<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
HEALTHCENTRAL.COM
(Exact Name of Registrant as Specified in Its Charter)
Delaware 7375 94-3250851
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation or Classification Code Number)
Organization) Number)
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
(510) 250-2500
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
---------------
Albert L. Greene
Chief Executive Officer
HealthCentral.com
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
(510) 250-2500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
Copies to:
Mark A. Medearis Craig S. Andrews
Laurel Finch David G. Odrich
Scott Ring Jeffrey C. Thacker
Gene Yoon Michelle A. Lara
VENTURE LAW GROUP BROBECK, PHLEGER & HARRISON LLP
A Professional Corporation 550 West "C" Street
2800 Sand Hill Road Suite 1300
Menlo Park, CA 94025 San Diego, CA 92101
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Securities To Amount of Registration Fee
Be Proposed Maximum Aggregate Offering
Registered price (1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $ per share $86,250,000 $23,977.50
- ------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) and Rule 457(o) under the
Securities Act.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject To Completion, Dated September 29, 1999
[HEALTHCENTRAL.COM LOGO]
Shares
Common Stock
- --------------------------------------------------------------------------------
We are offering shares of our common stock. This is our initial
public offering, and no public market currently exists for our shares. We have
applied to have the shares we are offering approved for quotation on the Nasdaq
National Market under the symbol "HCEN." We anticipate that the initial public
offering price will be between $ and $ per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price.......................................... $ $
Underwriting discounts and commissions......................... $ $
Proceeds to HealthCentral.com.................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
Lehman Brothers expects to deliver the shares of common stock to purchasers on
, 1999.
- --------------------------------------------------------------------------------
Lehman Brothers Hambrecht & Quist
Pacific Growth Equities, Inc.
Wit Capital Corporation
The date of this prospectus is , 1999
<PAGE>
Inside Front Cover
Description of page:
This page will portray the www.healthcentral.com homepage and related websites
from the HealthCentral.com network.
At the top of the page will be a description of the HealthCentral.com network.
The pulled quote will read as follows:
Our company network provides online healthcare content and e-commerce to
consumers through our HealthCentral.com network. Our goal is to become the
most trusted and complete source of online healthcare information and
products.
On the left side of the page, we will be a picture of the homepage for
www.healthcentral.com.
On the right side of the page, we will show 3 screens, in cascading format,
from the websites in the HealthCentral.com network.
The front screen will be a screen from www.epills.com. This screen will be
viewed in its entirety.
Behind the www.epills.com screen will be a screen from the
AltaVista/HealthCentral.com co-branded health channel. Only the header from
this screen will be visible.
Behind the AltaVista/HealthCentral.com screen will be a screen from
www.peoplespharmacy.healthcentral.com. Only the header from this screen will be
visible.
<PAGE>
Gatefold Page One
Description of page:
This page will be split into two. The top of the page will describe our
Institutional Internet Services business. The bottom half of the page will
describe our content.
Top Half of Page
For the top half of the page, which describes our Institutional Internet
Services business, the following pulled quote will read across the top of the
page:
In addition to our HealthCentral.com network, we act as an application
service provider for healthcare institutions by designing, hosting and
maintaining private label websites for these institutions.
Beneath the above quote will be three screens, displayed horizontally from left
to right, from the homepages of three institutional clients.
The screen on the left will be a picture of the homepage of
www.catholichealthcarewest.com. Directly beneath the picture of this screen
will read the following quote:
Catholic Healthcare West is a network of 48 hospitals, ancillary
facilities, home care and physician organizations based in California,
Arizona and Nevada.
The screen in the middle will be a picture of the homepage will be from the
homepage of www.scrippsclinic.com. Directly beneath the picture of this screen
will read the following quote:
Scripps Clinic is a medical group and clinical research organization with
over 320 physicians based in San Diego, California.
The screen on the far right will be from the homepage of
www.brownandtoland.com. Directly beneath the picture of this screen will read
the following quote:
Brown & Toland Medical Group is a partnership of University of California
at San Francisco and California Pacific Physicians with over 1,200
physicians.
The Bottom Half of Page Two
The bottom half of the page will describe content offered on the
HealthCentral.com network. At the top of this part of the page will read the
following quote:
Our HealthCentral.com network is built on the provision of unique and
engaging information from medical professionals who have established a high
degree of trust with consumers in the traditional media.
On the left will be a picture of Dr. Dean Edell. Directly beneath the picture
of Dr. Edell will read the following quote:
Dr. Dean Edell is one the leading physician broadcasters over the past
twenty years. Dr. Edell is the host of the Dr. Dean Edell show, a daily
one-hour radio program on over 300 radio station stations. Dr. Edell also
has a daily syndicated television report, which is broadcast in over 50
markets. Dr. Edell reaches a combined 20 million individuals each week.
To the right of the picture of Dr. Edell will be the The People's Pharmacy
logo. Directly beneath the logo will read the following quote:
Joe and Teresa Graedon write The People's Pharmacy, a newspaper column
syndicated by King Features and published three times per week in over 100
markets. The Graedon's also host a weekly radio show broadcast on over 500
stations in more than 100 countries.
<PAGE>
Gatefold Page Two
Description of Page
This page will be divided into two parts.
Top Half of Page
The top half of this page will show a picture of the homepage from
www.healthcentral.com. Lines will point to specific features on the homepage
screen. The following quotes will be used in reference to the features:
Search engine: provides rapid keyword searches through large volumes of
content
Today's Top Stories: provides up-to-date news selected, organized and
edited by our editorial team
Dr. Dean Today: provides the most recent topics covered by Dr. Dean in his
radio and television broadcasts
Dr. Dean Topics: provides topics covered by Dr. Dean over the past few
weeks
Columnists: original healthcare editorial columns
New Specials: provides engaging news polls and quizzes
Health Profile: provides unique personalization tools that encourage users
to get personal feedback about their health with mini-profiles on
nutrition, fitness, stress, and more.
My Health: includes Make My News (news pages that are personalized to
user's specific health interests); Cools Tools (engaging questionnaires and
simple tests to assess or demonstrate various health topics); Health
Newsletters sign-up (free daily, weekly and monthly email newsletters on
various health topics); and many features.
Centers: Over 90 different collections of resources updated weekly focusing
on different health-related topics
Bottom Half of Page
The bottom half of this page will be the homepage from www.epills.com. Lines
will point to specific features on the homepage screen. The following quotes
will be used in reference to the features:
The Health category includes over-the counter remedies, products for eye
and ear care, family planning, and home health.
The Personal Care category includes products related to deodorants, foot
care, men's care, oral hygiene, soaps and women's care.
The Supplements category includes adult nutritionals, diet, herbs,
minerals, natural health, sports and fitness and vitamins.
The Beauty Category includes cosmetics, fragrances, hair care, nail care,
skin care and sun care products.
The Parenting category includes baby care, child care and prenatal
products.
The Prescription category includes prescription medications for chronic and
acute illnesses.
The search engine allows customers to browse the entire inventory by
keyword, such as product name, brand name or description.
The virtual Shopping Bag feature remains on the screen at all times so that
the customer never has to go to a different page to select a product.
Customers have a variety of shipping options, including UPS Next Day Air.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Special Note Regarding Forward-Looking Statements........................ 25
Use of Proceeds.......................................................... 25
Dividend Policy.......................................................... 25
Capitalization........................................................... 26
Dilution................................................................. 27
Selected Financial Data.................................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 35
Management................................................................. 57
Transactions with Affiliates............................................... 66
Principal Stockholders..................................................... 69
Description of Capital Stock............................................... 71
Shares Eligible for Future Sale............................................ 74
Underwriting............................................................... 76
Legal Matters.............................................................. 79
Experts.................................................................... 79
Additional Information..................................................... 79
Index to Financial Statements.............................................. F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
In this prospectus, references to the "Company," "HealthCentral.com," "we,"
"us," and "our" refer to HealthCentral.com and its subsidiaries, ePills Inc.
and Windom Health Enterprises, Inc.
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
----------------
"HealthCentral.com", "Windom Health", "ePills.com", "HealthView" and
"LifeView" are our trademarks. This prospectus also makes reference to
trademarks of other companies.
This prospectus includes statistical data regarding the Internet industry
from information published by industry sources such as Cyber Dialogue, IDC,
Forrester Research and Jupiter Communications. Although we believe that this
data is generally indicative of the matters expressed, it is inherently
imprecise, and you should not place undue reliance on this data.
1
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the financial statements and notes, before deciding to
invest in shares of our common stock.
HealthCentral.com
Our Business
Our company provides online healthcare content and e-commerce to consumers
through our HealthCentral.com network, which consists of the following
websites:
. www.HealthCentral.com. HealthCentral.com is our flagship website that
provides original, trustworthy, up-to-date and personalized online
healthcare information to consumers. The cornerstone of HealthCentral.com
is our relationship with Dr. Dean Edell, a widely recognized television
and radio personality who has a daily syndicated radio program that is
broadcast on over 300 radio stations, and a syndicated television report
broadcast in over 50 television markets, reaching a combined 20 million
individuals per week. In August 1999, according to an audit completed by
Nielsen I/PRO, www.healthcentral.com attracted five million page views,
and according to Double Click 599,400 unique users.
. www.ePills.com. ePills.com is our online drug store, offering over 23,000
stock keeping units, or SKUs, a term used to describe distinct retail
products. ePills.com has fulfillment agreements with Bergen Brunswig, a
major drug distributor, for health and beauty aids, over-the-counter
products and prescription drug orders. ePills.com is one of five health
anchor tenants on the America Online HealthOnline Pharmacy Channel.
We intend to expand our HealthCentral.com network through additional
websites and relationships. We recently entered into an agreement with
AltaVista under which we will be the exclusive healthcare content provider to
its website, subject to conditions, and we expect to launch a co-branded health
channel in the first quarter of 2000. In the fourth quarter of 1999, we intend
to launch www.peoplespharmacy.healthcentral.com, featuring pharmacy-related
content provided exclusively by the authors of The People's Pharmacy, a
newspaper column published three times a week in over 100 markets. We also have
an agreement with MediaLinx, a Canadian portal, to launch a co-branded health
channel focusing on Canadian health content, which we intend to launch in the
fourth quarter of 1999.
In addition, we act as an application service provider for healthcare
institutions by designing, hosting and maintaining private label websites for
them. Some of our current clients include Brown and Toland, Scripps Clinic,
Sutter Health and Catholic Healthcare West.
Our Market Opportunity
The Internet has become an increasingly popular source of healthcare
information and products. Consumer research conducted by Cyber Dialogue in 1999
found that 24.8 million U.S. adults search for health information on the
Internet, with the number expected to grow to 30 million in the year 2000. The
explosive growth in demand for online health information has been driven by
consumers seeking to make better informed personal healthcare decisions.
Consumers are also increasingly purchasing healthcare products on the Internet.
Forrester Research estimates that 31.6% of surveyed Internet users shopped for
healthcare products online during the previous six months. In addition, Jupiter
Communications estimates that consumer purchases of healthcare goods are
expected to grow from $2.4 million in 1998 to $1.7 billion in 2003.
3
<PAGE>
Our Business Model
We believe we are strongly positioned to integrate a wide range of health-
related content with a complete healthcare e-commerce solution. Through our
HealthCentral.com network, we derive revenue from advertisements, sponsorships
and e-commerce. Through our institutional Internet services business, we derive
revenue from annual license fees for applications, content, hosting and
maintenance services, as well as from development fees for customization
services. Our goal is to become the consumer's most trusted and complete online
source of healthcare information and products.
Our Strategy
Our business strategy incorporates the following key elements:
. build our brands and drive network traffic by using cross-media exposure
through our relationships with established medical professionals in
traditional media such as Dr. Dean Edell and Joe and Teresa Graedon,
through our portal deals with AltaVista, America Online and MediaLinx and
through television, radio and newspapers;
. cultivate our multiple revenue streams of sponsorship and advertising
fees principally from our flagship HealthCentral.com website, e-commerce
revenue from ePills.com, and fees and licensing revenue from products and
services that we provide to our institutional clients;
. continue to add unique and compelling content to our HealthCentral.com
network;
. attract a growing base of customers to ePills.com and provide them with a
superior shopping experience by offering them a complete line of drug
store products and useful links to content on HealthCentral.com and
PeoplesPharmacy.HealthCentral.com;
. leverage personalization features and interactive tools to increase
users' return visits to our network;
. maintain and strengthen a relationship of trust with our users and
consumers; and
. leverage our existing strategic relationships with AltaVista, America
Online and Bergen Brunswig, and pursue additional complementary
relationships.
Our principal executive offices are located at 6001 Shellmound Street, Suite
800, Emeryville, CA 94608. Our telephone number at that location is (510) 250-
2500. Information contained on the websites on the HealthCentral.com network,
including www.healthcentral.com and www.epills.com, does not constitute part of
this prospectus.
ePills Inc.
In September 1999, we entered into an acquisition agreement with ePills
Inc., an online drug store company with the website www.epills.com. Under the
terms of the acquisition agreement, ePills.com will become a wholly-owned
subsidiary of HealthCentral.com in exchange for 1,776,923 shares of our common
stock. We believe that the acquisition of ePills will enhance our e-commerce
strategy. The acquisition is subject to conditions to closing, including that
all representations and warranties must be materially true at closing and that
we shall have entered into employment and noncompetition agreements with
officers of ePills.com. This prospectus assumes that all conditions to closing
have been satisfied and that the acquisition of ePills.com has been
consummated.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by HealthCentral.com.......... shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... Working capital, sales and
marketing, funding
contractual obligations,
website and content
development,
infrastructure
improvements, funding
operating losses and
potential acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............. HCEN
</TABLE>
This table is based on shares outstanding as of August 31, 1999 and excludes
shares that may be issued on exercise of the following options and warrants:
. 1,890,177 shares subject to outstanding options at a weighted average
exercise price of $0.67;
. 744,361 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.57 per share;
. an aggregate of 1,093,064 shares available for future issuance under our
1998 Stock Plan; and
. an aggregate of 1,776,923 shares to be issued or reserved for issuance
pursuant to the assumption of options outstanding in connection with our
acquisition of ePills.com.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions: (a) the conversion of each outstanding share of
preferred stock into one share of common stock immediately before the
completion of this offering, (b) a 1.4-for-1 split of our capital stock
effective upon the completion of this offering, (c) no exercise of the
underwriters' overallotment option, (d) our reincorporation in Delaware before
the effectiveness of this offering, (e) the filing of our amended and restated
certificate of incorporation upon completion of this offering and (f) the
closing of our acquisition of ePills.com.
5
<PAGE>
Summary Financial Data
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Please see the
financial statements and the notes to the statements appearing elsewhere in
this prospectus for the determination of the number of shares used in computing
basic and diluted and pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
-------------------------- --------------------------
1997 1998 1998 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 15,259 $ -- $ 126,546
Total operating
expenses............... 1,148 461,494 2,619 2,092,574
------------ ------------ ----------- -------------
Loss from operations.... (1,148) (446,235) (2,169) (1,966,028)
Interest income, net.... -- -- -- 7,519
------------ ------------ ----------- -------------
Net loss................ $ (1,148) $ (446,235) $ (2,619) $ (1,958,509)
============ ============ =========== =============
Basic and diluted net
loss per share......... $ -- $ (0.09) $ -- $ (0.37)
============ ============ =========== =============
Shares used in computing
basic and diluted net
loss per share......... 5,163,200 5,221,800 5,215,400 5,238,187
============ ============ =========== =============
Pro forma basic and
diluted net loss per
share.................. $ (0.09) $ (0.31)
============ =============
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 5,246,655 6,372,187
============ =============
</TABLE>
The pro forma balance sheet data as of June 30, 1999 reflects:
. the acquisition of Windom Health in August 1999, including $51,000 in
cash, a $458,000 note payable and 2,357,341 shares of common stock
issued to shareholders of Windom Health Enterprises, Inc.;
. the net proceeds from the sale of 4,523,065 shares of Series B preferred
stock in August and September 1999; and
. the acquisition of ePills.com in September 1999, including the 1,776,923
shares of common stock issued or reserved for issuance pursuant to the
assumption of options outstanding to ePills.com stockholders.
The pro forma as adjusted balance sheet data gives effect to our receipt of
the estimated net proceeds from the sale of shares of common stock in
this offering at an assumed initial public offering price of $ per share
after deducting the estimated underwriting discount and commissions and
estimated offering expenses payable by us.
6
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................... $ 69,383 $19,902,756 $ --
Working capital (deficit)................... (314,675) 16,458,920 --
Total assets................................ 1,579,662 47,876,834 --
Long-term obligations....................... 500,000 854,112 --
Total stockholders' equity.................. 547,055 43,263,357 --
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the following risks in addition to other
information in this prospectus before purchasing our common stock. The risks
and uncertainties described below are the ones we currently deem to be material
and that we believe are specific to our company, our industry and this
offering, but are not the only risks we face. If any of these or other risks
actually occurs, the trading price of our common stock could decline, and you
may lose all or a part of your investment.
Risks Related to Our Business
We have a limited operating history, which makes it difficult for investors to
evaluate an investment in our common stock.
We launched our HealthCentral.com network in November 1998, and our
ePills.com website was launched in September 1999. We therefore have a limited
operating history on which you can evaluate our business. We may not be able to
achieve revenue growth or profitability. You should consider an investment in
our stock in light of the risks, expenses and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets such
as the Internet healthcare market. These challenges include our ability to:
. attract and retain a large audience of users to our HealthCentral.com
network;
. compete effectively against better-established Internet health
companies;
. gain advertising and sponsorship revenue;
. implement a successful e-commerce strategy;
. maintain our current, and build new, strategic alliances with portals,
physician groups, content providers and other third parties;
. develop our institutional Internet services business;
. develop and upgrade our technology; and
. attract, retain and motivate qualified personnel.
We have a history of losses and expect our expenses to increase, and thus may
never become profitable.
Since our inception, we have had very limited revenues and have incurred net
losses in each year. As of June 30, 1999, we had an accumulated deficit of
approximately $2.4 million. While we are unable to predict accurately our
future operating expenses, we currently expect these expenses to increase
substantially, as we, among other things:
. enter into third party alliances to expand our HealthCentral.com
network;
. promote our brands;
. develop or acquire content;
. hire additional employees;
. increase our sales and marketing activities, including making
substantial payments to advertising partners;
. develop and expand our systems infrastructure and support functions; and
. offer product promotions.
We expect our operating expenses to substantially exceed revenues for the
foreseeable future, and we may never become profitable.
8
<PAGE>
A failure to build our brand names quickly and significantly will result in
lower than expected revenues.
We must build our brands in a market dominated by better established
competitors.
If we do not gain significant brand recognition quickly, we may lose the
opportunity to build a critical mass of customers and our business may fail.
Some of our competitors, such as drkoop.com, drugstore.com and planetRx have
much stronger name recognition than we do. The increasing competition in our
markets makes building a brand more expensive and difficult than it otherwise
would be. To increase brand recognition, we will need to increase substantially
our sales and marketing efforts, our third party alliances, and our content,
product and service offerings, all of which are expensive.
We need to build three separate brand names for each of HealthCentral.com,
ePills.com and Windom Health, and this brand management strategy is expensive
and difficult.
We intend to build separate brands around our HealthCentral.com consumer
network, including our ePills.com online drug store, and our Windom Health
institutional Internet services. This brand management strategy is based on our
intention to separate e-commerce and institutional activities from the
provision of health information to consumers so that our commercial activities
do not impair perceptions of the trustworthiness of our content. This brand
management strategy may be more expensive and less effective than a strategy
based on one brand. If this strategy confuses consumers or if our e-commerce or
institutional Internet services taints the trustworthiness of our content in
consumers' minds, then our business could suffer.
In addition, we intend to market our ePills.com brand in conjunction with
the Good Neighbor Pharmacy service mark, which we have licensed from Bergen
Brunswig. However, there already exists a Good Neighbor Pharmacy website and
one or more of the 2,000 independent pharmacies in the Good Neighbor Pharmacy
Network may develop their own websites for the promotion of their own stores.
This possible proliferation of websites using the Good Neighbor Pharmacy mark
could cause confusion and dilute our ePills.com brand.
We depend on Dr. Dean Edell to provide us with unique content and credibility,
and any failure by Dr. Edell to participate in our business could result in
reduced site traffic and revenues.
We rely on Dr. Dean Edell, one of our co-founders, to provide unique content
for, and drive traffic to, our HealthCentral.com network, neither of which he
is paid for or contractually obligated to do. If Dr. Edell ceased providing us
with content or ceased mentioning our HealthCentral.com network on his
television and radio shows, we would have to find a replacement for this unique
content or an alternative means of driving traffic to our site, both of which
would be difficult and expensive to do. If Dr. Edell started charging us a fee
for either of these activities, our expenses would increase.
In addition, Premiere Radio Networks, the syndicator of Dr. Edell's radio
show, owns the exclusive rights to broadcast and redistribute Dr. Edell's radio
shows in all forms of media, including the Internet. Under his agreement with
Premiere Radio Networks, Dr. Edell has agreed not to authorize the use of his
name or likeness to promote any product or service in any way that would
conflict with his programs' advertisers or potential advertisers, or would
impair his credibility as a program host.
Any diminishment in Dr. Edell's reputation as a medical expert and advisor,
his death or incapacity, the expiration of his 15 year agreement with us, or
any other development that would cause us to lose the benefits of our
affiliation with Dr. Edell could diminish our standing with healthcare
consumers as a credible source of healthcare information and could harm our
business. Although we do maintain key person life insurance for Dr. Edell, his
role in providing unique content and marketing for the HealthCentral.com
network is sufficiently critical that the insurance would not adequately
protect us in the event of his loss. See "Business--Strategic Relationships."
9
<PAGE>
We face substantial competition from better established companies, which could
result in our failure to gain needed market share.
Over 15,000 healthcare websites compete with us for users, advertisers, e-
commerce transactions, institutional clientele and other sources of online
revenue, and the number of online participants in the healthcare market is
increasing at a rapid rate. In addition, traditional media and healthcare
providers compete for consumers' attention both through traditional means as
well as through new Internet initiatives.
HealthCentral.com Website
We currently compete directly for users, advertisers and content providers
with numerous Internet and non-Internet businesses, including:
. health-related online services or websites targeted at consumers;
. online and Internet portal companies;
. healthcare providers and payors, which offer healthcare information
through the Internet; and
. other consumer affinity groups that offer healthcare-related content to
special demographic groups.
See "Business--Competition--HealthCentral.com."
ePills.com Online Drug Store
Through ePills.com, we compete with online companies that sell
pharmaceuticals as well as over-the-counter drug and health, beauty and
personal care items, such as drugstore.com and planetRx, and pharmacy benefit
managers, or PBMs, that sell pharmaceuticals directly.
We compete with traditional brick-and-mortar drug stores, including drug
store chains, discount drug stores, supermarkets, combination food and drug
stores, mass market retailers, independent drug stores and local merchants. See
"--We need to generate substantial revenues from our e-commerce business for
healthcare products, and yet this market is unproven and we have limited
experience in it--Consumers may reject the concept of an online drug store in
favor of a brick-and-mortar drug store." Many of these brick-and-mortar drug
stores are also beginning to offer online services. We also compete with
hospitals, HMOs and mail order prescription drug providers, all of whom are or
may begin offering products and services over the Internet.
Most of our current and potential competitors enjoy substantial competitive
advantages, such as:
. greater name recognition and larger marketing budgets and resources;
. established marketing relationships with manufacturers and advertisers;
. larger customer and user bases;
. substantially greater financial, technical and other resources; and
. larger production and technical staffs.
We believe that we may face a significant competitive challenge from our
competitors forming alliances with each other. For instance, drugstore.com has
formed an alliance with RiteAid. In addition, PBMs and HMOs could form
alliances with our competitors that would prevent them from also entering into
relationships with us. For example, planetRx has formed a strategic alliance
with Express Scripts, Inc.
We believe the main competitive factors in the health-related e-commerce
market are the availability of branded products, selection, convenience, price,
quality of search tools, and reliability and speed of fulfillment for products
ordered. Increased competition could result in price reductions, fewer customer
orders, reduced margins and loss of, or failure to build, market share, any of
which could harm our business. See "Business--Competition--ePills.com."
10
<PAGE>
Institutional Internet Services
In the market for institutional Internet services, we compete mainly with
payors' and providers' internal systems development teams, with local web
development companies, and with other consumer-oriented websites that are
selling applications to institutions, such as drkoop.com, Baby Center's CHI
division and WebMD.
Healthcare participants may determine that our tools and website development
and maintenance services are inferior to those of our competitors, our product
mix is inappropriate for their needs, or that it would be more efficient and
desirable for them to independently develop and manage the process of
exchanging information with their consumers over the Internet. See "Business--
Competition--Institutional Internet Services."
We need to generate substantial revenues from our e-commerce business for
healthcare products, and yet the market is unproven and we have limited
experience in it.
The healthcare e-commerce market is unproven.
The online market for pharmaceutical and other health products is in its
infancy. This market is significantly less developed than the online market for
books, music, software, toys, auctions and a number of other consumer products.
Even if Internet usage and electronic commerce continues to increase, the rate
of growth, if any, of the online pharmacy and health products market could be
significantly less than the online market for other products. Our rate of
revenue growth could therefore be significantly less than that of other online
merchants.
Consumers may reject the concept of an online drug store in favor of a brick-
and-mortar drug store.
Historically, many pharmaceutical products have been sold through the
personal referral of a physician or pharmacist, and thus there is no
established business model for the sale of healthcare products or services over
the Internet. Specific factors that could prevent widespread customer
acceptance of our online drug store include:
. lack of coverage of customer prescriptions by insurance carriers or
pharmacy benefit managers;
. lack of consumer awareness of our online drug store;
. delivery time associated with Internet orders, as compared to the
immediate receipt of products at a physical store;
. shipping charges, which do not apply to shopping at brick-and-mortar
pharmacies;
. lack of face-to-face interaction with a pharmacist;
. pricing that does not meet customer expectations of finding the lowest
price on the Internet;
. additional steps and delays in ensuring insurance coverage for
prescription products;
. customer concerns about the security of online transactions and the
privacy of their personal health information;
. product damage from shipping or shipments of wrong or expired products
from our fulfillment partners, resulting in a failure to establish
customers' trust in buying pharmacy and other health products online;
. acute conditions that require immediate access to prescriptions;
. delays in responses to customer inquiries or in deliveries to customers;
and
. difficulties in returning or exchanging orders.
11
<PAGE>
We have little experience in the healthcare e-commerce market.
ePills.com was only incorporated in January 1999 and only launched its
website in September 1999, and thus ePills.com has no experience to date in the
sale of healthcare products and services online. Prior to our acquisition of
ePills.com, we had no experience in the online sale of health products. If we
do not successfully develop our e-commerce operation, our business could fail.
We rely on Bergen Brunswig and Medi-Mail for fulfillment of our orders and
access to pharmacy benefit managers, and this relationship involves many risks.
In July and September 1999, ePills.com entered into a series of agreements
with Bergen Brunswig and its Medi-Mail subsidiary. These agreements are central
to our e-commerce strategy, and they include various arrangements relating to
the fulfillment of orders placed on our ePills.com website for healthcare
products and access to the PlusCare Provider Network of pharmacy benefit
managers. Under these agreements, Bergen Brunswig will be our exclusive
fulfillment provider for health and beauty and over-the-counter products and
Medi-Mail will be our exclusive fulfillment provider for most prescription drug
orders. This type of arrangement is complex, and there are many important
details regarding pricing, revenue sharing and operational procedures which
ePills.com and Bergen Brunswig have not yet finalized. This arrangement will
thus require a great deal of effort to operate successfully, and there are many
risks related to these relationships, including some that we may not have
foreseen. In addition, these agreements expire in five years, and they may not
be renewed on favorable terms, or at all. If for any reason we could not renew
these agreements or enter into similar contractual arrangements with a licensed
pharmacy, we could not operate our online pharmacy business without becoming a
licensed pharmacy ourselves. This process is extremely expensive and difficult.
If the intended benefits are not realized from ePills.com's relationship with
Bergen Brunswig, customer perceptions, revenues and our ability to execute our
e-commerce strategy may be jeopardized.
We expect that Medi-Mail will fill prescription orders placed on
ePills.com's website by mail, and that Bergen Brunswig will fulfill orders for
over-the-counter and health and beauty aid products placed through ePills.com
by mail. This fulfillment mechanism is complex and will require us to integrate
Bergen Brunswig's fulfillment systems with our web-based systems. Integrating
different information systems is technically difficult and may be delayed,
which could delay our receipt of revenues and diminish customer acceptance.
ePills.com has an agreement with Bergen Brunswig regarding access to the
PlusCare Provider Network of over 70 pharmacy benefit managers. These PBMs
provide pharmacy benefits for customers of approximately 4,000 individual
pharmacies. Medi-Mail is one of these pharmacies that has access to the
benefits provided by the PlusCare Provider Network. Notwithstanding assurances
from Bergen Brunswig regarding PBM access, Bergen Brunswig may be subject to
restrictions in the agreements with its individual PBMs that are unknown to us.
In addition, these contracts are typically subject to periodic renewal, and
thus we are subject to the risk of these contracts not being renewed at all, or
being renewed on terms that are not favorable to us. Furthermore, PBMs may
determine in the future to move business away from Medi-Mail for a variety of
reasons, including competitive reasons. As a result of these contractual and
business uncertainties, our revenue may be less than currently expected. In
addition, under our Medi-Mail agreement we bear the ultimate credit risk of
collecting from both consumers and payors. Finally, after the earlier of four
months or ten days after the closing of this offering, Bergen Brunswig will be
able to enter into additional agreements with other online pharmacy companies
and grant them access rights to these PBMs, which could diminish any
competitive advantage we may have.
We may need to raise additional capital in the future and may not be able to
raise it on acceptable terms, or at all.
We expect the proceeds of our initial public offering, together with
existing cash and cash equivalents to fund our operations for approximately 12
months. We do not expect a significant improvement in cash flows from
operations over this period and we need to make substantial investments in our
marketing and sales, our e-commerce capability and our technology and other
operations infrastructure. Moreover, we are contractually
12
<PAGE>
obligated to pay AltaVista $32.5 million and America Online $14.1 million over
the course of the next two years. The extent and timing of our capital
requirements will depend upon several factors, including:
. the rate of our sales and marketing spending;
. our ability to generate revenue from advertising, e-commerce and our
institutional Internet services;
. our ability to increase traffic on our HealthCentral.com website;
. the cost of expanding our content offerings; and
. the cost of technology upgrades and systems integration related to our
network infrastructure.
The sale of additional equity or convertible debt securities could result in
additional dilution to our stockholders. Any debt securities issued could have
rights senior to holders of common stock and could contain covenants that would
restrict our operations. Any additional financing may not be available in
amounts or on terms acceptable to us, if at all. In either case, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance editorial content or our e-commerce business, or otherwise respond to
competitive pressure would be significantly limited.
We are obligated to pay AltaVista and America Online combined approximately
$48.6 million in cash and stock over the next two years, and if we do not
receive expected revenues from these relationships, our business could suffer.
In September 1999 we entered into a three year agreement with AltaVista to
develop a co-branded health channel. The agreement calls for our payment of an
aggregate of $65.6 million in cash and stock issued at fair market value to
AltaVista over the three-year term in exchange for a minimum number of user
impressions on the co-branded health channel; however either AltaVista or we
may terminate the relationship after two years, in which case our aggregate
payment obligation over the first two years in cash and stock would be $34.5
million. Our payment obligations to AltaVista are reduced if AltaVista fails to
meet its minimum impressions obligations. In addition, in August 1999,
ePills.com entered into a two year agreement with America Online under which
ePills.com will appear as an anchor tenant on the America Online Health Online
Pharmacy and receive a minimum number of advertising impressions in exchange
for payments of $14.1 million. These transactions are premised on the
assumption that the traffic we obtain from these arrangements will permit us to
increase awareness of our brand and generate revenues in excess of the payments
we make. However, even if AltaVista delivers the minimum impressions, we may
not generate revenues exceeding the payments due under the contract because
AltaVista retains all of the advertising revenues generated from the co-branded
channel. In addition, we may not generate traffic sufficient to justify our
expenses because users visiting our co-branded health channel may remain there
for a limited number of page views before they will be redirected to the
HealthCentral.com network. If we do not receive the revenues we currently
expect from these relationships, or if the AltaVista Health Channel or the
America Online HealthOnline Pharmacy Channel is unsuccessful in attracting
traffic to our websites or in enhancing our brands, our business will suffer.
Any errors in filling or packaging the prescription drugs that Medi-Mail or the
Good Neighbor Pharmacy Network dispense on our behalf may expose us to
liability and negative publicity.
Pharmacy errors relating to prescriptions, dosage and other aspects of the
medication dispensing process could produce liability for us that our insurance
may not cover. ePills.com will be the first point of contact for the consumer
in processing a prescription order. As the most visible participant in the
medication distribution chain, ePills.com may have more exposure to liability
claims.
Pharmacists are required by law to offer counseling, without additional
charge, to their customers about medication, dosage, delivery systems, common
side effects and other information they deem important. With ePills.com's
proposed mail order delivery through Medi-Mail, this counseling is expected to
be accomplished by telephone access to pharmacists, but also in part through
inserts included with the prescription, which may increase the risk of
miscommunication because the customer is not personally present or may not have
provided all relevant information. We also plan to post product information on
our ePills.com website.
13
<PAGE>
Providing information on pharmaceutical and other products creates the
potential for claims to be made against us for negligence, personal injury,
wrongful death, product liability, malpractice, invasion of privacy or other
legal theories based on our product or service offerings. Our insurance may not
cover potential claims of this type or may not be adequate to protect us from
all liability that may be imposed.
