the Securities
and Exchange Commission on June 16, 1999. Concurrent with the Offering, the
Company sold 537,634 shares of its common stock in a separate, private
transaction to Cerner for net proceeds of approximately $9,000,000. The Company
invested the proceeds from the Offering and this private sale to Cerner
primarily in U.S. Treasury Notes and Federal Agency Notes. During the three
months ended September 30, 1999, the Company used a portion of the proceeds for
working capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibits
---------- --------
4.1 Certificate of Designations of Preferences and Rights
of the Series A Convertible Redeemable Preferred
Stock of CareInsite, Inc., par value $0.01 per share.
4.2 Warrant Agreement dated as of September 15, 1999
between America Online, Inc. and the Company.
4.3 Subscription Agreement dated as of September 15,
1999 between the Company and America Online, Inc.
27 Financial Data Schedule.
(b) On August 24, 1999, the Company filed on Form 8-K a copy of the
Company's press release announcing earnings for the quarter and year
ended June 30, 1999.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CAREINSITE, INC.
Dated: November 15, 1999 /s/ James R. Love
---------------------------------------
James R. Love
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT 4.1
Certificate of Designation
of Preferences and Rights
of the
Series A Convertible Redeemable Preferred Stock
of
CareInsite, Inc.
par value $0.01 per share
The undersigned, David C. Amburgey, Senior Vice President -
General Counsel of CareInsite, Inc., a Delaware corporation, does hereby certify
on behalf of the Corporation that pursuant to the provisions of Section 151 of
the Delaware General Corporation Law and Article IV of the Amended and Restated
Certificate of Incorporation, the Board of Directors of the Corporation adopted
the following resolution:
RESOLVED:That pursuant to Article IV of the Corporation's Amended and Restated
Certificate of Incorporation dated June 11, 1999, the Board of
Directors of the Corporation hereby creates and authorizes a series of
serial convertible redeemable preferred stock, par value $0.01 per
share, having the following rights and preferences, designations,
voting powers and terms, in addition to those fixed by and set forth in
such Article IV:
As used herein, the following terms have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued or issuable (whether upon the exercise of warrants,
Convertible Securities or otherwise) by the Corporation after the Issue Date,
other than (a) the Conversion Shares and (b) any shares of Common Stock issued
or issuable pursuant to evidences of indebtedness, shares of stock, warrants,
rights or other securities entered into or issuable before the Issue Date.
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such specified
Person.
"AOL" shall mean America Online, Inc., a Delaware corporation.
"Board of Directors" shall mean the board of directors of the
Corporation.
"Business Day" shall mean any day that is not a Saturday,
Sunday or a Legal Holiday.
<PAGE>
2
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security whether or not it is
exchangeable for or convertible into such capital stock).
"Change of Control" shall mean the acquisition by a Person
(other than by or through Medical Manager Corporation (or any successor thereof
whether by merger, consolidation, sale of all or substantially all of its assets
or otherwise) or any of its Affiliates) of beneficial ownership of more than 50%
of the voting Capital Stock. For purposes hereof a Person shall be deemed the
beneficial owner of Capital Stock if such Person would be deemed a beneficial
owner under Rule 13d-3, as in effect on the date hereof, under the Exchange Act.
"Common Stock" shall mean the common stock, $.01 par value per
share, of the Corporation.
"Control" (including the terms "Controlled by" and "under
common Control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise.
"Conversion Consideration" shall have the meaning specified in
Section 9(b).
"Conversion Determination Date" shall mean March 16, 2002.
"Conversion Price" shall mean the applicable price at which
Conversion Shares shall be delivered upon conversion of shares of the Series A
Preferred Stock as specified in Section 9(b).
"Conversion Shares" shall have the meaning specified in
Section 9(b).
"Conversion Time" shall have the meaning specified in Section
9(c).
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock, warrants, rights or other securities entered into or issued
after the Issue Date which are exercisable, convertible or exchangeable,
(including, but not limited to, Options) with or without payment of additional
consideration in cash or property, for Additional Shares of Common Stock, either
immediately or upon the occurrence of a specified date or the happening of a
specified event or both.
<PAGE>
3
"Corporation Redemption Date" shall have the meaning specified
in Section 5(b)(ii).
"Employee Options" shall mean the options to acquire Common
Stock that may be granted to employees, consultants, officers and directors of
the Corporation.
"Encumbrance" shall mean any security interest, pledge,
mortgage, lien, charge, adverse claim of ownership or other encumbrance of any
kind.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean in respect of a share of
Capital Stock of the Corporation on any date herein specified, the fair value as
determined in good faith by the Board of Directors of the Corporation.
"Group" shall have the meaning set forth in Rule 13d-5, as in
effect on the date hereof, under the Exchange Act.
"Holder Redemption Date" shall have the meaning specified in
Section 5(a).
"Holders" shall mean the holders of the Series A Preferred
Stock.
"Issue Date" shall mean the date the initial shares of Series
A Preferred Stock are issued.
"Legal Holiday" shall mean any day on which banking
institutions are obligated or authorized to close in The City of New York.
"Liquidation Amount" shall mean, as of any date, an amount
equal to $100,000.00 per share of Series A Preferred Stock, plus all declared
but unpaid dividends to such date.
"Liquidation Right" shall mean for each share of Series A
Preferred Stock the Liquidation Amount or, if prior to the Conversion
Determination Date and if greater, the amount that would be received in
liquidation following conversion of a share of Series A Preferred Stock into
Common Stock.
"Majority Holders" shall mean the Holders of a majority of the
then outstanding shares of Series A Preferred Stock.
"Notice" shall have the meaning specified in Section 5(b).
<PAGE>
4
"Option" shall mean any right, warrant or option to subscribe
for or purchase shares of Common Stock.
"Other Property" shall have the meaning set forth in Section
9(d)(vii).
"Outstanding" shall mean, when used with reference to the
Common Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or held
by or for the account of the Corporation or its subsidiaries, and all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" means any individual, firm, corporation, partnership,
limited partnership, limited liability company, association, trust,
unincorporated organization or other entity, as well as any syndicate or Group
that would be deemed to be a person under Section 13(d)(3), as in effect on the
date hereof, of the Exchange Act.
"Series A Preferred Stock" shall have the meaning specified in
Section 1.
"Third Party" shall have the meaning specified in Section
11(b).
"Warrants" shall mean the Warrants subject to the Warrant
Agreement, dated as of September 15, 1999, between the Corporation and AOL.
Section 1. DESIGNATION AND AMOUNT. The designation of such
series of Preferred Stock shall be the Series A Convertible Redeemable Preferred
Stock (the "Series A Preferred Stock"). The number of issuable shares of Series
A Preferred Stock shall be two hundred (200); provided that shares of Series A
Preferred Stock shall only be issued pursuant to the Subscription Agreement,
dated as of September 15, 1999 between the Corporation and AOL.
Section 2. RANK. All shares of Series A Preferred Stock, both
as to payment of dividends and to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
shall rank (i) senior to all of the Corporation's now or hereafter issued Common
Stock or any other common stock of any class of the Corporation and (ii) senior
to all of the Corporation's now or hereafter issued Capital Stock which does not
expressly rank pari passu with the Series A Preferred Stock. The Corporation
shall not issue any Capital Stock senior to the Series A Preferred Stock.
Section 3. DIVIDENDS. (a) The Holders shall not be entitled to
receive dividends except in accordance with this Section 3.
(b) If the Corporation declares and pays dividends on the
Common Stock in cash or property of the Corporation (but not dividends in shares
of Common Stock), then, in that
<PAGE>
5
event, the Holders shall be entitled to share in such dividends on a pro rata
basis, as if their shares of Series A Preferred Stock had been converted into
shares of Common Stock pursuant to Section 9 immediately prior to the record
date for determining the stockholders of the Corporation eligible to receive
such dividends or, if such shares of Series A Preferred Stock are no longer
convertible into Common Stock immediately prior to such record date, as if such
shares of Series A Preferred Stock had been converted into Common Stock on the
Conversion Determination Date.
Section 4. LIQUIDATION RIGHT. Subject to the rights of holders
of any Capital Stock of the Corporation ranking pari passu with the Series A
Preferred Stock, in the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the Holders shall be entitled to
receive out of the assets of the Corporation, whether such assets are stated
capital or surplus of any nature, the Liquidation Right, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's Capital Stock ranking junior as to
liquidation rights to the Series A Preferred Stock. If the assets of the
Corporation available for distribution are not sufficient to pay an amount equal
to the Liquidation Right to the holders of outstanding shares of Series A
Preferred Stock (and any Capital Stock ranking pari passu with the Series A
Preferred Stock), then the assets of the Corporation shall be distributed
ratably among the Holders (and the holders of any Capital Stock ranking pari
passu with the Series A Preferred Stock). Neither a consolidation, merger or
other business combination of the Corporation with or into another corporation
or other entity nor a sale or offer of all or part of the Corporation's assets
for cash, securities or other property shall be considered a liquidation,
dissolution or winding up of the Corporation for purposes of this Section 4
(unless in connection therewith the liquidation of the Corporation is
specifically approved).
Section 5. REDEMPTION. (a) The Holders shall have the right to
compel the Corporation to redeem all (but not less than all) of the outstanding
shares of Series A Preferred Stock at the Liquidation Amount on either (i) the
Conversion Determination Date or (ii) the 30th day following the Corporation's
receipt of the notice described in the immediately following clause (A)(y) (such
date under either clause (i) or (ii) being hereinafter the "Holder Redemption
Date"); provided, however, that (A) the Corporation shall have received a
written demand that the Corporation redeem the Series A Preferred Stock (x) no
later than 30 days prior to the Conversion Determination Date in the case of a
redemption pursuant to the immediately preceding clause (i) or (y) prior to such
date occurring 30 days prior to the Conversion Determination Date and within 30
days of notification pursuant to Section 9(x)(D) of a Change of Control in the
case of a redemption pursuant to the immediately preceding clause (ii), (B) the
Holders shall not have given a Conversion Notice to the Corporation with respect
to the shares of Series A Preferred Stock to be redeemed and (C) redemption
shall be permitted only to the extent that it is permitted under the General
Corporation Law of Delaware. Shares of Series A Preferred Stock which are
subject to redemption but which have not been redeemed shall continue to be
entitled to the dividend and other rights, preferences and privileges of the
Series A
<PAGE>
6
Preferred Stock until such shares have been redeemed and the Liquidation Amount
has been paid or otherwise set aside with respect thereto; provided, however,
that all rights to convert the Series A Preferred Stock shall cease on the
receipt by the Corporation of the written demand referred to in clause (A) of
the first sentence of this Section 5(a). If, on or prior to the Holder
Redemption Date, all funds necessary for such redemption shall have been set
aside by the Corporation, separate and apart from its other funds, in trust for
the account of the holders of the shares so to be redeemed (as to be and
continue to be available therefor), then on and after the Holder Redemption
Date, notwithstanding that any certificate for any such shares of the Series A
Preferred Stock shall not have been surrendered for cancellation, all such
shares of the Series A Preferred Stock with respect to which such funds shall
have been set aside shall be deemed to be no longer outstanding and all rights
with respect to such shares of the Series A Preferred Stock shall forthwith
cease and terminate, except the right of the Holders to receive out of the funds
so set aside in trust the amount payable on the redemption thereof (including an
amount equal to accrued and unpaid dividends to the redemption date) without
interest thereon.
(b) (i) The Corporation shall have the right, at any time
after the Conversion Determination Date, at its option, upon not less than 10
days' prior written notice ("Notice"), to redeem, out of funds legally available
therefor, all (but not less than all) of the then outstanding shares of Series A
Preferred Stock at the Liquidation Amount.
(ii) The Notice shall be given to each Holder of
record of the Series A Preferred Stock to be redeemed. Each such Notice of
redemption shall specify the date fixed for redemption (the "Corporation
Redemption Date"), the place or places of payment and that payment will be made
upon presentation of and surrender of the certificates evidencing the shares of
Series A Preferred Stock to be redeemed. Any failure to give such Notice, or any
defect in such Notice, to a Holder of any shares designated for redemption shall
not affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock owned by other Holders to whom such Notice was duly
given. On or after the Corporation Redemption Date, each Holder of the shares
called for redemption shall surrender the certificate evidencing such shares to
the Corporation at the place designated in such Notice and shall thereupon be
entitled to receive payment of the Liquidation Amount. If such Notice shall have
been so given and if, on or prior to the Corporation Redemption Date, all funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the account of the holders
of the shares so to be redeemed (as to be and continue to be available
therefor), then on and after the Corporation Redemption Date, notwithstanding
that any certificate for shares of the Series A Preferred Stock so called for
redemption shall not have been surrendered for cancellation, all shares of the
Series A Preferred Stock with respect to which such Notice shall have been given
and such funds shall have been set aside shall be deemed to be no longer
outstanding and all rights with respect to such shares of the Series A Preferred
Stock so called for redemption shall forthwith cease and terminate, except the
right of the Holders to receive out of the funds so set aside in trust the
amount payable on the redemption thereof (including an amount
<PAGE>
7
equal to accrued and unpaid dividends to the Corporation Redemption Date)
without interest thereon.
(c) The Holder of any shares of Series A Preferred Stock
redeemed under Section 5(a) or Section 5(b) shall not be entitled to receive
payment of the Liquidation Amount for such shares until such Holder shall cause
to be delivered to the Corporation (i) the certificate(s) representing such
shares of Series A Preferred Stock to be redeemed and (ii) transfer
instrument(s) satisfactory to the Corporation and sufficient to transfer such
shares of Series A Preferred Stock to the Corporation free of any Encumbrances;
provided that the foregoing is subject to the other provisions of the
Corporation's Amended and Restated By-laws governing lost certificates
generally.
Section 6. VOTING RIGHTS.
(a) GENERAL. Except as provided in Section 6(b) or as
provided by law, the Series A Preferred Stock shall not have any voting rights.
(b) CLASS VOTING RIGHTS.
(i) ACTIONS REQUIRING AFFIRMATIVE VOTE. So long as
shares of Series A Preferred Stock are outstanding, the Corporation shall not,
directly or indirectly, or through merger or consolidation with any other
person, without the affirmative vote or consent of the Majority Holders, with
the Holders voting separately as a class,
(A) amend, alter or repeal (by merger,
consolidation or otherwise) any provision of the Certificate
of Incorporation or the By-laws of the Corporation, as
amended, so as to affect adversely the relative rights,
preferences, powers (including, without limitation, voting
powers) and privileges of the Series A Preferred Stock,
provided that nothing herein shall provide the Holders with a
right to vote on the matters set forth in Section 9(d)(vii),
(B) authorize or issue any new class
of shares of Capital Stock having a preference with respect to
dividends, redemption and/or liquidation over the Series A
Preferred Stock, or
(C) reclassify any of its Capital
Stock into shares having a preference with respect to
dividends, redemption and/or liquidation over the Series A
Preferred Stock.
In connection with any right to vote pursuant to this Section 6(b)(i), each
Holder will have one vote for each share of Series A Preferred Stock held.