In the future, we expect that prescription orders placed on our ePills.com
website may be picked up in person at a pharmacy in the Good Neighbor Pharmacy
Network, as well as filled by mail order through Medi-Mail. We have limited
control over Medi-Mail and no control over any of the pharmacies in the Good
Neighbor Pharmacy Network, and they may make errors. Pharmacy errors either by
Medi-Mail, one of the pharmacies in the Good Neighbor Pharmacy Network or our
competitors may produce significant adverse publicity either for us or the
entire online pharmacy industry. Because our ePills.com service mark will be
displayed with the Good Neighbor Pharmacy Network mark, any negligence by any
of the pharmacies in the Good Neighbor Pharmacy Network in filling orders or
advising customers regarding prescription drugs, whether through ePills.com or
otherwise, could harm our reputation or result in lawsuits, with or without
merit, against us. The amount of negative publicity that we or the online
pharmacy industry may receive as a result of pharmacy or prescription
processing errors could be disproportionate in relation to the negative
publicity received by traditional pharmacies making similar mistakes. We
believe that any negative publicity could erode consumer trust and result in an
immediate reduction in product purchases.
We may be sued by consumers as a result of the products we sell through e-
commerce.
Consumers may sue us if any of our products or services that are sold
through our website are defective, fail to perform properly or injure the user,
even if such goods and services are provided by unrelated third parties. We
have some contractual limits on our recourse against Bergen Brunswig in the
case of some product liability claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages.
As a result, any such claims, whether or not successful, could seriously damage
our reputation and our business.
The health information and health products we provide are subject to extensive
and changing governmental regulation.
Numerous state and federal laws regulate our health business covering areas
such as:
. the practice of medicine and other healing arts professions;
. the sale of controlled products such as pharmaceuticals and other
healthcare products;
. prohibitions against the offer, payment or receipt of remuneration to
induce referrals to entities providing healthcare services or goods;
. dispensing and delivering prescription and over the counter drugs; and
. advertising of drugs and cosmetics.
Further, because the Internet health business is novel, federal and state
agencies may apply laws and regulations to us in unanticipated ways, and may
produce new legislation regulating our business, which could increase our costs
or reduce or eliminate certain of our activities or our revenues. See
"Business--Government Healthcare Regulation" and "Business--Other Governmental
Regulation."
Our strategy to provide unique healthcare content and drive traffic to our
HealthCentral.com network through cross-media exposure may not be successful.
To attract and retain users to our HealthCentral.com network, we need to
continue to provide unique and informative content. We will need to purchase or
license much of this content from third persons. Competition for content from
people with the professional reputation, name recognition and expertise that we
require is intense and increasing. This competition may increase the fees
charged by high quality content providers, resulting in increased expenses for
us. We will not only have to expend significant funds to obtain and improve
14
<PAGE>
our content, but we must also properly anticipate and respond to consumer
preferences for this content. If we are unable to enter into agreements for the
delivery of desirable content, or lose any existing agreements as a result of
early termination, it could delay market acceptance of the HealthCentral.com
network and/or disrupt end-user services until equivalent content, if any, can
be secured.
Additionally, our ability to increase our own brand awareness and website
traffic from relationships with third party content providers is contingent
upon the status of these content providers as healthcare experts, the size of
their audiences and their willingness to promote our brands, all of which are
outside of our control.
We rely on relationships with other Internet companies to drive traffic and
build brand awareness.
We have entered into agreements with other third parties such as
AskJeeves.com, Broadcast.com, NetPulse Communications, Snap.com and Yahoo! to
provide them with content in exchange for either impressions or traffic. Many
of our current or possible future agreements are short-term, non-exclusive or
may be terminated at the convenience of either party. If we are unable to
develop and maintain these relationships and generate sufficient traffic and
revenues from them, our business could suffer. In addition, those companies
that provide us with impressions or links to our network may never achieve
market acceptance or commercial success themselves, which could reduce our
revenues below our expectations and otherwise negatively impact the likelihood
of our success.
Our business model relies on developing and hosting websites for institutional
clients in the healthcare industry; this institutional market is new and
unproven and the institutions may not accept our Internet solutions.
We expect to derive a substantial amount of our revenues from license and
development fees related to the designing, hosting and maintenance of private
label websites for our institutional clients. To date, the healthcare industry
has resisted adopting new information technology solutions. Healthcare payors
and providers may determine that our solutions are too costly to implement or
unnecessary to manage their relationships with consumers. Moreover, these
healthcare industry participants may be unwilling to allow sensitive
information to be stored in our databases.
We face the risk of systems interruptions and capacity constraints on the
HealthCentral.com network, possibly resulting in adverse publicity, revenue
losses and erosion of customer trust.
The satisfactory performance, reliability and availability of the
HealthCentral.com network, including the ePills.com online drug store, is
critical to our reputation and our ability to attract and retain customers and
to maintain adequate customer service levels. System problems may include:
. unanticipated system disruptions;
. slower system response times;
. degradation in levels of service;
. impaired quality; and
. delays in reporting accurate information.
Any of these systems problems could result in negative publicity and reduce
the attractiveness of our website to consumers and reduce our advertising, e-
commerce and institutional revenues. Any service lapses could cause our users
to instead use the online services of our competitors or revert to traditional
drug stores.
Additionally, the satisfactory performance of the websites we build for our
institutional clients is critical to our business. If we fail to meet the
website performance standards in our contracts with our institutional clients,
they may terminate their agreements with us, or require that we refund part or
all of the license fees. Inadequate performance could also cause our renewal
rates of institutional licenses to significantly decrease below our
expectations, which would directly and significantly impact our business.
15
<PAGE>
From time to time, we have experienced temporary system interruptions for a
variety of reasons, including power failures, flaws in our software and greater
than expected site traffic. We may not be able to correct any problem in a
timely manner. Because we outsource the server hosting function to a third
party, some systems interruptions may be outside of our control, and thus we
may not be able to exercise sufficient control to remedy the problem quickly or
at all.
We depend significantly on our relationship with DoubleClick to generate
advertising revenues, and DoubleClick can terminate this relationship on short
notice.
A significant portion of our revenues consists of the sale of advertising on
the HealthCentral.com website, all of which is currently derived through our
relationship with DoubleClick, an online advertising sales agency. DoubleClick
is our exclusive representative for advertising sold on our HealthCentral.com
website, except for limited non-cash barter arrangements, if any; however
DoubleClick can enter into advertising sales contracts with our competitors,
and either party can terminate the contract on 90 days notice. We have no
control over DoubleClick's sales efforts, and if it fails to sell advertising
in accordance with our expectations, our revenues would likewise be lower. In
addition, while we anticipate that we may transition part or all of our
advertising sales activities to our own direct sales force over time, if
DoubleClick were to terminate our agreement before we completed a buildup in
our direct sales force, we would be forced to accelerate this process, which
would be expensive and difficult to do.
Our business model relies on developing and hosting websites for institutional
clients in the healthcare industry; this institutional market is new and
unproven and the institutions may not accept our Internet solutions.
We expect to derive a substantial amount of our revenues from license and
development fees related to the designing, hosting and maintenance of private
label websites for our institutional clients. To date, the healthcare industry
has resisted adopting new information technology solutions. Healthcare payors
and providers may determine that our solutions are too costly to implement or
unnecessary to manage their relationship with consumers. Moreover, these
healthcare industry participants may be unwilling to allow sensitive
information to be stored in our databases.
If the Internet does not prove to be an effective or profitable marketing media
for advertisers, especially those in the health industry, our business model
could fail.
The Internet is a relatively new advertising medium.
Our success depends on the increased use of the Internet as an advertising
medium. This advertising medium is unproven and may not become an effective
medium as compared to traditional advertising media. If the market for Internet
advertising fails to develop or develops more slowly than we anticipate, then
our ability to generate advertising revenue would be diminished. Various
pricing models are currently used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenues. Our revenues could be adversely affected if we are unable to adapt to
new forms of Internet advertising. Moreover, filter software programs are now
available that limit or prevent advertising from being delivered to an Internet
user's computer. Widespread adoption of this software could adversely affect
the commercial viability of Internet advertising, which could significantly
impair our ability to generate revenues from advertising. See also "--A failure
to build our brand names quickly and significantly will result in lower than
expected revenues."
Companies buying advertising for healthcare products over the Internet face
special advertising issues.
Health-related companies, which comprise our advertising and sponsorship
target market, face special problems with regard to Internet advertising.
Historically, these companies have marketed their products through physicians
and pharmacologists, and thus direct-to-consumer marketing, whether on the
Internet or in traditional media, is relatively new and unproven. Advertising
and product claims of companies marketing or
16
<PAGE>
selling drugs and cosmetics, including over-the-counter drugs and nutritional
supplements, are subject to regulation and enforcement by the FDA, FTC and
similar state agencies.
Our quarterly operating results are subject to significant fluctuations, and
our stock price may decline if we do not meet quarterly expectations of
investors and analysts.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter for many reasons,
including:
. seasonal and cyclical patterns of spending by advertisers and sponsors;
. shifts in the nature and amount of publicity about us or our
competitors;
. long sales cycles and delays in website development for institutional
projects;
. our ability to enhance our technology to accommodate any future growth
in our operations or customers;
. changes in the growth rate of Internet usage;
. user traffic levels on HealthCentral.com; and
. costs related to potential acquisitions of technology or businesses.
Our quarterly revenues and operating results will also be significantly
influenced by the success of our e-commerce activities. In addition to the
reasons specified above, revenues and expenses from selling health, personal
care, supplements, beauty, parenting and pharmacy products may fluctuate from
quarter to quarter due to a number of factors, including:
. demand for our products;
. the availability or timeliness of reimbursement from pharmacy benefit
managers and insurance companies for prescription drugs;
. our ability to attract visitors to our website and convert those
visitors into customers;
. the frequency of repeat purchases by customers;
. average order size;
. the mix of products sold;
. our ability, and that of our fulfillment partners, to ensure sufficient
product supply;
. changes in our pricing policies or the pricing policies of our
competitors; and
. changes in government regulation.
If we do not meet the expectations of investors and analysts in any given
quarter, our stock price could decline. Any shortfall in revenues relative to
our expectations could cause a significant decline in our quarterly operating
results.
We have recently experienced and are currently experiencing rapid growth in our
business, and our inability to manage this growth could harm our business.
We have experienced and are currently experiencing a period of significant
growth. This growth has placed, and the future growth we anticipate in our
operations will continue to place, a significant strain on our resources. As a
result of the ePills.com acquisition, we have added over 13 new employees,
including managerial, technical and operations personnel, and we will need to
assimilate the operations of ePills.com into our operations. In order to manage
this growth effectively, we have to implement new transaction-processing,
operational and financial systems, procedures and controls, expand, train and
manage our employee base, and maintain close coordination among our technical,
accounting, finance, marketing, sales and editorial staffs. We also need to
devote significant management time and financial resources to website and
content development,
17
<PAGE>
strategic relationships, technology infrastructure and finance and
administrative infrastructure. Our failure to successfully implement, improve
and integrate new systems and procedures, and otherwise manage our growth would
adversely affect our results of operations.
Our management team is new and we need these individuals to work together
effectively to manage our growth.
Because we only began operating our HealthCentral.com website in November
1998, virtually our entire management team is relatively new. Our future
success depends on the successful integration of this management team and their
ability to work together effectively. Also, we need to successfully integrate
ePills.com's employees into our existing team.
In order to execute our growth plan we must attract, retain and motivate highly
skilled employees, and we face significant competition from other Internet,
healthcare and new media companies in doing so.
If we fail to attract new personnel or retain and motivate our current
personnel, our business and future growth prospects will be severely harmed. We
will need to hire additional personnel in virtually all operational areas,
including sales and marketing, production and research and development.
Competition for personnel throughout the Internet and healthcare industry is
intense. We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to
time in the past experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications.
Lengthy sales cycles for our institutional solutions could adversely affect our
revenue growth.
A key element of our institutional strategy is to market our solutions
directly to large healthcare organizations. We expect that the sales process
will be lengthy and will involve a significant technical evaluation and
commitment of capital and other resources by our customers. The sales of our
solutions are subject to delays due to our customers' internal budgets and
procedures for approving large capital expenditures and deploying new
technologies within their networks.
If we are unable to acquire the necessary web domain names, our brands and
reputation could be damaged and we could lose customers.
We currently hold the Internet domain names healthcentral.com,
peoplespharmacy.healthcentral.com and epills.com, as well as various other
related names. Domain names generally are regulated by Internet regulatory
bodies. The regulation of domain names in the United States and in foreign
countries is subject to change. Regulatory bodies could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may not acquire or
maintain the healthcentral.com, peoplespharmacy.healthcentral.com or epills.com
domain name in all of the countries in which we conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our brand name, trademarks and
other proprietary rights.
In addition we may be unable to prevent third parties from acquiring and
using domain names relating to our brands. The domain names doctoredell.com and
dredell.com are currently registered in the name of, and operated by, a third
party, and the domain name epill.com is registered in the name of, and operated
by, e-pill LLC, a company in the business of developing and marking medication
reminder products. The URLs e-pills.com and epill.com are also owned by third
parties. Any confusion that may result from information on or related to these
websites either presently or in the future, or on any other websites with
domain names relating to our brands, could impair both our ability to
capitalize upon our brands and our marketing strategy.
18
<PAGE>
We may not achieve the expected benefits of the acquisition of ePills.com, and
the integration of ePills.com may result in a disruption to our business or the
distraction of our management and employees.
We may not be able to successfully assimilate the ePills.com personnel and
operations or fund or accomplish the execution of this e-commerce business
plan. The integration of ePills.com into our business may strain our existing
technology and operations systems as we attempt to assimilate ePills.com into
our existing operations. In addition, key ePills.com personnel may decide not
to work for us. These difficulties could disrupt our ongoing business, distract
our management and employees or increase our expenses.
Any future acquisitions of companies or technologies may result in disruptions
to our business and/or the distraction of our management.
To date we have completed two acquisitions, Windom Health and ePills.com. We
may acquire or make investments in other complementary businesses and
technologies in the future. We may not be able to identify other future
suitable acquisition or investment candidates, and even if we do identify
suitable candidates, we may not be able to make these acquisitions or
investments on commercially acceptable terms, or at all. If we do acquire or
invest in other companies, we may not be able to realize the benefits we
expected to achieve at the time of entering into the transaction. In any future
acquisitions, we will likely face the same risks as discussed above with
respect to the integration of the business of ePills.com. Further, we may have
to incur debt or issue equity securities to pay for any future acquisitions or
investments, the issuance of which could be dilutive to our existing
stockholders.
Breaches in our security and other unexpected problems could result in lawsuits
by customers and a violation of federal law.
We retain confidential customer and patient information on our servers. We
use encryption and authentication technology licensed from third parties to
provide security and authentication for the secure transmission of confidential
information, such as buyer credit card numbers and non-anonymous patient
medical information. In addition, we maintain industry standard security
measures such as firewalls, video surveillance and secure facilities. Despite
the implementation of these security measures, our infrastructure may be
vulnerable to breaches from physical break-ins, computer viruses, programming
errors or attacks by third parties. Our systems are also vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure,
earthquakes and similar events. We do not have full redundancy for all of our
computer and telecommunications facilities and do not maintain a back-up data
facility. Any breach of security or unexpected natural disaster could subject
us to a lawsuit. We may be required to expend significant sums to protect
against security breaches or to alleviate problems caused by breaches. In
addition, a breach of privacy of patient health records could constitute a
violation of federal law. We may incur additional expenses if new regulations
regarding the use of personal information are adopted or if any regulator
chooses to investigate our privacy practices.
Any failure or inability to protect our intellectual property rights could
adversely affect our ability to establish our brands.
Our success depends significantly on our ability to protect our proprietary
rights in our content, technology, products and services. We also rely on a
variety of technologies that are licensed from third parties, including our
database and Internet server software, which is used in the HealthCentral.com
network to perform key functions. These third-party licenses may not be
available to us on commercially reasonable terms in the future. If we are not
adequately protected, our competitors could use the intellectual property that
we have developed to enhance their products and services, which could harm our
business. We rely on a
19
<PAGE>
combination of copyright and trademark laws, trade secrets, confidentiality
provisions and other contractual provisions to protect our proprietary rights,
but these legal means afford only limited protection. See "Business--
Intellectual Property."
We may be sued by third parties for infringement of their proprietary rights.
The healthcare and Internet industries are characterized by the existence of
a large number of patents and frequent litigation based on allegations of
patent infringement or other violations of intellectual property rights. As the
number of entrants into our market increases, the possibility of an
intellectual property claim against us grows. Our content, technology, products
and services may not be able to sustain any third party claims or rights
against their use.
We may not be able to operate under the tradename "ePills.com."
We are aware that another company has filed an "intent to use" application
for the trademark "E-Pill." Any intellectual property claims, with or without
merit, could be time-consuming and expensive to litigate or settle and could
divert management attention from administering our core business.
As a publisher of online content, we may have liability for information we
provide on or which is accessed from the HealthCentral.com network.
Because users of our network and the websites of our institutional licensees
access health content and services relating to a medical condition they may
have or may distribute our content to others, third parties may sue us for,
among other things, defamation, negligence, intellectual property infringement,
personal injury or other causes of action based on the nature and content of
materials that we publish or distribute. We could also become liable if
confidential information is disclosed inappropriately. These types of claims
have been brought successfully against online services in the past. Others
could also sue us for the content and services that are accessible from our
network through links to other websites or through content and materials that
may be posted by our users in chat rooms or bulletin boards.
Any indemnification provisions that we may have in agreements may not be
adequate to protect us. Our insurance may not adequately protect us against
these types of claims. Further, our business is based on establishing the
HealthCentral.com network as a trustworthy and dependable provider of health
care information and services. Allegations of impropriety, even if unfounded,
could therefore harm our reputation and business.
Our business could be harmed if the software, computer technology and other
systems we use are not year 2000 compliant.
Any failure of our material systems, our vendors' material systems or the
Internet to be able to distinguish between twentieth century dates and twenty-
first century dates could harm our business. Possible consequences of year 2000
problems include difficulties in operating our websites effectively, protecting
the confidentiality of patient records on our servers, conducting our e-
commerce business or conducting other fundamental parts of our business.
We are in the final stages of assessing the year 2000 readiness of the
software, computer technology and other services that we use that may not be
year 2000 compliant. Although we have attempted to isolate our systems to
minimize the expected period of downtime for our websites, in the event of
systems difficulties, we have not yet developed a contingency plan to address
situations that may result if we or our vendors are unable to achieve year 2000
compliance. We understand that Medi-Mail, our pharmacy fulfillment provider, is
not currently year 2000 compliant, but expects to be by November 1, 1999. If
Medi-Mail has year 2000 problems, we could face delays in processing and
fulfillment of prescription drug orders placed on ePills.com. Our third party
vendors may not all be year 2000 compliant, and we rely upon the vendors to
implement patches or other contingency plans. The cost of developing and
implementing such measures could be expensive.
20
<PAGE>
We do not know whether external communications, content feeds and systems
outside of our direct control will function properly, and the success of our
business, and of our e-commerce strategy in particular significantly depends on
the year 2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have a
negative impact on the demand for our products and services and reduce our
revenues. Additionally, we have warranted in several of our contracts that our
software, computer technology and other services are year 2000 compliant. To
the extent that we breach these warranties, we may face significant liability
under these contracts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
Our executive officers and directors own a large percentage of our voting stock
and could delay or prevent a change in our corporate control or other matters
requiring stockholder approval, even if favored by our other stockholders.
Immediately after this offering, our executive officers and directors, and
their respective affiliates, will continue to own approximately % of our
outstanding common stock. Accordingly, these stockholders may, as a practical
matter, be able to exert significant influence over matters requiring approval
by our stockholders, including the election of directors and the approval of
mergers or other business combinations. This concentration could have the
effect of delaying or preventing a change in control that other shareholders
view as favorable.
It may be difficult for a third party to acquire us even if doing so would be
beneficial to our stockholders.
Provisions of our certificate of incorporation, bylaws and Delaware law may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. See "Management--Board Composition" and "Description of
Capital Stock--Delaware Anti-Takeover Law and Provisions of our Certificate of
Incorporation and Bylaws."
Risks Related to Our Industry
The success of our business model is dependent on continued growth and
acceptance of the Internet and growth of the online market for healthcare
information, products and services.
Our business model assumes that consumers will be attracted to and use
healthcare information and related content available on our Internet-based
consumer healthcare network which will, in turn, allow us the opportunity to
sell advertising and sponsorships designed to reach those consumers. Our
business model also assumes that those consumers will access important
healthcare needs through electronic commerce using our website and that
healthcare organizations and other Internet healthcare companies will partner
with us to reach these consumers. This business model is not yet proven, and
may not be successful. Our future revenues and profits, if any, substantially
depend upon the widespread acceptance and use of the Internet as an effective
medium of business and communication and as an important channel for the
delivery of healthcare information, products and services. We need to attract a
significant number of consumers, institutions and other participants in the
healthcare industry to our network. Rapid growth in the use of and interest in
the Internet has occurred only recently and, to date, consumers have generally
looked to healthcare professionals, not the Internet, as their principal source
for health and wellness information. As a result, acceptance and use of the
Internet may not continue to develop at historical rates, and a sufficiently
broad base of consumers may not adopt, and continue to use, the Internet and
other online services as a medium of acquiring healthcare information, products
and services.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
21
<PAGE>
development of enabling technologies and performance improvements. Our success
will depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a reliable network backbone with the speed, data
capacity, security and hardware necessary for reliable Internet access and
services.
Internet capacity constraints could impede the development of our business.
Our success depends upon a robust communications industry and infrastructure
for providing Internet access and carrying Internet traffic. The Internet may
not prove to be a viable commercial medium due to inadequate development of a
reliable network, delays in development of high speed modems, delays in the
adoption of new standards required to handle increased levels of Internet
activity, or increased government regulation. If the Internet continues to
experience significant growth in the number of users and level of transactions,
then the Internet infrastructure may not be able to continue to support the
demands placed on it. To the extent that our service is interrupted, our users
will be inconvenienced, our commercial customers will suffer from a loss in
advertising or service delivery and our reputation could be diminished.
If we do not respond to rapid technological changes, our services could become
obsolete and our business would be seriously harmed.
As the Internet and online commerce industry evolve, we must license leading
technologies useful in our business, enhance our existing services, develop new
services and technology that address the increasingly sophisticated and varied
needs of our prospective customers and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
We may not be able to successfully implement new technologies or adapt our
network, proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. If we are unable to do so, it
could adversely impact our ability to build our brands and attract and retain
customers.
Governmental regulation of the Internet could affect our business.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the U.S.
Congress resulted in Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. In particular, many government
agencies and consumers are focused on the privacy and security of medical and
pharmaceutical records. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
privacy, libel and taxation apply to Internet websites like ours. The rapid
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online and
in particular, companies that maintain medical or pharmaceutical records. The
adoption or modification of laws or regulations relating to the Internet
business could adversely affect our ability to attract and serve customers. For
a more complete description of the risks we face relating to government
regulation of the Internet as it relates to our business, please see
"Business--Other Governmental Regulation."
The health industry is extremely dynamic and constantly changing, and thus our
business may be affected in unexpected ways.
The pressures of cost management, consumer demand for quality and safety and
professional concern about consumer reliance on non-professional advice will
dominate the healthcare marketplace for the foreseeable future. Any efforts to
contain costs by managed care entities will place downward pressures on gross
margins from sales of prescription drugs and other over-the-counter healthcare
products. Health care reform initiatives may further impact our prescription
drug sales. Any company in the health business is subject to the risk of an
extremely changeable marketplace, which could result in our need to continually
modify our business model, which could harm our business.
22
<PAGE>
Risks Related to this Offering
Management has broad discretion over how the proceeds of this offering will be
used.
Our management will have broad discretion with respect to the use of the net
proceeds from this offering, and investors will be relying on the judgment of
our management regarding the application of these proceeds. Presently,
anticipated uses include working capital, sales and marketing, funding
contractual obligations, including cash payments in the aggregate amount of
$46.6 million to AltaVista and America Online, website and content development,
infrastructure improvement, funding operating losses and potential
acquisitions. We may also use a portion of the proceeds for strategic alliances
and acquisitions and to repay debt. We have not yet determined the aggregate
amount of net proceeds to be used specifically for the foregoing purposes.
The liquidity of our common stock is uncertain because it has not been publicly
traded.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of Internet-related companies have been
extremely volatile.
Recent initial public offerings by Internet companies have been accompanied
by exceptional share price and trading volume changes in the first days and
weeks after the securities were released for public trading. Investors may not
be able to resell their shares at or above the initial public offering price.
If our future quarterly operating results are below the expectations of
securities analysts or investors, the price of our common stock would likely
decline. In the past, securities class action litigation has often been brought
against a company after a period of volatility in the market price of its
stock. Any securities litigation claims brought against us could result in
substantial expense and the diversion of management's attention from our core
business.
New investors will suffer immediate and substantial dilution in the tangible
net book value of their shares.
We expect the initial public offering price will be substantially higher
than the net tangible book value per share of the common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution. The net tangible book value of a share of common stock
purchased at the initial public offering price of $ per share will be only
$ . In addition, we have issued options and warrants to acquire common stock
at prices significantly below the initial public offering price. You may incur
additional dilution if holders of stock options or warrants, whether currently
outstanding or subsequently granted, exercise their options or warrants to
purchase common stock.
Future sales of shares by existing stockholders could affect our stock price.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall, potentially resulting in substantial losses to investors. Such
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. Based on
shares outstanding as of August 31, 1999, upon completion of this offering, we
will have outstanding shares of common stock, assuming no exercise of
the underwriters' over-allotment option assuming no exercise of options or
warrants. This includes
23
<PAGE>
shares that we are selling in the offering, which may be resold
immediately in the public market. The remaining 13,528,790 shares will become
eligible for resale in the public market as follows:
. 5,095,195 shares will be eligible for sale 180 days from the effective
date, due to agreements the holders of these shares have with us and the
underwriters.
. 7,142,795 shares will be eligible for resale within 180 days and 365 days
after the effective date due to the requirements of federal securities
laws.
. 1,290,800 shares will be eligible for sale 365 days from the date of this
prospectus due to an agreement the holder of these shares has with us
*****
24
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus are forward-looking
statements. These statements relate to future events or our future financial
performance, and involve known and unknown risks, uncertainties and other
factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements. Such factors include those listed
under "Risk Factors" in this prospectus.
In some cases, you can identify forward-looking statements by words such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," or the negative of these
and other similar words.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we are
offering are estimated to be $ ($ if the underwriters' over-allotment
option is exercised in full), assuming an offering price of $ per share,
after deducting the estimated underwriting discount and commissions and the
estimated offering expenses.
We currently expect to use the net proceeds primarily for working capital,
sales and marketing, funding contractual obligations, including cash payments
in the aggregate amount of $46.6 million to America Online and AltaVista over
the next two years, website and content development, infrastructure
improvements and funding operating losses. In addition, we may use a portion of
the net proceeds for complementary acquisitions of products, technologies and
businesses, although we have no present plans, commitments or agreements to
make any major acquisitions. The amount of cash that we actually expend for
working capital purposes will vary significantly depending on a number of
factors, including future revenue growth, if any, and the amount of cash we
generate from operations. Thus, management will have significant discretion in
applying the net proceeds of this offering. Pending the uses described above,
we will invest the net proceeds in short-term, investment grade, interest-
bearing securities.
DIVIDEND POLICY
We have never paid dividends on our common stock or preferred stock. We
currently intend to retain any future earnings to fund the development of our
business. Therefore, we do not currently anticipate paying any cash dividends
in the foreseeable future.
25
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
. the actual capitalization of HealthCentral.com as of June 30, 1999.
. the pro forma capitalization of HealthCentral.com after giving effect to:
. automatic conversion of all outstanding shares of preferred stock into
5,657,065 shares of common stock;
. the acquisition of Windom Health in August 1999, including $51,000 in
cash, $458,000 in notes payable and 2,357,341 shares of common stock
valued at $3.95 per share issued to shareholders of Windom Health in
connection with the acquisition;
. the net proceeds of $19.8 million from the sale of 4,523,065 shares of
Series B preferred stock in August and September 1999; and
. the acquisition of ePills.com in September 1999, including 1,776,923
shares of common stock valued at $8.10 per share issued to, or
reserved for issuance pursuant to the assumption of options held by,
shareholders of ePills.com in connection with the acquisition.
. the pro forma as adjusted capitalization after giving effect to the sale
of shares of common stock at an assumed initial public offering price of
$ per share in this offering, after deducting the estimated
underwriting discount and commissions and estimated offering expenses.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes to the Financial Statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ----------- -----------
<S> <C> <C> <C>
Long term debt--including current
portion.................................. $ 500,000 $ 854,112 $ --
---------- ----------- -----
Stockholders' equity:
Convertible preferred stock, par value
$0.001; 2,100,000 shares authorized,
1,134,000 shares issued and
outstanding; 4,700,000 shares
authorized, none issued or outstanding
pro forma; 5,000,000 shares authorized,
none issued or outstanding pro forma as
adjusted............................... 1,134 -- --
Common stock, par value $0.001,
26,600,000 shares authorized, 5,252,695
shares issued and outstanding;
31,080,000 shares authorized,
15,044,024 issued and outstanding pro
forma; 100,000,000 shares authorized
pro forma as adjusted, shares is-
sued and outstanding,
pro forma as adjusted.................. 4,468 14,259 --
Additional paid-in capital.............. 5,390,465 48,903,110 --
Notes receivable from stockholders...... (5,931) (5,931)
Deferred stock compensation ............ (2,437,103) (2,437,103) --
Accumulated deficit..................... (2,405,978) (3,210,978) --
---------- ----------- -----
Total stockholders' equity.............. 547,055 43,263,357 --
---------- ----------- -----
Total capitalization...................... $1,047,055 $44,117,469 $
========== =========== =====
</TABLE>
- --------
This table excludes the following shares as of June 30, 1999:
. 1,337,597 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.48 per share,
. 638,824 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.29 per share, and
. an aggregate of 1,995,644 shares available for future issuance under our
1998 Stock Plan. See "Management--Stock Plans" and Note 5 of Notes to
Financial Statements.
26
<PAGE>
DILUTION
The pro forma net tangible book value per share of our common stock at June
30, 1999 was $ . Pro forma net tangible book value per share represents total
pro forma tangible assets less liabilities, divided by pro forma common shares
outstanding. Pro forma net tangible book value reflects the actual net tangible
book value of the Company at June 30, 1999, and includes the pro forma effects
of the following events:
. the automatic conversion of all outstanding shares of preferred stock
into 5,657,065 shares of common stock
. the acquisition of Windom Health in August 1999, including $51,000 in
cash, $458,000 in notes payable and 2,357,341 shares of common stock
valued at $3.95 per share issued to shareholders of Windom Health in
connection with the acquisition;
. the net proceeds of $19.8 million from the sale of 4,523,065 shares of
Series B preferred stock in August and September 1999; and
. the acquisition of ePills.com in September 1999, including 1,776,923
shares of common stock valued at $8.10 per share issued to, or reserved
for issuance pursuant to the assumption of options held by, shareholders
of ePills.com in connection with the acquisition.
After giving effect to our sale of shares of common stock in this offering
and after deducting the estimated underwriting discounts and commissions and
our estimated offering expenses, our pro forma net tangible book value as of
June 30, 1999 would have been $ , or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately following this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share as of June 30,
1999.......................................................... $
Increase per share attributable to new investors...............
----
Pro forma net tangible book value after the offering.............
----
Dilution per share to new investors.............................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the differences between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
-------------- -------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
--- ----- --- -----
Totals......................... 100.0% $ 100.0%
=== ===== === =====
</TABLE>
- --------
This table excludes the following shares as of June 30, 1999:
. 1,337,597 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.48 per share,
. 638,824 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.29 per share, and
. an aggregate of 1,995,644 shares available for future issuance under our
1998 Stock Plan. See "Management--Stock Plans" and Note 5 of Notes to
Financial Statements.
27
<PAGE>
If the underwriters' over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease as a percentage of the total number of outstanding shares to
approximately % of the total number of shares of our common stock
outstanding after this offering; and
. the number of shares held by new investors will be increased as a
percentage of the total number of outstanding shares to or
approximately % of the total number of shares of our common stock
outstanding after this offering.
28
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the period August
12, 1996 to December 31, 1996 and the years ended December 31, 1997 and 1998
and the balance sheet data at December 31, 1997 and 1998 are derived from the
audited financial statements included elsewhere in this prospectus. The balance
sheet data at December 31, 1996 is derived from our audited financial
statements not included elsewhere in this prospectus. The selected financial
data as of June 30, 1999 and for the six months ended June 30, 1998 and 1999
are derived from our unaudited financial statements that include, in our
opinion, all adjustments, consisting of only normal recurring adjustments,
necessary for the fair representation of the financial condition and results of
operations for such periods. The results of operations for the six months ended
June 30, 1999 or any other period are not necessarily indicative of our future
results. The selected financial data should be read in conjunction with our
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception to Years Ended Six Months
December 31, December 31, Ended June 30,
------------ ---------------------- -----------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Advertising............ $ -- $ -- $ 15,259 $ -- $ 126,546
---------- ---------- ---------- ---------- -----------
Operating expenses:
Production, content and
product development... -- -- 136,788 -- 496,197
Sales and marketing.... -- 848 141,516 -- 435,458
General and
administrative........ 86 300 78,549 2,619 257,988
Stock compensation..... -- -- 104,641 -- 902,931
---------- ---------- ---------- ---------- -----------
Total operating
expenses.............. 86 1,148 461,494 2,619 2,092,574
---------- ---------- ---------- ---------- -----------
Loss from operations.... (86) (1,148) (446,235) (2,619) (1,966,028)
Interest income, net.... -- -- -- -- 7,519
---------- ---------- ---------- ---------- -----------
Net loss................ $ (86) $ (1,148) $ (446,235) $ (2,619) $(1,958,509)
========== ========== ========== ========== ===========
Basic and diluted net
loss per share......... $ -- $ -- $ (0.09) $ -- $ (0.37)
========== ========== ========== ========== ===========
Shares used in computing
basic and diluted
net loss per share..... 4,318,144 5,163,200 5,221,800 5,215,400 5,238,187
========== ========== ========== ========== ===========
Pro forma basic and
diluted net loss per
share.................. $ (0.09) $ (0.31)
========== ===========
Shares used in computing
pro forma basic and
diluted net loss
per share.............. 5,246,655 6,372,187
========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------ June 30,
1996 1997 1998 1999
------ ------ ---------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $7,414 $6,773 $1,091,551 $ 69,383
Working capital (deficit)................... 7,414 6,773 1,039,092 (314,675)
Total assets................................ 7,414 6,773 1,670,281 1,579,662
Long-term obligations....................... -- -- -- 500,000
Total shareholders' equity.................. 7,414 6,773 1,602,633 547,055
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this prospectus.
In addition to historical information, the discussion in this prospectus
contains certain forward-looking statements that involve risks and
uncertainties. HealthCentral.com's actual results could differ materially from
those anticipated by these forward looking statements due to factors discussed
under "Risk Factors," "Business" and elsewhere in this prospectus.
Overview
HealthCentral.com was co-founded by Dr. Dean S. Edell and James J. Hornthal
in August 1996, and, beginning in July 1998, was primarily involved in capital
raising activities and recruiting management personnel. In August 1998,
HealthCentral.com and Windom Health, a website development and consulting
services company to healthcare institutions, entered into a License and
Management Agreement under which HealthCentral.com took over the daily
management of Windom Health and undertook the development of the
HealthCentral.com website. The website was based largely on Windom Health's
software architecture and was launched in November 1998. Since the launch of
the website, we have focused on refining the technological architecture of the
HealthCentral.com website, developing programs and content to market the
HealthCentral.com brand name and attract users to the network, recruiting
personnel and raising capital. In September 1999, we acquired ePills.com, our
online drug store.
We have historically derived revenue from advertising sales, generally
short-term banner advertisements or sponsorships. We record advertising
revenues in the period the advertising services are provided to customers. We
currently use an outside vendor, DoubleClick, to solicit customers to use its
advertising services, to serve the ads to our website and to bill and collect
for these services. This outside vendor provides monthly reports indicating the
amount billed for our advertising services and the related administrative fee.
Advertising revenues, as reported by the outside vendor, are recorded net of
this administrative fee as we bear no collection risk for the gross amount of
the advertising fees. In addition, our ePills.com subsidiary will provide us
with e-commerce revenues from sales of health-related products through our
online drug store.
In order to implement our e-commerce strategy, we acquired ePills.com in
September 1999. In July and September 1999, ePills.com entered into a series of
agreements with Bergen Brunswig and its Medi-Mail subsidiary. These agreements
include various arrangements relating to the fulfillment of orders placed on
our website for healthcare products as well as access to the PlusCare Provider
Network of pharmacy benefit managers. Under these agreements, Bergen Brunswig
will be our exclusive fulfillment provider for over-the-counter and health and
beauty aid products and Medi-Mail will be our exclusive fulfillment provider
for most prescription drug orders. These types of arrangements are complex and
many important details regarding pricing, revenue sharing and operational
procedures have not yet been finalized. Once these detail arrangements have
been completed, we expect to recognize revenues from product sales for over-
the-counter and health and beauty aid products, net of discounts, when products
are shipped to customers. Further, we expect to recognize commissions for the
use of our website from sales made by Medi-Mail for all prescription drugs. In
both instances however, we will retain the ultimate credit risk for all sales
made by Bergen Brunswig and Medi-Mail.
HealthCentral.com incurred net losses of $86 in 1996, $1,148 in 1997,
$446,235 in 1998 and $1,958,509 for the six months ended June 30, 1999. We
anticipate that we will incur additional operating losses for the foreseeable
future.
Recent Events
In May 1999, pursuant to a letter of intent executed in 1998, we entered
into a definitive agreement to specify the terms of our acquisition of Windom
Health. The acquisition was completed on August 12, 1999, at which date Windom
Health became a wholly-owned subsidiary of HealthCentral.com. In connection
with the
30
<PAGE>
acquisition, we issued 2,357,341 shares of common stock, notes payable in the
aggregate amount of $458,000 and paid cash of $51,000, representing a total
purchase price of approximately $13.8 million.
This acquisition was accounted for using the purchase method of accounting.
We recorded intangibles and goodwill of approximately $12,455,000, which will
be amortized on a straight line basis over two to three years. We also recorded
a charge for acquired in-process research and development of $555,000.
In August and September 1999, we sold 4,523,065 shares of Series B preferred
stock to investors resulting in total net proceeds of $19.8 million. Each share
of Series B preferred stock is convertible into one share of common stock upon
closing of this offering.
In September 1999, we acquired ePills.com in exchange for 1,776,923 shares
of common stock issued to, or reserved for issuance pursuant to the assumption
of options held by, ePills.com stockholders, and the assumption of liabilities,
representing a total purchase price of approximately $14.9 million. This
acquisition was accounted for using the purchase method of accounting. We
recorded intangibles and goodwill of approximately $13,197,000 which will be
amortized on a straight line basis over two to three years. We also recorded a
charge for acquired in-process research and development of $250,000.
If AltaVista meets given performance thresholds under our agreement
regarding our co-branded health channel, we will issue warrants to AltaVista to
purchase shares of common stock, with the number of shares depending on the
amount by which AltaVista exceeds the performance thresholds. These warrants
will have varying exercise prices. If the market value of our common stock
exceeds the warrant exercise price on the date of issuance or during the
exercise period, there would be a deferred compensation charge associated with
the exercise of each of these warrants.
Results of Operations
Six Months Ended June 30, 1999 and 1998
Revenues. Revenues consist of advertising revenues principally from short-
term banner advertisements or sponsorships. Our total revenues increased to
$126,546 for the six months ended June 30, 1999 from $0 for the six months
ended June 30, 1998. The 1999 revenues resulted primarily from initial
advertising revenues after the launch of the HealthCentral.com website in
November 1998.
Production, Content and Product Development. Production, content and product
development expenses consist primarily of personnel costs for our engineering
and production personnel, expenditures related to editorial content, payments
to editorial consultants, server maintenance costs, and software development
and operations expenses. Production, content and product development expenses
increased to $496,197 for the six months ended June 30, 1999 from $0 for the
six months ended June 30, 1998. The 1999 expenses were primarily attributable
to personnel-related costs in connection with recruiting our production and
engineering staff for the HealthCentral.com website and new content. We expect
our production content and product development expenses to increase
substantially in the future as we enhance our websites and develop and license
additional content.
Sales and Marketing. Sales and marketing expenses consist primarily of
related personnel costs. Sales and marketing expenses increased to $435,458 for
the six months ended June 30, 1999 from $0 for the six months ended June 30,
1998. The 1999 sales and marketing expenses were primarily attributable to
salaries and benefits paid to new sales personnel. We expect that sales and
marketing expenses will increase in absolute dollars for the foreseeable
future, as we increase expenditures for branding, promotion and marketing,
enter into new promotional agreements, and expand our sales and marketing
staff.
General and Administrative. General and administrative expenses consist
primarily of personnel costs and related costs for general corporate functions,
including executive management and finance and fees for legal and other
professional services. General and administrative expenses increased to
$257,988 for the six months ended June 30, 1999 from $2,619 for the six months
ended June 30, 1998. The increase was primarily
31
<PAGE>
related to personnel and legal expense in order to support the growth of our
business. We expect general and administrative expenses to increase in the
future as we hire additional personnel and incur additional costs related to
the growth of our business and operation as a public company. In addition, we
expect to expand our facilities and incur associated expenses to support our
anticipated growth.
Amortization of Stock Compensation. Options granted in the fourth quarter
of 1998 and in 1999 have been considered to be compensatory as their deemed
value for accounting purposes was greater than the exercise prices as
determined by the board of directors on the dates of grant. For the six months
ended June 30, 1999, we had recorded a total of $3,055,553 of deferred stock
compensation. We recognized amortization of stock compensation of $902,931 for
the six months ended June 30, 1999. Deferred stock compensation is being
amortized over the respective vesting periods of the outstanding options,
generally 4 years. We expect amortization expense to substantially increase in
future periods for options granted after June 30, 1999.
Years Ended December 31, 1998, 1997 and Period Ended December 31, 1996
Revenues. Our total revenues were $15,259 in 1998. There were no revenues in
1997 and 1996. We first recognized advertising revenues in November 1998 as a
result of the launch of the HealthCentral.com website.
Production, Content and Product Development. Production, content and product
development expenses were $136,788 in 1998. There were no expenses in 1997 and
1996. Expenses in 1998 were primarily attributable to personnel costs
associated with the development of the HealthCentral.com website.
Sales and Marketing. Sales and marketing expenses were $141,516 in 1998, an
increase of $140,668 over 1997 expenditures of $848. The increase in sales and
marketing expenses was primarily attributable to personnel related expenditures
as a result of the commencement of our sales and marketing efforts.
General and Administrative. General and administrative expenses were $78,549
in 1998, an increase of $78,249 over 1997 expenditures of $300. The increase in
general and administrative expenses in 1998 was primarily due to increases in
personnel and professional services, travel and facilities-related expenses
incurred to support the commencement and growth of our operations.
Amortization of Stock Compensation. Through December 31, 1998, we had
recorded a total of $389,122 of deferred stock compensation. We recognized
amortization of stock compensation of $104,641 for the year ended December 31,
1998.
Income Taxes. No provision for federal and state income taxes has been
recorded as we have incurred net operating losses through the year ended
December 31, 1998. As of December 31, 1998, we had approximately $239,000 of
federal and state net operating loss carryforwards available to offset future
taxable income. Due to the change in our ownership interests in connection with
this offering and prior sales of our equity securities, our use of these
federal and state net operating loss carryforwards will be subject to certain
annual limitations.
Liquidity and Capital Resources
Since our inception, we have financed operations primarily through the sale
of our preferred stock and the issuance of a note payable. As of June 30, 1999,
we had $69,383 in cash and cash equivalents. Net cash provided by financing
activities was $1,935,025 in 1998, which was primarily the result of our
preferred stock financing in December 1998. Net cash provided by financing
activities was $507 in 1997, which was the result of the sale of common stock.
Net cash provided by financing activities was $7,500 in 1996, which was the
result of the sale of common stock. In August and September 1999, we sold
4,523,065 shares of Series B preferred stock resulting in net cash proceeds of
approximately $19.8 million.
Net cash used in operating activities was $723,979 in the six months ended
June 30, 1999 and $286,706 in 1998, which was primarily the result of net
operating losses and increases in prepaid expenses, partially
32
<PAGE>
reduced by non-cash stock compensation expense and increases in deferred
revenue. Net cash used in operating activities was $1,148 in 1997, which was
primarily the result of a net operating loss. Net cash used in operating
activities in 1996 was $86.
Net cash used in investing activities was $798,189 for the six months ended
June 30, 1999, $563,541 in 1998 and $0 in 1997. Cash used in investing
activities in 1999 and 1998 was primarily related to bridge loans to Windom
Health. There were no changes in cash flows as a result of investing activities
in 1996.
As of June 30, 1999, our principal commitment consisted of an obligation
outstanding under the terms of a $500,000 bridge loan. This loan was repaid in
full in August 1999. Although we have no material commitments for capital
expenditures, we anticipate substantial increases in our capital expenditures,
minimum advertising payments and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel.
In September 1999, we entered into a three-year agreement with AltaVista to
develop a co-branded health channel. The agreement provides that, in exchange
for a minimum number of user impressions on the co-branded health channel, we
are obligated to pay AltaVista approximately $65.6 million in cash and stock
over the three-year term of the agreement; however, either AltaVista or we may
terminate the relationship after two years, in which case our aggregate payment
obligation over the first two years in cash and stock would be $34.5 million.
In addition, in August 1999, ePills.com entered into a two-year agreement with
America Online under which ePills.com will appear as an anchor tenant on the
America Online HealthOnline Pharmacy Channel and receive a minimum number of
advertising impressions in exchange for payments of $14.1 million.
Our capital requirements depend on numerous factors, including market
acceptance of our HealthCentral.com network, and the resources we allocate to
building our network, marketing and selling our products and services, and
promoting our brand. We have experienced substantial increases in our
expenditures since our inception, consistent with growth in our operations and
personnel, and we anticipate that our expenditures will continue to increase
for the foreseeable future. Additionally, we will continue to evaluate possible
acquisitions of or investments in complementary businesses, technologies,
services or products and plan to expand our sales and marketing programs. We
currently believe that our available cash and cash equivalents at September 24,
1999, combined with the net proceeds from this offering, will be sufficient to
meet our anticipated needs for working capital and capital expenditures for at
least the next 12 months. We may need to raise additional capital, however, in
order to fund more rapid expansion, including significant increases in
personnel and office facilities; to develop new or enhance existing services or
products; to respond to competitive pressures; to enter into significant
promotional partnerships; or to acquire or invest in complementary businesses,
technologies, services or products. In addition, in order to meet our long term
liquidity needs, we may need to raise additional funds, establish a credit
facility or seek other financing arrangements. Additional funding may not be
available on favorable terms or at all.
Recent Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivatives and Hedging
Activities." Statement No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. In July 1999, the Board issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." This
Statement deferred the effective date of Statement No. 133 until fiscal years
beginning after June 15, 2000. We will adopt Statement No. 133 during the year
ending December 31, 2001. To date, we have not engaged in derivative or hedging
activities and we are unable to predict the impact of adopting Statement No.
133 if we were to engage in derivative and hedging activities in the future.
Disclosures About Market Risk
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of U.S. interest rates. Our cash
equivalents are invested with high quality issuers and limit the
33
<PAGE>
amount of credit exposure to any one issuer. Due to the short-term nature of
our cash equivalents, we believe that we are not subject to any material market
risk exposure.
We do not have any foreign currency hedging or other derivative financial
instruments as of June 30, 1999.
Year 2000 Compliance
We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure include products
purchased from third parties, information technology, including computers and
software, and non-information technology, including telephone systems and other
equipment used internally. The reasonably likely worst case scenario for year
2000 issues would be if a significant defect exists in key hardware or software
and if a solution for such a problem were not immediately available. If a
problem is detected in these subsystems during our year 2000 compliance testing
process, these components will need to be revised or replaced.
We do not currently have a complete contingency plan to deal with the worst-
case scenario that might occur if technologies we are dependent upon are not
year 2000 compliant and fail to operate effectively after the year 2000. We
intend to develop a plan for this scenario upon the completion of our
compliance assessment plan. This contingency plan is expected to be completed
by early in the fourth quarter of 1999.
All areas that are vital to our operations are being tested and validated
for year 2000 compliance. We have completed our year 2000 compliance assessment
plan and expect to complete our compliance testing and related documentation by
the end of the fourth quarter. Until our testing is complete we will not be
able to evaluate whether our systems will need to be revised or replaced, or
the cost involved. We have contacted all our major third party vendors. Of
these vendors, 100% have had written statements concerning their year 2000
compliance and strategy on their websites or in their software documentation.
Of the vendors that have replied, 60% are representing that they are year 2000
compliant, while 40% are still in the process of fixing any known year 2000
problems or have already identified specific patches available that we will
need to install and verify. To the extent that vendors fail to provide
certification that they are year 2000 compliant, we will seek to terminate and
replace those relationships.
We do not expect to spend more than $15,000 to assess and remediate the year
2000 problem based on the size of our operations, the percentage of our vendors
that sell industry-standard software upon which we rely to ensure compliance,
and the lack of dependency on older legacy software in our systems.
In the event that our production and operational facilities that support our
websites are not year 2000 compliant, portions of our websites may become
inaccessible. A prolonged disruption in our operations could cause our business
clients and consumers to stop doing business with us. Our review of our systems
has shown that there is no single application that would make our websites
totally unavailable and we believe that we can quickly address any difficulties
that may arise. In the event that our webhosting facilities are not year 2000
compliant, our websites would be unavailable and we would not be able to
deliver services to our users until such time as we could relocate our servers
to an unaffected facility.
If our present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with whom we
conduct business do not successfully address such issues, our business could be
significantly disrupted.
34
<PAGE>
BUSINESS
Company Overview
We provide original, trustworthy, up-to-date and personalized online
healthcare information and sell health-related products to consumers through
our HealthCentral.com network. In addition, we enable healthcare institutions
to provide healthcare information to their patients and consumers through our
institutional Internet services business.
Through our HealthCentral.com network, we derive revenue from
advertisements, sponsorships and e-commerce. Through our institutional Internet
services business we derive revenue from annual license fees for applications,
content, hosting and maintenance services, as well as from development fees for
customization services.
We believe we are strongly positioned to integrate a wide range of health-
related content with a complete healthcare e-commerce solution. Our goal is to
become the consumer's most trusted and complete online source of healthcare
information and products. We intend to accomplish this by:
. providing credible, original, engaging and personalized content through
our HealthCentral.com network;
. offering a broad range of products through our online drug store,
ePills.com;
. offering our content to our e-commerce customers to help them make
better-informed purchases of health-related products;
. maintaining the strict independence of our editorial content; and
. utilizing a cross-media promotions strategy leveraging our relationships
with established medical media personalities from traditional media.
Our HealthCentral.com network of interactive websites offers consumer-
oriented health content and health related e-commerce. Our flagship
HealthCentral.com website currently offers health-related content provided by
media personalities such as Dr. Dean Edell. Our ePills.com online drug store
offers approximately 23,000 SKUs of prescription pharmaceutical products,
health and beauty aids, parenting and personal care products and nutritional
supplements. We recently entered into an agreement with AltaVista under which
we will be the exclusive healthcare content provider to its website, subject to
conditions, and we expect to launch our co-branded health channel in the first
quarter of 2000. We expect to launch our PeoplesPharmacy.HealthCentral.com
website, featuring Joe and Teresa Graedon, and our Canadian co-branded health
channel on MediaLinx in the fourth quarter of 1999.
In addition, we act as an application service provider for healthcare
institutions by designing, hosting and maintaining private label websites for
these institutional clients. Some of our largest clients include Brown and
Toland, Scripps Clinic, Sutter Health and Catholic Healthcare West.
Industry Background
The Growth of the Internet and Electronic Commerce
The Internet has revolutionized the way in which people obtain and exchange
information and transact business. International Data Corporation, or IDC,
estimates that the number of Internet users will increase from 142 million at
the end of 1998 to 500 million by the end of 2003. The Internet has unique and
powerful characteristics that differentiate it from traditional channels of
retail distribution, which are often narrow in selection, inconvenient, limited
in product information and lacking in privacy. IDC estimates that worldwide
business-to-consumer sales over the Internet will increase from approximately
$11 billion in 1998 to approximately $93 billion by 2002.
The Growth of the Internet Healthcare Market
The Internet has become an increasingly popular source for healthcare
information and products. Consumer research conducted by Cyber Dialogue in 1999
found that 24.8 million U.S. adults search for health information on the
Internet, with the number of people retrieving health-related information
projected to grow
35
<PAGE>
to 30 million in 2000. This growth in demand for online health information has
been driven by consumers seeking to make better personal health care decisions.
Consumers are also increasingly purchasing healthcare products online.
Forrester Research estimates that 31.6% of surveyed Internet users shopped for
healthcare products online during the previous six months. According to Jupiter
Communications, the total online and offline market for health goods, which
includes over-the-counter as well as prescription drugs, is expected to grow
from $133.6 billion in 1998 to $205.2 billion in 2003, while the amount of
online consumer purchases of healthcare goods is expected to grow from $2.4
million in 1998 to $1.7 billion in 2003.
Healthcare Industry Trends
Consumers are taking it upon themselves to seek more information about their
healthcare needs for the following reasons:
. Patients' access to their physicians has become significantly reduced due
to managed care.
. Employers are increasingly shifting healthcare costs and decisions to
their employees.
. Insurance plans allow individuals greater choice in healthcare options,
at increased personal costs.
. Advances in medicine have broadened treatment options for many medical
conditions.
The advent of the Internet has provided a medium for consumers to seek such
information. Moreover, the Internet allows consumers to seek information on
sensitive or embarrassing health issues while maintaining anonymity and
confidentiality.
Payors and providers, who are faced with increasing economic pressures as an
outcome of managed care, are increasingly competing for consumers. Physician
groups compete to increase their patient bases to spread their administrative
costs and increase their negotiating leverage with payors. This competition in
the provider market is exacerbated by an oversupply of specialist physicians in
many markets and underutilization in many hospitals. Due to this increased
competition for members and patients, both payors and providers are looking for
ways to develop and maintain the loyalty of their existing members and patients
and attract new members and patients. Internet-based services enable health
plans and providers to differentiate their services, decrease their customer
support costs, and improve ties with their members or patients.
The consumer has also become the marketing focus of commercial healthcare
enterprises, such as pharmaceutical and other healthcare products companies.
While pharmaceutical manufacturers have traditionally marketed their
prescription products to physicians, these companies have recognized that
consumers want to learn about and exercise greater control over their drug
therapies across an ever-widening list of conditions. Pharmaceutical companies
have thus begun advertising their products directly to consumers, most notably
through television advertising. This direct-to-consumer, or DTC, advertising is
increasing rapidly. Jupiter Communications projects that overall health related
advertising spending in all forms of media will increase to $10.8 billion by
2003, while DTC advertising for pharmaceutical products will grow to almost
$3.8 billion. Advertisers are also increasingly turning to the Internet as a
medium to deliver their message. Jupiter Communications projects that overall
online health and medical advertising spending, including online DTC
advertising, will increase to $356 million by 2003, up from $12.3 million in
1998.
Internet Healthcare Market Opportunities
Although the Internet enables consumers to access healthcare information,
products and services, several Internet healthcare opportunities have yet to be
fully addressed. Despite approximately 15,000 healthcare websites, online
healthcare information is typically provided in a generic, impersonal and
sometimes misleading manner, with the line between editorial content and
advertising blurred. In addition, Internet services offered to healthcare
institutions typically offer no customization capabilities or branding
opportunity to these institutions.
36
<PAGE>
The interactive nature of the Internet enables a unique combination of
content provision with product offerings. However, the markets for health-
related content and e-commerce have not been well integrated to date. Online
merchants of health-related products are beginning to overcome the challenges
of inconvenience, narrow selection and lack of privacy that face traditional
store-based retailers. Yet, we believe these online merchants generally do not
offer content that is both wide-ranging and personalized in combination with
their product offerings.
HealthCentral.com Solution
We provide original, trustworthy, up-to-date and personalized online
healthcare information and sell health-related products to consumers through
our HealthCentral.com network. In addition, we enable healthcare institutions
to provide healthcare information to their patients and consumers through our
institutional Internet services business.
Our HealthCentral.com Network
Our consumer-focused network of interactive websites currently consists of
our flagship HealthCentral.com website, and our ePills.com online drug store.
We also plan to launch our PeoplesPharmacy.HealthCentral.com website and our
MediaLinx Canadian affiliate in the fourth quarter of 1999, and our AltaVista
co-branded health channel in the first quarter of 2000. We also have important
affiliations with other online promotional and portal companies. Our
HealthCentral.com network is a global consumer health information source--from
current fitness issues to complex diseases--as well as an online drug store
through which consumers can purchase health-related products.
Unique, Trustworthy and Engaging Health Information Content. Our
HealthCentral.com network is built on the provision of unique and engaging
information from medical professionals who have established a high degree of
trust with consumers through traditional media. Currently our original content
comes from established media sources such as Dr. Dean Edell, one of the leading
physician broadcasters in the United States over the past twenty years, and Joe
and Teresa Graedon, who host their own internationally syndicated radio show
and write The People's Pharmacy, a nationally syndicated newspaper column.
Online Prescription Pharmaceuticals and Other Health-Related
Products. ePills.com offers approximately 23,000 SKUs, of which approximately
12,000 are prescription pharmaceuticals and approximately 11,000 are health and
beauty aids and over-the-counter medications. ePills.com has fulfillment
agreements with Bergen Brunswig, a major drug distributor, for health and
beauty aids, over-the-counter products and, through Bergen Brunswig's Medi-Mail
mail order pharmacy subsidiary, prescription drug orders. Through this
relationship with Bergen Brunswig and Medi-Mail, ePills.com also has access to
the Good Neighbor Pharmacy Network, a coalition of approximately 2,000
participating retail pharmacies nationwide, and the PlusCare Provider Network
of third-party pharmaceutical benefit management companies, or PBMs.
Collectively, these PBMs provide prescription drug benefits for approximately
80 million covered lives.
Personalized Level of Service. We personalize the level of service for our
visitors to enable them to make informed personal health decisions. Our
proprietary tools were designed and developed over a 15-year period by Windom
Health, whose efforts were in part funded through an advanced technology
program under a shared grant of $20 million from governmental and private
sources. By using our various interactive tools, visitors can receive a
personal health report outlining their greatest health risks, find information
tailored to their interests and build their online personal health record. This
personalized content includes action guides relating to visitors' particular
health concerns and free e-mail newsletters on specific healthcare topics, for
which we currently have approximately 400,000 subscriptions.
37
<PAGE>
Institutional Internet Services
Primary Online Consumer Interface for Institutional Clients. We act as an
application service provider for healthcare institutions by designing, hosting
and maintaining their private label websites. Unlike many of our competitors,
we provide these services on a private label basis, which enables our
institutional clients to build needed brand loyalty to retain and attract
members and patients. We receive both development fees for building customized
websites and an annual license fee for our content and interactive tools.
Multiple Levels of Service to Institutional Clients. With our private label
websites, our institutional clients are able to improve their patient support
and marketing efforts, reduce their administrative costs of interacting with
their patients and provide relevant health information, control and choice to
the consumer. We offer three levels of application services:
. QuickStart. Our entry-level service package, called QuickStart, can be
implemented in as few as two days and provides basic tools.
. A La Carte Application Licenses. Institutions may license any combination
of our content and interactive tools to incorporate into their own
websites. We also offer administrative tools for both updating content
and measuring site usage. License fees, which include fees for
maintenance but not technical support, depend on the combination of tools
and content licensed.
. Comprehensive Website Development. Our premium service features
comprehensive website development, in which we integrate the
institutional customer's content and tools with our content and tools,
then continually update our content and maintain the website. We receive
both a fee, based on time and materials, for developing the website and
an annual license fee, which includes four hours per month of maintenance
and customer support. We also customize our tools to suit the specific
institutional client's needs, which leads to the development of unique
tools that can often be repurposed for use on our consumer network or on
other institutional websites.
Our Strategy
Our goal is to become the consumer's most trusted and complete online source
of healthcare information and products. We intend to accomplish this objective
by the following:
Build Our Brands and Drive Network Traffic Through Our Cross-Media
Exposure. Our cross-media strategy entails increasing our exposure through the
promotional efforts of established medical professionals in traditional media
such as television, radio and newspaper, and through select Internet portal
relationships. We believe our cross-media strategy is a cost-effective means
for increasing and sustaining our network traffic. We intend to continue
building our cross-media exposure to build brand awareness and drive traffic to
HealthCentral.com and other websites on the HealthCentral.com network,
including ePills.com.
. Dr. Dean Edell. Dr. Dean Edell is the host of the Dr. Dean Edell Show, a
daily one hour radio program on over 300 radio stations, including the 20
largest radio markets in the United States. Dr. Edell typically refers
listeners to our HealthCentral.com network several times on his daily
one-hour syndicated radio program. He also has daily Medical Minutes
radio programs typically aired during morning and evening rush hour
traffic. Dr. Edell reaches 13 million radio listeners weekly, according
to the Arbitron report. Dr. Edell also has a daily syndicated television
report, which is broadcast in over 50 markets, including seven of the
20 largest television markets in the United States. According to AC
Nielsen, Dr. Edell reaches over 7 million television viewers each week.
We expect that the television broadcast will be rebranded as The
HealthCentral.com Report upon annual syndication renewals beginning in
October 1999.
. The People's Pharmacy. Teresa and Joe Graedon write The People's
Pharmacy, a newspaper column, syndicated by King Features and published
three times a week in over 100 markets, including
38
<PAGE>
New York, Baltimore, Los Angeles, Boston and Chicago. The Graedons also
host a weekly radio show that is broadcast on over 500 stations in more
than 100 countries. In addition, they are the authors of ten books,
including The People's Pharmacy, a New York Times No. 1 best seller. In
the fourth quarter of 1999, we expect to launch a co-branded website,
PeoplesPharmacy.HealthCentral.com.
. Portal Relationships with AltaVista, America Online and MediaLinx. In
September 1999, we entered into an agreement with AltaVista under which
we will be the exclusive healthcare content provider to its website,
subject to conditions, and we expect to launch a co-branded health
channel in the first quarter of 2000. In August 1999, ePills.com entered
into a two-year agreement with America Online, under which ePills.com
will appear as one of the five health-related anchor tenants on the
America Online HealthOnline Pharmacy Channel. In the fourth quarter of
1999, we expect to launch our co-branded health website with MediaLinx,
which manages the largest Internet service provider in Canada.
. Other Internet Affiliations. We have agreements with portals and other
websites, including AskJeeves.com, Broadcast.com, Looksmart, NetPulse,
Snap.com and Yahoo!.
Cultivate Multiple Revenue Streams. Our strategy is to develop our multiple
revenue streams to spread our business risk and leverage our intellectual
property. We currently receive revenue from three different sources:
. Sponsorship and Advertising Fees. Companies can sponsor, through
exclusive advertising, Health Topic Centers, which are pages devoted to
specific health issues written and compiled by our editorial staff, or
free e-mail newsletters requested by users on specific health topics. We
currently have approximately 400,000 subscriptions to these newsletters.
We generate advertising fees from placing ads, all of which are clearly
delineated from our editorial content, on our websites. DoubleClick
currently acts as our advertising sales agent for our HealthCentral.com
website and, since January 1999, 100% of our available ad inventory has
been sold. We also intend to derive fees from developing bridge sites
that allow users to access commercial information from various
pharmaceutical and other healthcare companies.
. e-commerce. ePills.com, our online drug store, offers prescription
pharmaceutical products, health and beauty aids, parenting and personal
care products and nutritional supplements. ePills.com currently delivers
prescriptions, over-the-counter items, and health and beauty aids by mail
order. In the first half of 2000, we expect to make prescriptions
available for pickup, and in some cases same-day delivery, from the
approximately 2,000 local pharmacies in the Good Neighbor Pharmacy
Network .
. Institutional Internet Services. Our institutional clients pay us fees
for licensing our tools and content, as well as development fees for
customized website development. We have developed a personal health
record that enables our institutional clients to provide their members
or patients with Internet access to personal health data. This service
is currently in beta testing at Catholic Healthcare West.
Deliver Compelling and Unique Content to Consumers. We intend to
continually add credible and compelling content and provide interactive and
personalized tools to retain visitors to our HealthCentral.com network. Our
production and editorial staff of 28 employees and consultants develops,
screens, edits and compiles content for our HealthCentral.com network, so that
the healthcare information we provide continues to be original, topical and
engaging for our visitors.
Attract a Growing Base of Customers to ePills.com and Provide Visitors with
a Superior Shopping Experience. We intend to grow our online drug store
business by:
. offering consumers useful links to information related to products by
integrating selected content and tools from HealthCentral.com and
PeoplesPharmacy.HealthCentral.com;
. strengthening the ePills.com brand through traditional and online
advertising;
. expanding our broad range of consumer products and services;
39
<PAGE>
. offering the consumer the choice of mail order delivery, in-store pickup
or, in some cases, delivery from any of the approximately 2,000
pharmacies in the Good Neighbor Pharmacy Network;
. encouraging repeat purchasing patterns by allowing customers to store
frequently purchased items in their own personal shopping lists;
. continually improving the shopping experience by adding new features to
the site; and
. maintaining a high level of customer service.
Leverage Personalization Features. Our database of visitor information will
allow us to improve the user's return visits to our network by providing the
user with targeted content of particular interest. Each page of our content is
reviewed by our editorial staff and linked to specific health conditions or
interests. While protecting all confidential patient information, we can
provide advertisers and electronic merchants with direct links to highly
specialized target markets, enabling them to use DTC advertising more
efficiently.
Maintain and Cultivate a Relationship of Trust with Consumers. Through our
affiliations with trusted media personalities such as Dr. Dean Edell and Teresa
and Joe Graedon of The People's Pharmacy, we enjoy a privileged and trusted
status with those consumers who seek our HealthCentral.com network based on
their experience with those personalities. We hold that level of trust in high
regard and seek to maintain it by providing consumers with reliable editorial-
reviewed content and by keeping individual consumer information confidential.
We strive to clearly delineate our editorial content from our advertising.
Leverage Strategic Relationships. We have strategic relationships with
AltaVista, America Online, and Bergen Brunswig, which we plan to leverage into
increased traffic, branding and market power. We intend to pursue additional
complementary relationships that would provide us with increased competitive
advantage.
40
<PAGE>
Content and Interactive Tools
The following table describes our content and interactive tools and their
availability directly to the consumer on our HealthCentral.com network and
indirectly through our institutional Internet services. Some of our tools were
developed over a 15-year period by Windom Health.