<PAGE>
8
(ii) SPECIAL MEETING. Whenever the rights described
in Section 6(b)(i) above shall vest, they may be exercised initially by the vote
of the Majority Holders present and voting, in person or by proxy, at a special
meeting of Holders or by written consent of the Majority Holders without a
meeting. Unless such action shall have been taken by written consent as
aforesaid, a special meeting of the Holders for the exercise of any such right
shall be called by the Secretary of the Corporation as promptly as possible in
compliance with applicable law and regulations, and in any event within 10 days
after receipt of a written request signed by the Holders of record of at least
25% of the then outstanding shares of the Series A Preferred Stock, subject to
any applicable notice requirements imposed by law or by any national securities
exchange on which any Series A Preferred Stock is listed. Such meeting shall be
held at the earliest practicable date thereafter.
(iii) STOCKHOLDERS' RIGHT TO CALL MEETING. If any
meeting of the Holders required by this subparagraph (b) to be called shall not
have been called within 10 days after receipt of a written request therefor by
the Secretary of the Corporation, subject to any applicable notice requirements
imposed by law or any national securities exchange on which any Series A
Preferred Stock is then listed, then the Holders of record of at least 25% of
the then outstanding shares of the Series A Preferred Stock may designate in
writing a Holder of the Series A Preferred Stock to call such meeting at the
reasonable expense of the Corporation, and such meeting may be called by such
Person so designated upon the notice required for annual meetings of
stockholders or such shorter notice (but in no event shorter than permitted by
law or any national securities exchange on which the Series A Preferred Stock is
then listed) as may be acceptable to the Majority Holders. Any Holder of Series
A Preferred Stock so designated shall have reasonable access to the stock books
of the Corporation relating solely to the Series A Preferred Stock for the
purpose of causing such meeting to be called pursuant to these provisions.
Section 7. OUTSTANDING SHARES. For purposes of this
Resolution, all shares of Series A Preferred Stock that have been issued shall
be deemed outstanding except (a) from the Conversion Determination Date if a
demand for redemption pursuant to Section 5(a) has been received by the
Corporation or date fixed for redemption pursuant to Section 5(b), as the case
may be, all shares of Series A Preferred Stock that are to be redeemed pursuant
to Section 5 if funds necessary for payment of the amounts to be paid in
connection with such redemption have been irrevocably deposited in trust, for
the account of the Holders of the shares so to be redeemed (so as to be and
continue to be available therefor), with a corporation organized and doing
business under the laws of the United States or any State or territory thereof
or of the District of Columbia (or a corporation or other person permitted to
act as a trustee by the United States Securities and Exchange Commission),
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $100,000,000 and subject to supervision or
examination by Federal, State or District of Columbia or territorial authority;
and (b) from the date of registration of transfer, all shares of Series A
Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation.
<PAGE>
9
Section 8. STATUS OF ACQUIRED SHARES. The Corporation shall
take all such actions as are necessary to cause any shares of Series A Preferred
Stock redeemed by the Corporation, received upon conversion pursuant to Section
9, or otherwise acquired by the Corporation, to be restored to the status of
authorized and unissued shares of preferred stock, without designation as to
series, and such shares may thereafter be issued, but not as shares of Series A
Preferred Stock.
Section 9. CONVERSION.
(a) CONVERSION RIGHT. Except as otherwise provided herein,
the Holders shall have the right to convert, on the Conversion Determination
Date, all (but not less than all) of the then outstanding shares of Series A
Preferred Stock into the Conversion Consideration; provided, however, that the
Corporation shall have received, no later than 5:00 p.m., New York time, on the
date that is 30 days prior to the Conversion Determination Date (the "Conversion
Notice Deadline"), a notice (a "Conversion Notice") specifying the number of
shares to be converted pursuant to this Section 9. In the event that the
Corporation elects to exercise its right under Section 11(b) to require a sale
of shares of Series A Preferred Stock to a Third Party, notwithstanding anything
herein to the contrary, the Board of Directors, in its sole discretion, may
change the Conversion Determination Date, effective upon the consummation of
such sale, to a date that is after March 16, 2002.
(b) CONVERSION PRICE. At the Conversion Time, each share of
Series A Preferred Stock for which conversion has been requested in a Conversion
Notice, shall be converted into (i) such number of fully paid and non-assessable
shares of the Common Stock ("Conversion Shares") as is determined by dividing
the Liquidation Amount by the Conversion Price, determined as hereinafter
provided, in effect at the Conversion Time and rounding the result to the
nearest 1/100th of a share and (ii) a Warrant (collectively, the "Conversion
Consideration") to purchase such number of shares of Common Stock as shall be
equal to the number of Conversion Shares received upon conversion of the share
of Series A Preferred Stock pursuant to clause (i) of this Section 9(b). If a
Holder converts more than one share at the same time, the number of full shares
issuable upon the conversion shall be based upon the total number of shares
converted. The Conversion Price shall initially be $49.25 per share. Such
initial Conversion Price shall be subject to adjustment, in order to adjust the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible, as hereinafter provided. Upon the making of a demand to the
Corporation for redemption pursuant to Section 5(a), all shares of Series A
Preferred Stock shall cease to be convertible.
(c) PROCEDURE. In order to convert shares of the Series A
Preferred Stock into Conversion Consideration, the Holder thereof shall, in
addition to delivering a timely Conversion Notice pursuant to Section 9(a),
surrender at the office of any transfer agent for the Series A Preferred Stock
(or in the absence of any transfer agent, the Corporation) the certificate or
certificates therefor, duly endorsed to the Corporation or in blank prior to the
close of business
<PAGE>
10
on the Conversion Determination Date. Shares of the Series A Preferred Stock so
surrendered shall be deemed to have been converted immediately prior to the
close of business on the Conversion Determination Date or, if later, the time at
which any applicable waiting period (and any extension thereof) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or shall have been terminated (hereinafter, the "Conversion Time"), and
the person or persons entitled to receive Conversion Consideration issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Conversion Consideration at the Conversion Time. No later than
10 days after the Conversion Time, the Corporation shall issue and deliver to
the Holder the certificate or certificates for the number of full Conversion
Shares issuable upon such conversion, together with a cash payment in lieu of
any fraction of a Conversion Share, as hereinafter provided, and the Warrant to
the person or persons entitled to receive the same or to the nominee or nominees
of such person or persons.
(d) ADJUSTMENTS TO THE NUMBER OF CONVERSION SHARES
AND/OR THE CONVERSION PRICE. The number of Conversion Shares and/or the
Conversion Price shall be subject to adjustment from time to time as set forth
in this Section 9(d) for events occurring prior to the Conversion Time.
(i) Stock Dividends, Subdivisions and Combinations.
If, at any time prior to the Conversion Time, the Corporation shall:
(A) pay a dividend or make a
distribution on its Common Stock in Additional Shares
of Common Stock (this adjustment will be deemed to
occur immediately after the record date);
(B) subdivide its outstanding shares
of Common Stock into a larger number of shares of
Common Stock; or
(C) combine its outstanding shares of
Common Stock into a smaller number of shares of
Common Stock;
then (1) the number of Conversion Shares into which a share of Series A
Preferred Stock is convertible shall be adjusted to equal the number of shares
of Common Stock which a record holder of the same number of Conversion Shares
for which the Series A Preferred Stock is convertible immediately prior to the
occurrence of such event would own or be entitled to receive after the happening
of such event, and (2) the Conversion Price shall be adjusted to equal (x) the
Conversion Price multiplied by the number of Conversion Shares into which a
share of Series A Preferred Stock is convertible immediately prior to the
adjustment divided by (y) the number of Conversion Shares into which a share of
Series A Preferred Stock is exercisable immediately after such adjustment.
<PAGE>
11
(ii) Issuance of Additional Shares of Common Stock.
(A) If, at any time prior to the Conversion Time, the Corporation shall (except
as hereinafter provided in Section 9(d)(ii)(B)) issue or sell any Additional
Shares of Common Stock and such Additional Shares of Common Stock are issued or
sold for no consideration or for consideration in an amount per additional share
of Common Stock less than the Fair Market Value, then the Conversion Price shall
be reduced to a price determined by multiplying (1) the Conversion Price by (2)
a fraction, (x) the numerator of which is the sum of (I) the number of shares of
Common Stock Outstanding immediately prior to such issuance or sale, plus (II)
an amount equal to the quotient arrived at by dividing the aggregate
consideration, if any, received by the Corporation upon such issuance or sale,
by the Fair Market Value per share of the shares so issued or sold, and (y) the
denominator of which is the number of shares of Common Stock Outstanding
immediately after such issuance or sale.
(B) The provisions of Section 9(d)(ii)(A) shall
not apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Sections 9(d)(i) or 9(d)(vii). No adjustment of the
number of Conversion Shares or the Conversion Price shall be made under Section
9(d)(ii)(A) upon the issuance of any Additional Shares of Common Stock which are
issued pursuant to the exercise, conversion or exchange of any Convertible
Securities.
(iii) Issuance of Convertible Securities. If, at any
time prior to the Conversion Time, the Corporation shall issue or sell, any
Convertible Securities, and the price per share for which Common Stock is
initially issuable upon the exercise, conversion or exchange of such Convertible
Securities shall be less than the Fair Market Value in effect immediately prior
to the time of such issue or sale of Convertible Securities, then the Conversion
Price shall be adjusted as provided in Section 9(d)(ii)(A) on the basis that (A)
the maximum number of Additional Shares of Common Stock issuable pursuant to all
such Convertible Securities shall be deemed to have been issued and outstanding,
(B) the price per share for such Additional Shares of Common Stock shall be
deemed to be the lowest possible price per share in any range of prices per
share at which such Additional Shares of Common Stock are available to such
holders, and (C) the Corporation shall have received all of the consideration
payable therefor, if any, as of the date of the actual issuance of such
Convertible Securities. No further adjustments of the Conversion Price shall be
made upon the actual issue of Additional Shares of Common Stock upon exercise,
conversion or exchange of such Convertible Securities.
(iv) Superseding Adjustment. If, at any time after
any adjustment of the Conversion Price and/or the number of Conversion Shares
shall have been made pursuant to Section 9(d)(iii) as the result of any issuance
of Convertible Securities, and either
(A) the right of exercise, conversion
or exchange for such Convertible Securities shall expire and
all or a portion of such rights with respect
<PAGE>
12
to all or a portion of such other Convertible Securities, as
the case may be, shall not have been exercised, or
(B) the consideration per share for
which shares of Common Stock are issuable pursuant to such
Convertible Securities, shall be increased,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such Convertible
Securities on the basis of
(C) treating the number of Additional
Shares of Common Stock theretofore actually issued or issuable
pursuant to the previous exercise, conversion or exchange, as
having been issued on the date or dates of any such exercise,
conversion or exchange and for the consideration actually
received and receivable therefor, and
(D) treating any such Convertible
Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase
of the consideration per share for which shares of Common
Stock are issuable under such Convertible Securities.
(v) Liquidation; Dissolution. If, at any time prior
to the Conversion Notice Deadline, or, if a valid Conversion Notice has been
delivered to the Corporation prior thereto, at any time prior to the Conversion
Time, the Corporation shall dissolve, liquidate or wind up its affairs, the
Holder shall have the right, but not the obligation, to convert the Series A
Preferred Stock effective as of the date of such dissolution, liquidation or
winding up; provided that written notice of such intent to exercise is delivered
to the Corporation within ten (10) business days of the date that the Holder
receives written notice of the Corporation's intent to dissolve, liquidate or
wind up its affairs.
(vi) Other Provisions Applicable to Adjustments
Under This Section. The following provisions shall be applicable to the making
of adjustments of the number of Conversion Shares and/or the Conversion Price
provided for in this Section 9(d);
(A) Computation of Consideration. To
the extent that any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash consideration,
the consideration received by the Corporation therefor shall
be the amount of the cash received by the Corporation
therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by the Corporation for
subscription, the subscription price, or, if such Additional
Shares
<PAGE>
13
of Common Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such
case subtracting any amounts paid or receivable for accrued
interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the
Corporation for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that
such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the
Corporation. The consideration for any Additional Shares of
Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration, if any, received by the
Corporation for issuing such Convertible Securities, plus the
consideration paid or payable to the Corporation in respect of
the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable
to the Corporation upon the exercise, conversion or exchange
of such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon
any class of stock other than Common Stock, the Corporation
shall be deemed to have received for such Additional Shares of
Common Stock or Convertible Securities consideration equal to
the amount of such dividend so paid or satisfied.
(B) When Adjustments Are Made. The
adjustments required by this Section 9(d) shall be made
whenever and as often as any specified event requiring an
adjustment shall occur, except that any adjustment of the
number of Conversion Shares or of the Conversion Price that
would otherwise be required may be postponed (except in the
case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 9(d)(i)) up to, but not
beyond, the date of exercise if such adjustment either by
itself or with other adjustments not previously made adds or
subtracts less than one percent (1%) of the Conversion Shares
or of the Conversion Price immediately prior to the making of
such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this
Section 9(d) and not previously made, would result in a
minimum adjustment, but in no event later than the Conversion
Determination Date. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(C) Fractional Interests. In computing
adjustments under this Section 9(d), fractional interests in
Common Stock shall be taken into account to the nearest 1/10th
of a share.
<PAGE>
14
(D) When Adjustment Not Required. If
the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and
annulled. The adjustments pursuant to this Section 9(d) shall
not apply to: (I) any Convertible Securities which are issued
to officers, directors, employees, or consultants of the
Corporation pursuant to a bona fide plan or plans adopted in
good faith by the Board of Directors of the Corporation; (II)
any Additional Shares of Common Stock issued to such officers,
directors, employees, or consultants of the Corporation upon
the exchange, conversion or exercise of the Convertible
Securities described in the immediately preceding clause (I);
(III) Additional Shares of Common Stock, Convertible
Securities and other securities issued in connection with
investments in, acquisitions of, or mergers, combinations or
other strategic relationships with, other companies, provided,
however, that if such issuance is to an Affiliate of the
Corporation, the Board of Directors shall have determined in
good faith that such issuance was made on fair and reasonable
terms no less favorable to the Corporation than could be
obtained in a comparable arm's-length transaction with a
Person that is not an Affiliate of the Corporation; (IV)
Additional Shares of Common Stock issued in a bona fide public
offering pursuant to a firm commitment underwriting or sales
at the market pursuant to a continuous offering stock program;
(V) Additional Shares of Common Stock issued in any private
placement or other transaction exempt from the registration
requirements of the Securities Act pursuant to a firm
commitment underwriting; (VI) rights to purchase Additional
Shares of Common Stock or issuance of Additional Shares of
Common Stock pursuant to a dividend reinvestment plan or other
plan hereafter adopted for the reinvestment of dividends or
interest; (VII) a change in the par value or no par value of
the Common Stock (other than as a consequence of an event
described in Section 9(d)(i)(B), 9(d)(i)(C) or 9(d)(vii) for
which an adjustment to the number of Conversion Shares or the
Conversion Price is required pursuant to such Section; or
(VIII) non-stock dividends or distributions paid by the
Corporation, except to the extent otherwise provided in
Section 9(d)(ix). In addition, to the extent that the Series A
Preferred Stock becomes convertible into cash, no interest
shall accrue on such cash. In addition, no adjustment need be
made for a transaction if all Holders of Series A Preferred
Stock are entitled to participate in the transaction on a
basis and with notice that the Board of Directors determines
to be fair and appropriate in light of the basis and notice on
which holders of Common Stock participate in the transaction.