<TABLE>
<CAPTION>
Content/Tool Availability Description
<S> <C> <C>
News and Features
Dr. Dean Edell Consumer, Unique content on topics introduced by
Institutional Dr. Edell on his radio and television
broadcasts, as well as other original
reports, searchable archives,
television broadcast transcripts, and
the Ask Dr. Dean feature, through which
Dr. Edell selects several e-mail
questions per week for discussion on
his radio broadcast
- ----------------------------------------------------------------------------------------------
The People's Pharmacy (scheduled Q4/99) Exclusive Internet publication of
Consumer, pharmacological information and
Institutional resources developed by Joe and Teresa
Graedon, health columnists, radio
personalities, and authors of 10 books,
including The People's Pharmacy
- ----------------------------------------------------------------------------------------------
Columnists Consumer, Original columns by Joe Flower,
Institutional Healthcare Futurist; Oscar London,
M.D., Medical Humorist;
Rochelle Perrine Schmalz, M.S.L.,
Medical Librarian
- ----------------------------------------------------------------------------------------------
Daily Health News Consumer, Daily consumer-oriented health stories
Institutional from Reuters and the Associated Press,
organized and edited by our editors,
linked to related content and tools on
our site
Interactive Health Assessment
HealthView Risk Consumer, The LifeView interactive survey, which
Assessment Institutional uses regression models and data from
the Center for Disease Control to
analyze health risks based on
individual survey responses, as well as
shorter surveys concerning such areas
as exercise and fitness, stress
management, diet and nutrition,
substance abuse, and sexual health
- ----------------------------------------------------------------------------------------------
Cool Tools Consumer, Engaging questionnaires and simple
Institutional tests to assess or demonstrate various
health topics, such as facial
proportions, body mass index, waist-to-
hip ratio, ideal weight, life
expectancy, calorie counting
techniques, and specific disease risks
- ----------------------------------------------------------------------------------------------
Personal Health Record Consumer, Private repository of composited health
Institutional data collected either by saving the
results of the LifeView Health Risk
Assessment, saving the results of any
of the five mini-profile surveys, or by
saving the My Health Notes file
containing self-created information
about family health, insurance,
emergency contacts and pet health
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Content/Tool Availability Description
<S> <C> <C>
Databases and Search
Health Explorer Search Consumer, Search engine, based upon commercially
Engine Institutional available technology, which allows
rapid searches through large volumes of
content; enhanced by our keyword
taxonomy that improves search results
and allows contextually relevant
information to be displayed during or
after a search; may be used to crawl
and classify other sources of health
information as well as poll major
search engines in a meta search
- ---------------------------------------------------------------------------------------
Health Libraries Consumer, Our proprietary encyclopedia containing
Institutional reports of over 700 diseases and
conditions, compiled and updated by Dr.
Kevin Patrick, our Chief Medical
Officer, currently the Editor-in-Chief
of the American Journal of Preventive
Medicine; also a second health library
licensed from a third party on general
health, pediatrics, and sexual health
- ---------------------------------------------------------------------------------------
Health Topic Centers Consumer, Over 90 different collections of
Institutional resources, all updated weekly, each
focusing on a particular topic and
providing links to current news
stories, original content, and online
reports, organized into areas of
interest such as Hot Topics, Fitness
and Nutrition, Health Conditions, Life
Issues, Wellness and Alternative
Therapies
- ---------------------------------------------------------------------------------------
Website Directory Consumer, Comprehensive database of over 2,000
Institutional health-related websites of government
agencies and non-profit and educational
organizations, compiled and screened by
our editorial team
- ---------------------------------------------------------------------------------------
Books and Video Consumer, Database of health-related books and
Directory Institutional videos, which can be purchased online
through Amazon.com
- ---------------------------------------------------------------------------------------
Personalized Information and Discussion
Personalized Consumer, Comprehensive architecture for
Newsletter Engine Institutional providing personalized newsletters to
subscribers, based on their self-
identified health risks and concerns
- ---------------------------------------------------------------------------------------
Discussion Groups Consumer, Discussion groups allowing users to
Institutional build communities around health-related
topics of interest
- ---------------------------------------------------------------------------------------
Health Reminders Institutional Online reminders to users of upcoming
(Consumer scheduled health obligations
Q1/00)
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Content/Tool Availability Description
<S> <C> <C>
Resource Locators
Physician Finder Institutional Physician directories with biographies,
specialties and locations; integrated
for contextual linking within the site
- ----------------------------------------------------------------------------------
Facilities Finder Institutional Facility directories with profile
information and maps; linked to related
information in the site
- ----------------------------------------------------------------------------------
Events Finder Institutional Calendar of events and classes offered
by each institution
- ----------------------------------------------------------------------------------
Community Health (scheduled Q4/99) Directory of community health resources
Resource Finder Institutional within each institution's community
</TABLE>
ePills.com
ePills.com, our online drug store, was founded in January 1999 and in
September 1999 launched its website. ePills.com has fulfillment agreements with
Bergen Brunswig, a major drug distributor, for health and beauty aids, over-
the-counter products and, through Bergen Brunswig's Medi-Mail mail order
pharmacy subsidiary, prescription drug orders. ePills.com also has an agreement
with Bergen Brunswig for access to the PlusCare Provider Network of pharmacy
benefit managers, which has approximately 80 million covered lives. We expect
that access to the PlusCare Provider Network will enable many of our customers'
prescription drug orders to be covered by their pharmacy benefit managers.
ePills.com also has a two-year agreement with America Online under which it
is one of five health anchor tenants on the America Online HealthOnline
Pharmacy Channel, only three of which currently market prescription
pharmaceuticals on America Online.
Products Available on Our ePills.com Website
We provide our customers with access to over 23,000 SKUs of prescription
pharmaceuticals, health and beauty aids and health-related over-the-counter
products through our relationship with Bergen Brunswig. Products are organized
on the ePills.com website into the following categories:
. Health. The health category includes over-the-counter remedies, such as
cough, cold, allergy and pain relief medications, and products for eye
and ear care, family planning, and home health. Representative brands
carried in our health category include Bayer, Advil, Excedrin,
Robitussin, Vicks and Alka-Seltzer.
. Personal Care. The personal care market category includes products
related to deodorants, foot care, men's care, oral hygiene, soaps and
women's care. Representative brands carried in our personal care product
category include Gillette, Revlon, Desenex, Rogaine, Crest, Ivory, and
Playtex.
. Supplements. The supplements category includes adult nutritionals, diet,
herbs, minerals, natural health, sports and fitness, and vitamins.
Representative brands carried in our supplements category include Slim-
Fast, Twin Labs, Weider, Centrum, Geritol and Power Bar.
. Beauty. The beauty category includes cosmetics, fragrances, hair care,
nail care, skin care and sun protection products. Representative brands
carried in our beauty category include Cover Girl, L'Oreal, Christian
Dior, Vidal Sassoon and Clairol.
. Parenting. The parenting category includes baby care, child care and
prenatal products. Representative brands carried in our parenting
category include Tylenol Infant's, Advil, and Huggies.
. Prescriptions. This category consists of prescription medication for
chronic illnesses, such as high blood pressure, osteoporosis and
depression, as well as for acute illnesses. Chronic illnesses represent
approximately 73% of the U.S. prescription drug market according to
Advanstar Communications. These orders are currently delivered by mail,
and we expect to make these medications available for pickup and, in some
cases same-day delivery, from a local pharmacy in the Good Neighbor
Pharmacy Network in the first half of 2000.
43
<PAGE>
Shopping @ ePills.com
Customers at ePills.com can fill prescriptions and shop for brand name
health and beauty aids online from the privacy and convenience of their homes.
The ePills.com site has a virtual shopping bag that keeps a running tab of
selected items and prices, allowing shoppers to quickly purchase their needed
healthcare products. The shopping bag remains to the right of their screen
while browsing so that consumers do not have to click to a different page to
select each product. To quickly find a particular item, shoppers can use our
search engine, browsing the entire inventory by key word, such as the product
name, brand name or description. By the first half of 2000, we expect to offer
ailment-related focus centers for customers interested in finding and
researching products by relevant health topic, such as allergies and asthma,
back and neck, dietary control, stress relief, fitness, women's health and pain
relief.
To further enhance the shopping experience, we plan to supply the following
interactive tools and decision-support functionality:
. My ePills.com--personalization manager that creates custom shopping lists
and page layouts according to set preferences and past behavior.
. Rx Reminder--customizable shopping calendar for pre-order and re-
order/refill.
. Healthy Chat--chat rooms with virtual pointers to reference material,
e.g., product description, health information.
Currently, our customers can have their general questions about account
information, ordering products, and shipping status addressed by ePills.com
customer care representatives. In addition, licensed pharmacists at Medi-Mail
are available to provide guidance, advice or information about prescription
medications concerning correct use and dosage, generic alternatives, potential
side effects and drug interactions.
Prescription Pharmaceutical Orders
Orders placed on our ePills.com website for prescription pharmaceuticals are
processed, adjudicated and fulfilled under our agreement with Medi-Mail, a mail
order pharmacy, which is a wholly owned subsidiary of Bergen Brunswig.
. Accepting Prescriptions. Our customers can initiate the prescription
process by any one of the following methods: ordering online, directing
their physician to call or fax the prescription to Medi-Mail or having
Medi-Mail contact their physician directly to obtain prescription
information. Medi-Mail is licensed to fill prescriptions in 48 of the 50
states. Licenses to fill prescriptions are pending in Michigan and
Tennessee.
. Verifying Prescriptions. Medi-Mail's licensed pharmacists are required
to verify the validity and completeness of prescription drug orders.
. Verifying Prescription Drug Coverage. Medi-Mail determines the
availability of prescription drug coverage and obtains all necessary
approvals from healthcare providers within one business day of the
placement of the order. If health insurance coverage is not available or
denied for any reason, Medi-Mail will advise us so that we can arrange
for payment in full by the consumer. Medi-Mail will not ship any order
unless we have advised them that we have received payment in full from
the consumer.
. Drug Utilization Review. In the future, we intend to build a database
for each customer based upon his or her historical prescription usage at
ePills.com. We expect that the pharmacists at Medi-Mail will eventually
be able to crosscheck each prescription received for allergies,
therapeutic overlap, overuse/underuse and drug interactions with other
drugs or foods.
. Delivery of Prescription Products. We offer our customers various
shipping options, including next-day delivery service. By the first half
of 2000, we expect to provide our customers with the ability to pick up
and, in some cases receive same-day delivery of, their prescription
drugs at any of the approximately 2,000 pharmacies in the Good Neighbor
Pharmacy Network.
44
<PAGE>
Distribution and Order Fulfillment for Non-Prescription Healthcare Products
We outsource our distribution and order fulfillment operations for health
and beauty aids and over-the-counter product orders on an exclusive basis with
Bergen Brunswig. Our agreement with Bergen Brunswig for these services ends in
August 2004.
Orders for health and beauty aids and over-the-counter products are placed
on our website and then forwarded to Bergen Brunswig by electronic data
interchange. Each order provides a description of the product, SKU
designations, quantities, method of payment, requested method of delivery and
the designated delivery location. We expect that Bergen Brunswig will maintain
sufficient inventory in an effort to facilitate the delivery of orders placed
on our sites. We currently offer approximately 11,000 SKUs of health and beauty
aids and over-the-counter products on our sites. We offer a variety of shipping
options, including UPS 3-5 day ground service, UPS 2nd day air and UPS Next Day
Air.
Customers
Consumer
In August 1999, according to an audit completed by Nielsen I/PRO,
www.healthcentral.com attracted 5 million page views and 1,174,726 total
visits, with an average visit time of 8 minutes, 16 seconds. DoubleClick
measured 599,400 unique users during that same month. Page views are the total
number of complete pages retrieved and viewed by visitors to the
HealthCentral.com website. Each single-session use of the website constitutes a
visit, and a unique user is an individual visitor to the HealthCentral.com
website.
Institutional
The following is a list of our current institutional customers, to whom we
are currently licensing and providing website development services:
<TABLE>
<CAPTION>
Name Description
---- -----------
<C> <S>
Brown & Toland Medical Group Partnership of University of California at San
Francisco and California Pacific Physicians
with over 1,200 physicians
Network of 48 hospitals based in California,
Catholic Healthcare West Nevada and Arizona
Healthcare insurer serving over six million
Humana members in 15 states
LifeMasters Disease management company that provides
patrons with online health services
Acute care hospital affiliated with Sutter
Mills Peninsula Medical Center Health
Palo Alto Medical Foundation Non-profit organization affiliated with Sutter
Health providing health care services, research
and education
Scripps Clinic Medical group and clinical research
organization with over 320 physicians based in
San Diego, California
Sutter Health Seventh largest healthcare network in the U.S.
with 26 acute care hospitals and relationships
with approximately 5,000 physicians
</TABLE>
Strategic Relationships
We have the following strategic relationships:
Dr. Dean Edell. In May 1999, we entered into a 15-year agreement with Dr.
Edell, in which he granted us the exclusive right to the use of his name in
connection with our business and exclusive commercialization
45
<PAGE>
rights to his services over the Internet, except for the publication of radio
transcripts and Internet broadcasts of his radio program. Under this agreement,
we own all content that Dr. Edell creates for our HealthCentral.com network.
America Online. In August 1999, ePills.com entered into a two-year agreement
with America Online, under which ePills.com will appear as one of five health-
related anchor tenants on the America Online HealthOnline Pharmacy Channel.
ePills.com is required to pay approximately $14 million over the term of the
agreement for a minimum number of advertising impressions.
AltaVista. In September 1999, we entered into a three year agreement with
AltaVista for the creation of a co-branded website on the AltaVista Health
Channel. We are the exclusive content provider on this co-branded site unless
we fail to provide desired content within a given period. Under the agreement,
AltaVista must deliver a minimum of advertising impressions and will receive
payments from us of up to $65.6 million in cash and stock issued at fair market
value over the three year term. In addition, we have agreed to issue AltaVista
warrants to purchase stock if they meet higher performance thresholds. If
AltaVista fails to deliver the minimum advertising impressions, we reduce our
payments to them. Either AltaVista or we may cancel the agreement after two
years.
Bergen Brunswig. Bergen Brunswig is one of our stockholders and a strategic
partner. In July and September 1999, we entered into a series of agreements
whereby Bergen Brunswig will provide us with fulfillment services for health
and beauty aids, over-the-counter products and prescription drug orders. The
fulfillment agreement for health and beauty aids and over-the-counter products
is a five-year agreement and provides our customers with access to over 11,000
SKUs. Our pharmacy services fulfillment agreement is with Bergen Brunswig's
mail order pharmacy, Medi-Mail, and has a term of five years and provides our
customers with access to over 12,000 prescription pharmaceutical SKUs. Our
relationship with Bergen Brunswig provides us access to the Good Neighbor
Pharmacy Network of approximately 2,000 independent pharmacies and access to
the PlusCare Provider Network of over 70 pharmacy benefit managers covering
approximately 80 million lives. Each of the PBMs has entered into an agreement
with Bergen Brunswig, pursuant to which it provides pharmacy benefits for
customers of approximately 4,000 individual pharmacies. Medi-Mail is one of
these pharmacies that has access to the benefits provided by the PlusCare
Provider Network.
The People's Pharmacy. In September 1999, we entered into a four-year
agreement with Joe and Teresa Graedon to launch a co-branded website,
PeoplesPharmacy.HealthCentral.com, to provide users with exclusive Internet
access to pharmacy-related content produced by the Graedons in the form of
books, newspaper columns, and radio shows. The People's Pharmacy, a newspaper
column written by the Graedons and syndicated by King Features, is published
three times a week in over 100 markets, including New York, Baltimore, Los
Angeles, Boston and Chicago. They also host a weekly radio show that is
broadcast on over 500 stations in more than 100 countries. The Graedons have
agreed to participate in an interactive pharmacy chat room on the co-branded
site. We make annual payments to the Graedons and have issued them an option to
purchase up to a maximum of 200,000 shares of our common stock.
MediaLinx. In the fourth quarter of 1999, we expect to launch our co-branded
website with MediaLinx, an Internet portal in Canada. MediaLinx manages
Sympatico, the largest Internet service provider in Canada. We expect that
Canadian users accessing MediaLinx will have access to our co-branded channel
offering Canadian-specific health content and editorials.
We also have promotional, content distribution and portal relationships with
AskJeeves.com, Broadcast.com, Looksmart, NetPulse, Snap.com and Yahoo!.
Technology
Our engineering mission is to provide a secure and confidential repository
for user information, provide high performance and high quality software and
application systems, and develop reusable components and
46
<PAGE>
tools that integrate with evolving healthcare standards. Our HealthCentral.com
and ePills.com websites employ similar three-tier software architectures, and
each is hosted on a different third-party web hosting service. We plan to
integrate the ePills.com applications, services and databases into the
HealthCentral.com network architecture.
Physical Architecture. We employ a reliable and scalable server architecture
in a mixed LINUX, UNIX and Windows NT environment. Our HealthCentral.com
network, as well as our institutional clients' websites, are protected by an
industry standard firewall. All sensitive data is stored on a separate, private
network that is not directly accessible from the Internet. In addition, there
is a security system that includes video surveillance of all servers 24 hours a
day, and a well-defined audit mechanism.
Software Architecture. We employ a three-tier software architecture, which
allows customization, updating and repair of each layer without interfering
with the operation of the other layers. Our architecture consists of:
. a user interface layer, which allows quick customization of applications
and allows non-technical staff to maintain and improve the user interface
and look and feel of both the HealthCentral.com network and our
institutional clients' websites.
. an engine layer, which implements the business logic for our
applications. Our engine was developed over a 15-year period by Windom
Health and enhanced by participation in an advanced technology program
grant.
. a database layer, which holds all content and data related to our website
on a private network not directly connected to the Internet. An
institutional client may choose to have its database reside with us or
remain at the client's location. Our database servers are Oracle, Sybase
on Sun Solaris for high end applications and MS SQL servers for low-end
applications. We are in the process of improving the scalability of our
database servers.
Sales and Marketing
HealthCentral.com
Our current sales and marketing strategy is to quickly build our revenues,
brand recognition and brand loyalty from sponsorships and advertising. Our
advertising campaigns target both online and traditional audiences and are
designed to promote an enhanced customer experience.
Our online advertising efforts are focused on Internet portals and other
websites. We employ DoubleClick, the largest Internet advertising company, to
conduct advertising and sponsorship sales for our HealthCentral.com website.
Our senior management participates with DoubleClick representatives in
important sales efforts. Under the terms of the agreement, we cannot sell
advertising, with some exceptions, for our HealthCentral.com website through
alternate avenues; however, the agreement is terminable by either party on 90
days notice. 100% of our advertising inventory has been sold each month from
January 1999 through August 1999. We intend to continue to use the unique
resources of the Internet as a means of marketing in an effort to drive traffic
and repeat purchases.
ePills.com
Our current sales and marketing strategy is to establish brand awareness and
build brand loyalty of ePills.com in order to drive sales of prescription and
non-prescription items. Our advertising and promotional activities target both
online and offline audiences and are initially designed to attract first-time
customers. To induce customer loyalty, we intend to employ frequency reward
programs based upon repeat purchases, where customers will be able to
accumulate points for every purchase and redeem them for prizes and free
products. In the first half of 2000, we plan to target people who suffer from
chronic conditions by offering disease-specific information and building
communities around common health concerns and prevention and health management
topics.
47
<PAGE>
Our online marketing efforts are focused on identifying and marketing to
early adopters of healthcare e-commerce, who we believe are typically women and
Internet users 45 years or older. We intend to reach these groups through co-
marketing initiatives with affiliate websites targeting female and mature
demographics, e.g, women's interests, parenting and family, investing, travel
planning, real estate, and senior-oriented sites. We intend to employ incentive
programs for affiliate sites to co-register users for our newsletter, as well
as reward affiliates for directing traffic to our site that results in
purchases. We also intend to acquire or rent opt-in e-mail lists to market
through e-mail based communications. We also plan to reinforce our online
marketing efforts through branded giveaway items in our product packaging,
e.g., ePills.com-branded pill boxes, thermometer strips, pens, water bottle
straps, first-aid kits and band-aids.
In addition to marketing through online channels, we intend to use
traditional marketing and promotional efforts, including print media campaigns,
TV, radio and billboards. We intend to increase our brand awareness through
associating with health and family-related events. In addition, we are in the
process of executing an extensive co-branding effort with the Good Neighbor
Pharmacy Network to extend our brand both online and offline and differentiate
our service through affiliation with trusted brick-and-mortar pharmacies.
Institutional Internet Services
Our current sales and marketing strategy is to quickly build our
institutional customer base, while deriving revenues from licensing and
development fees. We are in the process of building our direct sales teams for
our institutional Internet services.
Competition
To be competitive, we must increase our site traffic and market share both
rapidly and significantly. Thus, we must attract and retain users to our
HealthCentral.com network by offering unique content and services, including
the ability to purchase health-related products, of particular interest to our
users.
HealthCentral.com
There are currently over 15,000 Internet websites that provide health-
related information. As a result, our industry is fragmented and competition is
extremely intense. Our HealthCentral.com consumer website competes directly for
users, advertisers, e-commerce merchants and other partners with numerous
Internet and non-Internet businesses, including:
. health-related websites targeted at consumers, such as drkoop.com,
AllHealth.com, DiscoveryHealth.com, InteliHealth, Medscape.com,
OnHealth.com, Thrive.com and WebMD.com;
. online portal companies, such as America Online, Excite, Inc., The Go
Network, Lycos Corporation Microsoft Network, and Yahoo!;
. hospitals, HMOs, managed care organizations, insurance companies and
other healthcare providers and payors that offer healthcare information
through the Internet; and
. consumer affinity groups, such as the American Association of Retired
Persons and SeniorNet, which offer online healthcare-related content to
special demographic groups.
ePills.com
The online e-commerce markets in the health, beauty, wellness, personal care
and pharmacy categories are fragmented and intensely competitive, with no clear
dominant leader in any of our market categories. Our competitors in these areas
can be divided into several groups:
. chain drugstores, such as CVS, Eckerd and Walgreen's, and independent
drug stores;
. mass market retailers such as Kmart, Target and Wal-Mart;
48
<PAGE>
. supermarkets and warehouse clubs;
. online retailers of health, beauty, personal care and/or pharmaceutical
products, such as planetRx and drugstore.com;
. mail-order pharmacies and prescription benefits managers, such as
Express Scripts and Merck-Medco;
. Internet-portals and online service providers that feature shopping
services such as America Online, Yahoo!, Excite and Lycos; and
. cosmetics departments at major department stores.
Each of these competitors operate within one or more of the health, beauty,
wellness, personal care and pharmacy product categories. In addition, nearly
all of our competitors have, or have announced their intention to have, the
capability to accept orders for products online. In particular, Walgreen's,
CVS, Albertson's and Wal-Mart already are accepting prescription refill or
other orders on their websites.
Many of these competitors have substantial competitive advantages over us,
such as:
. greater name recognition;
. larger user bases;
. greater financial, technical and other resources;
. the ability to offer a wider array of online products and services; and
. more diversified content offerings.
Institutional Internet Services
In the market for institutional Internet services, we compete mainly with
payors' and providers' internal systems development teams, with local web
development companies, with consumer-oriented websites that are selling
applications to institutions, such as drkoop.com, WebMD and BabyCenter's CHI
division. The main competitive factors in the institutional Internet services
market are depth of content, cost, development and maintenance ability and the
ability to allow the institutional client to promote its own brand.
Intellectual Property Rights
Our intellectual property rights are important to our business. We rely on a
combination of copyright, trade secret, trademark and trade dress laws,
confidentiality procedures and contractual provisions to protect our
proprietary rights. We intend to file for federal trademark registrations for
the mark HealthCentral.com and "Windom Health." We have a 15-year agreement
with Dr. Edell, in which he has granted us the exclusive right to the use of
his name in connection with our business and exclusive commercialization rights
to his services over the Internet, except for the publication of radio
transcripts and Internet broadcasts of his radio program. Under this agreement,
all content that Dr. Edell creates for our HealthCentral.com network is owned
by us. Windom Health developed some elements of HealthView, the Personal Health
Record and the general architecture of the HealthCentral.com consumer website
during its participation in a project funded by a grant from the National
Institute of Standards and Technology. Under the terms of the grant, Windom
Health owns the intellectual property it developed for the project and granted
a nonexclusive, nontransferable license to the U.S. government of that
intellectual property. In addition, we have various other exclusive contractual
rights. See "--Strategic Relationships."
Our policy is to enter into confidentiality and invention assignment
agreements with all employees and consultants, and nondisclosure agreements
with all potential business partners. These protections, however, may not be
adequate to protect our intellectual property rights. In addition, we may be
sued by third parties alleging, with or without merit, that we have violated
their intellectual property rights. See "Risk Factors--Any failure or inability
to protect our intellectual property rights could adversely affect our ability
to establish our brands" and "--We may be sued by third parties for
infringement of their proprietary rights."
49
<PAGE>
Government Healthcare Regulation
General. Numerous state and federal laws regulate our health business
covering areas such as:
. the practice of medicine and other healing arts professions;
. the sale of controlled products such as pharmaceuticals and other
healthcare products;
. prohibitions against the offer, payment or receipt of remuneration to
induce referrals to entities providing healthcare services or goods;
. dispensing and delivering prescription, over-the-counter drugs and other
medical products; and
. advertising of drugs, cosmetics and nutritional supplements.
Generally, the laws and regulations governing the healthcare industry have
not been tested in relation to e-commerce in healthcare products and/or the
provision of healthcare information on the Internet. The laws may be
interpreted in such a way that we may not be permitted to conduct our business
as described. The requirement that we comply with any new legislation or
regulations, or any unanticipated application or interpretation of existing
laws or regulations, may decrease the growth in the use of the Internet, which
could in turn decrease the demand for our products, services and information
offered through our HealthCentral.com network, increase our cost of doing
business or otherwise harm our business.
Regulation of the Practice of Medicine. The practice of medicine is
generally defined by state law and varies from state to state. Often it is
defined as engaging in, with or without compensation, diagnosis or treatment of
a physical or mental condition. The practice of medicine requires a license
under state law and, depending on state law, practice of medicine without a
license can be a civil or criminal violation. We have endeavored to structure
our site, and in particular our health risk assessment tools and our
descriptions of various healthcare products, to avoid violation of state
licensing requirements. For example, we have included within our website
disclaimers and other notices that we have deemed appropriate to advise users
that the information provided is not intended to be a substitute for
consultation with a licensed physician. However, the application of this area
of the law to Internet services such as ours is novel and a key element of our
strategy is to encourage consumers to associate us with Dr. Dean Edell, a
licensed physician. Also, we have not conducted a state by state survey of
licensing requirements and policies. Accordingly, a state regulatory authority
and/or one or more licensed physicians or physician advocacy groups or
consumers may allege that one or more elements of our business requires a
license to practice medicine under existing or future laws or statutes and/or
that the disclaimer is ineffective as to particular consumers who claim to rely
upon advice or information provided by us. Any application of practice of
medicine regulations to our business could harm our business or require us to
change our business model. Further, liability based on a determination that we
engaged in the practice of medicine without a license may cause us to be
excluded from coverage under the terms of our current general liability
insurance policy and may also subject us to a higher standard of care than
would be applicable to activities that do not require a professional license.
Regulation of Other Healthcare Professions. We provide information on
pharmacology, nutrition and mental health on our website, including
electronically accessible information regarding prescription drugs and answers
to frequently asked questions about prescription drugs. The practice of
pharmacology, nutrition, psychology and certain personal counseling is also
defined by and regulated by state law, which also varies from state to state.
While we have taken the same precautions to avoid the practice of other
healthcare professions as we have with the practice of medicine, a local
professional licensing board, local professionals, professional advocacy
groups, or consumers may seek to impose state law licensing requirements on
some aspects of our business. Any application of the regulation of the practice
of another healthcare profession to our business could harm our business or
require us to change our business model. Further, any liability based on a
determination that we engaged in the practice of a healthcare profession
without a license may cause us to be excluded from coverage under the terms of
our current general liability insurance policy and may also subject us to a
higher standard of care than would be applicable to activities which do not
require a professional license.
50
<PAGE>
Regulation of Pharmacy Prescription Drug Activities. Our business of
providing prescription drugs and other medical products is subject to federal,
state and local regulations, many of which are specific to pharmacies. For
example, pursuant to the Omnibus Budget Reconciliation Act of 1990 and related
state and local regulations, pharmacists are required to offer counseling,
without additional charge, to prescription drug customers about medication,
dosage, delivery systems, common side effects, adverse effects or interactions
and therapeutic contraindications, proper storage, prescription refill, and
other information deemed significant by the pharmacists. In addition, the FTC
and many state agencies regulate advertising and product performance claims for
prescription drugs. Pharmacy operations are subject to federal, state and local
licensing and registration regulations with respect to the Controlled
Substances Act and federal Drug Enforcement Agency regulations, as well as
related state and local laws and regulations, relating to pharmacy operations,
including registration, security, recordkeeping, and reporting requirements
related to the purchase, storage and dispensing of controlled substances and
prescription drugs, and certain over-the-counter drugs. We have attempted to
structure our agreement with Medi-Mail, for the fulfillment of prescription
orders, such that we do not have to qualify as a pharmacy under federal, state
and territorial laws and regulations. Medi-Mail is required to provide
pharmacist support to respond to consumer inquiries, and we are required to
provide consumer accessible electronic information including answers to
frequently asked questions about prescription drugs. Nevertheless, because we
are the interface with the consumer for the purchasing of prescription drugs,
we may be the subject of FDA, FTC, DEA and state agency enforcement actions and
could be liable to the consumer in the case of adulterated drugs, false or
misleading advertising or claims or problems with the transport and sale of
controlled substances. While we have rights against the drug manufacturer as to
adulteration issues and rights against Medi-Mail for problems relating to
compounding and dispensing drugs, we may have liability if the manufacturer
and/or Medi-Mail cannot or will not indemnify us in a specific situation.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, especially focused on those who prescribe drugs online and on
pharmacies that fill invalid prescriptions, including those that are written
online. The committee requested that the General Accounting Office undertake a
formal review of a number of issues pertaining to online pharmacies, including
an assessment of mechanisms to ensure that online pharmacies are obeying the
various state and federal regulations for the industry. Any regulatory issues
or investigation of our fulfillment partners could involve us, and could harm
our business, even if we had no direct liability.
The National Association of Boards of Pharmacy, a coalition of state
pharmacy boards, has developed a program, the Verified Internet Pharmacy
Practice Sites, or VIPPS, as a model for self-regulation for online pharmacies.
As of September 15, 1999, the first VIPPS certifications were issued to
drugstore.com, Merck-Medco Rx Services and planetRx.com, which are now entitled
to display the VIPPS seal on their websites. To the extent that consumers rely
upon the VIPPS seal, it may be a competitive disadvantage if Medi-
Mail/ePills.com does not obtain certification. In addition, various state
legislatures are considering new legislation related to the regulation of
nonresident pharmacies. The inclusion of prescription drugs as a Medicare
benefit has been the subject of numerous bills in the U.S. Congress. Should
legislation on prescription drug coverage for Medicare recipients be enacted
into law, compliance with any corresponding rules and regulations would be
required.
Regulation of the Sale of OTC Drugs, Nutritional Supplements, Cosmetics and
Medical Devices. The FDA and FTC and similar state agencies regulate drug and
cosmetic advertising and promotion, including direct-to-consumer advertising,
done by or on behalf of drug and cosmetic manufacturers and marketers. In
addition, the FDA regulates product safety for nutritional supplements as well
as over-the-counter drugs, medical devices and prescription drugs. Many of our
products and services are subject to FDA and FTC regulation and enforcement for
false advertising and misleading advertising, including overstatements
regarding product performance, especially regarding nutritional supplements.
While we have rights against the manufacturer as to adulteration issues and
product claims (to the extent we have received the claims as a result of the
manufacturer), we may have liability if the manufacturer cannot or will not
indemnify us in a specific situation.
51
<PAGE>
Application of State and Foreign Laws. Although our business offices are
located in California, our website is available to users all over the United
States and the world. Therefore, the governments of other states and foreign
countries also regulate our activity and our transmissions and may take action
against us for violations of their laws. For example, many states have enacted
laws related to telemedicine, where physicians are practicing medicine by
various means of communication over state lines. The states have varied
tremendously in their approaches to this issue, including, among others,
requiring full licensing of the out of state practitioner or by requiring the
involvement of a state licensed practitioner. The states have uniformly
asserted their right to regulate telemedicine activity, based upon the location
of patients in their state, and we would expect the states to take the same
approach as to other electronic activities directed to consumers in their
states. In addition, our pharmacy business requires that our fulfillment
partner be registered as a pharmacy in any state where it delivers prescription
drugs. We have not undertaken a state by state or a country by country review
of the health-related laws that could apply to our business. Violations of
these laws may be alleged or charged by state or foreign governments or may be
modified, or new laws may be enacted, in the future. Any of the foregoing could
harm our business.
Liability for Health Information and Health Products. Due to the nature of
our business, we may become involved in litigation regarding the information
transmitted from our site with the risk of adverse publicity, significant
defense costs and substantial damage awards. In addition, if we are deemed to
be engaged in the practice of medicine or another healthcare profession,
including pharmacy, we could be subject to claims and/or malpractice liability
exposure for which we may not be insured. We may also be liable for personal
and property damage from products provided by us, including from prescription
drugs. Finally, the FDA could look to us first in enforcing a product recall.
In recent years, participants in the healthcare industry have been subject to
an increasing number of lawsuits alleging malpractice, product liability and
related legal theories, many of which involve large claims and significant
defense costs. We have legal rights against the manufacturer and fulfillment
companies, with some limits, for their activities related to the products we
provide. To date, we have not been the subject of any claim involving the
operation of our site. However, claims may be brought against us. Even if these
claims ultimately prove to be without merit, defending against them can be
time-consuming and expensive, and any adverse publicity associated with these
claims could adversely affect our business. Our liability insurance does not
provide coverage for professional malpractice, so these claims would not come
within the scope of or be covered by our insurance. We may not be able to
maintain existing coverage or expand its scope to address evolving risks, or
obtain increased amounts of coverage on acceptable terms or at all.
Use of Medical Information and Data. There are changing federal and state
laws governing the storage and disclosure of medical information and healthcare
records. Our site does and will contain information submitted by users, in
response to questions on our personal health risk assessment and in connection
with prescription drug and other healthcare product orders. We expect that our
site will also contain information compiled by users for their personal
healthcare histories. While this information is not intended to constitute or
be treated as medical records, users or regulatory agencies may seek to
characterize this information as medical records and impose requirements and/or
sanctions upon us related to the maintenance and handling of medical records.
Maintaining this information could also expose us to claims if unauthorized
persons gain access to it notwithstanding our efforts to maintain its security.
Federal and State Anti-Kickback Laws. Provisions of the Social Security Act
known as the Federal Anti-Kickback Law prohibit knowingly or willfully,
directly or indirectly, paying or offering to pay, or soliciting or receiving,
any remuneration in exchange for the referral of patients to a person
participating in, or for the order, purchase or recommendation of items or
services that are subject to reimbursement by, Medicare, Medicaid and similar
other federal or state healthcare programs. Violations may result in civil and
criminal sanctions and penalties. Civil penalties include exclusion from
government health programs. Criminal sanctions include imprisonment for up to
five years and fines of up to $25,000 or both, for each violation. Recent
federal legislation expanded the sanctions to include civil monetary penalties
up to $50,000 for each prohibited act and up to three times the total amount of
remuneration offered, paid, solicited or received, even in circumstances where
a portion of such remuneration is offered, paid, solicited or received for a
lawful purpose. Certain courts
52
<PAGE>
reviewing the statute have taken a broad view of the Federal Anti-Kickback Law
and have ruled that it can be violated if only one purpose of a payment
arrangement is to induce referrals. Many states also have enacted similar local
anti-kickback laws.
At present, neither Medicare nor Medicaid reimburses outpatient prescription
drugs, with the exception of a few items. While we believe that we have
structured our fee relationships with our pharmacy and health product
affiliates so that the Federal Anti-Kickback Law is not implicated for any
items or services covered by it, the agency may take a contrary position,
especially if Medicare and Medicaid benefits are expanded to cover prescription
drugs. If this were to happen, our prescription drug arrangement with our e-
commerce pharmaceutical and healthcare supply affiliates, as currently
structured, may not qualify as among the practices exempted from federal
prosecution or other enforcement under the Federal Anti-Kickback Law by the
regulatory safe harbors promulgated by the Department of Health and Human
Services. Failure to meet a safe harbor, however, does not mean that an
arrangement violates the statute. Many activities engaged in by healthcare
providers and related entities fall outside the safe harbors yet are not deemed
illegal. While we believe that our fee arrangements are not illegal as to
products and services reimbursable by Medicare or other federal programs
covered by the statute, given the breadth of the Federal Anti-Kickback Law, the
limited scope of the existing safe harbors and the desire of the agencies to
eliminate programs that create financial incentives to provide excessive care,
we may face adverse regulatory positions. The Office of Inspector General is
authorized to issue advisory opinions regarding the interpretation and
applicability of the Federal Anti-Kickback Law, including whether an activity
or proposed activity constitutes grounds for the imposition of civil or
criminal sanctions. We have not sought this kind of opinion and are aware of no
opinion that has been issued regarding website sponsorships or planned sales
activities.
In addition, most states have enacted anti-kickback, or illegal
remuneration, laws that are similar to the Federal Anti-Kickback laws. Some of
these state laws are very closely patterned on the Federal Anti-Kickback Law;
others, however, are broader and reach reimbursement by private payors, and
still others are more narrow, applying, for example, only to kickbacks paid or
received by providers. We have not conducted a survey of these laws in all
fifty states and therefore, our arrangements with our e-commerce affiliates may
result in investigation or prosecution by state regulators or attorneys
general.
If our activities were deemed to be inconsistent with the Federal Anti-
Kickback Law or with state anti-kickback or illegal remuneration laws, we could
face civil and criminal penalties or be barred from such activities, any of
which could harm our business. Further, we could be required to restructure our
existing or planned sponsorship compensation arrangements and e-commerce
activities in a manner that could harm our business.
Federal and State Self-Referral Prohibitions. The federal physician self-
referral statute, often identified as the Stark Law, generally forbids payments
under Medicare or Medicaid based on a physician referral for "designated health
services" to any entity with which the physician (or an immediate family
member) has a financial relationship. The financial relationship can be direct
or indirect. The financial relationship can take the form of an ownership or
investment interest or a compensation relationship. A referral, under the Stark
Law, can include prescribing or requesting designated health services, and also
establishing a plan of care for the designated health services. The Stark Law
applies to clinical laboratory services and other designated health services,
including outpatient prescription drugs and durable medical equipment.
Penalties for violating the Stark Law include denial of payment from Medicare
and Medicaid programs for any services referred to an entity in violation of
the Stark Law, civil monetary penalties of up to $15,000 for each offense and
exclusions from the Medicare and Medicaid programs. Many states have adopted
similar self-referral laws, which may extend to governmental and third-party
payors. We have not conducted a survey of these laws in all fifty states.
We have attempted to structure our physician relationships and our
information delivered to customers so that we are not viewed as practicing
medicine, either directly or as a vehicle for the practice of medicine by an
affiliated physician. However, if we were deemed to be a vehicle for a
physician referral for services or equipment covered by federal or state self-
referral laws, the manner in which we are paid by the referral
53
<PAGE>
recipient could subject us to action under Stark or state self-referral laws,
which could harm our business and subject us to sanctions under these laws.
FDA Regulation of Medical Devices. Some computer applications and software
are considered medical devices and are subject to regulation by the United
States Food and Drug Administration. We do not believe that our current
applications or services will be regulated by the FDA; however, our
applications and services may become subject to FDA regulation. Additionally,
we may expand our application and service offerings into areas that subject us
to FDA regulation. We have no experience in complying with FDA regulations. We
believe that complying with FDA regulations would be time consuming, burdensome
and expensive and could delay or prevent our introduction of new applications
or services.
Other Governmental Regulation
General. There is an increasing number of laws and regulations pertaining to
the Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, it may take years to determine whether and how
existing laws such as those governing issues such as intellectual property
ownership and infringement, privacy, libel, copyright, trade mark, trade
secret, obscenity, personal privacy, taxation, regulation of professional
services, regulation of medical devices and the regulation of the sale of other
specified goods and services apply to the Internet and Internet advertising.
The requirement that we comply with any new legislation or regulation, or any
unanticipated application or interpretation of existing laws, may decrease the
growth in the use of the Internet, which could in turn decrease the demand for
our service, increase our cost of doing business or otherwise harm our
business.
Online Content Regulations. Several federal and state statutes prohibit the
transmission of indecent, obscene or offensive content over the Internet to
certain persons. In addition, pending legislation seeks to ban Internet
gambling and federal and state officials have taken action against businesses
that operate Internet gambling activities. The enforcement of these statutes
and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and
advertisements available on HealthCentral.com. Legislation regulating online
content could slow the growth in use of the Internet generally and decrease the
acceptance of the Internet as an advertising and e-commerce medium, which could
impair our ability to generate revenues.
Privacy Concerns. The Federal Trade Commission is considering adopting
regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing websites, with particular
emphasis on access by minors. These regulations may include requirements that
companies establish procedures to, among other things:
. give adequate notice to consumers regarding information collection and
disclosure practices;
. provide consumers with the ability to have personal identifying
information deleted from a company's database;
. provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
. clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities on a company's website; and
. obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
Such regulation may also include enforcement and redress provisions. While
we have implemented programs designed to enhance the protection of the privacy
of our users, these programs may not conform with
54
<PAGE>
any regulations adopted by the FTC. Moreover, even in the absence of such
regulations, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. One such investigation has
resulted in a consent decree pursuant to which an Internet company agreed to
establish programs to implement the principles noted above. We may become
subject to such an investigation, or the FTC's regulatory and enforcement
efforts may adversely affect the ability to collect demographic and personal
information from users, which could have an adverse effect on the our ability
to provide highly targeted opportunities for advertisers and e-commerce
marketers. Any of these developments could harm our business.
It is also possible that cookies may become subject to laws limiting or
prohibiting their use. The term cookies refers to information keyed to a
specific server, file pathway or directory location that is stored on a user's
hard drive, possibly without the user's knowledge and which is used to track
demographic information and to target advertising. Most currently available
Internet browsers allow users to modify their browser settings to remove
cookies at any time or prevent cookies from being stored on their hard drives.
In addition, a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of the
use of cookies could limit the effectiveness of the targeting of
advertisements, which could have impair our ability to generate advertising
revenue.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under this EU directive, EU citizens are
guaranteed rights, including the right of access to their data, the right to
know where the data originated, the right to have inaccurate data rectified,
the right to recourse in the event of unlawful processing and the right to
withhold permission to use their data for direct marketing. The EU directive
could, among other things, affect U.S. companies that collect information over
the Internet from individuals in EU member countries, and may impose
restrictions that are more stringent than current Internet privacy standards in
the United States. In particular, companies with offices located in EU
countries will not be allowed to send personal information to countries that do
not maintain adequate standards of privacy. The EU directive does not, however,
define what standards of privacy are adequate. As a result, the EU directive
may adversely affect the activities of companies like ours, which plan to
engage in data collection from users in EU member countries.
Planned features of our website include the retention of personal
information about our users which we obtain with their consent. We have a
stringent privacy policy covering this information. However, if third persons
were able to penetrate our network security and gain access to, or otherwise
misappropriate, our users' personal information, we could be subject to
liability. This liability could include claims for misuses of personal
information, such as for unauthorized marketing purposes or unauthorized use of
credit cards. These claims could result in litigation, our involvement in
which, regardless of the outcome, could require us to expend significant
financial resources. Moreover, to the extent any of the data constitutes or is
deemed to constitute patient health records, a breach of privacy could violate
federal law.
Data Protection. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information, such as stock quotes and sports scores. This kind of protection
already exists in the EU. If enacted, this legislation could result in an
increase in the price of services that provide data to websites. In addition,
this legislation could create potential liability for unauthorized use of this
data.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet, and some
states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation or other attempts at
regulating commerce over the Internet may substantially impair the growth of
commerce on the Internet and, as a result, adversely affect our opportunity to
derive financial benefit from these activities.
55
<PAGE>
Domain Names. Domain names are the user's Internet address. Domain names
have been the subject of significant trademark litigation in the United
States. Third parties may bring claims for infringement against us for the use
of the HealthCentral.com or the ePills.com trademarks. Moreover, because
domain names derive value from the individual's ability to remember these
names, our domain names may lose their value if, for example, users begin to
rely on mechanisms other than domain names to access online resources.
The current system for registering, allocating and managing domain names
has been the subject of litigation and of proposed regulatory reform. Our
domain names may lose their value, or we may have to obtain entirely new
domain names in addition to or in lieu of our current domain names if
litigation or reform efforts result in a restructuring in the current system.
State Insurance Regulation. In the future we may market insurance online.
The use of the Internet in the marketing of insurance products is a relatively
new practice. It is not clear whether or to what extent state insurance
licensing laws apply to these activities. If we were required to comply with
such licensing laws, compliance could be costly or impossible, which could
harm our business or require us to change our business plans.
Jurisdiction. Due to the global reach of the Internet, it is possible that,
although our transmissions over the Internet originate primarily in the State
of California, the governments of other states and foreign countries might
attempt to regulate Internet activity and our transmissions or take action
against us for violations of their laws. Violations of these laws may be
alleged or charged by state or foreign governments, or these laws may be
modified, or new laws enacted, in the future. Any of the foregoing could harm
our business.
Employees
As of September 15, 1999 we had 47 employees, of which 6 were employed in
sales and marketing, 15 were employed in engineering, 17 were employed in
production, and 9 were employed in general management and administration. We
believe that our relations with our employees is good.
Facilities
We lease an aggregate of approximately 16,100 square feet at our two
facilities in Emeryville, California. The lease for approximately 7,300 square
feet expires in March 2004 and the lease for approximately 8,800 feet expires
in December 2003. We have also entered into a license agreement to use
facilities in Stamford, Connecticut. This agreement renews every three months
and the current agreement will expire in November 1999.
Legal Proceedings
We have no pending legal proceedings, however we may become subject to
lawsuits from time to time.
56
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth specific information regarding our executive
officers and directors as of August 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Albert L. Greene........ 49 President, Chief Executive Officer and Director
C. Fred Toney........... 33 Senior Vice President and Chief Financial Officer
Deryk Van Brunt......... 40 Senior Vice President of Operations
Marcos A. Athanasoulis.. 32 Vice President of Engineering
Ann-Marie Buddrus....... 47 Vice President of Production
James J. Hornthal....... 45 Co-Chairman of the Board of Directors
Michael D. McDonald..... 43 Co-Chairman of the Board of Directors
Louis M. Andersen....... 38 Director
Sheryle J. Bolton....... 53 Director
Annette Campbell-White.. 52 Director
Dean S. Edell........... 58 Director
Wesley D. Sterman....... 39 Director
Robin Wolaner........... 45 Director
</TABLE>
Albert L. Greene has served as our President and Chief Executive Officer
since joining HealthCentral.com in July 1998 and as a director since October
1998. From May 1990 to February 1998, Mr. Greene served as President of Alta
Bates Medical Center, a hospital in Berkeley, California. From January 1996 to
July 1998, Mr. Greene served as Chief Executive Officer of the East Bay Service
Area of Sutter Health, a healthcare provider. He presently serves on the boards
of directors of Quadramed Corporation, a developer of healthcare software and
services, Lumisys Incorporated, a supplier of medical imaging products, and
Acuson Corporation, a manufacturer of medical ultrasound equipment. Mr. Greene
received a B.A. in Psychology from Ithaca College and an M.H.A. in Hospital
Administration from the University of Michigan.
C. Fred Toney has served as our Senior Vice President and Chief Financial
Officer since joining HealthCentral.com in July 1999. From August 1992 to July
1999, he served as Research Analyst, Director of Research and Senior Managing
Director at Pacific Growth Equities, Inc., an investment banking firm. He also
serves on the board of directors of two private companies. Mr. Toney received a
B.A. in both Economics and English from the University of California, Davis.
Deryk Van Brunt has served as our Senior Vice President of Operations since
HealthCentral.com acquired Windom Health in August 1999. From June 1994 to
August 1999, Dr. Van Brunt was Chief Operating Officer of Windom Health. Dr.
Van Brunt received a B.S. in Natural Resources, an M.P.H. in Epidemiology and a
Dr.P.H. in Health Informatics from the University of California, Berkeley.
Marcos A. Athanasoulis has served as our Vice President of Engineering since
HealthCentral.com acquired Windom Health in August 1999. At Windom Health, Mr.
Anthanasoulis served as Director of Engineering from June 1998 to August 1999,
and as Director of Research and Development from June 1996 to June 1998. From
June 1990 to May 1996, Mr. Athanasoulis was a Research Scientist at Impact
Assessment, Inc. He was also an independent consultant in health information
systems from June 1995 to June 1998. Mr. Athanasoulis received a B.A. in Social
Science, an M.P.H. in Epidemiology and Biostatistics, and a Dr.P.H. in Health
Information Sciences from the University of California, Berkeley.
Ann-Marie Buddrus has served as our Vice President of Production since
HealthCentral.com acquired Windom Health in August 1999. At Windom Health, Ms.
Buddrus served as Vice President of Production from March 1999 to August 1999.
From May 1997 to March 1999, she served as President of JUMP Design, an
57
<PAGE>
Internet development consulting company. From February 1997 to April 1997, she
served as Vice President, Production at NetChannel, Inc., an Internet media
company. From March 1994 to February 1997, Ms. Buddrus was Director of
Production in the Interactive Television Division of Pacific Bell Video
Services, where she helped pioneer the development of interactive shopping mall
prototypes. Ms. Buddrus received a B.A. in Art History from Maryville
University.
James J. Hornthal co-founded HealthCentral.com in August 1996 and has been a
director since inception and co-chairman of the board of directors since
September 1999. In March 1985, Mr. Hornthal founded Preview Travel, an online
travel services company. He has served as chairman of the board of directors of
Preview Travel since inception, as well as President until April 1994 and Chief
Executive Officer until June 1997. Mr. Hornthal is also the chairman of NewsNet
Central, a privately-held media convergence company. Mr. Hornthal received an
A.B. in Economics from Princeton University and an M.B.A. from Harvard Business
School, where he was a Baker Scholar.
Michael D. McDonald has served as co-chairman of the board of directors
since September 1999 and served as chairman of the board of directors from
August 1999 to September 1999. Since December 1995, he has served as President
and a director at both Global Health Initiatives, a health information company,
and Health Initiatives Foundation, Inc., a health and technology non-profit
company. At Windom Health, Dr. McDonald served as President and chairman of the
board of directors from June 1984 to August 1999. He also served as Director of
Health and Telecom at the C. Everett Koop Institute from May 1994 to July 1995,
and as Director of Health and Telecom at the Koop Foundation, Inc. from March
1995 to April 1997. Dr. McDonald received a B.A. in Interdisciplinary Study of
Medicine from the University of California, San Diego, and an M.P.H. and
Dr.P.H. from the University of California, Berkeley.
Louis M. Andersen has served as a director of HealthCentral.com since August
1999. Mr. Andersen has been Vice President, Strategy and Business Development
at United HealthCare Corporation, a healthcare management and insurance
provider, since September 1998. From October 1989 to September 1998, he was
Director of Strategy at Prudential HealthCare, a healthcare affiliate of
Prudential Insurance Company of America. Mr. Andersen received a B.S./B.A.
degree in Accounting from the University of Nebraska, and an M.B.A. from
Columbia University.
Sheryle J. Bolton has served as a director of HealthCentral.com since
October 1998. Since November 1996, Ms. Bolton has served as Chief Executive
Officer and a director of Scientific Learning Corporation, a neuroscience-
based, educational Internet and software company, and she has also served as
President since June 1997. From September 1995 to October 1996, Ms. Bolton was
a consultant to companies in the Internet, healthcare and technology sectors.
From January 1994 to August 1995, Ms. Bolton was the President and Chief
Operating Officer of Physicians' Online, Inc., an online clinical information
resource for physicians. Ms. Bolton serves as a director or trustee for several
mutual fund families of Scudder Kemper Investments, Inc. Ms. Bolton received a
B.A. in English and an M.A. in Linguistics from the University of Georgia, and
an M.B.A. from Harvard Business School.
Annette Campbell-White has served as a director of HealthCentral.com since
September 1999. She has been the Managing General Partner of MedVenture
Associates, a life sciences venture capital firm, since May 1986. Ms. Campbell-
White serves on the board of directors of ArthroCare Corporation, a
manufacturer of surgical instruments, and several privately held companies. Ms.
Campbell-White received a B.Sc. in Chemical Engineering and an M.Sc. in
Physical Chemistry from the University of Cape Town, South Africa.
Dean S. Edell, M.D. co-founded HealthCentral.com in August 1996, and has
been a director since inception. From inception to July 1998, Dr. Edell also
served as President and Chief Executive Officer. Dr. Dean Edell has been a
medical journalist for twenty years, and is the host of the Dr. Dean Edell
Show, which is broadcast on more than 300 radio stations. His television news
reports appear in over 50 markets in the United States and Canada. Dr. Edell
has received numerous awards for his broadcasting work, including a C. Everett
Koop Media award, an Edward R. Murrow award, and awards from the American
Cancer Society and the American Heart Association. Dr. Edell received a B.A. in
Zoology from Cornell University and an M.D. from Cornell University Medical
School.
58
<PAGE>
Wesley D. Sterman has served as a director of HealthCentral.com since
December 1998. Dr. Sterman co-founded Heartport, Inc., a cardiovascular medical
technology company, in May 1992, and since inception has served as its
President, Chief Executive Officer and chairman of the board of directors. Dr.
Sterman received a B.S. in both Biology and Chemistry from Stanford University,
an M.B.A. from the Graduate School of Business at Stanford University, and an
M.D. from the Stanford University School of Medicine. Dr. Sterman also serves
on the boards of directors of several private companies.
Robin Wolaner has served as a director of HealthCentral.com since October
1998. Since October 1997, Ms. Wolaner has served as the Executive Vice
President of CNET, Inc, an internet media company. From July 1992 to December
1995, Ms. Wolaner served as President and Chief Executive Officer of Sunset
Publishing Corporation, a magazine and book company and a division of Time
Publishing Ventures. She serves on the board of directors of Burnham Pacific
Properties, a real estate investment trust, as well as on the board of
directors of a private company. Ms. Wolaner received a B.S. in Industrial and
Labor Relations from Cornell University.
Board Composition.
Our bylaws currently provide for a board of directors consisting of nine
members. All directors hold office until the next annual meeting of our
stockholders and until their successors have been elected and qualified.
Although our principal stockholders have agreed to be bound by a voting
agreement providing for the election of all of our directors, this voting
agreement will terminate upon completion of this offering.
In accordance with the terms of our amended and restated certificate of
incorporation to be effective upon completion of this offering, the board of
directors will be divided into the following three classes, each serving
staggered three-year terms, after the completion of this offering: Class I,
whose initial term will expire at the annual meeting (or special meeting held
in lieu of the annual meeting) of stockholders in 2000; Class II, whose initial
term will expire at the annual meeting (or special meeting held in lieu of the
annual meeting) of stockholders in 2001; and Class III, whose initial term will
expire at the annual meeting (or special meeting held in lieu of the annual
meeting) of stockholders in 2002. As a result, only one class of directors will
be elected at each annual meeting of stockholders of HealthCentral.com, with
the other classes continuing for the remainder of their respective terms. These
provisions in our amended and restated certificate of incorporation may have
the effect of delaying or preventing changes in the control or management of
HealthCentral.com.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, our directors do
not currently receive compensation for their services as members of the board
of directors. Employee directors are eligible to participate in our 1998 Stock
Plan and 1999 Stock Plan and, following the completion of this offering, will
be eligible to participate in our 1999 Employee Stock Purchase Plan.
Nonemployee directors are eligible to participate in our 1998 Stock Plan and
1999 Stock Plan and, following the completion of this offering, will be
eligible to participate in our 1999 Directors' Stock Option Plan. See "Stock
Plans."
In October 1998, we granted each of Ms. Bolton and Ms. Wolaner nonstatutory
stock options to purchase 70,000 shares of our common stock at an exercise
price of $0.22 per share. In February 1999, we granted Dr. Sterman a
nonstatutory stock option to purchase 70,000 shares of our common stock at an
exercise price of $0.22 per share. In August 1999, we granted Dr. McDonald a
nonstatutory stock option to purchase 70,000 shares of our common stock, we
granted Mr. Andersen a nonstatutory stock option to purchase 14,000 shares of
our common stock, and Dr. Sterman a nonstatutory stock option to purchase
14,000 shares of our common stock each at an exercise price of $1.14 per share.
Each of these option grants vests over a 48 month period.
Board Committees
The audit committee consists of Ms. Campbell-White and Mr. Andersen. The
audit committee:
. makes recommendations to the board of directors regarding the selection
of independent auditors;
59
<PAGE>
. reviews the results and scope of the audit and other services provided by
our independent auditors; and
. reviews and evaluates our audit and control functions.
The compensation committee consists of Ms. Bolton, Dr. Sterman and Ms.
Wolaner. The compensation committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the board of directors regarding such matters.
The stock option subcommittee consists solely of Mr. Greene. The stock
option subcommittee has authority to grant stock options to optionees who are
not executive officers or directors of HealthCentral.com.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of the board of directors are
currently Ms. Bolton, Dr. Sterman and Ms. Wolaner, none of whom has ever been
an officer or employee of HealthCentral.com.
No executive officer of HealthCentral.com serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on our board of directors or compensation committee.
Executive Compensation
The following table sets forth the compensation received for services
rendered to us during the fiscal year ended December 31, 1998 by our Chief
Executive Officer. None of our executive officers earned in excess of $100,000
from us during the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------- --------------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Salary ($) Bonus ($) Awards ($) Options (#) Compensation($)
- ------------------ ---------- --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Albert L. Greene, Chief
Executive Officer...... 64,800 -- 2,429(1)(2) 167,685 --
</TABLE>
- --------
(1) In February 1998, Mr. Greene purchased 62,710 shares of common stock at a
purchase price of $0.04 per share for a total purchase price of $2,429,
which amount was paid through the performance of services. At the end of
the fiscal year ended December 31, 1998, this common stock was valued at
$13,769, based on the fair market value of our common stock as determined
by our board of directors.
(2) In September 1998, Mr. Greene was issued 26,786 shares of common stock at a
purchase price of $0.22 per share, for a total purchase price of $5,931, in
exchange for Mr. Greene's issuance to us of a promissory note. At the end
of the fiscal year ended December 31, 1998, this common stock was valued at
the same price at which it was issued, based on the fair market value of
our common stock as determined by the board of directors.
60
<PAGE>
Option Grants
The following table shows information regarding a stock option granted to
Mr. Greene, our Chief Executive Officer and President. None of our other
executive officers earned in excess of $100,000 during the fiscal year ended
December 31, 1998. No stock appreciation rights were granted to Mr. Greene
during the year.
The stock option listed in the following tables was granted under the 1998
Stock Plan and has fully vested. The percentage below is based on a total of
167,685 shares subject to options granted by us during the year ended December
31, 1998 to all of our employees and consultants. The exercise price per share
of the option was equal to the fair market value of the common stock on the
date of grant as determined by the board of directors. Potential realizable
values assume that the price of the applicable stock increases from the date of
grant until the end of the ten-year option term at the annual rates specified.
There is no assurance provided to any executive officer or any other holder of
our securities that the actual stock price appreciation over the 10-year option
term will be at the assumed 5% and 10% levels or at any other defined level.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates Of Stock
Number of Percentage Price
Shares of Total Appreciation
Underlying Options Exercise for Option Term
Options Granted to Price Expiration ---------------
Name Granted (#) Employees per Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Albert L. Greene... 167,685 100% $0.22 8/25/2008 $23,351 $59,176
</TABLE>
The following table provides summary information concerning the shares of
common stock represented by the outstanding stock option held by Mr. Greene, as
of December 31, 1998.
The value realized represents the difference between the fair market value
of the shares on the date of exercise, as determined by our board of directors,
and the exercise price of the option.
Aggregated Option Exercises in 1998 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares December 31, 1998 (#) December 31, 1998 ($)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Albert L. Greene........ -- -- 167,685 -- -- --
</TABLE>
Employment and Consulting Agreements
In August 1999, we entered into an employment agreement with Mr. Greene, our
Chief Executive Officer and President, which provides that Mr. Greene receives
an initial base salary of $235,000 and is eligible to receive a bonus of from
30% to 60% of his base salary depending on his achievement of performance
milestones. If Mr. Greene is terminated without cause before August 11, 2000,
he will receive monthly severance payments equal to his monthly base salary
until that date.
A June 1999 offer letter to Mr. Toney, our Chief Financial Officer and
Senior Vice President, provides that Mr. Toney receives an initial base salary
of $200,000, with an incentive bonus of up to 30% of his base salary depending
on his achievement of performance milestones. In the first year of his
employment, Mr. Toney is guaranteed a bonus of at least 15% of his base salary.
If Mr. Toney is terminated without cause during the first year of his
employment, he will receive monthly severance payments equal to his monthly
base salary until the later of the one year anniversary of his employment start
date or six months after his termination date.
61
<PAGE>
Messrs. Greene and Toney also have change of control provisions, which
provide that fifty percent (50%) of their unvested shares and options vest on
an acquisition of our company, and that if they are terminated without cause
within 12 months after an acquisition of our company, the remaining unvested
shares vest automatically at that time.
A March 1999 offer letter to Ms. Buddrus, our Vice President of Production,
provides that Ms. Buddrus receives a base salary of $110,000, with an incentive
bonus up to $40,000 depending on her achievement of performance milestones. An
August 1999 letter provides that if Ms. Buddrus is terminated without cause
during the first year of her employment, she will receive monthly severance
payments equal to her monthly salary until the later of the one year
anniversary of her employment start date or six months after her termination
date.
In August 1999, we entered into employment agreements with Dr. Van Brunt,
our Senior Vice President of Operations, and Mr. Athanasoulis, our Vice
President of Engineering, in connection with our acquisition of Windom Health.
These employment agreements each provide that if the officer is terminated
without cause before August 11, 2000, he will receive monthly severance
payments equal to his monthly base salary until that date.
In September 1999, the board of directors amended option agreements held by
our officers to provide that fifty percent of any unvested options vests on our
acquisition by another company and the remaining fifty percent vests monthly
over 12 months.
Stock Plans
1999 Stock Plan. Our 1999 stock plan provides for the grant of incentive
stock options to employees, including employee directors, and of nonstatutory
stock options and stock purchase rights to employees, directors (including
employee directors) and consultants. The purposes of the 1999 plan are to
attract and retain the best available personnel, to provide additional
incentives to our employees and consultants and to promote the success of our
business. The 1999 plan was originally adopted by our board of directors in
August 1999. At the time of adoption, 280,000 shares of common stock were
reserved for issuance under the 1999 plan. The 1999 plan was amended by our
board of directors in September 1999 to increase the total number of shares
reserved for issuance by 4,900,000 shares, and to incorporate certain other
changes, after which amendment a total of 5,180,000 shares of common stock has
been reserved for issuance under the plan. In addition, the 1999 plan was
amended to provide for an automatic annual increase on the first day of each of
our fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 equal to the
lesser of 882,000 shares, 3.5% of our outstanding common stock on the last day
of the immediately preceding fiscal year, or such lesser number of shares as
the board of directors determines. This amendment to the 1999 plan will be
submitted for approval by our stockholders prior to the completion of this
offering. Unless terminated earlier by the board of directors, the 1999 plan
will terminate in August 2009.
As of August 31, 1999, options to purchase 280,000 shares of common stock
were outstanding under the 1999 plan at a weighted average exercise price of
$1.14 per share, and no shares had been issued upon exercise of outstanding
options or pursuant to restricted stock purchase agreements.
The 1999 plan may be administered by the board of directors or a committee
of the board, each known as the administrator. The administrator determines the
terms of options and stock purchase rights granted under the 1999 plan,
including the number of shares subject to the award, the exercise or purchase
price, and the vesting and/or exercisability of the award and any other
conditions to which the award is subject. In no event, however, may an employee
receive awards for more than 2,000,000 shares under the 1999 plan in any fiscal
year. Incentive stock options granted under the 1999 plan must have an exercise
price of at least 100% of the fair market value of the common stock on the date
of grant. The exercise price of nonstatutory stock options and the purchase
price of stock purchase rights is determined by the administrator, although we
expect that nonstatutory stock options and stock purchase rights granted to our
Chief Executive Officer and our four
62
<PAGE>
other most highly compensated officers will generally equal at least 100% of
the grant date fair market value. Payment of the exercise or purchase price may
be made in cash or such other consideration as determined by the administrator.
With respect to options granted under the 1999 plan, the administrator
determines the term of options, which may not exceed 10 years (or 5 years in
the case of an incentive stock option granted to a holder of more than 10% of
the total voting power of all classes of our stock). Generally, an option
granted under the 1999 plan is nontransferable other than by will or the laws
of descent and distribution, and may be exercised during the lifetime of the
optionee only by such optionee. However, the administrator may in its
discretion provide for the limited transferability of nonstatutory stock
options granted under the 1999 plan under certain circumstances. Stock issued
pursuant to stock purchase rights granted under the 1999 plan is generally
subject to a repurchase right exercisable by us upon the termination of the
holder's employment or consulting relationship with us for any reason
(including death or disability). This repurchase right will lapse in accordance
with the terms of the stock purchase right determined by the administrator at
the time of grant.
If we are acquired by another corporation, each outstanding option and stock
purchase right may be assumed or an equivalent award substituted by our
acquirer. However, if the acquirer does not agree to such assumption or
substitution, outstanding awards will become fully vested and exercisable
immediately prior to the consummation of the transaction. The administrator has
the authority to amend or terminate the 1999 plan, but no action may be taken
that impairs the rights of any holder of an outstanding option or stock
purchase right without the holder's consent. In addition, we must obtain
stockholder approval of amendments to the plan as required by applicable law.
1998 Stock Plan. Our 1998 stock plan was adopted by our board of directors
in August 1998 and approved by our stockholders in August 1998. The 1998 plan
provides for the grant to employees of incentive stock options and the grant of
nonstatutory stock options and stock purchase rights to employees, consultants
and directors. An aggregate of 3,360,000 shares of common stock have been
reserved for issuance under the 1998 plan. As of August 31, 1999, options to
purchase 1,890,177 shares of common stock at a weighted average exercise price
of $0.67 were outstanding under this plan, 376,758 shares with a weighted
average purchase price of $1.08 have been issued upon exercise of options or
stock purchase rights and 1,093,064 shares remain available for future grant.
Unless terminated earlier, the 1998 plan will terminate in August 2008.