<PAGE>
15
(vii) Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Corporation shall, at any
time prior to the Conversion Time, reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Corporation is not the surviving corporation, a reverse triangular merger in
which the Corporation is the surviving entity but the shares of the
Corporation's Capital Stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
cash, securities or otherwise, or where there is a change in or distribution
with respect to the Common Stock of the Corporation), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
Common Stock of any successor or acquiring corporation or of the Corporation (as
applicable), or any cash, shares of stock or other securities or property of any
nature whatsoever (including, warrants or other subscription or purchase rights)
in addition to or in lieu of Common Stock of the successor or acquiring
corporation or of the Corporation (as applicable) ("Other Property"), are to be
received by or distributed to the holders of Common Stock of the Corporation,
then the Holder shall have the right thereafter to receive, upon conversion of a
share of Series A Preferred Stock, the number of shares of Common Stock of the
successor or acquiring corporation or of the Corporation, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Conversion Stock that would be received
upon conversion of a share of Series A Preferred Stock immediately prior to such
event; provided, however, that this Section 9(d)(vii) shall not apply to the
extent any action causes an adjustment to be made pursuant to Sections 9(d)(i),
(ii), (iii) or (v) hereof. For purposes of this Section 9(d)(vii) "Common Stock
of any successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 9(d)(vii)
shall similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or dispositions of assets at any time prior to the Conversion
Time, and to the stock or securities of any other corporation that are at the
time receivable by the Holders upon conversion of shares of Series A Preferred
Stock.
(viii) Reclassifications. If, at any time prior to
the Conversion Time, the Corporation changes any of the securities into which
shares of Series A Preferred Stock are convertible into the same or a different
number of securities of any other class or classes, each share of Series A
Preferred Stock shall thereafter be convertible into such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities into which a share of Series A Preferred Stock was convertible
immediately prior to such reclassification or other change and the Conversion
Price therefore shall be appropriately adjusted.
<PAGE>
16
(ix) Extraordinary Dividends. If, at any time prior
to the Conversion Time, the Corporation declares and pays an extraordinary
dividend (i.e., a dividend that is inconsistent with the Corporation's dividend
policy adopted by the Board of Directors other than a customary initial
dividend), and the failure thereupon to make any adjustment pursuant to this
Section 9(d) would not fairly protect the conversion rights of the Holders of
Series A Preferred Stock in accordance with the essential intent and principles
hereof, then, in such case, the Corporation shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular independent auditors of the Corporation) or independent investment
banking firm of recognized national standing, which shall give their opinion
upon the adjustment, if any, on a basis consistent with the essential intent and
principles established in this Section 9, necessary to preserve, without
dilution, the conversion rights of the Holders of Series A Preferred Stock. Upon
receipt of such opinion, the Corporation will promptly mail a copy thereof to
each Holder of shares of Series A Preferred Stock and shall make the adjustment,
if any, described therein.
(x) Other Notices. In case at any time prior to the
Conversion Time:
(A) there shall be any capital
reorganization, or reclassification of the capital stock of
the Corporation, or consolidation or merger of the Corporation
with another corporation (other than a subsidiary of the
Corporation in which the Corporation is the surviving or
continuing corporation and no change occurs in the
Corporation's Common Stock), or sale of all or substantially
all of its assets to, another corporation;
(B) there shall be a voluntary or
involuntary dissolution, liquidation, bankruptcy, assignment
for the benefit of creditors, or winding up of the
Corporation;
(C) the Corporation shall declare any
non-cash dividend on its Common Stock; or
(D) there shall be a Change of Control;
then, in any one or more of said cases, the Corporation shall give written
notice to the Holders of the date (or, if not then known, a reasonable
approximation thereof by the Corporation) on which such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
bankruptcy, assignment for the benefit of creditors, winding up or other action
or dividend, as the case may be, shall take place. Such notice shall also
specify (or, if not then known, reasonably approximate) the date as of which the
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
bankruptcy,
<PAGE>
17
assignment for the benefit of creditors, winding up, or other action, or the
date of such dividend, as the case may be. Such notice shall be given to each
Holder: at least twenty days prior to the record date for such action in the
case of any action described in Subsection (A) or Subsection (B) above; in the
case of any action described in Subsection (C) above, at least twenty days prior
to the day on which the action described is to take place and at least twenty
days prior to the record date for determining holders of Common Stock entitled
to receive securities and/or other property in connection with such action; and
in the case of a Change of Control, within 30 days of the occurrence of Change
of Control.
As soon as practicable following any adjustment of the
Conversion Price and/or the number of Conversion Shares, a certificate, signed
by (i) the Corporation's President or Chief Financial Officer, or (ii) any
independent firm of certified public accountants, or investment banking firm, in
either case of recognized national standing, which the Corporation selects at
its own expense, setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated, shall be
mailed to the Holders and shall specify the Conversion Price and/or the number
of Conversion Shares after giving effect to the adjustment.
(e) NO IMPAIRMENT. The Corporation shall not, by amendment of
its charter or bylaws or through any reorganization, recapitalization, transfer
of assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but shall
at all times in good faith assist in the carrying out of all the provisions of
this Section 9.
Section 10. SEVERABILITY OF PROVISIONS. Whenever possible,
each provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
Section 11. TRANSFERS. (a) Shares of the Series A Preferred
Stock and the certificates representing such shares and all rights thereunder
are non-transferable, and may not be sold, transferred, pledged, hypothecated,
or assigned without the prior written consent of the Corporation (which may be
withheld in the Corporation's sole discretion), except for a transfer of all or
part of the shares of Series A Preferred Stock held by a Holder (i) to a
majority owned Affiliate of a Holder or (ii) in connection with the distribution
of all of the assets of a Holder pursuant to a liquidation, dissolution or
winding up of the affairs of a Holder, or the sale of all or
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18
substantially all of a Holder's assets or a merger or consolidation of a Holder
where the Holder is not the surviving entity; provided, however, in no event
(other than, in the case AOL is the Holder, in connection with the sale of all
or substantially all of AOL's assets or a merger or consolidation of AOL where
AOL is not the surviving entity) may a Holder make a transfer to a competitor of
the Corporation. Any such prohibited transfer made without the Corporation's
consent shall be void ab initio.
(b) At any time after the Holders have made a valid demand for
redemption of the Series A Preferred Stock pursuant to Section 5 and prior to
the Holder Redemption Date, the Corporation may, to the fullest extent permitted
by applicable law, require that, in lieu of such redemption, (i) the Holders
sell, free and clear of any Encumbrances, all or any portion of the Series A
Preferred Stock at the Liquidation Amount therefor to a third party identified
by the Corporation in a notice given to each Holder of record of the Series A
Preferred Stock no later than three Business Days prior to the Holder Redemption
Date or (ii) the Holders sell, free and clear of any Encumbrances, all or any
portion of the Series A Preferred Stock at an amount less than the Liquidation
Amount therefor to a third party so identified by the Corporation (the "Third
Party") no later than three Business Days prior to the Holder Redemption Date,
provided that the Corporation shall pay to the Holders the difference between
the amount paid by the Third Party and the Liquidation Amount therefor. The sale
to the Third Party shall be made at a closing held at the offices of the
Corporation at a time prior to the Holder Redemption Date, as mutually agreed by
the Holders and the Corporation. At the closing, the Holder shall deliver stock
certificates evidencing the shares of Series A Preferred Stock to be purchased,
duly endorsed in blank, or accompanied by stock powers duly executed in blank,
in form satisfactory to the Corporation and the Third Party and with all
required stock transfer tax stamps affixed thereto and the Third Party (or the
Third Party and the Corporation) shall pay an amount equal to the Liquidation
Amount therefor by wire transfer of immediately available funds. Other than the
foregoing, without the prior written consent of the Holders, the Holders shall
have no obligations in connection with such sale other than delivery of such
Series A Preferred Stock, free and clear of any Encumbrances. The Corporation
shall pay all reasonable third party expenses (other than income and similar
taxes) incurred by the Holders in connection with a sale hereunder.
Section 12. NOTICES. (a) 45 days prior to the Conversion
Determination Date, the Corporation shall give to the Holders a notice setting
forth the Conversion Determination Date and soliciting from the Holders receipt
of a notice of redemption pursuant to Section 5(a)(i) or a Conversion Notice.
(b) All notices, demands or other communications hereunder
shall be in writing and shall be given or made (and shall be deemed to have been
duly given or made upon receipt) by delivery in person, by courier service, by
registered or certified mail (post prepaid, return receipt requested) (i) to the
Corporation, at the Corporation's principal executive offices and (ii) to a
Holder, at such Holder's address as it shall appear upon the stock transfer
books of the Corporation.
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19
IN WITNESS WHEREOF, the undersigned has executed and
subscribed this certificate this 17th day of September, 1999.
CAREINSITE, INC.
/s/ David C. Amburgey
----------------------------------------
Name: David C. Amburgey
Title: Senior Vice President
General Counsel
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EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Warrant Agreement"), dated as of September 14,
1999, between AMERICA ONLINE, INC., a Delaware corporation ("AOL"), and
CAREINSITE, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the parties hereto are also parties to a Subscription Agreement,
dated as of the date hereof (the "Subscription Agreement"), pursuant to which
AOL has agreed to purchase 100 shares of the Company's Series A Convertible
Redeemable Preferred Stock (the "Series A Preferred Stock") and has been granted
an option to purchase an additional 100 shares of the Series A Preferred Stock
on the first anniversary of the date of the Subscription Agreement and (b) an
Interactive Marketing Agreement, dated as of the date hereof (the "Interactive
Marketing Agreement"); and
WHEREAS, each share of Series A Preferred Stock is convertible at the
option of the holder thereof into (a) a number of the Conversion Shares (as
defined in and determined in accordance with the form of Certificate of
Designation for the Series A Preferred Stock attached as Annex A to the
Subscription Agreement (the "Certificate of Designation")) and (b) a warrant to
purchase the same number of shares of Common Stock (as defined below) as the
number of Conversion Shares into which the share of Series A Preferred Stock is
converted and otherwise having the terms and conditions specified in this
Warrant Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, and intending to be legally bound hereby,
AOL and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Warrant Agreement, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued or issuable (whether upon the exercise of warrants, Convertible
Securities or otherwise) by the Company after the Effective Date, other than (a)
Warrant Stock and (b) shares of Common Stock
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issued or issuable pursuant to evidences of indebtedness, shares of stock,
warrants, rights or other securities entered into or issued before conversion of
the Series A Preferred Stock.
"Adverse Market Effect" shall have the meaning set forth in Section
6.3(a).
"Affiliate" shall mean with respect to any person or entity, any other
person or entity directly or indirectly controlling, controlled by or under
direct or indirect common control with such person or entity. For purposes of
this definition, the term Acontrol" (including correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
"AOL" shall have the meaning set forth in the Preamble hereof.
"Applicable Warrant Price" shall mean the Conversion Price (as defined in
the Certificate of Designation) of the Series A Preferred Stock at the time at
which it is converted pursuant to its terms.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Certificate of Designation" shall have the meaning set forth in the
Recitals hereof.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $.01 per share, of the Company, and any capital
stock into which such Common Stock may thereafter be changed, and shall also
include (a) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (b) shares of Common Stock of any successor or acquiring
corporation (as defined in Section 4.7) received by or distributed to the
holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7; provided, however, that this shall not include any shares of Common
Stock acquired by the exercise of the Warrants.
"Company" shall have the meaning set forth in the Preamble hereof.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock, warrants, rights or other securities entered into or issued after
conversion of the Series A Preferred Stock which are exercisable, convertible or
exchangeable (including, but not limited to, Options), with
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or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or the happening of a specified event or both.
"Current Market Price" shall mean, in respect of any share of Common Stock
on any date herein specified, the lower of (a) the average of the daily market
prices for 15 consecutive Business Days commencing twenty-five (25) days before
such date and (b) the daily market price on the most recent Business Day prior
to such date. The daily market price for each such Business Day shall be the
last reported sale price on such day on the principal stock exchange on which
such Common Stock is then listed or admitted to trading or, if the Common Stock
is not so listed or admitted, the last reported sale price on such day on the
National Association of Securities Dealers, Inc. Automated Quotation National
Market System ("NASDAQ") or any other over-the-counter market or trading
facility on which such Common Stock is then listed; provided, however, that if
no sale takes place on such day on any such exchange, market or trading
facility, the average of the last reported closing bid and ask prices on such
day as officially quoted on such exchange, market or trading facility shall be
the daily market price for such Business Day; provided further that if the
Common Stock is not listed or admitted to trade on a stock exchange and is not
quoted on NASDAQ, or any other over-the-counter market or trading facility, the
Current Market Price shall be the Fair Market Value.
"Cut-Back Event" shall have the meaning set forth in Section 6.3(a).
"Demand Registration" shall have the meaning set forth in Section 6.2.
"Effective Date" shall mean the date of the initial issuance of shares of
Series A Preferred Stock.
"Exercise Period" shall mean the period from and including the date that
all of the Company's outstanding Series A Preferred Stock has been converted,
pursuant to its terms, into Common Stock until the Expiration Date.
"Expiration Date" shall mean the eighth anniversary of the Effective Date.
"Fair Market Value" shall mean, in respect of a share of Common Stock on
any date herein specified, the fair value as determined in good faith by the
Board of Directors of the Company.
"Holder" shall mean the Person in whose name a Warrant is registered on
the books of the Company maintained for such purpose.
"Incidental Registration" shall have the meaning set forth in Section
6.3(a).
"Liquidation Excess" shall have the meaning set forth in Section 4.5.
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"Interactive Marketing Agreement" shall have the meaning set forth in the
Recitals hereof.
"Majority Holders" shall mean the Holders entitled to receive in excess of
fifty percent (50%) of the aggregate number of shares of Common Stock then
purchasable upon exercise of the Warrants, whether or not then exercisable.
"NASDAQ" shall have the meaning set forth in the paragraph hereof
defining "Current Market Price."
"Option" means any right, warrant or option to subscribe for or purchase
shares of Common Stock.
"Other Property" shall have the meaning set forth in Section 4.7.
"Outstanding" shall mean, when used with reference to the Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or its subsidiaries, and all shares issuable in respect
of outstanding scrip or any certificates evidencing fractional interests in
shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof) and other
organizations, whether or not legal entities.
"Register" shall have the meaning set forth in Section 2.1.
"Registrable Shares" shall mean shares of Common Stock issued or issuable
upon the exercise of the Warrants, until the earliest to occur of (i) the sale
of all such shares by the Holder (pursuant to a registration statement or
otherwise) or (ii) such shares being tradable pursuant to Rule 144(k) under the
Securities Act (or any similar provision then in effect).
"Registration Period" shall have the meaning set forth in Section 6.2.