The terms of options and stock purchase rights issued under our 1998 plan
are generally the same as those that may be issued under our 1999 plan, except
with respect to the following features. The 1998 plan imposes a limitation of
1,400,000 on the number of shares of stock subject to options and stock
purchase rights that may be granted to any individual employee during a fiscal
year. In addition, the 1998 plan does not allow for the granting of
nonstatutory stock options with any transferability rights.
1999 Employee Stock Purchase Plan. Our 1999 employee stock purchase plan was
adopted by our board of directors in September 1999 and will be submitted for
approval by our stockholders prior to completion of this offering. A total of
1,400,000 shares of common stock has been reserved for issuance under the 1999
purchase plan, none of which have been issued as of the date of this offering.
The number of shares reserved for issuance under the 1999 purchase plan will be
subject to an automatic annual increase on the first day of each of our fiscal
years beginning in 2001, 2002, 2003, 2004 and 2005 equal to the lesser of
490,000 shares, 2% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the board
of directors determines. The 1999 purchase plan becomes effective upon the date
of this offering. Unless terminated earlier by the board of directors, the 1999
purchase plan shall terminate in September 2019.
The 1999 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods (other than the first offering period) commencing on February 1 and
August 1 of each year. Each offering period will generally consist of four
consecutive purchase periods of six months' duration, at the end of which an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on January 31,
2002; the initial purchase period is expected
63
<PAGE>
to begin on the date of this offering and end on July 31, 2000, with subsequent
purchase periods ending on January 31, 2001, July 31, 2001 and January 31,
2002. The 1999 purchase plan will be administered by the board of directors or
by a committee appointed by the board. Our employees (including officers and
employee directors), or of any majority-owned subsidiary designated by the
board, are eligible to participate in the 1999 purchase plan if they are
employed by us or any such subsidiary for at least 20 hours per week and more
than five months per year. The 1999 purchase plan permits eligible employees to
purchase common stock through payroll deductions, which in any event may not
exceed 20% of an employee's base salary. The purchase price is equal to the
lower of 85% of the fair market value of the common stock at the beginning of
each offering period or at the end of each purchase period, subject to certain
adjustments as provided in the plan. Employees may end their participation in
the 1999 purchase plan at any time during an offering period, and participation
ends automatically on termination of employment.
An employee is not eligible to participate in the 1999 purchase plan if
immediately after the grant of an option to purchase stock under the plan such
employee would own stock and/or hold outstanding options to purchase stock
equaling 5% or more of the total voting power or value of all classes of our
stock or stock of our subsidiaries, or if such option would permit an
employee's rights to purchase stock under the 1999 purchase plan at a rate that
exceeds $25,000 of fair market value of such stock for each calendar year in
which the option is outstanding. In addition, no employee may purchase more
than 2,800 shares of common stock under the 1999 Purchase Plan in any one
purchase period. If the fair market value of the common stock on a purchase
date is less than the fair market value at the beginning of the offering
period, each participant in that offering period shall automatically be
withdrawn from the offering period as of the end of the purchase date and re-
enrolled in the new twenty-four month offering period beginning on the first
business day following the purchase date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 1999
purchase plan will be assumed or an equivalent right substituted by our
acquiror. If our acquiror did not agree to assume or substitute stock purchase
rights, any offering period and purchase period then in progress would be
shortened and a new exercise date occurring prior to the closing of the
transaction would be set. Our board of directors has the power to amend or
terminate the 1999 purchase plan and to change or terminate offering periods as
long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. However, the board of directors may amend or
terminate the 1999 purchase plan or an offering period even if it would
adversely affect outstanding options in order to avoid our incurring adverse
accounting charges.
1999 Directors' Stock Option Plan. The 1999 directors' stock option plan was
adopted by the board of directors in September 1999 and will be submitted for
approval by our stockholders prior to completion of this offering. It will
become effective upon the date of this offering. A total of 350,000 shares of
common stock has been reserved for issuance under the directors' plan, all of
which remain available for future grants. The directors' plan provides for the
grant of nonstatutory stock options to our nonemployee directors. The
directors' plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
board of directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which such director has a
personal interest. Unless terminated earlier, the directors' plan will
terminate in September 2009.
The directors' plan provides that each person who becomes a nonemployee
director after the completion of this offering will be granted a nonstatutory
stock option to purchase 14,000 shares of common stock on the date on which
such individual first becomes a member of our board of directors. In addition,
on the date of each annual stockholders meeting, each nonemployee director who
will continue serving on the board following the meeting and who has been a
director of HealthCentral.com for at least six months prior to the meeting date
will be granted an option to purchase 7,000 shares of common stock.
All options granted under the directors' plan will have a term of ten years
and an exercise price equal to the fair market value of on the date of grant
and will be nontransferable. All options granted under the
64
<PAGE>
directors' plan to new directors shall vest monthly over four years from the
date of a grant and all options granted at the time of our annual stockholders
meeting will vest monthly over 12 months. If a nonemployee director ceases to
serve as a director for any reason other than death or disability, he or she
may, but only within 90 days after the date he or she ceases to be a director,
exercise options granted under the directors' plan. If he or she does not
exercise the option within such 90-day period, the option shall terminate. If a
director's service terminates as a result of his or her disability or death, or
if a director dies within three months following termination for any reason,
the director or his or her estate will have 12 months after the date of
termination or death, as applicable, to exercise options that were vested as of
the date of termination.
If we are acquired by another corporation, each option outstanding under the
directors' plan will be assumed or equivalent options substituted by our
acquirer, unless our acquirer does not agree to such assumption or
substitution, in which case the options will terminate upon consummation of the
transaction to the extent not previously exercised. In connection with any
acquisition, each director holding options under the directors' plan will have
the right to exercise his or her options immediately before the consummation of
the merger as to all shares underlying the options, including shares which
would not have been vested and exercisable but for the acquisition. Our board
of directors may amend or terminate the directors' plan as long as such action
does not adversely affect any outstanding option and we obtain stockholder
approval for any amendment to the extent required by applicable law.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part of
the indemnified parties. Our bylaws also permit us to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of HealthCentral.com, any subsidiary of
HealthCentral.com or any other entity to which the person provides services at
our request. In addition, we maintain directors' and officers' insurance. We
believe that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
65
<PAGE>
TRANSACTIONS WITH AFFILIATES
Since January 1, 1996, we have issued shares of our convertible preferred
stock and warrants to purchase our common stock and preferred stock to
investors in private placement transactions as follows: an aggregate of
1,134,000 shares of Series A preferred stock at a price of $1.79 per share and
warrants to purchase 544,320 shares of Series A preferred stock at a price of
$1.79 per share in December 1998, and an aggregate of 4,523,065 shares of
Series B preferred stock at a price of $4.64 per share in August and September
1999. The following table summarizes the shares of preferred stock purchased by
our executive officers, directors and 5% stockholders and persons and entities
associated with them in these private placement transactions. All shares of our
preferred stock will convert into common stock on a 1-for-1 basis upon
completion of this offering.
<TABLE>
<CAPTION>
Series A
Series A Preferred Stock Series B
Preferred Stock Warrants Preferred Stock
--------------- --------------- ---------------
<S> <C> <C> <C>
Directors (1)
Entities affiliated with
James J. Hornthal 56,000 26,880 21,537
Entities affiliated with
MedVenture Associates III,
L.P. (Annette Campbell-
White) -- -- 753,846
Wesley D. Sterman 84,000 40,320 21,537
Robin Wolaner 28,000 13,440 --
Sheryle J. Bolton 14,000 6,720 --
East Peak Partners (Jeff
Edwards (2)) 224,000 107,520 159,391
Executive Officers
Albert L. Greene 14,000 6,720 10,768
C. Fred Toney -- -- 68,492
5% stockholders (1)
Entities affiliated with
InterWest Partners VII,
L.P. -- -- 1,076,923
Entities affiliated with
Delphi Ventures IV, LP -- -- 1,076,923
</TABLE>
- --------
(1) Shares and warrants held by affiliated persons and entities have been
aggregated. See "Principal Stockholders."
(2) Jeff Edwards resigned as a director in August 1999.
In April 1999, we issued promissory notes in the aggregate principal amount
of $500,000 to MedVenture Associates III, L.P., a 5% stockholder, and MedVen
Affiliates III, L.P., both of which are affiliated with Annette Campbell-White,
one of our directors. The promissory note bore an interest rate of 4.99%. The
principal amount of this note was converted into shares of Series B preferred
stock and the interest of $8,340 was paid in full in September 1999.
In July 1999, we issued a promissory note in the principal amount of
$100,000 and a warrant to purchase 3,111 shares of our common stock at a
purchase price of $3.21 per share to East Peak Partners, an entity with which
Jeff Edwards, who was one of our directors at the time of issuance of these
securities, is affiliated. The promissory note bore an interest rate of 10.00%.
The principal amount of this note was converted into shares of Series B
preferred stock and the interest of $822 was paid in full in September 1999.
In July 1999, we issued a promissory note in the principal amount of
$100,000 and a warrant to purchase 3,111 shares of our common stock at a
purchase price of $3.21 per share to the Hornthal Living Trust, an entity with
which James J. Hornthal, one of our directors, is affiliated. The promissory
note bore an interest rate of 10.00%. The principal amount of this note was
converted into shares of Series B preferred stock and the interest of $822 was
paid in full in September 1999.
66
<PAGE>
In July 1999, we issued a promissory note in the principal amount of
$100,000 to C. Fred Toney, our Senior Vice President and Chief Financial
Officer. The promissory note bore an interest rate of 10.00%. The principal
amount of this note was converted into shares of Series B preferred stock and
the interest of $822 was paid in full in September 1999.
In August 1999, we issued promissory notes in the aggregate principal amount
of $300,000 and warrants to purchase 9,332 shares of Series B preferred stock
at a purchase price of $3.21 per share to MedVenture Associates III, L.P., a 5%
stockholder, and MedVen Affiliates III, L.P., both of which are affiliated with
Annette Campbell-White, one of our directors. The promissory note bore an
interest rate of 10.00%. The principal amount of this note was converted into
shares of Series B preferred stock and the interest of $1,315 was paid in full
in September 1999.
In connection with our acquisition of Windom Health in August 1999, we
issued shares of our common stock and promissory notes to the following
individuals who are directors or executive officers:
. 1,839,345 shares of common stock and a promissory note in the principal
amount of $357,684 to Michael D. McDonald, the co-chairman of our board
of directors;
. 229,434 shares of common stock and a promissory note in the principal
amount of $44,617 to Deryk Van Brunt, our Senior Vice President of
Operations; and
. 91,492 shares of common stock and a promissory note in the principal
amount of $17,792 to Marcos A. Athanasoulis, our Vice President of
Engineering.
The amounts due under these promissory notes were paid in full in August
1999.
In September 1996, we issued 1,290,800 shares to Preview Travel in exchange
for the assignment to us of distribution rights for content produced by Dr.
Dean S. Edell under a contract between Dr. Edell and News Travel Network, which
then was a subsidiary of Preview Travel. These shares were purchased in August
1997 by James J. Hornthal, one of our directors and a holder of 5% or more of
our outstanding stock. Mr. Hornthal is Preview Travel's Chief Executive Officer
and chairman of its board of directors and is also chairman of the board of
directors of NewsNetCentral, for which News Travel Network was a predecessor
entity.
In May 1999, we entered into a fifteen-year agreement with Dr. Edell, a
director and 5% stockholder, in which he granted us the exclusive right to the
use of his name in connection with our business and exclusive commercialization
rights to his services over the Internet, except for publication of radio
transcripts and Internet broadcasts of his radio program. Under this agreement,
we own all content that Dr. Edell creates for our HealthCentral.com network.
Dr. Edell has the right to review and reasonably approve all content and
advertising in the Dr. Dean section of our HealthCental.com website.
In August 1999, we entered into a Joint Development Agreement with Global
Health Initiatives providing for our joint collaboration in the performance of
services and development of products. Among other provisions, the agreement
provides that, other than with respect to consumer health informatics, we may
not compete with Global Health Initiatives in the areas of (1) health care
systems consulting, (2) enterprise engineering, (3) health information systems
or (4) virtual health management. Dr. McDonald, the co-chairman of our board of
directors and a holder of 5% or more of our outstanding stock, is the President
and chairman of the board of directors of Global Health Initiatives.
In August 1999, we entered into a services agreement with NewsNet Central
and Dr. Edell, providing for the joint marketing of a consumer health
programming service that will include health-related video clips produced by
Dr. Edell. Mr. Hornthal is the co-chairman of our board of directors and the
chairman of the board of directors of NewsNet Central.
In February 1999, we granted to Albert L. Greene an option to purchase 5,357
shares of common stock at an exercise price of $0.22 per share, which shares
have fully vested, and an immediately exercisable option to purchase 503,055
shares of common stock at an exercise price of $0.22 per share, which shares
vest over a 36 month period beginning in August 1999.
67
<PAGE>
In June 1999, we granted to C. Fred Toney immediately exercisable options to
purchase an aggregate of 350,000 shares of our common stock at an exercise
price of $1.14 per share, which shares vest over a 48 month period beginning in
January 1999, the option's vesting commencement date. In connection with
Mr. Toney's early exercise of these options in July 1999, Mr. Toney entered
into restricted stock purchase agreements with us and issued to us promissory
notes in the aggregate principal amount of $400,000 bearing interest at 5.74%
per annum, compounded annually, with principal and interest due upon the
earliest of July 12, 2003 or the termination of Mr. Toney's service provider
relationship with us. Upon his termination, we may purchase unvested shares at
cost. The amount currently outstanding under the promissory notes is $400,000,
plus accrued interest.
In August 1999, we granted to Marcos A. Athanasoulis an immediately
exercisable option to purchase 70,000 shares of our common stock at an exercise
price of $1.14 per share, which shares vest over a 48 month period beginning in
February 1999. In August 1999, we granted to Deryk Van Brunt an immediately
exercisable option to purchase 112,000 shares of our common stock at an
exercise price of $1.14 per share, which shares vest over a 48 month period
beginning in February 1999, and in September 1999, we granted to Dr. Van Brunt
an immediately exercisable option to purchase 28,000 shares of our common stock
at an exercise price of $7.31 per share, which shares vest over a 48 month
period beginning in September 1999. In August 1999, we granted to Ann-Marie
Buddrus an immediately exercisable option to purchase 70,000 shares of our
common stock at an exercise price of $1.14 per share, which shares vest over a
48 month period beginning in September 1998.
In August 1999, in connection with the closing of our acquisition of Windom
Health, we entered into a three-year consulting agreement with Michael D.
McDonald, a member of our board of directors, which provided for an $85,000
bonus to be paid to him on the closing of our Series B preferred stock
financing and a monthly fee of $5,000 for his provision of consulting services.
If we terminate the consulting agreement without releasing Dr. McDonald from a
noncompetition provision, Dr. McDonald will continue to receive as severance
the monthly fee due for the remainder of the initial term of the consulting
agreement.
Stock option grants to our directors are described under the caption
"Management--Board Compensation." Stock option grants and restricted stock
awards to Mr. Greene, our Chief Executive Officer, prior to January 1, 1999 are
described under the caption "Management--Executive Compensation." See
"Management--Employment and Consulting Agreements." We have entered into
indemnification agreements with all of our officers and directors. See
"Management--Limitation of Liability and Indemnification Matters." Some of our
shareholders are entitled to have their shares registered by us for resale. See
"Description of Capital Stock--Registration Rights."
68
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of August 31, 1999, as adjusted to
reflect the sale of common stock offered hereby, by:
. each person (or group of affiliated persons) known by us to own
beneficially more than 5% of our outstanding common stock,
. each director,
. our Chief Executive Officer, and
. all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o HealthCentral.com, 6001 Shellmound Street, Suite 800, Emeryville, CA 94608.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned. The applicable percentage of ownership for each stockholder is based on
13,528,790 shares of common stock outstanding as of August 31, 1999 and an
assumed shares outstanding after the completion of this offering, in each
case together with applicable options for that stockholder. Shares of common
stock issuable upon exercise of options and other rights beneficially owned
that are exercisable within 60 days after August 31, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights but are not deemed outstanding for
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned
Total -----------------
Number of Before After
Name and Address Shares Offering Offering
- ---------------- --------- -------- --------
<S> <C> <C> <C>
James J. Hornthal(1) ............................. 2,689,128 19.9%
Dean S. Edell .................................... 2,581,600 19.1
Michael D. McDonald(2) ........................... 1,842,261 13.6
Entities affiliated with Delphi Ventures
3000 Sand Hill Road, Building One, Suite 315
Menio Park, CA 94025(3).......................... 1,076,923 8.0
Entities affiliated with InterWest Partners
3000 Sand Hill Road, Building Three, Suite 225
Menlo Park, CA 94025(4) ......................... 1,076,923 8.0
Entities affiliated with MedVenture Associates
Four Orinda Way, Building D, Suite 150
Orinda, CA 94563(5) ............................. 763,178 5.6
Albert L. Greene(6) .............................. 797,081 5.6
Louis M. Andersen(7) ............................. 2,332 *
Sheryle J. Bolton(8) ............................. 38,220 *
Annette Campbell-White(5) ........................ 763,178 5.6
Wesley D. Sterman(9) ............................. 158,105 1.2
Robin Wolaner(10) ................................ 58,240 *
All directors and executive officers as a group
(13 persons)(11) ................................. 9,921,563 73.0
</TABLE>
- --------
* Less than one percent.
(1) Represents 2,659,137 shares held by an investment entity and trust
controlled by Mr. Hornthal, and 29,991 shares that the investment entity
and trust have the right to acquire pursuant to the exercise of a warrant.
(2) Includes 2,916 shares issuable pursuant to the exercise of stock options.
Does not include 197,072 shares held by the Vincent P. and Zaida McDonald
Trust. Vincent and Zaida McDonald are Dr. McDonald's parents, and Dr.
McDonald does not have voting or dispositive power over these shares.
69
<PAGE>
(3) Includes 1,055,170 shares held by Delphi Venture IV, L.P. and 21,753 shares
held by Delphi BioInvestments IV, L.P.
(4) Includes 1,030,184 shares held by InterWest Partners VII, L.P. and 46,739
shares held by InterWest Investors VII, L.P.
(5) Includes 723,090 shares held by MedVenture Associates III, L.P., 30,756
shares held by MedVen Affiliates III, L.P. Also includes 8,952 shares that
MedVenture Associates III, L.P. has the right to acquire and 380 shares
that MedVen Affiliates III, L.P. has the right to acquire pursuant to the
exercise of warrants. Annette Campbell-White, a director of
HealthCentral.com, is a managing member of the general partner of each of
these partnerships. Ms. Campbell-White disclaims beneficial ownership of
these shares.
(6) Includes 676,097 shares issuable pursuant to the exercise of outstanding
options and 6,720 shares issuable pursuant to the exercise of a warrant. A
portion of the shares issued and issuable upon exercise of stock options is
subject to repurchase by us at the original exercise price in the event of
termination of Mr. Greene's employment with us, which repurchase right
lapses over time.
(7) Represents shares issuable pursuant to the exercise of stock options.
(8) Includes 6,720 shares issuable pursuant to the exercise of a warrant and
17,500 shares issuable pursuant to the exercise of stock options.
(9) Includes 40,320 shares issuable pursuant to the exercise of a warrant and
12,248 shares issuable pursuant to the exercise of stock options.
(10) Includes 13,440 shares issuable pursuant to the exercise of a warrant and
17,500 shares issuable pursuant to the exercise of stock options.
(11) Includes an aggregate of 106,523 shares issuable pursuant to the exercise
of warrants and an aggregate of 980,593 shares issuable pursuant to the
exercise of outstanding options. A portion of the shares issued to
officers or issuable upon exercise of options by officers is subject to
repurchase by us at the original exercise price in the event of
termination of such officers' employment, which repurchase right lapses
over time.
70
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of
our capital stock does not purport to be complete and is qualified in its
entirety by our certificate of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Delaware law.
Common Stock
As of August 31, 1999, there were 13,528,790 shares of common stock
outstanding, held of record by approximately 46 stockholders, which reflects
the conversion of all outstanding shares of preferred stock into common stock.
Upon completion of this offering, there will be shares of common stock
outstanding, assuming no exercise of the underwriters' overallotment option or
additional exercise of outstanding options or warrants after August 31, 1999.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of funds legally available for that purpose. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
preferred stock. The common stock has no preemptive or conversion rights, other
subscription rights, or redemption or sinking fund provisions. All outstanding
shares of common stock are fully paid and non-assessable, and the shares of
common stock to be issued upon completion of this offering will be fully paid
and non-assessable.
Preferred Stock
Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 5,657,065 shares of common stock and automatically
retired. Thereafter, the board of directors will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series and to designate the rights, preferences,
privileges and restrictions of each such series. The issuance of preferred
stock could have the effect of restricting dividends on the common stock,
diluting the voting power of the common stock, impairing the liquidation rights
of the common stock or delaying or preventing our change in control without
further action by the stockholders. We have no present plans to issue any
shares of preferred stock.
Warrants
As of August 31, 1999, warrants were outstanding to purchase an aggregate of
744,361 shares of common stock at a weighted average exercise price of $2.57
per share. Of these warrants, warrants to purchase an aggregate of 649,857
shares of common stock at a weighted average exercise price of $2.19 per share
will terminate upon the completion of this offering if not exercised prior to
such time. In addition, as of August 31, 1999, we have committed to issue to
Yahoo!, on or after March 2001, a warrant to purchase that amount of shares
equal to 0.5% of the shares of our common stock outstanding as of March 2001,
assuming the exercise and conversion of all convertible and exercisable
securities outstanding on that date, unless our content license agreement with
Yahoo! is terminated prior to this date.
Registration Rights
As of August 31, 1999, the holders of 12,660,093 shares of common stock and
warrants to purchase 558,040 shares of common stock (the "registrable
securities") are entitled to have their shares registered by us under the
Securities Act under the terms of an agreement between us and the holders of
the registrable securities. Subject to limitations specified in the agreement,
these registration rights include the following:
71
<PAGE>
. The holders of registrable securities may require, on two occasions
beginning six months after the date of this offering, that we use our
best efforts to register the registrable securities for public resale,
provided that the aggregate offering price for such registrable
securities is at least $15,000,000. This right is subject to the ability
of the underwriters to limit the number of shares included in the
offering in view of market conditions.
. If we register any common stock, either for our own account or for the
account of other security holders, the holders of registrable securities
are entitled to include their shares of common stock in such
registration. This right is subject to the ability of the underwriters to
limit the number of shares included in the offering in view of market
conditions.
. The holders of registrable securities may require us to register all or a
portion of their registrable securities on Form S-3 when use of such form
becomes available to us, provided that the proposed aggregate offering
price is at least $1,000,000. The holders of registrable securities may
not exercise this right more than twice in any twelve-month period.
We will bear all registration expenses other than underwriting discount and
commissions, except in the case of registrations on Form S-3. All registration
rights terminate on the date five years following the closing of this offering,
or, with respect to each holder of registrable securities, at such time as the
holder is entitled to sell all of its shares in any three month period under
Rule 144 of the Securities Act.
In addition to the registration rights described above, holders of 25% of
the shares of our common stock issued to the former ePills.com stockholders in
connection with our acquisition of ePills.com may request that we register
their shares to allow them to resell their shares in the public market on a
registration statement on Form S-1. These demand registration rights may be
exercised, subject to various restrictions, beginning 180 days after the
closing of our initial public offering.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation
and Bylaws
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult our acquisition by a third party and the removal of
our incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of HealthCentral.com to
first negotiate with us. We believe that the benefits of increased protection
of our ability to negotiate with the proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation could result in an improvement of
their terms.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years following the date the
person became an interested stockholder, unless:
. the board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
. on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders.
72
<PAGE>
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our certificate of incorporation and bylaws do not provide for the right of
stockholders to act by written consent without a meeting or for cumulative
voting in the election of directors. In addition, our certificate of
incorporation permit the board of directors to issue preferred stock with
voting or other rights without any stockholder action. Our certificate of
incorporation provides for the board of directors to be divided into three
classes, with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders. Each of the
two other classes of directors will continue to serve for the remainder of its
respective three-year term. These provisions, which require the vote of
stockholders holding at least two-thirds of the outstanding common stock to
amend, may have the effect of deterring hostile takeovers or delaying changes
in our management.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is U.S. Stock Transfer
Corporation. The Transfer Agent's address and telephone number is 1745 Gardena
Avenue, Glendale, CA, 91204 (818) 502-1404.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares of
common stock, based upon shares outstanding as of August 31, 1999 and assuming
no exercise of options or warrants. Of these shares, the shares sold in the
offering, plus any shares issued upon exercise of the underwriters'
overallotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act. In general, affiliates include officers,
directors or 10% stockholders.
The remaining 13,528,790 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
promulgated under the Securities Act. Sales of the restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
Our directors, officers and securityholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Lehman Brothers Inc.
Notwithstanding possible earlier eligibility for sale under exemptions from
registration promulgated under the Securities Act, shares subject to lock-up
agreements will not be salable until such agreements expire or are waived by
Lehman Brothers Inc. Taking into account the lock-up agreements, and assuming
Lehman Brothers Inc. does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the
following times:
. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date, approximately 5,095,195
shares will be eligible for sale pursuant to Rule 144. All but 938,000 of
such shares are held by affiliates.
. Between 180 days and 365 days after the effective date, approximately
7,142,795 shares under Rule 144 at various times. All but 3,756,345
shares are held by affiliates.
. Beginning 365 days after the effective date approximately 1,290,800
additional shares will be eligible for sale under rule 144. All of these
shares are held by Dr. Dean Edell, an affiliate, and are subject to an
agreement with us preventing the sale or other transfer of these shares
for a period of 365 days from the effective date of this offering.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the offering;
or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
74
<PAGE>
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on Rule
144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options or
rights exercised under the 1999 Stock Plan, the 1998 Stock Plan, the 1999
Employee Stock Purchase Plan, the 1999 Directors' Stock Option Plan or any
other benefit plan after the effectiveness of the registration statements will
also be freely tradable in the public market. However, such shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of August 31, 1999, there were outstanding options
for the purchase of 1,890,177 shares of common stock.
75
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Hambrecht & Quist LLC, Pacific Growth
Equities, Inc. and Wit Capital Corporation are acting as representatives, have
each agreed to purchase from us the respective number of shares of common stock
set forth opposite its name below:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ------
<S> <C>
Lehman Brothers Inc. .................................................
Hambrecht & Quist LLC.................................................
Pacific Growth Equities, Inc. ........................................
Wit Capital Corporation ..............................................
-----
Total...............................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement, must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver
to the underwriters customary closing documents.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
No Full
Paid by HealthCentral.com Exercise Exercise
------------------------- -------- --------
<S> <C> <C>
Per Share.................................................. $ $
Total...................................................... $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ share. The underwriters may allow, and the dealers may reallow, a
concession not in excess of $ per share to brokers and dealers. After the
offering, the underwriters may change the offering price and other selling
terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc., we
will not directly or indirectly offer, sell or otherwise dispose of any shares
of common stock or any securities which may be converted into or exchanged for
any such shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers and directors and certain other
stockholders, including all of the holders of the preferred stock and warrants,
have agreed under lock-up agreements that, without the prior written consent of
76
<PAGE>
Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities which may be
converted into or exchanged for any such shares for the period ending 180 days
after the date of this prospectus. Please see "Shares Eligible for Future
Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price has been negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earning prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
We have applied to the Nasdaq National Market for listing approval under the
symbol "HCEN."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ million.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
77
<PAGE>
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
At our request, the underwriters have reserved up to % shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the
initial public offering price set forth on the cover page of this prospectus.
These persons must commit to purchase no later than the close of business on
the day following the date of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.
A prospectus in electronic format is being made available on an Internet
website maintained by Wit Capital. In addition, all dealers purchasing shares
from Wit Capital in the offering have agreed to make a prospectus in electronic
format available on websites maintained by each of these dealers. Purchases of
shares from Wit Capital are to be made through an account at Wit Capital in
accordance with Wit Capital's procedures for opening an account and transacting
in securities.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the representatives. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as an
underwriter, e-manager or selected dealer in over 125 public offerings. Except
for its participation as a representative in the offering, Wit Capital has no
relationship with us or any of our affiliates.
78
<PAGE>
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
HealthCentral.com by Venture Law Group, A Professional Corporation, 2800 Sand
Hill Road, Menlo Park, California 94025. Mark Medearis, a Director of Venture
Law Group, is the Secretary of HealthCentral.com. Legal matters in connection
with this offering will be passed upon for the underwriters by Brobeck, Phleger
& Harrison LLP, 550 West C Street, Suite 1300, San Diego, California 92101. As
of the date of this prospectus, attorneys of Venture Law Group and an
investment partnership controlled by Venture Law Group beneficially own an
aggregate of 8,614 shares of HealthCentral.com's common stock.
EXPERTS
The financial statements of HealthCentral.com as of December 31, 1997 and
1998 and for the period from August 12, 1996 (date of inception) to December
31, 1996 and for each of the two years in the period ended December 31, 1998,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Windom Health Enterprises, Inc. as of December
31, 1997 and 1998 and for each of the two years in the period ended December
31, 1998, included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement, which includes any amendments to the registration statement, on Form
S-1 under the Securities Act with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement. Certain items are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Securities and Exchange Commission. For further information with respect to
HealthCentral.com and the common stock offered by this prospectus, reference is
made to the registration statement and its exhibits, and the financial
statements and notes filed as a part of the registration statement. Statements
made in this prospectus concerning the contents of any document are not
necessarily complete. With respect to each such document filed with the
Securities and Exchange Commission as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved. The registration statement, including the exhibits, financial
statements and notes filed as a part of the registration statement, as well as
reports and other information filed with the Securities and Exchange
Commission, may be inspected without charge at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Securities and
Exchange Commission located at Seven World Trade Center, 13th Floor, New York,
New York, 10048, and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from
the Securities and Exchange Commission upon payment of certain fees prescribed
by the Securities and Exchange Commission. Such reports and other information
may also be inspected without charge at a website maintained by the Securities
and Exchange Commission. The address of such site is http://www.sec.gov.
79
<PAGE>
HEALTHCENTRAL.COM
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
HealthCentral.com ----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
Windom Health Enterprises, Inc.
Report of Independent Accountants.......................................... F-19
Balance Sheets............................................................. F-20
Statements of Operations................................................... F-21
Statements of Shareholders' Deficit........................................ F-22
Statements of Cash Flows................................................... F-23
Notes to Financial Statements.............................................. F-24
ePills Inc.
Balance Sheet.............................................................. F-29
Statement of Operations.................................................... F-30
Statement of Stockholders' Deficit......................................... F-31
Statement of Cash Flows.................................................... F-32
Notes to Financial Statements.............................................. F-33
Pro forma Combined Financial Statements (unaudited)
Unaudited Pro Forma Combined Financial Statements.......................... F-36
Unaudited Pro forma Combined Balance Sheet................................. F-37
Unaudited Pro forma Combined Statements of Operations...................... F-38
Unaudited Pro forma Combined Statements of Operations...................... F-39
Notes to Unaudited Pro Forma Combined Statement of Operations.............. F-40
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
The reincorporation and stock split described in Note 1 to the financial
statements has not been consummated at September 24, 1999. When it has been
consummated, we will be in a position to furnish the following report:
"To the Board of Directors and Stockholders of
HealthCentral.com
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of HealthCentral.com (a development
stage company) at December 31, 1997 and 1998, and the results of its operations
and its cash flows for the period from August 12, 1996 (date of inception) to
December 31, 1996, and for each of the two years ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statements
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above."