"Selling Shareholders" shall mean Persons holding Common Stock of the
Company and entitled to register such Common Stock under the Securities Act
pursuant to registration rights agreements with the Company, other than holders
of Registrable Shares.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
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"Series A Preferred Stock" shall have the meaning set forth in the
Recitals hereof.
"Subscription Agreement" shall have the meaning set forth in the Recitals
hereof.
"Warrants" shall mean the Warrants issued pursuant to this Agreement and
all Warrants issued upon the partial exercise, transfer, division or combination
of, or in substitution for, any thereof. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of shares
of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (a) the number of shares of
Common Stock being purchased upon exercise of a Warrant pursuant to Section 2.2
multiplied by (b) the Applicable Warrant Price.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
Holder upon the exercise of Warrants; provided that if under the terms hereof
there shall be a change such that the securities purchasable hereunder shall be
issued by an entity (other than the Company) or there shall be a change in the
type or class of securities purchasable hereunder, then the term shall mean the
securities issued or issuable upon the exercise of the rights granted hereunder.
ARTICLE II
REGISTRATION; EXERCISE OF THE WARRANTS;
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Registration; Warrant Certificate. (a) Upon conversion of the Series A
Preferred Stock, the Company shall register the Warrants, upon records to be
maintained by the Company for that purpose (the "Register"), in the name of the
Holder of such Warrants. The Register shall include the Holder's name, address
(as provided to the Company by the Holder), the number of Warrants registered in
such Holder's name, and any other information pertaining to the Warrants or the
Holder that the Board of Directors of the Company reasonably deems appropriate.
The Company may deem and treat the registered Holder of the Warrants as the
absolute owner thereof for the purpose of any exercise thereof or any
distribution to the Holder thereof, and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
(b) Upon conversion of the Series A Preferred Stock, the Company
shall deliver to the Holder of the Warrants a certificate evidencing such
Warrants substantially in a form to be mutually agreed upon and attached to this
Warrant Agreement as soon as practicable following the date hereof.
2.2 Manner of Exercise. (a) Each Warrant may be exercised for all or any
part of the number of shares of Common Stock purchasable thereunder at any time
during the Exercise Period.
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(b) In order to exercise a Warrant, in whole or in part, the Holder
shall deliver to the Company at the office designated by the Company pursuant to
Section 11.8, (i) a written notice of the Holder's election to exercise such
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Warrant Price in the manner provided below, and
(iii) the certificate evidencing such Warrant. Such notice shall be
substantially in the form of the subscription form appearing attached as Exhibit
A to the form of Warrant certificate attached hereto, duly executed by the
Holder or its agent or attorney duly authorized in writing. Upon receipt
thereof, the Company shall, as promptly as practicable, execute or cause to be
executed and deliver or cause to be delivered to the Holder a certificate or
certificates evidencing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as the Holder shall request in the notice and shall be registered
in the name of the Holder. A Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued and the
Holder shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the cash or check or checks,
if any, and the certificate evidencing such Warrant, are received by the Company
as described above and all taxes required to be paid by the Holder, if any,
prior to the issuance of such shares, have been paid. If a Warrant shall have
been exercised in part, the Company shall, at the time of delivery of the
certificate or certificates evidencing Warrant Stock, deliver to the Holder a
new Warrant certificate evidencing the rights of the Holder to purchase the
unpurchased shares of Common Stock called for by such Warrant or, at the sole
discretion of the Company, appropriate notation may be made on the certificate
evidencing such Warrant and the same returned to the Holder. The issuance of
Warrant Stock shall be made without charge to the Holder for any issuance tax
with respect thereto or any other cost incurred by the Company in connection
with the exercise of Warrants and the related issuance of Warrant Stock;
provided the Holder provides the Company or its agent with any report, document
or certificate required by applicable law in order to avoid the imposition of
such taxes or other costs. Notwithstanding any provision herein to the contrary,
the Company shall not be required to register shares in the name of any Person
who acquired a Warrant (or part thereof) or any Warrant Stock otherwise than in
accordance with this Warrant Agreement. Payment of the Warrant Price with
respect to an exercise of Warrants shall be made in same-day funds by certified
or official bank check, or wire transfer.
2.3 Payment of Taxes. The Company shall pay all stock transfer taxes and
similar governmental charges that may be imposed with respect to the issuance of
Warrant Stock upon the exercise of Warrants; provided, however, that the Company
shall not be required to pay any tax or other charge imposed in connection with
any transfer of any Warrant or the issuance or delivery of certificates for
shares of Warrant Stock or other securities in respect of the shares of Warrant
Stock upon the exercise of Warrants, to a person or entity other than a then
existing Holder of Warrants; provided further that the Company shall not be
required to pay any income or other similar tax levied on any Holder of
Warrants.
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2.4 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of a Warrant. As to any fraction
of a share which the Holder of a Warrant, the rights under which are exercised
in the same transaction, would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Current Market Price on
the date of notice of exercise. Payment of such amount shall be made in cash or
by check payable to the order of the Holder at the time of delivery of any
certificate or certificates arising upon such exercise.
2.5 Restrictive Legend. Each certificate for Warrant Stock issued upon the
exercise of a Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER
(1) SUCH SHARES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF SUCH SHARES (WHICH COUNSEL IS
REASONABLY SATISFACTORY TO THE COMPANY) PROVIDES AN OPINION TO SUCH EFFECT
TO THE COMPANY."
The Company shall, upon the request of any holder of a stock certificate bearing
the foregoing legend and the surrender of such certificate, issue a new stock
certificate without such legend if such holder shall have delivered to the
Company a legal opinion reasonably satisfactory to the Company to the effect
that the restrictions set forth herein are no longer required or necessary under
the Securities Act or any applicable state law.
2.6 Representations and Warranties. The Company represents and warrants to
AOL as follows:
(a) Due Authority. The execution and delivery of this Warrant
Agreement by the Company, the performance by the Company of its obligations
hereunder, and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all requisite action on the part of the
Company. This Warrant Agreement has been duly executed and delivered by the
Company, and (assuming due authorization, execution and delivery by the other
parties hereto) this Warrant Agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
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(b) No Conflict. Except for any applicable filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
expiration or termination of any waiting period thereunder (and any extension
thereof), the execution, delivery and performance of this Warrant Agreement by
the Company do not and will not (a) violate, conflict with or result in the
breach of any provision of its Certificate of Incorporation or By-laws, (b)
conflict with or violate any law, governmental regulation or governmental order
applicable to it or any of its assets, properties or businesses or (c) conflict
with, result in any breach of, constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under,
require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result in
the creation of any encumbrance on any of the Company's assets or properties
pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to which
the Company is a party or by which any of its assets or properties is bound or
affected; except to the extent that any conflict under (b) or (c) above would
not have a material adverse effect on the financial condition, business or
operations of the Company and its subsidiaries taken as a whole or prevent or
materially delay the consummation of the transactions contemplated by this
Warrant Agreement.
ARTICLE III
TRANSFERS
The Warrants and all rights (including, without limitation, all rights
under Article VI) thereunder and hereunder are non-transferable, and may not be
sold, transferred, pledged, hypothecated, or assigned without the prior written
consent of the Company (which may be withheld in the Company's sole discretion),
except for a transfer of all or part of the Warrants held by a Holder (i) to a
majority owned Affiliate of the Holder or (ii) in connection with the
distribution of all of the assets of the Holder pursuant to a liquidation,
dissolution or winding up of the affairs of the Holder, or the sale of all or
substantially all of the Holder's assets or a merger or consolidation of the
Holder where the Holder is not the surviving entity; provided, however, in no
event (other than, in the case the Holder is AOL, in connection with a sale of
all or substantially all of AOL's assets or a merger or consolidation of AOL
where AOL is not the surviving entity) may a Holder make any transfer to a
competitor of the Company. Any such prohibited transfer made without the
Company's consent shall be void ab initio. Any permitted transferee shall agree
to be bound by all provisions of this Warrant Agreement.
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ARTICLE IV
ADJUSTMENTS
The number of shares of Common Stock for which a Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of a Warrant,
shall be subject to adjustment from time to time as set forth in this Article IV
for events occurring after conversion of the Series A Preferred Stock. The
Company shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Article IV as soon as practicable following the
occurrence of such event, which notice shall state the exercise price resulting
from such adjustment and/or the increase or decrease, if any, in the number of
shares of Common Stock or other stock or property issuable upon the exercise of
a Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4.1 Stock Dividends, Subdivisions and Combinations. If, at any time after
the conversion of the Series A Preferred Stock, the Company shall:
(a) pay a dividend or make a distribution on its Common Stock in
Additional Shares of Common Stock (this adjustment will be deemed to occur
immediately after the record date);
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock;
then (i) the number of shares of Common Stock for which each Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which a Warrant is exercisable immediately
prior to the occurrence of such event would own or be entitled to receive after
the happening of such event, and (ii) the Applicable Warrant Price shall be
adjusted to equal (A) the Applicable Warrant Price multiplied by the number of
shares of Common Stock for which a Warrant is exercisable immediately prior to
the adjustment divided by (B) the number of shares of Common Stock for which a
Warrant is exercisable immediately after such adjustment.
4.2 Issuance of Additional Shares of Common Stock. (a) If, at any time
after the conversion of the Series A Preferred Stock, the Company shall (except
as hereinafter provided in Section 4.2(b)) issue or sell any Additional Shares
of Common Stock and such Additional Shares of Common Stock are issued or sold
for no consideration or for consideration in an amount per additional share of
Common Stock less than the Fair Market Value, then the Applicable Warrant Price
shall be reduced to a price determined by multiplying (i) the Applicable Warrant
Price by (ii) a fraction, (A) the numerator of which is the sum of (1) the
number of shares of Common
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Stock Outstanding immediately prior to such issuance or sale, plus (2) an amount
equal to the quotient arrived at by dividing the aggregate consideration, if
any, received by the Company upon such issuance or sale, by the Fair Market
Value per share of the shares so issued or sold, and (B) the denominator of
which is the number of shares of Common Stock Outstanding immediately after such
issuance or sale.
(b) The provisions of Section 4.2(a) shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided under
Section 4.1 or 4.7. No adjustment of the number of shares of Common Stock for
which a Warrant shall be exercisable or the Applicable Warrant Price shall be
made under Section 4.2(a) upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Convertible Securities.
4.3 Issuance of Convertible Securities. If, at any time after the
conversion of the Series A Preferred Stock, the Company shall issue or sell any
Convertible Securities, and the price per share for which Common Stock is
initially issuable upon the exercise, conversion or exchange of such Convertible
Securities shall be less than the Fair Market Value in effect immediately prior
to the time of such issue or sale of Convertible Securities, then the Applicable
Warrant Price shall be adjusted as provided in Section 4.2(a) on the basis that
(a) the maximum number of Additional Shares of Common Stock issuable pursuant to
all such Convertible Securities shall be deemed to have been issued and
outstanding, (b) the price per share for such Additional Shares of Common Stock
shall be deemed to be the lowest possible price per share in any range of prices
per share at which such Additional Shares of Common Stock are available to such
holders, and (c) the Company shall have received all of the consideration
payable therefor, if any, as of the date of the actual issuance of such
Convertible Securities. No further adjustments of the Applicable Warrant Price
shall be made upon the actual issue of Additional Shares of Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
4.4 Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which a Warrant is exercisable and/or the
Applicable Warrant Price shall have been made pursuant to Section 4.3 as the
result of any issuance of Convertible Securities, and either
(a) the right of exercise, conversion or exchange for such
Convertible Securities shall expire and all or a portion of such rights with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such Convertible Securities shall be increased,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have
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been issued by virtue of such computation. Thereupon, a recomputation shall be
made of the effect of such Convertible Securities on the then outstanding
Warrants, but not on any then outstanding Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common Stock
theretofore actually issued or issuable pursuant to the previous exercise,
conversion or exchange, as having been issued on the date or dates of any such
exercise, conversion or exchange and for the consideration actually received and
receivable therefor, and
(d) treating any such Convertible Securities which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock are
issuable under such Convertible Securities.
4.5 Liquidation; Dissolution. If, after the conversion of the Series A
Preferred Stock, the Company shall dissolve, liquidate or wind up its affairs,
the Holder shall have the right, but not the obligation, to exercise the
Warrants effective as of the date of such dissolution, liquidation or winding
up; provided that written notice of such intent to exercise is delivered to the
Company within ten (10) business days of the date that the Holder receives
written notice of the Company's intent to dissolve, liquidate or wind up its
affairs; provided, further, that if the amount that would be received by the
Holder upon exercise of the Warrants, effective as of such dissolution,
liquidation or winding up, is greater than the Warrant Price (such difference
being hereinafter referred to as the "Liquidation Excess"), the Holder shall,
upon such exercise, be entitled to receive such Liquidation Excess upon such
dissolution, liquidation or winding up and, in such case, shall not be obligated
to tender to the Company such Warrant Price.
4.6 Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which each Warrant is exercisable provided
for in this Article IV;
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Company therefor shall be the
amount of the cash received by the Company therefor, or, if such Additional
Shares of Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares of Common
Stock or Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued
dividends, but not subtracting any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that such issuance shall
be for a consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to be the
fair value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. The consideration for any
Additional Shares of Common Stock issuable
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pursuant to the terms of any Convertible Securities shall be the consideration,
if any, received by the Company for issuing such Convertible Securities, plus
the consideration paid or payable to the Company in respect of the subscription
for or purchase of such Convertible Securities, plus the additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of such Convertible Securities. In case of the issuance at any time of
any Additional Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common Stock,
the Company shall be deemed to have received for such Additional Shares of
Common Stock or Convertible Securities consideration equal to the amount of such
dividend so paid or satisfied.
(b) When Adjustments Are Made. The adjustments required by this
Article IV shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which each Warrant is exercisable or of the Applicable Warrant
Price that would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in
Section 4.1) up to, but not beyond, the date of exercise if such adjustment
either by itself or with other adjustments not previously made adds or subtracts
less than one percent (1%) of the shares of Common Stock for which each Warrant
is exercisable or of the Applicable Warrant Price immediately prior to the
making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Article IV and not previously made, would result in a minimum
adjustment, but in no event later than the date of exercise of a Warrant. For
the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Article IV, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled. The adjustments pursuant to this Article IV shall not
apply to: (i) any Convertible Securities which are issued to officers,
directors, employees, or consultants of the Company pursuant to a bona fide plan
or plans adopted in good faith by the Board of Directors of the Company; (ii)
any Additional Shares of Common Stock issued to such officers, directors,
employees, or consultants of the Company upon the exchange, conversion or
exercise of the Convertible Securities described in the immediately preceding
clause (i); (iii) Additional Shares of Common Stock, Convertible Securities and
other securities issued in connection with investments in, acquisitions of, or
mergers, combinations or other strategic relationships with,
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other companies, provided, however, if such issuance is to an Affiliate of the
Company, the Board of Directors of the Company shall have determined in good
faith that such issuance was made on fair and reasonable terms no less favorable
to the Company than could be obtained in a comparable arm's length transaction
with a Person that is not an Affiliate of the Company; (iv) Additional Shares of
Common Stock issued in a bona fide public offering pursuant to a firm commitment
underwriting or sales at the market pursuant to a continuous offering stock
program; (v) Additional Shares of Common Stock issued in any private placement
or other transaction exempt from the registration requirements of the Securities
Act pursuant to a firm commitment underwriting; (vi) rights to purchase
Additional Shares of Common Stock or issuance of Additional Shares of Common
Stock pursuant to a dividend reinvestment plan or other plan hereafter adopted
for the reinvestment of dividends or interest; (vii) a change in the par value
or no par value of the Common Stock (other than as a consequence of an event
described in Section 4.1(b), 4.1(c) or 4.7) for which an adjustment to the
number of Shares of Common Stock for which each Warrant is exercisable is
required pursuant to such Section 4.1(b), 4.1(c) or 4.7; (viii) non-stock
dividends or distributions paid by the Company, except to the extent otherwise
provided in Section 4.9; or (ix) any event or circumstance that occurred at or
prior to the Conversion Time (as defined in the Certificate of Designation) of
the Series A Preferred Stock and any other event or circumstance for which an
adjustment in the Conversion Price (as defined in the Certificate of
Designation) or the number of Conversion Shares (as defined in the Certificate
of Designation) of the Series A Preferred Stock was made. In addition, to the
extent that the Warrants become exercisable for cash, no interest shall accrue
on such cash.
4.7 Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall, after the conversion of the Series A
Preferred Stock, reorganize its capital, reclassify its capital stock,
consolidate or merge with or into another corporation (where the Company is not
the surviving corporation, a reverse triangular merger in which the Company is
the surviving entity but the shares of the Company's Capital Stock outstanding
immediately prior to the merger are converted, by virtue of the merger, into
other property, whether in the form of cash, securities or otherwise, or where
there is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all its
property, assets or business to another Person and, pursuant to the terms of
such reorganization, reclassification, merger, consolidation or disposition of
assets, shares of Common Stock of any successor or acquiring corporation or of
the Company (as applicable), or any cash, shares of stock or other securities or
property of any nature whatsoever (including, warrants or other subscription or
purchase rights) in addition to or in lieu of Common Stock of the successor or
acquiring corporation or of the Company (as applicable) ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive, upon exercise of
such Warrant, the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which such Warrant is exercisable
immediately prior to such event; provided, however, that this Section 4.7 shall
not apply to the extent any action causes an
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adjustment to be made pursuant to Section 4.1, 4.2, 4.3 or 4.5 hereof. In case
of any such reorganization, reclassification, merger, consolidation or
disposition of assets after the conversion of the Series A Preferred Stock, the
successor or acquiring corporation (if other than the Company) shall expressly
assume the due and punctual observance and performance of each and every
covenant and condition of this Warrant Agreement and the Warrants to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined in good faith by resolution of the Board of Directors of the Company)
in order to provide for adjustments of shares of the Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Article IV. For purposes of this Section 4.7,
"Common Stock of any successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 4.7 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or dispositions of assets after the conversion of the Series A
Preferred Stock and to the stock or securities of any other corporation that are
at the time receivable by the Holders upon the exercise of Warrants.
4.8 Reclassifications. If, after the conversion of the Series A Preferred
Stock, the Company changes any of the securities as to which purchase rights
under the Warrants exist into the same or a different number of securities of
any other class or classes, each Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under such Warrant immediately prior to such reclassification or
other change and the Applicable Warrant Price therefore shall be appropriately
adjusted.
4.9 Extraordinary Dividends. If, after the conversion of the Series A
Preferred Stock, the Company declares and pays an extraordinary dividend (i.e.,
a dividend that is inconsistent with the Company's dividend policy adopted by
the Board of Directors of the Company other than a customary initial dividend),
and the failure thereupon to make any adjustment pursuant to this Article IV
would not fairly protect the purchase rights represented by the Warrants in
accordance with the essential intent and principles hereof, then, in such case,
the Company shall appoint a firm of independent certified public accountants of
recognized national standing (which may be the regular independent auditors of
the Company) or independent investment banking firm of recognized national
standing, which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
the Warrants. Upon receipt of such opinion, the Company will promptly mail a
copy thereof to the Holders of the Warrants and shall make the adjustment, if
any, described therein.
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4.10 Other Notices. In case at any time after the conversion of the
Series A Preferred Stock:
(a) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation (other than a subsidiary of the Company in which the
Company is the surviving or continuing corporation and no change occurs in the
Company's Common Stock), or sale of all or substantially all of its assets to
another corporation;
(b) there shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Company; or
(c) the Company shall declare any non-cash dividend on its Common
Stock;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the Holders at the respective addresses of such Holders as shown on
the Register, of the date (or, if not then known, a reasonable approximation
thereof by the Company) on which such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment
for the benefit of creditors, winding up or other action or dividend, as the
case may be, shall take place. Such notice shall also specify (or, if not then
known, reasonably approximate) the date as of which the holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment
for the benefit of creditors, winding up, or other action, or the date of such
dividend, as the case may be. Such notice shall be mailed to the Holders at
least twenty days prior to the record date for such action in the case of any
action described in Subsection (a) or Subsection (c) above, and in the case of
any action described in Subsection (b) above, at least twenty days prior to the
day on which the action described is to take place and at least twenty days
prior to the record date for determining holders of Common Stock entitled to
receive securities and/or other property in connection with such action.
As soon as practicable following any adjustment of the Applicable
Warrant Price and/or the number of shares of Common Stock purchasable upon
exercise of each Warrant, a certificate, signed by (i) the Company's President
or Chief Financial Officer, or (ii) any independent firm of certified public
accountants, or investment banking firm, in either case of recognized national
standing, which the Company selects at its own expense, setting forth in
reasonable detail the events requiring the adjustment and the method by which
such adjustment was calculated, shall be mailed to the Holders and shall specify
the adjusted Applicable Warrant Price and/or the number of shares of Common
Stock purchasable upon exercise of each Warrant after giving effect to the
adjustment.
4.11 No Impairment. The Company shall not, by amendment of its charter or
bylaws or through any reorganization, recapitalization, transfer of assets,
consolidation, merger,
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dissolution, issuance or sale of securities or any other voluntary action, seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in the carrying out of all the provisions of this Article IV.
ARTICLE V
COVENANTS
The Company covenants that the Company shall at all times reserve and keep
available for issue upon the exercise of the Warrants such number of its
authorized and unissued shares of Common Stock as will be sufficient to permit
such exercise in full. All shares of Common Stock which shall be so issuable,
when issued upon exercise of the Warrants and payment therefor in accordance
with the terms of the Warrants, shall be duly and validly issued and fully paid
and nonassessable, and not subject to preemptive rights.
ARTICLE VI
DEMAND AND INCIDENTAL REGISTRATION OF REGISTRABLE
SHARES
6.1 Registration. Neither the Warrants nor the Registrable Shares have
been registered under the Securities Act or applicable state securities laws.
National represents that it is acquiring any Warrants to be issued to it for its
own account and not with a view to the distribution thereof, and agrees not to
sell, transfer, pledge or hypothecate any Warrants or any Registrable Shares
unless a registration statement is effective for such Warrants or Registrable
Shares under the Securities Act or in the opinion of AOL's counsel, which
counsel must be acceptable to the Company (a copy of which opinion shall be
delivered to the Company), such transaction is exempt from the registration
requirements of the Securities Act and applicable state securities laws).
6.2 Demand Registration. At any time after commencement of the Exercise
Period, holders of not less than fifty percent (50%) of the then total number of
Registrable Shares, as to which Warrants have been exercised or are then
exercisable, may make a written request for registration under the Securities
Act of all or part of their Registrable Shares (a "Demand Registration") for the
public disposition of such Registrable Shares. The Company shall, as soon as
reasonably practicable after receipt of such written request, notify all other
holders of Registrable Shares, as to which Warrants have been exercised or are
then exercisable, of the Company's receipt of such written request, and offer
such holders the opportunity to include their Registrable Shares, as to which
Warrants have been exercised or are then exercisable, in such Demand
Registration. The Company shall then use its reasonable best efforts to register
under the Securities Act the Registrable Shares proposed to be sold by such
holders and to keep such Demand Registration open for ninety (90) days (the
"Registration Period"); provided, however,
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that the Company shall not be obligated (i) to effect a Demand Registration
covering less than fifty percent (50%) of the then total number of Registrable
Shares, (ii) to effect more than two (2) Demand Registrations under this Section
6.2 or (iii) to effect the second Demand Registration within one (1) year after
the effective date of the Registration Statement effected in response to the
initial Demand Registration; provided that if the Registrable Shares proposed to
be sold by such holders were not sold pursuant to such a Demand Registration,
other than because such holders elected not to sell their Registrable Shares,
the holders of any number of Registrable Shares shall be entitled to make a
written request for an additional Demand Registration in accordance with the
procedures of this Section 6.2 until such Registrable Shares initially proposed
to be sold by such holders have been sold and notwithstanding the immediately
preceding proviso, the Company shall be obligated to effect such an additional
Demand Registration in accordance with the procedures of this Section 6.2 so
long as such request is not made within six (6) months of the withdrawal or
termination of the Demand Registration relating to the unsold Registrable
Shares; and provided further that each Demand Registration shall be subject to
the provisions of Section 6.4 hereof. A request for a Demand Registration will
specify the number of Registrable Shares proposed to be sold.
6.3 Incidental Registration. (a) If the Company proposes to register under
the Securities Act any Common Stock of any Selling Shareholder for sale to the
public pursuant to a firm commitment underwriting (other than on a registration
statement on Form S-4 or S-8 under the Securities Act), the Company will give
written notice at such time to all holders of Registrable Shares as to which
Warrants have been exercised or are then exercisable of its intention to do so.
Upon the written request of any such holder, given within thirty (30) days after
receipt of any such notice by the Company, to register any of its Registrable
Shares, the Company will use its reasonable best efforts to cause the
Registrable Shares as to which registration shall have been so requested, to be
included in the securities to be covered by such registration statement (the
"Incidental Registration"), all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of such
Registrable Shares so registered; provided, however, that nothing herein shall
prevent the Company from abandoning or delaying any such registration at any
time; and provided, further, that the Incidental Registration shall be subject
to the provisions of Sections 6.3(b) and Section 6.4 to the extent indicated
therein. Any request by a holder pursuant to this Section 6.3 to register
Registrable Shares shall specify the number of Registrable Shares to be included
in the underwriting and that such Registrable Shares are to be included in the
underwriting on the same terms and conditions as the shares of Common Stock
otherwise being sold through underwriters under such registration. If the
managing underwriter or underwriters shall advise the Company in writing that,
in the view of such underwriters, such holders of Registrable Shares shall have
requested the registration of a number of Registrable Shares that exceeds the
maximum number of Shares that can be sold without having a material adverse
effect on the marketing of the Common Stock to be sold under such registration
statement, including the price at which such Common Stock can be sold (an
"Adverse Market Effect"), the Company shall not be required to register Shares
in excess of such maximum number, subject to the provisions of Section 6.3(b) (a
"Cut-Back Event").
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(b) In the event of a Cut-Back Event arising in connection with an
Incidental Registration, then the Company shall include in such registration (i)
first, all of the Common Stock proposed to be sold by the Company and such
Selling Shareholder(s) initiating such registration, and (ii) second, the number
of shares of Common Stock of the Company validly requested by all other Selling
Shareholders and holders of Registrable Shares to be included in such
registration that, in the opinion of the underwriters, can be sold without
having an Adverse Market Effect, such amount to be allocated among all such
other Selling Shareholders and holders of Registrable Shares pro rata on the
basis of the respective number of shares of Common Stock each such other Selling
Shareholder and holder of Registrable Shares has requested to be included in
such registration.
6.4 Discretion. Notwithstanding any other provision hereof to the
contrary,
(a) the Company shall be entitled, in its reasonable discretion, to
elect, once with respect to each Demand Registration which it may be requested
to effect hereunder, to delay the filing or effectiveness of a registration
statement pursuant to Section 6.2 for up to one hundred and twenty (120) days
from the date of the request therefor under Section 6.2, so long as the Board of
Directors of the Company shall have determined in good faith prior to effecting
such delay that such delay would be in the best interests of the Company,
(b) the Company shall have the right to select the managing
underwriter or underwriters for any offer or sale of the Registrable Shares
pursuant to Sections 6.2 or 6.3; provided, however, that the holders of a
majority of the Registrable Shares participating in the Demand Registration
shall have the right to approve such underwriters, such approval not to be
unreasonably withheld or delayed,
(c) in connection with a Demand Registration, the holders of
Registrable Shares shall consult with the Company with respect to the method of
sale of such Registrable Shares; and in any event, such holders shall use their
best efforts to the effect that the sale of such Shares shall not have a
material adverse effect on the market price of the Common Stock,
(d) the Company shall pay all out-of-pocket expenses incident to the
Company's effectuation of a Demand Registration, including without limitation,
all registration and filing fees (including filing fees with respect to the
National Association of Securities Dealers, Inc.), all fees and expenses of
complying with state securities or "blue sky," laws, all printing expenses, all
listing fees, all registrars' and transfer agents' fees, the fees and
disbursements of counsel for the Company and of its independent certified public
accountants, including the expenses of any special audits and/or "comfort"
letters required by or incident to such performance and compliance; but
excluding the fees and disbursements of counsel to the sellers of the
Registrable Shares, underwriting discounts and commissions, and applicable
transfer taxes, if any, which shall be borne by the sellers of the Registrable
Shares being registered in all cases, and
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(e) such holders agree to cooperate fully to facilitate the Demand
Registration, and offer and sale of Registrable Shares covered thereby,
including completing selling shareholder questionnaires, entering into customary
underwriting and other agreements, and furnishing information for inclusion in
any prospectus.
6.5 Payment of Exercise Price. The Company acknowledges that the
Holder may desire to make cash payment of the Warrant Price with net proceeds
received from the sale of the Warrant Stock. Accordingly, the Company agrees
that the Holder shall be entitled to exercise the Warrant concurrent with the
sale of the Warrant Stock and have the net proceeds applied directly to payment
in full of the Warrant Price.
ARTICLE VII
REGISTRATION PROCEDURES
If the Company is required by the provisions hereof to use commercially
reasonable efforts to effect the registration of any Registrable Shares under
the Securities Act, the Company will:
(a) furnish to each seller of Registrable Shares and to any
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the intended disposition
of the Registrable Shares covered by such registration statement;
(b) use commercially reasonable efforts (i) to register or qualify
the Registrable Shares covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Shares or, in the case of an underwritten public offering, the
managing underwriter, reasonably shall request, (ii) to prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements, and take such other actions, as may be necessary to maintain such
registration and qualification in effect at all times for the period of
distribution contemplated thereby and (iii) to take such further action as may
be necessary or advisable to enable the disposition of the Registrable Shares in
such jurisdictions, provided that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(c) use commercially reasonable efforts to list the Registrable
Shares covered by such registration statement with any securities exchange on
which the Common Stock of the Company is then listed, or, if the Common Stock is
not then listed on a national securities exchange, use its best efforts to
facilitate the reporting of the Common Stock on NASDAQ;
(d) notify each seller of Registrable Shares and each underwriter
under such registration statement, at any time when a prospectus relating
thereto is required to be delivered
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under the Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes any untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and promptly amend or supplement such registration statement to correct
any such untrue statement or omission;
(e) notify each seller of Registrable Shares of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose and make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time;
(f) if the offering is an underwritten offering, enter into a
written agreement with the managing underwriter selected in the manner herein
provided in such form and containing such provisions as are usual and customary
in the securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature, including without
limitation, customary indemnification and contribution provisions;
(g) make available for inspection by each seller of Registrable
Shares at such seller's expense, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(h) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Shares not later than the effective date of the
registration statement; and
(i) take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any legend restricting the
sale or transfer of such securities) evidencing the Registrable Shares to be
sold pursuant to the registration statement and to enable such certificates to
be in such denominations and registered in such names as the investors or any
underwriters may reasonably request.