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 24, 1999, except
as to the second paragraph
of Note 1 which is as of
November , 1999
F-2
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, Stockholders'
-------------------- June 30, Equity at
1997 1998 1999 June 30, 1999
------- ----------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 6,773 $ 1,091,551 $ 69,383
Accounts receivable.......... -- 15,189 42,167
Prepaid expenses............. -- -- 106,382
------- ----------- -----------
Total current assets......... 6,773 1,106,740 217,932
Receivable from related
party........................ -- 563,541 1,361,730
------- ----------- -----------
Total assets................ $ 6,773 $ 1,670,281 $ 1,579,662
======= =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............. $ -- $ 28,482 $ 406,789
Accrued expenses............. -- 39,166 12,500
Deferred revenue............. -- -- 113,318
------- ----------- -----------
Total current liabilities... -- 67,648 532,607
Convertible note payable to
related party................ -- -- 500,000
------- ----------- -----------
Total liabilities........... -- 67,648 1,032,607
------- ----------- -----------
Commitments (Note 7)
Stockholders' equity:
Convertible preferred stock,
$0.001 par value, 2,100,000
shares authorized, 1,134,000
issued and outstanding at
December 31, 1998 and
June 30, 1999 (unaudited);
none issued and outstanding
pro forma (aggregate
liquidation preference
$2,025,000) ................ -- 1,134 1,134 $ --
Common stock, $0.001 par
value, 14,000,000 shares
authorized at December 31,
1997, 26,600,000 shares
authorized at December 31,
1998 and June 30, 1999
(unaudited), 5,163,200,
5,252,695, 5,252,695 and
6,386,695 shares issued and
outstanding at December 31,
1997 and 1998, June 30, 1999
(unaudited) and pro forma,
respectively ............... 4,379 4,468 4,468 5,602
Additional paid-in capital... 3,628 2,334,912 5,390,465 5,390,465
Note receivable from
stockholder................. -- (5,931) (5,931) (5,931)
Deferred stock compensation.. -- (284,481) (2,437,103) (2,437,103)
Accumulated deficit.......... (1,234) (447,469) (2,405,978) (2,405,978)
------- ----------- ----------- -----------
Total stockholders' equity.. 6,773 1,602,633 547,055 $ 547,055
------- ----------- ----------- ===========
Total liabilities and
stockholders' equity..... $ 6,773 $ 1,670,281 $ 1,579,662
======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Six Months Ended June
December 31, 30,
---------------------- ----------------------- Cumulative
Period from Period from
Inception to Inception
December 31, to June 30,
1996 1997 1998 1998 1999 1999
------------ ---------- ---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising................. $ -- $ -- $ 15,259 $ -- $ 126,546 $ 141,805
--------- ---------- ---------- ---------- ----------- -----------
Operating expenses:
Production, content and
product development........ -- -- 136,788 -- 496,197 632,985
Sales and marketing......... -- 848 141,516 -- 435,458 577,822
General and administrative.. 86 300 78,549 2,619 257,988 336,923
Stock compensation.......... -- -- 104,641 -- 902,931 1,007,572
--------- ---------- ---------- ---------- ----------- -----------
Total operating expenses.. 86 1,148 461,494 2,619 2,092,574 2,555,302
--------- ---------- ---------- ---------- ----------- -----------
Loss from operations.......... (86) (1,148) (446,235) (2,619) (1,966,028) (2,413,497)
Interest income, net ......... -- -- -- -- 7,519 7,519
--------- ---------- ---------- ---------- ----------- -----------
Net loss...................... $ (86) $ (1,148) $ (446,235) $ (2,619) $(1,958,509) $(2,405,978)
========= ========== ========== ========== =========== ===========
Basic and diluted net loss
per share.................... $ -- $ -- $ (0.09) $ -- $ (0.37) $ (0.46)
========= ========== ========== ========== =========== ===========
Shares used in computing basic
and diluted net loss per
share........................ 4,318,144 5,163,200 5,221,800 5,215,400 5,238,187 5,196,581
========= ========== ========== ========== =========== ===========
Pro forma basic and diluted
net loss per share (Note 1).. $ (0.09) $ (0.31)
========== ===========
Shares used in computing pro
forma basic and diluted net
loss per share............... 5,246,655 6,372,187
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION TO DECEMBER 31, 1996, THE TWO YEARS ENDED
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Note
Preferred Stock Common Stock Additional Receivable Deferred
---------------- ---------------- Paid-In from Stock Accumulated
Shares Amount Shares Amount Capital Stockholder Compensation Deficit
--------- ------ --------- ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders
in August 1996....... -- $ -- 3,872,400 $3,872 $ 3,628 $ -- $ -- $ --
Net loss.............. -- -- -- -- -- -- -- (86)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance at December
31, 1996............. -- -- 3,872,400 3,872 3,628 -- -- (86)
Issuance of common
stock for cash....... -- -- 1,290,800 507 -- -- -- --
Net loss.............. -- -- -- -- -- -- -- (1,148)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance at December
31, 1997............. -- -- 5,163,200 4,379 3,628 -- -- (1,234)
Issuance of Series A
preferred stock and
warrants, net........ 1,134,000 1,134 -- -- 1,933,891 -- -- --
Issuance of common
stock................ -- -- 89,495 89 8,271 (5,931) -- --
Deferred compensation
expense in connection
with issuance of
stock options........ -- -- -- -- 389,122 -- (389,122) --
Amortization of
deferred
compensation......... -- -- -- -- -- -- 104,641 --
Net loss.............. -- -- -- -- -- -- -- (446,235)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance at December
31, 1998............. 1,134,000 1,134 5,252,695 4,468 2,334,912 (5,931) (284,481) (447,469)
Deferred compensation
expense in connection
with issuances of
stock options
(unaudited).......... -- -- -- -- 3,055,553 -- (3,055,553) --
Amortization of
deferred compensation
(unaudited).......... -- -- -- -- -- -- 902,931 --
Net loss (unaudited).. -- -- -- -- -- -- -- (1,958,509)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance at June 30,
1999 (unaudited)..... 1,134,000 $1,134 5,252,695 $4,468 $5,390,465 $(5,931) $(2,437,103) $(2,405,978)
========= ====== ========= ====== ========== ======= =========== ===========
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Issuance of common stock to founders
in August 1996....... $ 7,500
Net loss.............. (86)
-------------
Balance at December
31, 1996............. 7,414
Issuance of common
stock for cash....... 507
Net loss.............. (1,148)
-------------
Balance at December
31, 1997............. 6,773
Issuance of Series A
preferred stock and
warrants, net........ 1,935,025
Issuance of common
stock................ 2,429
Deferred compensation
expense in connection
with issuance of
stock options........ --
Amortization of
deferred
compensation......... 104,641
Net loss.............. (446,235)
-------------
Balance at December
31, 1998............. 1,602,633
Deferred compensation
expense in connection
with issuances of
stock options
(unaudited).......... --
Amortization of
deferred compensation
(unaudited).......... 902,931
Net loss (unaudited).. (1,958,509)
-------------
Balance at June 30,
1999 (unaudited)..... $ 547,055
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Year Ended Six Months Ended Cumulative
Inception to December 31, June 30, Period from
December 31, --------------------- --------------------- Inception to
1996 1997 1998 1998 1999 June 30, 1999
------------ -------- ----------- ------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $ (86) $ (1,148) $ (446,235) $(2,619) $ (1,958,509) $(2,405,978)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Common stock issued
for services ........ -- -- 2,429 2,429 -- 2,429
Stock compensation
expense.............. -- -- 104,641 -- 902,931 1,007,572
Changes in assets and
liabilities:
Accounts receivable.. -- -- (15,189) -- (26,978) (42,167)
Prepaid expenses..... -- -- -- -- (106,382) (106,382)
Accounts payable..... -- -- 28,482 -- 378,307 406,789
Accrued expenses..... -- -- 39,166 -- (26,666) 12,500
Deferred revenue..... -- -- -- -- 113,318 113,318
------- -------- ----------- ------- ------------ -----------
Net cash used in
operating
activities......... (86) (1,148) (286,706) (190) (723,979) (1,011,919)
------- -------- ----------- ------- ------------ -----------
Cash flows from
investing activities:
Note receivable from
related party........ -- -- (563,541) -- (798,189) (1,361,730)
------- -------- ----------- ------- ------------ -----------
Net cash used in
investing
activities......... -- -- (563,541) -- (798,189) (1,361,730)
------- -------- ----------- ------- ------------ -----------
Cash flows from
financing activities:
Proceeds from issuance
of convertible note
payable.............. -- -- -- -- 500,000 500,000
Proceeds from sale of
common stock......... 7,500 507 -- -- -- 8,007
Proceeds from issuance
of preferred stock,
net.................. -- -- 1,935,025 -- -- 1,935,025
------- -------- ----------- ------- ------------ -----------
Net cash provided by
financing
activities......... 7,500 507 1,935,025 -- 500,000 2,443,032
------- -------- ----------- ------- ------------ -----------
Net increase (decrease)
in cash and cash
equivalents........... 7,414 (641) 1,084,778 (190) (1,022,168) 69,383
Cash and cash
equivalents at
beginning of period... -- 7,414 6,773 6,773 1,091,551 --
------- -------- ----------- ------- ------------ -----------
Cash and cash
equivalents at end of
period................ $ 7,414 $ 6,773 $ 1,091,551 $ 6,583 $ 69,383 $ 69,383
======= ======== =========== ======= ============ ===========
Supplemental
disclosures of non-
cash investing and
financing activities:
Deferred stock
compensation......... $ -- $ -- $ 389,122 $ -- $ 3,055,553 $ 3,444,675
======= ======== =========== ======= ============ ===========
Warrants issued in
connection with
leases............... $ -- $ -- $ -- $ -- $ 58,036 $ 58,036
======= ======== =========== ======= ============ ===========
Common stock purchased
with note
receivable........... $ -- $ -- $ 5,931 $ -- $ -- $ 5,931
======= ======== =========== ======= ============ ===========
Warrants issued in
connection with sale
of preferred stock .. $ -- $ -- $ 408,629 $ -- $ -- $ 408,629
======= ======== =========== ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
HealthCentral.com (the "Company") was incorporated in California on August
12, 1996. The Company commenced operations in 1998 and provides online
healthcare information and products to consumers through the Company's
HealthCentral.com network. The Company operates in one business segment.
In September 1999, the Company's Board of Directors authorized 1) the
reincorporation of the Company in Delaware, and 2) a 1.4-for-1 stock split of
its common and preferred stock, both subject to shareholder approval.
The Company has a limited operating history and its prospects are subject to
risks, expenses and uncertainties frequently encountered by companies in the
new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and expand the Company's online brands,
the rejection of the Company's products and services by Internet consumers,
vendors and/or advertisers, the inability of the Company to maintain and
increase the levels of traffic on its HealthCentral.com network of websites, as
well as other risks and uncertainties.
Development stage enterprise
For the period from inception through June 30, 1999, the Company was a
development stage company, as planned principal operations had not yet begun to
generate significant revenue. In the development stage, all pre-operating costs
have been expensed as incurred.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Interim financial statements (unaudited)
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 are unaudited and should be read in conjunction with the
Company's annual financial statements for the year ended December 31, 1998.
Such interim financial statements have been prepared in conformity with the
rules and regulations of the Securities and Exchange Commission. Certain
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations pertaining to interim financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company maintains
its cash in bank deposit accounts which, at times, may exceed federally insured
limits.
F-7
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma stockholders' equity
The pro forma stockholders' equity as of June 30, 1999 reflects the
conversion of all outstanding shares of convertible preferred stock into an
aggregate of 1,134,000 shares of common stock.
Comprehensive income
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement
requires companies to classify items of other comprehensive income by their
nature in the financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. To date, the Company has
not had any transactions that are required to be reported in comprehensive
income.
Revenue recognition
The Company records advertising revenues in the period the advertising
services are provided to customers. The Company uses an outside vendor to
solicit customers to use its advertising services, to serve the ads to its
website and to bill and collect for these services. This outside vendor
provides monthly reports indicating the amounts billed for the Company's
advertising services and the related administrative fee. Advertising revenues,
as reported by the outside vendor, are recorded net of this administrative fee
as the Company bears no collection risk for the gross amount of the advertising
fees.
Advertising expenses
Internet advertising expenses are recognized based on the terms of the
individual agreements, but generally over the greater of the ratio of the
number of impressions received over the total number of contracted impressions,
or on a straight-line basis over the term of the contact. There were no
advertising expenses for the period from inception to December 31, 1996 or the
years ended December 31, 1997 and 1998. Advertising expense for the six months
ended June 30, 1999 was $157,374 (unaudited).
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Basic
and diluted net loss per share are computed by dividing the net loss available
to holders of common stock for the period by the weighted average number of
shares of common stock outstanding during the period. The calculation of
diluted net loss per share excludes potential common stock if their effect is
antidilutive. Potential common stock consists of restricted common stock,
incremental common shares issuable upon the exercise of stock options and
warrants and shares issuable upon conversion of the Series A convertible
preferred stock.
F-8
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share because to do so would be
antidilutive for the periods indicated:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Series A convertible preferred stock................ 1,134,000 1,134,000
Convertible preferred stock warrants................ 544,320 558,040
Common stock options................................ 307,685 1,337,597
Common stock subject to repurchase.................. 20,090 6,697
---------- ---------
2,006,095 3,036,334
========== =========
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
six months ended June 30, 1999 are computed using the weighted average number
of shares of common stock outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A convertible preferred stock into
shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on January 1,
1998, or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
pro forma basic net loss per share for the year ended December 31, 1998 and the
six months ended June 30, 1999. The calculation of pro forma diluted net loss
per share excludes potential shares of common stock as their effect would be
antidilutive.
Income taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accrued liabilities
and accounts payable, approximate fair value due to their short maturities.
Stock options
The Company accounts for employee stock compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, stock compensation is based on the difference,
if any, on the date of grant, between the estimated fair value of the Company's
common stock and the exercise price. Deferred stock compensation is amortized
in accordance with Financial Accounting Standards Board ("FASB") Interpretation
No. ("FIN") 28. The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other
than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
New accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
F-9
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 during its
year ending December 31, 2001. To date, the Company has not engaged in
derivative or hedging activities.
NOTE 2--RELATED PARTY TRANSACTIONS
In August 1998, in association with a letter of intent relating to a merger
transaction (Note 8), the Company entered into a License and Management
Agreement (the "Agreement") with Windom Health Enterprises, Inc. ("Windom
Health"). Pursuant to the Agreement, the Company had full management
responsibility for the operations of Windom Health. In this capacity, the
Company advanced Windom Health funds to finance its operations. At December 31,
1998 and June 30, 1999, the net outstanding balance due from Windom Health
amounted to $563,541 and $1,361,730 (unaudited), respectively. The cumulative
amount due from Windom Health at the merger date (August 12, 1999) was
eliminated in consolidation.
NOTE 3--CONVERTIBLE PREFERRED STOCK:
Convertible preferred stock at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
Proceeds
Shares Net of
---------------------- Liquidation Issuance
Authorized Outstanding Amount Costs
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A....................... 2,100,000 1,134,000 $2,025,000 $1,935,025
</TABLE>
The holders of preferred stock have various rights and preferences as
follows:
Voting
Each share of Series A convertible preferred stock has voting rights equal
to an equivalent number of shares of common stock into which it is convertible
and votes together as one class with the common stock.
As long as at least 1,400,000 shares of convertible preferred stock remain
outstanding, the Company must obtain approval from a majority of the holders of
convertible preferred stock in order to alter the Articles of Incorporation as
they relate to convertible preferred stock, authorize a dividend for any class
or series other than convertible preferred stock, create a new class of stock
or effect a merger, consolidation or sale of assets where the existing
shareholders retain less than 50% of the voting stock of the surviving entity.
Dividends
Holders of Series A convertible preferred stock are entitled to receive
noncumulative dividends at the per annum rate of $0.14 per share, when and if
declared by the Board of Directors. The holders of Series A will also be
entitled to participate in dividends on common stock, when and if declared by
the Board of Directors, based on the number of shares of common stock held on
an as-if converted basis. No dividends on convertible preferred stock or common
stock have been declared by the Board from inception through December 31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than 51%
of the resulting voting power of the surviving entity, the holders of Series A
convertible
F-10
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
preferred stock are entitled to receive an amount of $1.79 per share, plus any
declared but unpaid dividends, prior to and in preference to any distribution
to the holders of common stock. The remaining assets, if any, shall be
distributed ratably to the common stockholders. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed ratably to the Series A convertible preferred
stockholders.
Conversion
Each share of Series A convertible preferred stock is convertible into
shares of the Company's common stock, at the option of the holder, on a one to
one basis subject to adjustment for dilution. Each share of Series A
convertible preferred stock automatically converts into the number of shares of
common stock into which such shares are convertible at the then effective
conversion ratio upon (1) the closing of a public offering of common stock at a
per share price of at least $3.57 per share with gross proceeds of at least
$7,500,000, (2) a merger, sale of substantially all of the assets or other
transactions which result in a change in control, or (3) the consent of 66 2/3%
of convertible preferred stock.
Warrants for convertible preferred stock
In connection with the sale of Series A convertible preferred stock in
December 1998, the Company issued warrants to purchase 544,320 shares of Series
A convertible preferred stock at an exercise price of $1.79 per share. These
warrants are outstanding and exercisable at December 31, 1998 and expire in
five years. The Company valued the warrants using the Black-Scholes option
pricing model, applying an expected life of five years, a weighted average
risk-free rate of 4.36%, an expected dividend yield of zero percent, a
volatility of 70% and a deemed value of common stock of $1.36 per share. The
estimated fair value of the warrants of $408,629 has been netted against the
proceeds of the offering.
In May 1999, in connection with entering into facility leases, the Company
issued an aggregate of 13,720 Series A convertible preferred stock warrants at
an exercise price of $1.79 per share. The warrants expire at the earlier of (a)
two years following the closing of an initial public offering, or (b) May 2009.
The Company valued the warrants using the Black-Scholes option pricing model,
applying an expected life of ten years, a weighted average risk free rate of
5.39%, an expected dividend yield of zero percent, a volatility of 70% and a
deemed value of common stock of $4.10 per share. The fair value of the warrants
of $49,372 is being amortized over the period of the leases.
NOTE 4--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 26,600,000 shares of $0.001 par value common stock. A portion of the
shares sold are subject to a right of repurchase by the Company subject to
vesting over a one year period. At December 31, 1998, there were 20,090 shares
subject to this repurchase provision at the original issuance price.
In April 1999, in connection with a content license agreement, the Company
issued a warrant to purchase 80,784 shares of the Company's common stock at an
exercise price of $5.81 per share. The warrant is exercisable at the earlier of
a) May 2002, b) the one year anniversary of an initial public offering, c) the
sale of 50% of the Company's equity, or d) the date of termination of the
content license agreement or the date in which all of the Company's material is
removed from the website according to the agreement. The Company valued the
warrant using the Black-Scholes option pricing model, applying an expected life
of three years, a weighted average risk-free rate of 5.43%, an expected
dividend yield of zero percent, an expected volatility of 70% and a deemed
value of common stock of $4.44 per share. The fair value of the warrant of
$152,843 will be amortized over the period of the content license agreement.
F-11
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1999, the Company granted an officer immediately exercisable
options to purchase an aggregate of 350,000 shares of common stock at an
exercise price of $1.14 per share, which vest over four years. In connection
with the early exercise of these options, the officer entered into a
restricted stock purchase agreement and issued a promissory note in the amount
of $400,000 bearing interest of 5.74% per annum due upon the earliest of July
12, 2003 or the termination of his employment.
The Company has reserved shares of common stock for future issuance in
connection with the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Stock option plan................................... 3,360,000 3,360,000
Warrants............................................ 544,320 638,824
Convertible stock................................... 1,134,000 1,134,000
</TABLE>
NOTE 5--STOCK OPTION PLAN:
In August 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan"). The 1998 Plan provides for the granting of stock options to employees
and consultants of the Company. Options granted under the 1998 Plan may be
either incentive stock options or nonqualified stock options. Incentive stock
options ("ISO") may be granted only to employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to employees and consultants.
Options under the 1998 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on
the date of grant as determined by the Board of Directors, provided, however,
that a) the exercise price of an ISO and NSO shall not be less than 100% and
85% of the estimated fair value of the shares on the date of grant,
respectively, and b) the exercise price of an ISO and NSO granted to a 10%
stockholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant.
During the period from January 1, 1998 through June 30, 1999, the Company
recorded $3,444,675 of deferred stock compensation in accordance with SFAS 123
and Emerging Issues Task Force 96-18, related to options granted to
consultants in 1998 and 1999. During this period the Company determined the
fair value of each option grant using the Black-Scholes option pricing model
with the following assumptions: expected lives of one to four years; weighted
average risk-free rates between 4.2% and 5.9%; expected dividend yield of zero
percent; expected volatility of 70% and deemed values of common stock between
$1.36 and $5.36 per share. Stock compensation expense is being recognized in
accordance with FIN 28 over the vesting periods of the related options,
generally four years. The Company recognized stock compensation expense of
$104,641 and $902,931 (unaudited) for the year ended December 31, 1998 and the
six months ended June 30, 1999, respectively. The Company will recognize
material amounts of stock compensation expense in the future resulting from
additional options granted after June 30, 1999.
F-12
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the 1998 Plan from inception
through June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Number of Exercise
for Grant Shares Price
---------- --------- --------
<S> <C> <C> <C>
Balances, December 31, 1997................... -- -- $ --
Shares reserved for grant................... 3,360,000 -- --
Options granted............................. (307,685) 307,685 0.22
Restricted stock granted.................... (26,759) -- 0.22
---------- ---------
Balances, December 31, 1998................... 3,025,556 307,685 0.22
Options granted (unaudited)................. (1,029,912) 1,029,912 0.56
---------- ---------
Balances, June 30, 1999 (unaudited)........... 1,995,644 1,337,597 0.48
========== =========
</TABLE>
During 1998, the Company issued stock options under the 1998 Plan with the
following weighted average fair values:
<TABLE>
<CAPTION>
Weighted
Average
Options Fair
Granted Value
------- --------
<S> <C> <C>
Below fair value............................................ 307,685 $1.36
</TABLE>
The following table summarizes information under the 1998 Plan at December
31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
$ 0.22 307,685 9.7 $ 0.22 5,834 $ 0.22
</TABLE>
NOTE 6--INCOME TAXES:
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $239,000 for federal and state income tax purposes. The federal
net operating loss carryforwards expire primarily in the year 2018 for federal
and 2003 for state purposes.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income will be subject to annual limitations resulting
from changes in ownership, as defined in the Tax Reform Act of 1986.
F-13
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Net operating loss carryforwards................................ $ 95,600
Other........................................................... 42,900
---------
Gross deferred tax asset...................................... 138,500
Valuation allowance............................................. (138,500)
---------
Net deferred tax assets and liabilities....................... $ --
=========
</TABLE>
Due to uncertainty surrounding the realization of deferred tax assets, a
full valuation allowance has been provided against the deferred tax asset.
NOTE 7--COMMITMENTS:
In April 1999, the Company entered into an advertising agreement with
Excite, Inc. Excite, Inc. is to provide advertising to the Company ratably over
a one year period in exchange for total payments of approximately $139,000. As
of June 30, 1999, the Company had paid approximately $71,856 (unaudited) under
this agreement.
In April 1999, the Company entered into a one year agreement with a
publisher of physician rating information to jointly develop a co-branded
website. The Company will pay the greater of $100,000 due in quarterly
payments, and a marketing and advertising allowance in the amount of $50,000 or
30% of all net advertising revenue generated from the publisher's content
pages. The publisher will pay the Company 30% of net advertising revenues
derived from HealthCentral.com content pages.
In May 1999, the Company entered into an agreement to provide advertising to
the Company ratably over a one year period for a fee not to exceed $480,000.
The agreement will be adjusted based on the actual number of impressions
delivered. As of June 30, 1999, the Company had paid approximately $27,000
(unaudited) under this agreement.
In June 1999, the Company entered into a two year agreement with MediaLinx
Interactive, L.P. Pursuant to the terms of the agreement, the companies will
jointly develop a co-branded website and the Company is to receive the net
revenues from advertising and e-commerce transactions generated by Canadian
companies up to a maximum amount of $150,000 per year, and 50% for any amounts
thereafter. The Company is obligated to pay $300,000 per year in equal monthly
payments to MediaLinx Interactive, L.P.
NOTE 8--SUBSEQUENT EVENTS:
Acquisitions
On May 6, 1999, the Company entered into a definitive merger agreement with
Windom Health Enterprises, Inc. ("Windom Health") and completed the merger on
August 12, 1999. Windom Health is engaged in offering institutions the ability
to license specialized tools and services to provide their members with
personalized online health information and health risk assessments.
F-14
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management. The
allocation is summarized below:
<TABLE>
<S> <C>
Goodwill........................................................ $11,900,000
Identifiable assets............................................. 781,000
Core technology................................................. 375,000
Acquired workforce.............................................. 180,000
In-process research and development............................. 555,000
-----------
Total purchase price............................................ $13,791,000
===========
</TABLE>
The total purchase price of $13.8 million consisted of cash of $51,000, a
note payable of $458,000, 2,357,341 shares of the Company's common stock valued
at $9,311,514, assumed liabilities of $3,956,000 and estimated transaction
costs of $65,000. The deemed value of the Company's common stock on the date
the definitive merger agreement was signed was $3.95 per share.
The valuation of the purchased in-process research development of $555,000
was based on the result of an independent appraisal using the income approach.
The income approach estimates the value of the asset based on its expected
economic benefit. The valuation analysis considered the contribution of the
core technology as well as the percentage completion of the in-process research
and development. The expected cash flows associated with the in-process
research and development were discounted to the present value using a rate of
return that is commensurate with the risk of the asset. The purchased
in-process technology was not considered to have reached technological
feasibility and had no alternative future use.
Goodwill and other intangibles are being amortized on a straightline basis
over the estimated period of benefit of two to three years.
In September 1999, the Company entered into an acquisition agreement with
ePills, Inc. ("ePills"). ePills operates an online drug store which provides
retail sales of prescription pharmaceuticals, over-the-counter products and
health and beauty aids on the Internet.
This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management. The
allocation is summarized below:
<TABLE>
<S> <C>
Goodwill........................................................ $10,146,000
Identifiable assets............................................. 1,460,000
Contracts....................................................... 1,189,000
Core technology................................................. 1,242,000
Tradename....................................................... 443,000
Acquired workforce.............................................. 177,000
In-process research and development............................. 250,000
-----------
Total purchase price............................................ $14,907,000
===========
</TABLE>
F-15
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The total purchase price of $14,907,000 consisted of 1,776,923 shares of the
Company's common stock valued at $14,393,076, assumption of 11,844 employee
stock options valued $6.93 per share, assumed liabilities of $332,000 and
estimated transaction costs of $100,000. The deemed value of the Company's
common stock on the date the definitive merger agreement was signed was $8.10
per share.
The valuation of the purchased in-process research development of $250,000
was based on the result of an independent appraisal using the income approach.
The income approach estimates the value of the asset based on its expected
economic benefit. The valuation analysis considered the contribution of the
core technology as well as the percentage completion of the in-process research
and development. The expected cash flows associated with the in-process
research and development were discounted to the present value using a rate of
return that is commensurate with the risk of the asset. The purchased
in-process technology was not considered to have reached technological
feasibility and had no alternatives future use.
Goodwill and other intangibles are being amortized on a straightline basis
over the estimated period of benefit of two to three years.
Related party transactions
In July 1999, the Company borrowed $100,000 from an officer in the Company
pursuant to a convertible promissory note. The note bears interest at the rate
of ten percent per annum. In August 1999, the note was cancelled upon the
issuance of 21,539 shares of the Company's Series B convertible preferred stock
at $4.64 per share.
In July 1999, the Company borrowed an aggregate of $600,000 from four
stockholders in the form of promissory notes. The notes bear interest at the
rate of ten percent per annum. In connection with these notes, the Company
issued warrants to purchase an aggregate of 18,666 shares of the Company's
common stock at $3.21 per share. The warrants expire upon the earliest of (a)
July 1, 2003, (b) the closing of an acquisition, or (c) immediately prior to
the effective date of the Company's registration statement under the Securities
Act of 1933 with respect to an initial public offering. The Company valued the
warrants using the Black-Scholes option pricing model, applying an expected
life of four years, a weighted average risk-free rate of 5.7%, an expected
dividend yield of zero percent, a volatility of 70% and deemed values of common
stock of $5.42 and $6.18 per share. The estimated fair value of the warrants of
$64,017 will be amortized over the period the notes become exercisable and
included within interest expense in the statement of operations. In August
1999, the notes were canceled upon the issuance of 129,230 shares of the
Company's Series B convertible preferred stock at $4.64 per share.
In August 1999 in connection with the acquisition of Windom Health, the
Company entered into a three-year consulting agreement with Michael D.
McDonald, a member of our Board of Directors, which provided for an $85,000
bonus to be paid to him on the closing of our Series B preferred stock
financing and a monthly fee of $5,000 for consulting services. If the Company
terminates the consulting agreement without releasing Dr. McDonald from its
noncompetition provision, Dr. McDonald will continue to receive as severance
the monthly fee due for the remainder of the initial term of the consulting
agreement.
In April 1999, the Company borrowed an amount of $500,000 in the form of
convertible notes from a related party. The notes bore interest at 4.99% per
annum. In August 1999, the notes were canceled upon the issuance of 107,692
shares of the Company's Series B convertible preferred stock at $4.64 per
share. In August 1999, the Company borrowed an additional $300,000 under the
same agreement. The new notes bore interest at the rate of ten percent per
annum. In connection with this additional borrowing the Company issued warrants
F-16
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
to purchase 9,332 shares of the Company's Series B convertible preferred stock
at an exercise price of $3.21 per share. The warrants expire at the earlier of
(a) August 2002, (b) the closing of an acquisition or (c) the effective date of
the Company's initial public offering. The Company valued the warrants using
the Black-Scholes option pricing model using an expected life of two years, a
weighted average risk-free rate of 5.76% an expected dividend yield of zero
percent, a volatility of 70% and a deemed value of the common stock of $6.60
per share. The estimated fair value of the warrants of $39,008 was amortized
over the period of the borrowing until the notes were canceled in August 1999
upon the issuance of 64,614 shares of the Company's Series B convertible stock
at $4.64 per share.
Options
In August 1999, the Company granted 56,000 options to consultants at an
exercise price of $1.14 per share. The options vest over four years and have an
option term of ten years. The Company valued the options using the Black-
Scholes option pricing model, applying an expected life of four years, a
weighted average risk-free rate of 5.9%, an expected dividend yield of zero
percent, a volatility of 70% and a deemed value of common stock of $6.39 per
share. The estimated fair value of the options of $312,760 will be amortized
over their vesting period based on FIN 28.
In August 1999, the Company granted 832,580 options to employees and
recorded $4,365,527 of deferred stock compensation for the excess of the deemed
value over the exercise price at the date of grant. The exercise price of the
options was $1.14 per share. The deferred stock compensation will be amortized
over the vesting period of the options based on FIN 28.
Series B preferred stock
In August and September 1999, the Company sold a total of 4,523,065 shares
of Series B preferred stock at a price of $4.64 per share, for total net
proceeds of approximately $19.8 million. In August, 1999, in connection with
investment banking services provided during this offering, the Company issued
warrants to purchase an aggregate of 77,539 shares of Series B preferred stock
at an exercise price of $4.64 per share. The warrants expire at the earlier of
(a) August 2001 (b) the closing of an acquisition or (c) immediately prior to
the effective date of the Company's registration statement under the Securities
Act of 1933 with respect to an initial public offering. The Company valued the
warrants using the Black-Scholes option pricing model, applying an expected
life of two years, a weighted average risk-free rate of 5.74%, an expected
dividend yield of zero percent, a volatility of 70% and a deemed value of
common stock of $7.10. The estimated fair value of the warrants of $301,317
will be netted against the proceeds from the offering.
On August 6, 1999, the Company's Articles of Incorporation were amended to
a) increase the amount of authorized shares of preferred stock and common stock
to 6,580,000 and 31,080,000, respectively, and b) increase the amount upon
which preferred stock automatically converts to $15,000,000 in proceeds from
an IPO.
Agreements
In September 1999, the Company entered into a three-year agreement with
AltaVista to develop a co-branded health channel. The agreement provides that,
in exchange for a minimum number of user impressions on the co-branded health
channel, The Company is obligated to pay AltaVista approximately $65.6 million
in cash and stock over the three-year term of the agreement; however either
AltaVista or the Company may terminate the relationship after two years, in
which case the aggregate payment obligation over the first two years in cash
and stock would be $34.5 million. In addition, if AltaVista meets given
performance thresholds under the agreement, the Company will issue to AltaVista
warrants to purchase shares of common stock, with the number of shares
depending on the amount by which they exceed the thresholds. These warrants
will have varying exercise prices. If the market value of our
F-17
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
common stock exceeds the warrant exercise price on the date of issuance or
during the exercise period, there would be a deferred compensation charge
associated with these warrants.
In September 1999, the Company entered into a four year agreement with The
People's Pharmacy in which a co-branded website will be developed. The Company
is entitled to all advertising revenues from the website, in exchange for an
annual $50,000 payment as well as an option to purchase a maximum
280,000 shares of the Company's common stock at $1.14 per share. If the Company
is acquired, all remaining unvested shares will vest immediately. The Company
valued the option using the Black-Scholes option pricing model, applying an
expected life of four years, a weighted average risk-free rate of 5.77%, an
expected dividend yield of zero percent, a volatility of 70% and a deemed value
of common stock of $7.74 per share. The estimated fair value of the warrants of
$1,936,760 will be expensed over the term of the agreement.
Employee Stock Purchase Plan
In September 1999, the Company adopted an Employee Stock Purchase Plan (the
"ESPP") to provide substantially all employees whose customary employment is
more than 20 hours per week for more than five months in any calendar year
eligibility to purchase shares of its common stock through payroll deductions,
up to 10% of eligible compensation. Participant account balances are used to
purchase shares of the Company's common stock at the lesser of 85 percent of
the fair market value of shares on either the first day or the last day of the
designated payroll deduction period (the Offering Period), as chosen by the
Board of Directors at its discretion, whichever is lower. The aggregate number
of shares purchased by an employee may not exceed 1,000 shares in any one
Offering Period, generally 12 months or less (subject to limitations imposed by
the Internal Revenue Code). A total of 1,400,000 shares are available for
purchase under the ESPP.
1999 Directors' Stock Option Plan
The 1999 Directors' Stock Option Plan was adopted by the Board of Directors
in September 1999. It will become effective upon the effective date of the
initial public offering. A total of 250,000 shares of common stock have been
reserved for issuance under the 1999 directors' plan, all of which remain
available for future grants. The directors' plan provides for the grant of
nonstatutory stock options to non-employee directors.
1999 Stock Option Plan
The 1999 Plan provides for the grant of incentive stock options to
employees, including employee directors, and of nonstatutory stock options and
stock purchase rights to employees, directors (including
employee directors) and consultants. The 1999 Plan was originally adopted by
the Board of Directors in August 1999. At the time of adoption, 280,000 shares
of common stock were reserved for issuance under the 1999 Plan. The 1999 Plan
was amended by the Board of Directors in September 1999 to increase the total
number of shares reserved for issuance by 4,900,000 shares, and to incorporate
certain other changes, after which amendment a total of 5,180,000 shares of
common stock has been reserved for issuance under the 1999 Plan.