In connection with any registration hereunder, the sellers of Registrable
Shares will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
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ARTICLE VIII
INDEMNIFICATION AND CONTRIBUTION
8.1 Indemnification by Company. In the event of a registration of any of
the Registrable Shares under the Securities Act pursuant to the terms of this
Agreement, the Company will indemnify and hold harmless and pay and reimburse,
each seller of such Registrable Shares thereunder, each underwriter of such
Registrable Shares thereunder, each officer, director, employee and agent of
each seller and each underwriter and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, as and, when incurred,
to which such seller, underwriter, officer, director, employee, agent or
controlling person may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Shares were registered under the Securities Act pursuant
hereto or any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation or alleged violation of the Securities Act or any state securities
or blue sky laws and will reimburse each such seller, underwriter officer,
director, employee, agent and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided that the Company will
not be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon the Company's reliance on an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus. Notwithstanding the foregoing, the
indemnity provided in this Section 8.1 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or expense if such
settlement is effected without the consent of such indemnifying party (which
consent shall not be unreasonably withheld or delayed).
8.2 Indemnification of Company. In the event of a registration of any of
the Registrable Shares under the Securities Act pursuant to this Agreement each
seller of such Registrable Shares thereunder, severally and not jointly, will
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, as and when incurred, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon reliance on any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Shares were registered under the
Securities Act pursuant hereto or
21
<PAGE>
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, that such seller will be liable hereunder in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such seller, as such, furnished in
writing to the Company by such seller specifically for use in such registration
statement or prospectus, and provided, that the liability of each seller
hereunder shall be limited to the proceeds received by such seller from the sale
of Registrable Shares covered by such registration statement. Notwithstanding
the foregoing, the indemnity provided in this Section 8.2 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or expense
if such settlement is effected without the consent of such indemnifying party
(which consent shall not be unreasonably withheld or delayed).
8.3 Notice of Action. Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Article VIII and shall only relieve it from any liability which it may have to
such indemnified party under this Article VIII if and to the extent the
indemnifying party is materially prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Article VIII for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
based upon written advice of its counsel that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
22
<PAGE>
8.4 Contribution. In order to provide for just and equitable contribution
to joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Warrant Agreement or
any controlling person of any holder, makes a claim for indemnification pursuant
to this Article VIII but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Article VIII provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any holder
or any such controlling person in circumstances for which indemnification is
provided under this Article VIII; then, and in each such case, the Company and
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that holder is responsible for the portion represented by the percentage that
the public offering price of its Registrable Shares offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided that, in any such case, (a) no holder will be required to
contribute any amount in excess of the public offering price of all such
Registrable Shares offered by it pursuant to such registration statement and (b)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
ARTICLE IX
LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of a certificate evidencing a Warrant or Warrants and indemnity
reasonably satisfactory to the Company and in case of mutilation upon surrender
and cancellation thereof, the Company will execute and deliver in lieu thereof a
new certificate evidencing such Warrant or Warrants to the Holder; provided,
however, in the case of mutilation, no indemnity shall be required if the
certificate evidencing such Warrant or Warrants in identifiable form is
surrendered to the Company for cancellation.
ARTICLE X
NO STOCK RIGHTS
No Holder of a Warrant, as such, shall be entitled to vote or be deemed
the holder of Common Stock or any other securities of the Company which may at
any time be issuable on the exercise thereof, nor shall anything contained
herein be construed to confer upon the Holder of a Warrant, as such, the rights
of a stockholder of the Company or the right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, to exercise any
preemptive right, to receive notice of
23
<PAGE>
meetings or other actions affecting stockholders (except as provided herein), or
to receive dividends or subscription rights or otherwise (except as provided
herein), until the exercise of such Warrant shall have occurred.
ARTICLE XI
MISCELLANEOUS
11.1 Limitation of Liability. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
11.2 Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder or the Company
shall operate as a waiver of such right or otherwise prejudice the rights,
powers or remedies of the Holder or the Company. No single or partial waiver by
the Holder or the Company of any provision of this Warrant Agreement or of any
breach or default hereunder or thereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default right or remedy on a future occasion. The
rights and remedies provided in this Warrant Agreement are cumulative and are in
addition to all rights and remedies which the Holder or the Company may have in
law or in equity or by statute or otherwise.
11.3 Severability. If any term or other provision of this Warrant
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Warrant Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated by this Warrant Agreement is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Warrant Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Warrant Agreement be consummated as originally
contemplated to the fullest extent possible.
11.4 Entire Agreement. This Warrant Agreement, together with the
Subscription Agreement, constitutes the entire agreement of the parties hereto
and thereto with respect to the subject matter hereof and thereof and supersedes
all prior agreements and undertakings, both written and oral, with respect to
the subject matter hereof and thereof.
11.5 Amendment. This Warrant Agreement may not be modified or amended
except by written agreement of the Company and the Holder.
24
<PAGE>
11.6 Headings. The headings of the Sections of this Warrant Agreement are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant Agreement.
11.7 Meanings. Whenever used in this Warrant Agreement, any noun or
pronoun shall be deemed to include both the singular and plural and to cover all
genders; and the words "herein," "hereof" and "hereunder" and words of similar
import shall refer to this instrument as a whole, including any amendments
hereto.
11.8 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 11.8):
(a) if to the Company:
CareInsite, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, NJ 07407-1361
Telecopy No.: (201) 703-3401
Attention: General Counsel
(b) if to AOL:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telecopy No.: (703) 265-2208
Attention: General Counsel
11.9 Successors and Assigns. This Warrant Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their permitted
assigns and successors.
11.10 Survival of Rights and Duties. This Warrant Agreement shall
terminate and be of no further force and effect on the earliest of (a) the
Conversion Notice Deadline (as defined in the Certificate of Designation) if a
timely Conversion Notice (as defined in the Certificate of Designation) has not
by that time been delivered to the Company in accordance with the provisions of
the Certificate of Designation, (b) 5:00 P.M., New York City time, on the last
day of the Exercise Period, (c) the date on which all of the Warrants have been
exercised or (d) the termination of the Subscription Agreement if such
termination occurs prior to the Effective Date;
25
<PAGE>
provided, however, that the provisions of Section 2.3 and Articles VI, VII and
VIII (if any Warrants were exercised), and Article XI shall continue in full
force and effect after such termination date.
11.11 Governing Law. This Warrant Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
11.12 Counterparts. This Warrant Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of this Warrant Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Warrant Agreement.
11.13 Waiver of Jury Trial. Each of the parties hereto irrevocably and
unconditionally waives trial by jury in any legal action or proceeding relating
to this Warrant Agreement or the transactions contemplated hereby and for any
counterclaim therein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed.
CAREINSITE, INC.
By:/s/ David C. Amburgey
----------------------------------
Name: David C. Amburgey
Title: Senior Vice President
General Counsel
AMERICA ONLINE, INC.
By:/s/ David M. Colburn
---------------------------------
Name: David M. Colburn
Title: President-Business Affairs
<PAGE>
ANNEX I TO THE
WARRANT AGREEMENT
[FORM OF WARRANT CERTIFICATE]
Incorporated under the Laws of
the State of Delaware
No. ___ CAREINSITE, INC. ____ Warrants
Warrants to Purchase Shares of Common Stock, Par Value $0.01 Per Share
THIS CERTIFIES THAT-____________, or registered assigns (the
"Registered Owner") is the registered owner of the number of Warrants set forth
above (the "Warrants"). Each Warrant entitles the Registered Owner thereof to
purchase one share of the Common Stock, par value $0.01 per share (the "Common
Stock") of CareInsite, Inc. (the "Corporation") at the Warrant Price (as defined
in that certain Warrant Agreement dated September 14, 1999 between the
Corporation and the America Online, Inc. (the "Warrant Agreement")), subject to
the terms and conditions as more particularly set forth in the Warrant
Agreement.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by its duly authorized officers this day of _________,
_____.
________________________________ ________________________________
Chairman of the Board, President Treasurer, Assistant Treasurer,
or Vice President Secretary or Assistant Secretary
THE WARRANTS EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK TO BE ISSUED UPON CONVERSION OF SUCH WARRANTS HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER (1) SUCH
WARRANTS OR SHARES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF
SUCH WARRANTS OR SHARES (WHICH
<PAGE>
COUNSEL IS REASONABLY SATISFACTORY TO THE COMPANY) PROVIDES AN
OPINION TO SUCH EFFECT TO THE COMPANY.
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A WARRANT
AGREEMENT DATED AS OF SEPTEMBER 14, 1999, BETWEEN THE
CORPORATION AND AMERICA ONLINE, INC. AS IT MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF
THE WARRANTS EVIDENCED BY THIS CERTIFICATE WILL BE MADE ON THE
BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH RESTRICTIONS SHALL
HAVE BEEN COMPLIED WITH.
FOR VALUE RECEIVED,_________________________________ does hereby
sell, assign and transfer unto___________________________________________
(Please print or type name and address of assignee)
__________________________________ Warrants evidenced by the within Certificate,
and does hereby irrevocably constitute and appoint ________________ attorney to
transfer the said Warrants on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated __________________________.
In presence of: _____________________________________________
________________________________
<PAGE>
EXHIBIT A TO THE
WARRANT AGREEMENT
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner ("Subscriber") of the Warrants evidenced by the
Warrant Certificate No. __ (the "Warrant Certificate") hereby irrevocably
exercises _________ Warrants for the purchase of shares of Common Stock, par
value $0.01 per share ("Common Stock") of CAREINSITE, INC. (the "Company"), and
herewith makes payment therefor in the amount of $______, all at the price and
on the terms and conditions specified in the Warrant Agreement dated September
14, 1999 between the Company and America Online, Inc. (the "Warrant Agreement")
and requests that a certificate (or ___ certificates in denominations of shares)
for the shares of Common Stock hereby purchased (and any securities or Other
Property issuable upon such exercise) be issued in the name of and delivered to
Subscriber and, if the number of Warrants being exercised is less than the
number of Warrants represented by the Warrant Certificate of Common Stock
issuable as provided in this Warrant, that a new certificate for the balance of
such Warrants hereunder be delivered to Subscriber in accordance with the
provisions of the Warrant Agreement.
Subscriber hereby represents and warrants as follows:
(a) The Common Stock to be acquired hereunder is being
acquired by Subscriber for investment purposes only
solely for its own account, and not with a view to, or
in connection with, the distribution thereof in
violation of securities laws.
(b) Subscriber understands that the Common Stock has not
been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or under applicable
state securities laws. Subscriber understands and
agrees further that the Common Stock must be held
indefinitely unless it is subsequently registered under
the Securities Act or an exemption from registration
under the Securities Act and applicable state
securities laws covering the sale of the Common Stock
is available. Subscriber understands that legends
stating that the Common Stock have not been registered
under the Securities Act, and setting out or referring
to any other restrictions on transferability and sale
of the Common Stock, will be placed on any and all
documents evidencing the Common Stock.
<PAGE>
(c) Subscriber is aware that:
(i) Investment in the Company involves a high
degree of risk, lack of liquidity and
substantial restrictions on transferability
of the Common Stock; and
(ii) No federal or state agency has made any
finding or determination as to the fairness
for investment by the public, nor has made
any recommendation or endorsement, of the
Common Stock.
(d) Subscriber, either directly or indirectly, has
sufficient financial resources available to support the
loss of all of its investment in the Company, and has
no need for liquidity in its investment in the Company.
(e) Subscriber, either itself or through its advisers, is
sophisticated and experienced in investment matters,
and, as a result, Subscriber is in a position to
evaluate an investment in the Company.
(f) Subscriber has been furnished any materials Subscriber
has requested relating to the Company and the Common
Stock, and Subscriber has been afforded the opportunity
to ask questions of the officers of the Company
concerning the Company and the Common Stock.
(g) Subscriber is an "accredited investor" as that term is
defined in Rule 501 (a) of Regulation D under the
Securities Act. (Subscriber should strike this
subparagraph (g) in its entirety if not an "accredited
investor.")
(h) Subscriber, if not an accredited investor, hereby
represents and affirms that (i) Subscriber has a net
worth exceeding ten (10) times Subscriber's investment,
or (ii) Subscriber has either alone or with
Subscriber's professional advisor the capacity to
protect Subscriber's interests in connection with this
transaction, or (iii) Subscriber is able to bear the
economic risk of the investment
A-2
<PAGE>
_______________________________________
(Name of Registered Owner)
_______________________________________
(Signature of Registered Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with
the name as written upon the face of the Warrant Certificate
in every particular, without alteration or enlargement or any
change whatsoever.
A-3
<PAGE>
EXHIBIT 4.3
================================================================================
SUBSCRIPTION AGREEMENT
between
CAREINSITE, INC.
and
AMERICA ONLINE, INC.
dated as of September 15, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms................................................. 1
ARTICLE II
PURCHASE AND SALE
2.01. Sale of Series A Preferred Stock; Option to Purchase
Series A Preferred Stock.............................................. 4
2.02. Closings.............................................................. 4
2.03. Closing Deliveries by the Company..................................... 5
2.04. Closing Deliveries by the Investor.................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Due Organization and Authority........................................ 6
3.02. Capital Stock of Company.............................................. 7
3.03. No Conflict........................................................... 7
3.04. Governmental Consents and Approvals................................... 8
3.05. Compliance with Laws; Litigation...................................... 8
3.06. SEC Filings; Financial Statements; Absence of Undisclosed Liabilities. 8
3.07. No Material Adverse Change............................................ 9
3.08. Brokers............................................................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE INVESTOR
4.01. Organization and Authority............................................ 9
4.02. No Conflict...........................................................10
4.03. Governmental Consents and Approvals...................................10
4.04. Brokers...............................................................10
<PAGE>
ARTICLE V
CONDITIONS TO THE INITIAL CLOSING
5.01. Conditions to the Initial Closing.....................................10
5.02. Conditions to the Subsequent Closing..................................11
ARTICLE VI
TRANSFER OF SHARES
6.01. General Restriction...................................................12
6.02. Private Placement.....................................................12
6.03. Legends...............................................................12
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01. HSR...................................................................13
7.02. Survival; Indemnification.............................................13
7.03. Common Stock Issuable Upon Conversion.................................14
7.04. Certificate of Designation............................................14
7.05. Other Action..........................................................14
ARTICLE VIII
MISCELLANEOUS
8.01. Termination...........................................................15
8.02. Expenses..............................................................15
8.03. Notices...............................................................16
8.04. Public Announcements..................................................16
8.05. Headings; Interpretation..............................................16
8.06. Severability..........................................................16
8.07. Entire Agreement......................................................17
8.08. Assignment............................................................17
8.09. Amendment.............................................................17
8.10. Governing Law.........................................................17
8.11. Counterparts..........................................................17
8.12. Non-Waiver; Cumulative Remedies.......................................17
8.13. Waiver of Jury Trial..................................................18
ii
<PAGE>
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT, dated as of September 15, 1999,
among CAREINSITE, INC., a Delaware corporation (the "Company") and AMERICA
ONLINE, INC., a Delaware corporation (the "Investor").
W I T N E S S E T H:
WHEREAS, on the terms and conditions set forth herein, the
Investor wishes to subscribe for and purchase for cash from the Company, and the
Company wishes to issue and sell to the Investor, 100 shares of Series A
Convertible Redeemable Preferred Stock, face value $100,000 per share (the
"Series A Preferred Stock");
WHEREAS, on the terms and conditions set forth herein, the
Investor wishes to have the option to subscribe for and purchase for cash from
the Company up to an additional 100 shares of Series A Preferred Stock on the
first anniversary of the date of this Agreement, and the Company wishes to grant
such option;
WHEREAS, the parties hereto believe it is in their mutual best
interest to enter into certain other agreements, as set forth herein; and
WHEREAS, the parties hereto are, contemporaneously with
entering into this Agreement, entering into (a) an Interactive Marketing
Agreement (the "Interactive Marketing Agreement") and (b) a Warrant Agreement
(the "Warrant Agreement") setting forth the terms of certain warrants (the
"Warrants") included in the Conversion Consideration (as defined in the form of
Certificate of Designation for the Series A Preferred Stock attached hereto as
Annex A (the "Certificate of Designation")).
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such specified
Person.
<PAGE>
"Agreement" means this Subscription Agreement, dated as of
September 15, 1999.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Capital Stock" means, with respect to any Person at any time,
any and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital stock, partnership
interests (whether general or limited) or equivalent ownership interests in such
Person.
"Certificate of Designation" has the meaning specified in the
Recitals.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning specified in the Preamble.
"Company" has the meaning specified in the Preamble.
"Company Disclosure Schedule" means a confidential disclosure
schedule to be delivered by the Company to the Investor at least three Business
Days prior to the Subsequent Closing in order to supplement and modify the
representations and warranties of the Company contained in Article III in
connection with the Subsequent Closing.
"Control" (including the terms "Controlled by" and "under
common Control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnifiable Losses" has the meaning specified in Section
7.02(d)(i).
"Initial Closing" has the meaning specified in Section
2.02(a).
2
<PAGE>
"Initial Closing Representations" means the representations
and warranties of the Company contained in Article III of this Agreement.
"Interactive Marketing Agreement" has the meaning specified in
the Recitals.
"Investor" has the meaning specified in the Preamble.
"Losses" has the meaning specified in Section 7.02(d)(ii).
"Material Adverse Effect" has the meaning specified in Section
3.01.
"NASDAQ" has the meaning specified in Section 3.05(a).
"Permits" has the meaning specified in Section 3.05(b)(i).
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a Person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
"SEC Reports" has the meaning specified in Section 3.06(a).
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" has the meaning specified in the
Recitals.
"Subsequent Closing" has the meaning specified in Section
2.02(b).
"Subsequent Closing Representations" means the representations
and warranties of the Company contained in Article III of this Agreement, as
modified and supplemented by the Company Disclosure Schedule.
"Subsidiary" means any and all corporations, partnerships,
joint ventures, associations and other entities Controlled by the Company
directly or indirectly through one or more intermediaries.
"Termination Date" has the meaning specified in Section
8.01(a)(ii).
"Warrant Agreement" has the meaning specified in the Recitals.
"Warrants" has the meaning specified in the Recitals.
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ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Sale of Series A Preferred Stock; Option to
Purchase Series A Preferred Stock. (a) Upon the terms and subject to the
conditions set forth in this Agreement, the Company shall issue and deliver to
the Investor, and the Investor shall accept from the Company, 100 shares of
Series A Preferred Stock. In consideration for the issuance of the Series A
Preferred Stock pursuant to this Section 2.01(a), the Investor shall pay to the
Company a purchase price of $100,000 per share.
(b) Upon the terms and subject to the conditions set forth in
this Agreement, the Investor shall have the option to purchase additional shares
of Series A Preferred Stock on the first anniversary of the date of this
Agreement, up to a maximum of 100 additional shares of Series A Preferred Stock;
provided, however, that such option shall be exercisable by the Investor only if
the Company receives, no later than the 30 days prior to the first anniversary
of the date of this Agreement, a written notice from the Investor stating its
intention to exercise the option to purchase additional shares pursuant to this
Section 2.01(b) and the number of shares to be purchased by the Investor
pursuant hereto; provided that the Investor shall have the right to rescind such
notice until 5:00 p.m. New Jersey time on the second Business Day following
receipt by the Investor of the Company Disclosure Schedule. In consideration for
the issuance of the Series A Preferred Stock pursuant to this Section 2.01(b),
the Investor shall pay to the Company a purchase price of $100,000 per share.
SECTION 2.02. Closings. (a) Upon the terms and subject to the
conditions set forth in this Agreement, the transactions provided for in Section
2.01(a) shall take place at a closing (the "Initial Closing") to be held at
10:00 a.m. New Jersey time on the later of September 16, 1999 or the Business
Day following the satisfaction or waiver of all conditions to the obligations of
the parties set forth in Article V, or at such other time or on such other date
as the parties may mutually agree upon.
(b) Upon the terms and subject to the conditions set forth in
this Agreement, the transactions provided for in Section 2.01(b) shall, if the
Investor exercises the option provided therein, take place at a closing (the
"Subsequent Closing") to be held at 10:00 A.M. New Jersey time on the first
anniversary of the date of this Agreement or at such other time or on such other
date as the parties may mutually agree upon.
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SECTION 2.03. Closing Deliveries by the Company. (a) At the
Initial Closing, the Company shall deliver to the Investor:
(i) a certificate evidencing 100 shares of Series A
Preferred Stock in definitive form and registered in the name of the
Investor;
(ii) a certificate from the Company, signed by a duly
authorized officer, to the effect that the Company's Initial Closing
Representations are true and correct as of the Initial Closing, with
the same force and effect as if made on the date of the Initial
Closing, and that all covenants and agreements of the Company contained
in this Agreement to be complied with on or prior to the Initial
Closing have been complied with; and
(iii) true and complete copies, certified by the
Secretary of the Company, of the Charter and By-laws of the Company and
of the resolutions duly and validly adopted by its Board of Directors,
evidencing their authorization of the execution and delivery of this
Agreement and the Warrant Agreement and the consummation of the
transactions contemplated hereby and thereby.
(b) At the Subsequent Closing, the Company shall deliver to
the Investor:
(i) a certificate evidencing the number of shares of
Series A Preferred Stock purchased by the Investor pursuant to Section
2.01(b) of this Agreement, such certificate to be in definitive form
and registered in the name of the Investor;
(ii) a certificate from the Company, signed by a duly
authorized officer, to the effect that the Company's Subsequent Closing
Representations are true and correct as of the Subsequent Closing, with
the same force and effect as if made on the date of the Subsequent
Closing, and that all covenants and agreements of the Company contained
in this Agreement to be complied with on or prior to the Subsequent
Closing have been complied with; and
(iii) true and complete copies, certified by the
Secretary of the Company, of the Charter and By-laws of the Company and
of the resolutions duly and validly adopted by its Board of Directors,
evidencing their authorization of the execution and delivery of this
Agreement and the Warrant Agreement and the consummation of the
transactions contemplated hereby and thereby.
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SECTION 2.04. Closing Deliveries by the Investor. (a) At the
Initial Closing:
(i) the Investor shall pay $10,000,000.00 by wire
transfer of immediately available funds to an account designated in
writing by the Company no later than the second Business Day prior to
the date of the Initial Closing; and
(ii) the Investor shall deliver a certificate, signed
by a duly authorized officer, to the effect that the representations
and warranties of such party contained in Article IV this Agreement are
true and correct as of the Initial Closing, with the same force and
effect as if made on the date of the Initial Closing, and that all
covenants and agreements of such party contained in this Agreement to
be complied with on or prior to the Subsequent Closing have been
complied with and confirming, with respect to the shares of Series A
Preferred Stock to be purchased at the Initial Closing, the
understandings and statements contained in Section 6.02.
(b) At the Subsequent Closing:
(i) the Investor shall pay the aggregate purchase
price for the number of additional shares of Series A Preferred Stock
to be purchased at the Subsequent Closing, such payment to be made by
wire transfer of immediately available funds to an account designated
in writing by the Company no later than the second Business Day prior
to the date of the Subsequent Closing; and
(ii) the Investor shall deliver a certificate, signed
by a duly authorized officer, to the effect that the representations
and warranties of such party contained in Article IV of this Agreement
are true and correct as of the Subsequent Closing, with the same force
and effect as if made on the date of the Subsequent Closing, and that
all covenants and agreements of such party contained in this Agreement
to be complied with on or prior to the Initial Closing have been
complied with and confirming, with respect to the shares of Series A
Preferred Stock to be purchased at the Subsequent Closing, the
understandings and statements contained in Section 6.02.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor as
follows:
SECTION 3.01. Due Organization and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to enter into
this Agreement and the Warrant Agreement, to carry out its obligations hereunder
and thereunder, and to consummate the transactions
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contemplated hereby and thereby. The Company is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not have a material adverse effect on the financial
condition, business or operations of the Company and its subsidiaries taken as a
whole (a "Material Adverse Effect") or prevent or materially delay the
consummation of the transactions contemplated by this Agreement or the Warrant
Agreement. The execution and delivery of this Agreement and the Warrant
Agreement by the Company, the performance by the Company of its obligations
hereunder and thereunder, and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite action on the part of the Company. This Agreement and the Warrant
Agreement have been duly executed and delivered by the Company, and (assuming
due authorization, execution and delivery by the other parties hereto and
thereto) this Agreement and the Warrant Agreement constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
SECTION 3.02. Capital Stock of Company. The Series A Preferred
Stock to be issued by the Company pursuant to this Agreement has been duly
authorized and, when issued and delivered in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable. No Person has any preemptive or similar rights with respect to
the Series A Preferred Stock, and neither the parties hereto nor subsequent
holders in due course of such Series A Preferred Stock will be entitled to any
such preemptive or similar rights. The authorized capital stock of the Company
consists of: (a) 300,000,000 shares of Common Stock, of which 70,410,134 shares
were issued and outstanding on September 3, 1999; and (b) 30,000,000 shares of
preferred stock, of which none are outstanding as of the date of this Agreement.
SECTION 3.03. No Conflict. Assuming that all consents,
approvals, authorizations and other actions described in Section 3.04 have been
obtained, the execution, delivery and performance of this Agreement and the
Warrant Agreement by the Company do not and will not (a) violate, conflict with
or result in the breach of any provision of its Certificate of Incorporation or
By-laws, (b) conflict with or violate any law, governmental regulation or
governmental order applicable to it or any of its assets, properties or
businesses or (c) conflict with, result in any breach of, constitute a default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, require any consent under, or give to others any rights
of termination, amendment, acceleration, suspension, revocation or cancellation
of, or result in the creation of any encumbrance on any of the Company's assets
or properties pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Company is a party or by which any of its assets or
properties is bound or affected; except to the extent that any conflict under
(b) or (c) above would not have a Material Adverse Effect or prevent or
materially delay the consummation of the transactions contemplated by this
Agreement or the Warrant Agreement.
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SECTION 3.04. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement and the Warrant Agreement
by the Company do not and will not require any consent, approval, authorization
or other order of, action by, filing with or notification to, any governmental
authority, except such as are required by the HSR Act in connection with the
acquisition of Common Stock prior to exercise of the Warrant.
SECTION 3.05. Compliance with Laws; Litigation. (a) The
Company is in compliance with all requirements of applicable law, all applicable
requirements of The NASDAQ Stock Market, Inc. ("NASDAQ") and all orders issued
by any court or governmental authority against the Company, except to the extent
that any such failure to so comply would not have a Material Adverse Effect or
prevent or materially delay the consummation of the transactions contemplated by
this Agreement or the Warrant Agreement.
(b) (i) The Company has all material licenses, permits and
approvals of any governmental authority (collectively, "Permits") that are
necessary for the conduct of the business of the Company; (ii) such Permits are
in full force and effect; and (iii) no material violations are or have been
recorded in respect of any Permit.
(c) Except as set forth in the SEC Reports filed prior to the
date of this Agreement, there is no pending or, to the knowledge of the Company,
threatened action, suit or proceeding to which the Company or any of its
subsidiaries is a party, before or by any court or governmental agency or body,
that could reasonably be expected to result in a Material Adverse Effect or to
prevent or materially delay the consummation of the transactions contemplated by
this Agreement or the Warrant Agreement.
SECTION 3.06. SEC Filings; Financial Statements; Absence of
Undisclosed Liabilities. (a) The Company has filed all forms, reports and
documents required to be filed by it with the Commission ("SEC Reports") since
its initial public offering, including (but not limited to) its registration
statement on Form S-1. Except as set forth in the SEC Reports filed prior to the
date of this Agreement, as of the respective dates they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, on the
date of such amending or superseding filing), (i) the SEC Reports were prepared
in all material respects in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) none of the SEC Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. No subsidiary of the Company is required to file any form, report or
other document with the Commission.
(b) Each of the consolidated financial statements (including,
in each case, any notes and schedules thereto) contained in the SEC Reports
complied as to form with the applicable accounting requirements and rules and
regulations of the Commission and was prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto
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or, in the case of unaudited financial statements, as permitted by the
rules and regulations of the Commission), and each presented fairly, in all
material respects, the consolidated financial position of the Company and its
consolidated subsidiaries at the respective dates thereof and their results of
operations and cash flows for the respective periods indicated therein, all in
accordance with United States generally accepted accounting principles (subject,
in the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to be material in amount).
(c) Except for liabilities and obligations reflected on the
March 31, 1999 consolidated balance sheet of the Company (including the notes
thereto), liabilities and obligations disclosed in SEC Reports filed prior to
the date of this Agreement and other liabilities and obligations incurred in the
ordinary course of business since March 31, 1999 or that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
neither the Company nor any of its subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise).
SECTION 3.07. No Material Adverse Change. Except as otherwise
disclosed in the SEC Reports filed prior to the date hereof, since March 31,
1999, there has not been a material adverse change in the financial condition,
business or operations of the Company and its subsidiaries taken as a whole.
SECTION 3.08. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement or the Warrant Agreement
based upon arrangements made by or on behalf of the Company or any of its
Affiliates.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE INVESTOR
The Investor represents and warrants to the Company as
follows:
SECTION 4.01. Organization and Authority. Such party is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has all necessary power and authority to
enter into this Agreement and the Warrant Agreement, to carry out its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Warrant Agreement by such party, the performance by it of its
obligations hereunder and thereunder, and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite action on its part. This Agreement and the Warrant Agreement have been
duly executed and delivered by such party, and (assuming due
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authorization, execution and delivery by the other parties hereto and thereto)
this Agreement and the Warrant Agreement constitute legal, valid and binding
obligations of such party, enforceable against it in accordance with their
respective terms.
SECTION 4.02. No Conflict. Assuming that all consents,
approvals, authorizations and other actions described in Section 4.03 have been
obtained, the execution, delivery and performance of this Agreement and the
Warrant Agreement by such party do not and will not (a) violate, conflict with
or result in the breach of any provision of its Charter or By-laws (or similar
organizational documents), (b) conflict with or violate any law, governmental
regulation or governmental order applicable to such party or any of its assets,
properties or businesses or (c) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights pursuant to, any contract, agreement or arrangement by which
such party is bound; except to the extent that any conflict under (b) or (c)
above would not prevent or materially delay the consummation of the transactions
contemplated by this Agreement or the Warrant Agreement.
SECTION 4.03. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement and the Warrant Agreement
by the Investor does not and will not require any consent, approval,
authorization or other order of, action by, filing with or notification to, any
governmental authority, except such as are required by the HSR Act in connection
with the acquisition of Common Stock prior to exercise of the Warrant.
SECTION 4.04. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement or the Warrant Agreement
based upon arrangements made by or on behalf of the Investor or any of its
Affiliates.
ARTICLE V
CONDITIONS TO THE INITIAL CLOSING
SECTION 5.01. Conditions to the Initial Closing. The
obligations of each party to this Agreement to consummate the transactions
contemplated by Section 2.01(a) shall be subject to the fulfillment, at or prior
to the Initial Closing, of each of the following conditions:
(a) Representations, Warranties and Covenants. (i) In the case
of the Investor, the Company's Initial Closing Representations shall have been
true and correct when made and shall be true and correct as of the Initial
Closing, with the same force and effect as if made on the date of the Initial
Closing, and all covenants and agreements of the Company contained in this
Agreement to be complied with on or prior to the Initial Closing shall have been
complied with in all material respects.
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(ii) In the case of the Company, the representations and
warranties of the Investor contained in this Agreement shall have been true and
correct when made and shall be true and correct as of the Initial Closing, with
the same force and effect as if made on the date of the Initial Closing, and all
covenants and agreements of the Investor contained in this Agreement to be
complied with on or prior to the Initial Closing shall have been complied with
in all material respects.
(b) No Prohibition. None of the transactions contemplated
hereby or by the Warrant Agreement shall have been prohibited by any applicable
law, court order or governmental regulation.
(c) Warrant Agreement. The Warrant Agreement shall have been
executed and shall remain in full force and effect.
In addition, the obligation of the Investor to consummate the transactions
contemplated by Section 2.01(a) is subject to the filing of the Certificate of
Designation (substantially in the form attached as Annex A hereto) with the
Secretary of State of the State of Delaware.
SECTION 5.02. Conditions to the Subsequent Closing. The
obligations of each party to this Agreement to consummate the transactions
contemplated by Section 2.01(b) shall be subject to the fulfillment, at or prior
to the Subsequent Closing, of each of the following conditions:
(a) Representations, Warranties and Covenants. (i) In the case
of the Investor, the Company's Subsequent Closing Representations shall have
been true and correct when made and shall be true and correct as of the
Subsequent Closing, and all covenants and agreements of the Company contained in
this Agreement to be complied with on or prior to the Subsequent Closing shall
have been complied with in all material respects.
(ii) In the case of the Company, the representations and
warranties of the Investor contained in Article IV of this Agreement are true
and correct as of the Subsequent Closing, with the same force and effect as if
made on the date of the Subsequent Closing, and all covenants and agreements of
the Investor contained in this Agreement to be complied with on or prior to the
Subsequent Closing shall have been complied with in all material respects.
(b) No Prohibition. None of the transactions contemplated
hereby or by the Warrant Agreement shall have been prohibited by any applicable
law, court order or governmental regulation.
(c) Warrant Agreement. The Warrant Agreement shall remain in
full force and effect.
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ARTICLE VI
TRANSFER OF SHARES
SECTION 6.01. General Restriction. Shares of the Series A
Preferred Stock and the certificates evidencing such shares and all rights
thereunder shall be non-transferable, and may not be sold, transferred, pledged,
hypothecated, or assigned without the prior written consent of the Company
(which may be withheld in the Company's sole discretion), except as specified in
the Certificate of Designation. The Investor acknowledges and agrees that any
such prohibited transfer made without the Company's consent shall be void ab
initio.
SECTION 6.02. Private Placement. (a) The Investor understands
that (i) the offering and sale of the Series A Preferred Stock hereunder are
intended to be exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act and (ii) there is no existing public or other
market for the Series A Preferred Stock and there can be no assurance that such
Investor will be able to sell or dispose of the Series A Preferred Stock.
(b) The Investor hereby confirms to the Company that: (i) the
Series A Preferred Stock is being acquired for the Investor's own account and
without a view to the public distribution thereof or of the Common Stock or any
interest therein; (ii) the Investor is an "accredited investor" as such term is
defined in Regulation D, as amended, under the Securities Act; and (iii) the
Investor has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Series A Preferred Stock, and is capable of bearing the economic risks of
such investment, including a complete loss of its investment in the Series A
Preferred Stock.
SECTION 6.03. Legends. (a) The Company shall affix to each
certificate evidencing shares of Series A Preferred Stock a legend in
substantially the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER (1) SUCH SHARES
ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF SUCH SHARES
(WHICH COUNSEL IS REASONABLY SATISFACTORY TO THE COMPANY)
PROVIDES AN OPINION TO SUCH EFFECT TO THE COMPANY.
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THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A
SUBSCRIPTION AGREEMENT DATED AS OF SEPTEMBER 14, 1999, AS IT
MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER AND IN THE
CERTIFICATE OF DESIGNATION FOR THE SERIES A PREFERRED STOCK
FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE. NO
REGISTRATION OF TRANSFER OF THESE SHARES WILL BE MADE ON THE
BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL
HAVE BEEN COMPLIED WITH."
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. HSR. Each of the parties hereto shall use
reasonable efforts to cause any waiting period (and any extension thereof) under
the HSR Act, applicable to the conversion of the Series A Preferred Stock or the
exercise of the Warrants to expire or be terminated prior to the time of such
conversion or exercise and shall cooperate in making any filings with the
appropriate governmental entities in connection therewith.
SECTION 7.02. Survival; Indemnification. (a) The Initial
Closing Representations shall survive the Initial Closing for a period of one
year after the date of the Initial Closing.
(b) If the Subsequent Closing occurs, the Subsequent Closing
Representations shall survive the Subsequent Closing for a period of one year
after the date of the Subsequent Closing.
(c) The Company shall indemnify and hold harmless the Investor
from and against any and all Indemnifiable Losses (as defined below); provided,
however, that no claim with respect to Indemnifiable Losses may be asserted
unless written notice of such claim describing in detail the facts and
circumstances with respect to the subject matter of such claim is received by
the Company on or prior to: (i) in the case of Indemnifiable Losses with respect
to the shares of Series A Preferred Stock purchased at the Initial Closing, the
date on which the Initial Closing Representations cease to survive as set forth
in Section 7.02(a); and (ii) in the case of Indemnifiable Losses with respect to
the shares of Series A Preferred Stock purchased at the Subsequent Closing (if
any), the date on which the Subsequent Closing Representations cease to survive
as set forth in Section 7.02(b). The Company is not making any representations
and
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warranties other than the Initial Closing Representations in connection with
the Initial Closing and the Subsequent Closing Representations in connection
with the Subsequent Closing.
(d) For purposes of this Section 7.02: (i) "Indemnifiable
Losses" means (A) with respect to the shares of Series A Preferred Stock
purchased by the Investor at the Initial Closing, Losses arising out of the
failure of the Initial Closing Representations to be true and correct as of the
date of the Initial Closing, provided, however, that in no event shall the
amount of such Indemnifiable Losses exceed the purchase price of such shares of
Series A Preferred Stock and (B) with respect to the shares of Series A
Preferred Stock purchased by the Investor at the Subsequent Closing (if any),
Losses arising out of the failure of the Subsequent Closing Representations to
be true and correct as of the date of the Subsequent Closing, up to a maximum
amount equal to the purchase price for the shares of Series A Preferred Stock
purchased at the Subsequent Closing; and (ii) "Losses" means any and all losses,
liabilities, damages, costs and expenses actually suffered or incurred by the
Investor, but shall not include any consequential damages or any Losses that
could have been avoided if the Investor had taken reasonable steps to mitigate
its Losses.
SECTION 7.03. Common Stock Issuable Upon Conversion. (a) The
Company shall at all times reserve and keep available for issue upon the
conversion of shares of Series A Preferred Stock such number of its authorized
and unissued shares of Common Stock as will be sufficient to permit such
conversion in full. All shares of Common Stock which shall be so issuable, when
issued upon conversion of shares of Series A Preferred Stock in accordance with
the terms of the Series A Preferred Stock, shall be duly and validly issued and
fully paid and nonassessable, and not subject to preemptive rights.
(b) The Company shall use all reasonable efforts to cause the
shares of Common Stock to be issued upon conversion of the Series A Preferred
Stock and upon exercise of Warrants to be approved for listing on NASDAQ prior
to the issuance of such shares.
SECTION 7.04. Certificate of Designation. The Investor
acknowledges and agrees to comply with the terms of the Certificate of
Designation, including, without limitation, Sections 5(b) and 11(b) thereof.
SECTION 7.05. Other Action. Each of the parties hereto shall
use reasonable efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws to consummate and make effective the transactions contemplated
hereunder, including, without limitation, using reasonable efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of the competent governmental entities.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Termination. (a) This Agreement may be
terminated and the transactions contemplated by this Agreement may be abandoned
at any time prior to the Initial Closing, as follows:
(i) by mutual written consent of each of the
Investor and the Company;
(ii) by either the Investor or the Company if the
Initial Closing shall not have occurred on or before October 15, 1999
(the "Termination Date"); provided, however, that the right to
terminate this Agreement under this Section 8.01(a)(ii) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Initial Closing to occur on or before the Termination Date; or
(iii) by either the Investor or the Company, if any
governmental entity (A) shall have issued an order or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order or other
action shall have become final and nonappealable, or (B) shall have
failed to issue an order or to take any other action necessary to
fulfill the conditions to the Initial Closing and such denial of a
request to issue such order or take such other action shall have become
final and nonappealable.
(b) In the event of termination of this Agreement pursuant to
Section 8.01, this Agreement and the Warrant Agreement shall forthwith become
void and there shall be no liability under this Agreement or the Warrant
Agreement on the part of the Investor or the Company or any of their respective
officers or directors and all rights and obligations of each party hereto shall
cease, except (a) the provisions of Sections 8.02 and 8.04 shall survive such
termination and (b) nothing herein shall relieve any party from liability for
any willful breach of any representation, warranty, covenant or other agreement
in this Agreement occurring prior to termination.
SECTION 8.02. Expenses. Except as otherwise specified in this
Agreement or the Warrant Agreement, all costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the Warrant
Agreement and the transactions contemplated hereby and thereby shall be paid by
the party incurring such costs and expenses, whether or not the Initial Closing
shall have occurred.
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SECTION 8.03. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by telecopy or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 8.03):
(a) if to the Company:
CareInsite, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, NJ 07407-1361
Telecopy No.: (201) 703-3401
Attention: Senior Vice President - General Counsel
(b) if to the Investor:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telecopy No.: (703) 265-2208
Attention: General Counsel
SECTION 8.04. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the Warrant Agreement or the transactions
contemplated hereby or thereby or otherwise communicate with any news media
without the prior written consent of the other party, and the parties shall
cooperate as to the timing and contents of any such press release or public
announcement.
SECTION 8.05. Headings; Interpretation. (a) The descriptive
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.
(b) Whenever used in this Agreement, any noun or pronoun shall
be deemed to include both the singular and plural and to cover all genders; and
the words "herein," "hereof" and "hereunder" and words of similar import shall
refer to this Agreement as a whole.
SECTION 8.06. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law,
governmental regulation or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force
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and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest possible extent.
SECTION 8.07. Entire Agreement. This Agreement, together with
the Warrant Agreement and the Interactive Marketing Agreement, constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersedes all prior agreements and undertakings, both written
and oral, with respect to the subject matter hereof.
SECTION 8.08. Assignment. This Agreement shall not be assigned
by either party without the express written consent of the other party hereto
(which consent may be granted or withheld in the sole discretion of any party);
provided, however, that the Investor may, without the consent of the Company,
assign all or a portion of its rights hereunder to any Person to whom the
Investor would be permitted, pursuant to the Certificate of Designation, to
transfer shares of Series A Preferred Stock without the consent of the Company.
In the event that the Company shall be a party to a merger, consolidation or
similar transaction that is consummated prior to the first anniversary of the
date of this Agreement and in which the Company is not the surviving
corporation, the Company's successor shall expressly assume the obligations of
the Company under this Agreement with respect to the option contained in Section
2.01(b), subject to such modifications as may be deemed appropriate (as
determined in good faith by the Board of Directors of the Company) in order to
provide to the Investor, as nearly as practicable, the rights that the Investor
would have had if such transaction had not occurred.
SECTION 8.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 8.10. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware.
SECTION 8.11. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 8.12. Non-Waiver; Cumulative Remedies. No course of
dealing or any delay or failure to exercise any right hereunder on the part of
the Investor or the Company shall operate as a waiver of such right or otherwise
prejudice the rights, powers or remedies of the Investor or the Company. No
single or partial waiver by the Investor or the Company of any provision of this
Agreement or of any breach or default hereunder or of any right or remedy shall
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operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default right or remedy on a future occasion. The
rights and remedies provided in this Agreement are cumulative and are in
addition to all rights and remedies which the Investor or the Company may have
in law or in equity or by statute or otherwise.
SECTION 8.13. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized signatories
hereunto duly authorized as of the date first above written.
CAREINSITE, INC.
By:/s/ David C. Amburgey
----------------------------------
Name: David C. Amburgey
Title: Senior Vice President
General Counsel
AMERICA ONLINE, INC.
By:/s/ David M. Colburn
----------------------------------
Name: David M. Colburn
Title: President-Business Affairs
<PAGE>
ANNEX A TO THE SUBSCRIPTION AGREEMENT
SEE EXHIBIT 4.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLDIATED STATEMENT OF OPERATIONS AS REPORTED
ON THE FIRST QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,384
<SECURITIES> 0
<RECEIVABLES> 653
<ALLOWANCES> 16
<INVENTORY> 0
<CURRENT-ASSETS> 70,599
<PP&E> 9,409
<DEPRECIATION> 2,307
<TOTAL-ASSETS> 188,653
<CURRENT-LIABILITIES> 11,525
<BONDS> 0
4,791
0
<COMMON> 704
<OTHER-SE> 171,633
<TOTAL-LIABILITY-AND-EQUITY> 188,653
<SALES> 0
<TOTAL-REVENUES> 1,657
<CGS> 0
<TOTAL-COSTS> 1,131
<OTHER-EXPENSES> 4,946
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,267)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