F-18
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Windom Health Enterprises, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' deficit and of cash flows present fairly, in
all material respects, the financial position of Windom Health Enterprises,
Inc. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
September 24, 1999
F-19
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1997 1998 1999
--------- --------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 5,335 $ 24,459 $ 37,140
Accounts receivable, net of allowance of
$0, $0 and $41,271 (unaudited),
respectively............................. 69,135 114,695 105,035
Prepaid expenses and other current
assets................................... 292 292 19,945
--------- --------- -----------
Total current assets.................... 74,762 139,446 162,120
Property and equipment, net................. 20,039 88,000 376,747
Other assets................................ -- -- 47,227
--------- --------- -----------
Total assets............................ $ 94,801 $ 227,446 $ 586,094
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................... $ 10,741 $ 34,070 $ 397,304
Accrued expenses.......................... 72,137 130,330 148,462
Deferred revenue.......................... 132,744 102,728 170,569
Payable to related party.................. -- 563,541 1,361,730
Current portion of obligations under
capital leases........................... 1,061 15,362 44,784
Note payable.............................. -- 25,000 --
--------- --------- -----------
Total current liabilities............... 216,683 871,031 2,122,849
Obligations under capital leases, net of
current portion............................ 2,504 40,588 110,448
Due to shareholder.......................... 10,500 70,500 5,500
Deferred revenue............................ 50,000 -- 10,164
--------- --------- -----------
Total liabilities....................... 279,687 982,119 2,248,961
--------- --------- -----------
Commitments (Note 3)
Shareholders' deficit:
Common stock, no par value, 3,000,000
shares authorized, 1,076,563 shares
issued and outstanding at December 31,
1997 and 1998 and June 30, 1999
(unaudited).............................. 54,563 54,563 54,563
Accumulated deficit....................... (239,449) (809,236) (1,717,430)
--------- --------- -----------
Total shareholders' deficit............. (184,886) (754,673) (1,662,867)
--------- --------- -----------
Total liabilities and shareholders'
deficit.............................. $ 94,801 $ 227,446 $ 586,094
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------- --------------------
1997 1998 1998 1999
----------- ------------ --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Content subscription and
license.................... $ 272,355 $ 552,630 $ 272,334 $ 257,975
----------- ------------ --------- ---------
Operating expenses:
Production, content and
product development........ 207,971 642,317 375,501 610,799
Sales and marketing......... 91,913 83,187 15,570 277,080
General and administrative.. 195,021 378,888 82,235 227,687
----------- ------------ --------- ---------
Total operating expenses.. 494,905 1,104,392 473,306 1,115,566
----------- ------------ --------- ---------
Loss from operations.......... (222,550) (551,762) (200,972) (857,591)
Interest expense.............. (5,573) (18,025) (5,887) (50,603)
----------- ------------ --------- ---------
Net loss...................... $ (228,123) $ (569,787) $(206,859) $(908,194)
=========== ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Total
----------------- Accumulated Shareholders'
Shares Amount Deficit Deficit
--------- ------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.... 1,076,563 $54,563 $ (11,326) $ 43,237
Net loss........................ -- -- (228,123) (228,123)
--------- ------- ----------- -----------
Balance at December 31, 1997.... 1,076,563 54,563 (239,449) (184,886)
Net loss........................ -- -- (569,787) (569,787)
--------- ------- ----------- -----------
Balance at December 31, 1998.... 1,076,563 54,563 (809,236) (754,673)
Net loss (unaudited)............ -- -- (908,194) (908,194)
--------- ------- ----------- -----------
Balance at June 30, 1999
(unaudited).................... 1,076,563 $54,563 $(1,717,430) $(1,662,867)
========= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
---------------------- ----------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating ac-
tivities:
Net loss...................... $ (228,123) $ (569,787) $ (206,859) $ (908,194)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Depreciation and
amortization................. 8,283 16,934 8,467 31,467
Provision for doubtful
accounts..................... -- -- -- 41,271
Changes in assets and
liabilities:
Accounts receivable.......... 168,860 (45,560) (44,883) (31,611)
Prepaid expenses and other
current assets.............. (292) -- -- (19,653)
Other assets................. -- -- -- (47,227)
Accounts payable............. (59,252) 23,329 54,874 363,234
Accrued expenses............. 55,515 58,193 6,625 18,132
Deferred revenue............. 89,711 (80,016) 13,431 78,005
---------- ---------- ---------- ----------
Net cash provided by (used
in) operating activities... 34,702 (596,907) (168,345) (474,576)
---------- ---------- ---------- ----------
Cash flows from investing ac-
tivities:
Purchase of property and
equipment.................... (8,504) (31,179) (1,131) (213,393)
---------- ---------- ---------- ----------
Net cash used in investing
activities................. (8,504) (31,179) (1,131) (213,393)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Bank overdraft................ (15,864) -- 49,781 --
Proceeds from borrowings...... -- 57,500 57,500 --
Payments on notes payable..... -- (32,500) (2,500) (25,000)
Proceeds from advances from
related party................ -- 563,541 -- 798,189
Proceeds from note payable to
a shareholder................ -- 60,000 60,000 --
Payments on capital leases.... (499) (1,331) (640) (7,539)
Payments on notes payable to
related party................ (4,500) -- -- (65,000)
---------- ---------- ---------- ----------
Net cash provided by (used
in) financing activities... (20,863) 647,210 164,141 700,650
---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents.......... 5,335 19,124 (5,335) 12,681
Cash and cash equivalents at
beginning of period........... -- 5,335 5,335 24,459
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period................. $ 5,335 $ 24,459 $ -- $ 37,140
========== ========== ========== ==========
Supplemental disclosures of
cash flows information:
Cash paid for interest........ $ 3,948 $ 7,970 $ 850 $ 39,868
========== ========== ========== ==========
Cash paid for income taxes.... $ 800 $ 800 $ -- $ --
========== ========== ========== ==========
Noncash investing and financing
activities:
Property and equipment
acquired under capital lease
obligations.................. $ 4,064 $ 53,716 $ -- $ 106,821
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Windom Health Enterprises, Inc. (the "Company") was formed in 1984 and was
incorporated in California in 1988. The Company provides institutions,
including healthcare organizations, employers and pharmaceutical companies
specialized tools and services for the design, hosting and maintenance of
private label websites. In August 1999, the Company merged with
HealthCentral.com (See Note 5).
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Interim financial statements (unaudited)
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 are unaudited and should be read in conjunction with the
Company's annual financial statements for the year ended December 31, 1998.
Such interim financial statements have been prepared in conformity with the
rules and regulations of the Securities and Exchange Commission. Certain
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations pertaining to interim financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.
Revenue recognition
Institutional revenues derived from contracts with healthcare providers,
health product resellers, and third party organizations principally consist of
license fees for website development applications, consulting fees from custom
website development and hosting and maintenance fees related to the websites
maintenance. License revenues are recognized ratably over the term of the
license, generally between 12 to 24 months. For consulting projects, revenues
are recognized at the time services are rendered based on charges for time and
materials. Deferred revenues represent the amount of cash received or invoices
rendered prior to revenue recognition.
Production, content and product development expense
Production, content and product development expenses consist primarily of
salaries and benefits, consulting fees and other costs related to content
acquisition and licensing, software development, application development and
website operations.
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. To date, costs incurred following
the establishment of technological feasibility, but prior to general product
release, have been insignificant.
F-24
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. The
Company's accounts receivable are derived from revenues earned from customers
located in the U.S. The Company performs ongoing credit evaluation of its
customers' financial condition and, generally, requires no collateral from its
customers. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable.
The Company has the following concentrations of revenues and trade accounts
receivables:
<TABLE>
<CAPTION>
Year Ended
December 31, Six Months
-------------- Ended June
1997 1998 30, 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Revenues:
Customer A....................................... 33% -- --
Customer B....................................... 16% -- --
Customer C....................................... 18% 17% 11%
Customer D....................................... 18% 18% 13%
Customer E....................................... -- -- 33%
<CAPTION>
December 31,
-------------- June 30,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Accounts Receivable:
Customer B....................................... 79% -- --
Customer C....................................... -- 16% --
Customer E....................................... -- 14% 27%
Customer F....................................... -- 17% --
Customer G....................................... -- 35% --
Customer H....................................... -- -- 32%
Customer I....................................... -- -- 16%
</TABLE>
Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including accounts receivable, accounts payable, accrued expenses and other
liabilities approximate fair value due to their short maturities. Based upon
borrowing rates currently available to the Company for leases with similar
terms, the carrying value of capital lease obligations approximate fair value.
Property and equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives which range from three to
five years. Leasehold improvements and equipment held under capital leases are
amortized using the straight-line method over the term of the lease or
estimated useful lives, whichever is shorter. Repairs and maintenance costs are
charged to expense when incurred. When assets are sold or retired, the cost and
the related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is included in operations.
F-25
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
Income taxes
The Company elected to be treated as an S corporation for federal and
California income tax purposes in 1992. As a result, minimal income taxes were
payable at the corporate level. Rather, the Company's shareholders included
their respective portions of the Company's taxable income in their individual
income tax returns. On August 12, 1999, in connection with the merger with
HealthCentral.com, the Company became subject to the C corporation provisions
of the Internal Revenue Code. Accordingly, any earnings after this date will be
taxed at HealthCentral's federal and state corporate income tax rates.
NOTE 2--BALANCE SHEET COMPONENTS:
Property and equipment are comprised of:
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment and software............ $ 40,540 $125,435 $354,577
Office equipment........................... 574 574 23,327
Furniture and fixtures..................... 39,177 39,177 107,496
-------- -------- --------
80,291 165,186 485,400
Less accumulated depreciation and
amortization.............................. (60,252) (77,186) (108,653)
-------- -------- --------
$ 20,039 $ 88,000 $376,747
======== ======== ========
</TABLE>
Depreciation expense was $8,283 and $16,934 for the years ended December 31,
1997 and 1998, respectively. Cost and accumulated amortization of equipment
held under capital lease at December 31, 1997 was $4,062 and $498,
respectively. Cost and accumulated amortization of equipment held under capital
lease at December 1998 was $73,979 and $8,625, respectively. Cost and
accumulated amortization of equipment held under capital leases at June 30,
1999 aggregated $175,606 (unaudited) and $22,877 (unaudited), respectively.
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Accrued liabilities are comprised of:
Due to shareholder........................... $ 53,539 $ 79,500 $ 79,500
Professional services........................ 12,500 44,732 25,000
Payroll and related expenses................. 6,098 6,098 43,962
-------- -------- --------
$ 72,137 $130,330 $148,462
======== ======== ========
</TABLE>
F-26
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3--COMMITMENTS:
The Company leases various office space and office equipment under non-
cancelable operating and capital leases with initial or remaining terms of one
year or more. Total rent expense under operating leases was $17,223 and $15,570
for the years ended 1997 and 1998, respectively. At December 31, 1998, the
total remaining commitment under all lease arrangements is as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ----------
<S> <C> <C>
1999............................................... $31,115 $ 127,960
2000............................................... 30,402 340,516
2001............................................... 23,605 344,884
2002............................................... -- 352,432
2003............................................... -- 359,348
Thereafter......................................... -- 87,335
------- ----------
Total minimum lease payments....................... 85,122 $1,612,475
==========
Less amount representing interest.................. (29,172)
-------
Present value of net minimum lease payments........ 55,950
Less current portion of obligations under capital
leases............................................ (15,362)
-------
Obligations under capital leases................... $40,588
=======
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS:
Related party transactions are comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1997 1998 1999
------- -------- ----------
(unaudited)
<S> <C> <C> <C>
Due to HealthCentral.com................... $ -- $563,541 $1,361,730
Accrued liability due to a shareholder..... 53,539 79,500 79,500
Shareholder note payable................... 10,500 70,500 5,500
</TABLE>
In August 1998, in association with the letter of intent relating to the
merger (Note 5), the Company entered into a License and Management Agreement
with HealthCentral.com. Pursuant to the agreement, HealthCentral.com had full
management responsibility for the operations of the Company. In this capacity,
HealthCentral.com advanced the Company funds to finance its operations. At
December 31, 1998 and June 30, 1999, the net amount due to HealthCentral.com
was $563,541 and $1,361,730 (unaudited), respectively.
At December 31, 1997 and 1998 and June 30, 1999, the Company had an
outstanding balance of $53,539, $79,500 and $79,500 (unaudited), respectively,
due to a shareholder for past consulting services. This amount was repaid
concurrent with the merger. The Company also paid an additional $27,500 to the
shareholder for consulting services in 1998.
Shareholder notes payable of $10,500 and $70,500 at December 31, 1997 and
1998, respectively, relate to advances made to the Company from a shareholder
to fund the Company's operations. The notes bear interest at 10%. In March
1999, $65,000 of this amount was repaid and the rest of the principal and
accrued interest was repaid concurrent with the merger.
F-27
<PAGE>
WINDOM HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--SUBSEQUENT EVENTS:
In July 1999, a common stock bonus was granted by a shareholder on behalf of
the Company to two employees for past services rendered in the amounts of
104,779 and 41,784 shares of the Company's common stock. The deemed value of
these shares was $10.21 per share, resulting in compensation expense of
approximately $1.5 million in July 1999. The deemed value of the Company's
stock was determined based upon the deemed value of HealthCentral.com common
stock, the per share exchange ratio and the proximity of timing in closing the
merger with HealthCentral.com.
On August 12, 1999, the Company merged with HealthCentral.com. The purchase
price paid by HealthCentral.com was comprised of notes payable of $458,000,
cash of $51,000 and 2,357,341 shares of HealthCentral.com common stock valued
at $3.95 per share. All the Company's outstanding stock was surrendered and the
Company's shareholders received their pro rata share of the purchase price.
F-28
<PAGE>
EPILLS INC.
(A development stage company)
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30,
1999
---------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 30,521
Total current assets............................................. 30,521
Property and equipment, net.......................................... 29,708
Other assets......................................................... 15,550
---------
Total assets..................................................... $ 75,779
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................... $ 108,286
Accrued expenses................................................... 9,917
Convertible notes payable to stockholders.......................... 270,000
---------
Total liabilities................................................ 388,203
---------
Commitments (Note 5)
Stockholders' deficit:
Common stock, no par value, 1,250,000 shares
authorized, 562,500 shares issued
and outstanding................................................... 225
Accumulated deficit................................................ (312,649)
---------
Total stockholders' deficit...................................... (312,424)
---------
Total liabilities and stockholders' deficit...................... $ 75,779
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
EPILLS INC.
(A development stage company)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
Inception to
June 30,
1999
------------
<S> <C>
Operating expenses:
Production, content and product development...................... $ 113,387
Sales and marketing.............................................. 5,000
General and administrative expenses.............................. 192,634
----------
Total operating expenses....................................... 311,021
----------
Loss from operations............................................... (311,021)
Interest expense................................................... (1,628)
----------
Net loss........................................................... $ (312,649)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
EPILLS INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period from Inception to June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Common Shares Total
-------------- Accumulated Stockholders'
Shares Amount Deficit Deficit
------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for
cash............................ 562,500 $225 $ -- $ 225
Net loss......................... -- -- (312,649) (312,649)
------- ---- --------- --------- ---
Balance at June 30, 1999......... 562,500 $225 $(312,649) $(312,424)
======= ==== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
EPILLS INC.
(A development stage company)
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period from
Inception to
June 30,
1999
-------------
<S> <C>
Cash flows from operating activities:
Net loss....................................................... $(312,649)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 2,700
Changes in assets and liabilities:
Other assets............................................... (15,550)
Accounts payable........................................... 108,286
Accrued expenses........................................... 9,917
---------
Net cash used in operating activities.................... (207,296)
---------
Cash flows from investing activities:
Purchase of property and equipment............................. (32,408)
---------
Net cash used in investing activities.................... (32,408)
---------
Cash flows from financing activities:
Proceeds from issuance of common stock......................... 225
Proceeds from issuance of convertible notes payable............ 270,000
---------
Net cash provided by financing activities................ 270,225
---------
Net increase in cash and cash equivalents........................ 30,521
Cash and cash equivalents at beginning of period................. --
---------
Cash and cash equivalents at end of period....................... $ 30,521
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
EPILLS INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
ePills Inc. (the "Company") was incorporated on January 27, 1999 (date of
inception) as a Delaware corporation. The Company is engaged in the development
of an online drug store to provide for retail sales of prescription
pharmaceuticals, over-the-counter products and health and beauty aids on the
Internet. Since inception, the Company has been primarily involved in securing
financing, recruiting personnel and developing its website. In September 1999,
the Company began operating its online drug store.
Development stage enterprise
For the period from inception (January 27, 1999) through June 30, 1999, the
Company was a development stage company, as planned principal operations had
not yet generated significant revenue. In the development stage, all pre-
operating costs have been expensed as incurred.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Unaudited interim financial statements
The financial statements as of June 30, 1999 and for the period from
inception to June 30, 1999 are unaudited. Such interim financial statements
have been prepared in conformity with the rules and regulations of the
Securities and Exchange Commission. Certain disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations pertaining to interim financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation have been included. The results of operations
of any interim period are not necessarily indicative of the results of
operations for the full year.
Cash and cash equivalents
Cash and cash equivalents consist primarily of cash. The Company considers
all highly liquid investments with an original maturity of three months or less
to be cash equivalents. The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits.
Fair value
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts payable and accrued expenses
approximate fair value due to their short maturities.
Property and equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over estimated useful lives which range from three to five
years. Leasehold improvements and equipment held under capital leases are
amortized using the straight-line method over the term of the lease or
estimated useful lives, whichever is shorter. Repairs and maintenance costs are
charged to expense when incurred. When assets are sold or retired, the cost and
the related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is included in operations.
F-33
<PAGE>
EPILLS INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
Income taxes
The Company accounts for income taxes under the asset and liability method
which recognizes deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the tax basis of assets and
liabilities and their financial statement reported amounts. The Company records
a valuation allowance against deferred tax assets when it is more likely than
not that such assets will not be realized.
Revenue recognition
The Company will recognize revenues for sales of over-the-counter and health
and beauty aid products, net of discounts, when products are shipped to
customers. The Company will recognize commission revenues for the use of its
website related to sales made by its pharmacy fulfillment partner for all
prescription drugs. The Company is responsible for all refunds relating to
sales where a customer is not satisfied with the products received. The Company
provides an estimated allowance for such returns in the period of the sale. The
Company also retains credit risk for sales of all products made by its
fulfillment partners.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Computer equipment and software.................................... $ 32,321
Office equipment................................................... 87
--------
32,408
Less accumulated depreciation and amortization..................... (2,700)
--------
$ 29,708
========
</TABLE>
Depreciation expense was $2,700 for the period ended June 30, 1999.
NOTE 3--NOTE PAYABLE TO STOCKHOLDERS:
During the period from January 27, 1999 to June 30, 1999, stockholders of
the Company advanced the Company $270,000 in exchange for convertible notes
payable. The notes bear interest at 4.6% and are due on the earlier of 10 days
after the Company completes an initial public offering ("IPO") or one year
after the closing of the purchase of the Company by HealthCentral.com (Note 6).
Upon the completion of an IPO by HealthCentral.com, the notes are no longer
convertible. As of August 31, 1999, the balance due under the convertible notes
payable was $1,250,000.
NOTE 4--STOCK OPTION PLAN:
In February 1999, the Company adopted the 1999 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees,
officers, directors and consultants of the Company. Options granted under the
Plan may be either incentive stock options ("ISO") or nonqualified stock
options ("NSO"). ISOs may be granted only to Company employees. NSO's may be
granted to employees and consultants. The Company has reserved 240,000 shares
of common stock for issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 100% of the estimated fair value of the shares at the time
of grant of such option, or not less than 110% of estimated fair value for
options granted to a 10% stockholder.
From inception through June 30, 1999, the Company granted a total of 69,690
options to employees. Deferred stock compensation based on the deemed value of
common stock over the exercise prices on the dates of grant was not
significant.
F-34
<PAGE>
EPILLS INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
In February 1999, the Company granted 55,810 of fully vested options to non-
employees. The Company valued these options using the Black-Scholes option
pricing model applying an expected life of two years, a weighted average risk-
free rate of 4.76%, an expected dividend yield of zero percent, a volatility of
70% and a deemed value of common stock of $0.23 per share. The estimated fair
value of these options was not significant.
NOTE 5--COMMITMENTS:
The Company leases its office space under a non-cancelable operating lease.
Total rent expense was $27,742 for the period from inception to June 30, 1999.
At June 30, 1999, the total remaining commitment under this lease arrangement
is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999............................................................. $ 62,196
2000............................................................. 126,336
2001............................................................. 130,224
2002............................................................. 66,084
---------
$ 384,840
=========
</TABLE>
NOTE 6--SUBSEQUENT EVENTS:
Agreements
In August 1999, the Company entered into an agreement with Bergen Brunswig
Drug Company to be its fulfillment service provider for over-the-counter and
health and beauty aid products and provide related services to the Company's
customers in the United States. In September 1999, in connection with the
agreement, the Company sold Bergen Brunswig 337,500 shares of common stock for
cash of $5.215 per share for an aggregate purchase price of $1.76 million.
In August 1999, the Company also entered into an agreement with Medi-Mail,
Inc. (a subsidiary of Bergen Brunswig) in which Medi-Mail is to provide
pharmacy dispensing and related support services for the Company and its
consumers, including the processing, adjudication or verification and
fulfillment of prescription drug orders received by the Company through its
website and their delivery to the Company's shipper. In August 1999, in
connection with this agreement, the Company issued Medi-Mail a warrant to
purchase 52,630 shares of common stock at an exercise price of $3.70 per share,
which was exercised in connection with the signing of the acquisition agreement
with HealthCentral.com. The Company valued the warrant using the Black-Scholes
option pricing model, applying an expected life of one year, a weighted average
risk free rate of 5.88%, an expected dividend yield of zero percent, a
volatility of 70% and a deemed value of common stock of $8.10 per share. The
estimated fair value of the warrant of $253,045 will be amortized over the
period of the agreement.
In August 1999, the Company entered into a two year agreement with America
Online, Inc. ("AOL"), under which the Company will appear as one of five
health-related anchor tenants on the AOL HealthOnline Pharmacy. The Company is
required to pay AOL approximately $14.1 million over the term of the agreement.
Acquisition
In September 1999, all of the Company's outstanding common stock was
acquired by HealthCentral.com for consideration of 1,776,923 shares of
HealthCentral.com common stock valued at $8.10 per share, the assumption of
8,460 stock options valued at $9.70 per share and the assumption of $332,000 of
liabilities.
F-35
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On August 12, 1999 and September 24, 1999, HealthCentral.com acquired Windom
Health Enterprises, Inc. ("Windom Health") and ePills Inc. ("ePills.com"),
respectively, in transactions accounted for using the purchase method of
accounting. Under the purchase method of accounting, the aggregate purchase
price is allocated to the tangible and identifiable intangible assets acquired
and liabilities assumed on the basis of their fair values on the acquisition
date. The unaudited pro forma combined balance sheet is based on the individual
balance sheet of the Company at June 30, 1999 and the balance sheets of Windom
Health and ePills.com at June 30, 1999 assuming the transactions were
consummated on that date. The unaudited pro forma combined statements of
operations are based on the individual statements of operations of the Company
for the year ended December 31, 1998 and the six months ended June 30, 1999.
The operations of Windom Health have been included in the unaudited pro forma
combined statements of operations as though that acquisition had been
consumated on January 1, 1998. The operations of ePills.com have been included
in the unaudited pro forma combined statement of operations from its inception
(January 27, 1999).
The pro forma information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and is provided for
illustrative purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the
combinations been effected on the dates indicated above. The unaudited pro
forma financial statements, including the notes thereto, are qualified in their
entirety by reference to, and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the financial statements and notes thereto, which are included elsewhere
herein.
F-36
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 1999
----------------------------------------------------------
As Reported Acquisitions Adjustments Pro Forma
-------------------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 69,383 $ 67,661 $ (51,000)(J) $ 86,044
Accounts receivable,
net................... 42,167 105,035 -- 147,202
Prepaid expenses and
other current assets.. 106,382 19,945 -- 126,327
------------ ----------- ----------- -----------
Total current
assets.............. 217,932 192,641 (51,000) 359,573
Receivable from related
party................... 1,361,730 -- (1,361,730)(F) --
Property and equipment,
net..................... -- 406,455 -- 406,455
Other intangible assets.. -- -- 3,606,317 (A) 3,606,317
Goodwill................. -- -- 23,625,000 (B) 23,625,000
Other assets............. -- 62,777 -- 62,777
------------ ----------- ----------- -----------
Total assets......... $ 1,579,662 $ 661,873 $25,818,587 $28,060,122
============ =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 406,789 $ 505,590 $ -- $ 912,379
Accrued expenses....... 12,500 158,379 1,847,014 (G)(K) 2,017,893
Deferred revenue....... 113,318 170,569 -- 283,887
Current portion of
obligations under
capital leases........ -- 44,784 -- 44,784
Notes payable.......... -- -- 458,422 (J) 458,422
------------ ----------- ----------- -----------
Total current
liabilities......... 532,607 879,322 2,305,436 3,717,365
Obligations under capital
leases, net of current
portion................. -- 110,448 -- 110,448
Related party payables... -- 1,361,730 (1,361,730)(F) --
Convertible note payable
to related party........ 500,000 270,000 -- 770,000
Due to stockholder....... -- 5,500 -- 5,500
Deferred revenue......... -- 10,164 -- 10,164
------------ ----------- ----------- -----------
Total liabilities.... 1,032,607 2,637,164 943,706 4,613,477
------------ ----------- ----------- -----------
Stockholders' equity
(deficit):
Convertible preferred
stock................. 1,134 -- -- 1,134
Common stock........... 4,468 54,788 (50,654) (H)(I) (8,602)
Additional paid-in
capital............... 5,390,465 -- 23,700,456 (I) 29,090,921
Notes receivable from
stockholders.......... (5,931) -- -- (5,931)
Deferred stock
compensation.......... (2,437,103) -- -- (2,437,103)
Accumulated deficit.... (2,405,978) (2,030,079) 1,225,079 (C)(H) (3,210,978)
------------ ----------- ----------- -----------
Total stockholders'
equity (deficit).... 547,055 (1,975,291) 24,874,881 23,446,645
------------ ----------- ----------- -----------
Total liabilities
and stockholders'
equity (deficit).. $ 1,579,662 $ 661,873 $25,818,587 $28,060,122
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited combined
financial statements.
F-37
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------
As
Reported Acquisition Adjustments Pro Forma
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Content subscription
and license.......... $ -- $ 552,630 $ -- $ 552,630
Advertising........... 15,259 -- -- 15,259
---------- ---------- ------------ ------------
15,259 552,630 -- 567,889
---------- ---------- ------------ ------------
Operating expenses:
Production, content
and product
development.......... 136,788 642,317 -- 779,105
Sales and marketing... 141,516 83,187 -- 224,703
General and
administrative....... 78,549 378,888 -- 457,437
Stock compensation.... 104,641 -- -- 104,641
Amortization of other
intangibles.......... -- -- 215,000 (D) 215,000
Amortization of
goodwill............. -- -- 4,252,500 (E) 4,252,500
---------- ---------- ------------ ------------
Total operating
expenses........... 461,494 1,104,392 4,467,500 6,033,386
---------- ---------- ------------ ------------
Loss from operations.... (446,235) (551,762) (4,467,500) (5,465,497)
Interest expense, net... -- (18,025) -- (18,025)
---------- ---------- ------------ ------------
Net loss................ $ (446,235) $ (569,787) $ (4,467,500) $ (5,483,522)
========== ========== ============ ============
Basic and diluted net
loss per share......... $ (0.09) $ (0.72)
========== ============
Shares used in computing
basic and diluted net
loss per share......... 5,221,800 7,579,145
========== ============
Pro forma basic and
diluted
net loss per share..... $ (0.09) $ (0.72)
========== ============
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 5,246,655 7,603,996
========== ============
</TABLE>
The accompanying notes are an integral part of these unaudited combined
financial statements.
F-38
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
-------------------------------------------------------
As Reported Acquisitions Adjustments Pro Forma
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Content subscription
and license.......... $ -- $ 257,975 $ -- $ 257,975
Advertising........... 126,546 -- -- 126,546
----------- ----------- ------------ -----------
126,546 257,975 -- 384,521
----------- ----------- ------------ -----------
Operating expenses:
Production, content
and product
development.......... 496,197 724,186 -- 1,220,383
Sales and marketing... 435,458 282,080 -- 717,538
General and
administrative....... 257,988 420,321 -- 678,309
Stock compensation.... 902,931 -- -- 902,931
Amortization of other
intangibles.......... -- -- 626,111 (D) 626,111
Amortization of
goodwill............. -- -- 3,635,625 (E) 3,635,625
----------- ----------- ------------ -----------
Total operating
expenses........... 2,092,574 1,426,587 4,261,736 7,780,897
----------- ----------- ------------ -----------
Loss from operations.... (1,966,028) (1,168,612) (4,261,736) (7,396,376)
Interest income
(expense), net......... 7,519 (52,231) -- (44,712)
----------- ----------- ------------ -----------
Net loss................ $(1,958,509) $(1,220,843) $ (4,261,736) $(7,411,088)
=========== =========== ============ ===========
Basic and diluted net
loss per share......... $ (0.37) $ (0.79)
=========== ===========
Shares used in computing
basic and diluted net
loss per share......... 5,238,187 9,372,451
=========== ===========
Pro forma basic and
diluted net loss per
share.................. $ (0.31) $ (0.71)
=========== ===========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 6,372,187 10,506,451
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited combined
financial statements.
F-39
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
Windom Health
On May 6, 1999, the Company entered into a definitive merger agreement with
Windom Health Enterprises, Inc. ("Windom Health") and completed the merger on
August 12, 1999. Windom Health offers institutions, including healthcare
organizations, employers and pharmaceutical companies the ability to license
specialized tools and services to provide their members with personalized on-
line health information and health risk assessments.
This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management. The
preliminary allocation is summarized below:
<TABLE>
<CAPTION>
Amortization
Life
------------
<S> <C> <C>
Goodwill............................................. $12,095,000 3 years
Identifiable assets.................................. 586,000 --
Core technology...................................... 375,000 3 years
Acquired workforce................................... 180,000 2 years
In-process research and development.................. 555,000 --
-----------
Total purchase price................................. $13,791,000
===========
</TABLE>
The total purchase price of $13.8 million consisted of cash of $51,000, a
note payable of $458,000, 2,357,341 shares of the Company's common stock valued
at $9,311,514, assumed liabilities of $3,956,000 and estimated transaction
costs of $65,000. The deemed value of the Company's common stock on the date
the definitive merger agreement was signed was $3.95 per share.
The valuation of the purchased in-process research development of $555,000
was based on the result of an independent appraisal using the income approach.
The income approach estimates the value of the asset based on its expected
economic benefit. The valuation analysis considered the contribution of the
core technology as well as the percent complete of the in-process research and
development. The expected cash flows associated with the in-process research
and development were discounted to the present value using a rate of return
that is commensurate with the risk of the asset. The purchased in-process
technology was not considered to have reached technological feasibility and had
no alternatives future use.
Goodwill and other intangibles are being amortized on a straightline basis
over the estimated period of benefit of two to three years.
ePills.com
In September 1999, the Company entered into an acquisition agreement with
ePills. ePills is engaged in the development of an online drug store to provide
retail sales of prescription pharmaceuticals, over-the-counter products and
health and beauty aids on the Internet.
F-40
<PAGE>
HEALTHCENTRAL.COM
PRO FORMA COMBINED STATEMENT OF OPERATIONS--(Continued)
(unaudited)
This transaction was recorded using the purchase method of accounting. The
allocation of the purchase price to the tangible and identifiable intangible
assets acquired and liabilities assumed in connection with this acquisition
were based on estimated fair values as determined by management. The
preliminary allocation is summarized below:
<TABLE>
<CAPTION>
Amortization
Life
------------
<S> <C> <C>
Goodwill............................................ $11,530,000 3 years
Identifiable assets................................. 76,000 --
Contracts........................................... 1,189,000 2 years
Core technology..................................... 1,242,000 3 years
Tradename........................................... 443,000 3 years
Acquired workforce.................................. 177,000 2 years
In-process research and development................. 250,000 --
-----------
Total purchase price................................ $14,907,000
===========
</TABLE>
The total purchase price $14.9 million consisted of 1,776,923 shares of the
Company's common stock valued at $14,393,076, assumption of 11,844 shares of
employee stock options valued at $6.93 per share, assumed liabilities of
$332,000 and estimated transaction costs of $100,000. The deemed value of the
Company's common stock on the date the definitive merger agreement was signed
was $8.10 per share.
The valuation of the purchased in-process research development of $250,000
was based on the result of an independent appraisal using the income approach.
The income approach estimates the value of the asset based on its expected
economic benefit. The valuation analysis considered the contribution of the
core technology as well as the percentage completion of the in-process research
and development. The expected cash flows associated with the in-process
research and development were discounted to the present value using a rate of
return that is commensurate with the risk of the asset. The purchased in-
process technology was not considered to have reached technological feasibility
and had no alternatives future use.
Goodwill and other intangibles are being amortized on a straightline basis
over the estimated period of benefit of two to three years.
The unaudited pro forma condensed statements of operations exclude the
effect of the charges for in-process research and development. These amounts
are reflected as charges to the accumulated deficit in the unaudited pro forma
balance sheet.
There were no material differences in the accounting policies of the
Company, Windom Health or ePills.com for the periods presented.
NOTE 2--UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE:
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1998 and the six months ended June 30, 1999 are
based upon the historical weighted average common shares outstanding. Common
stock issuable upon the exercise of the stock options and warrants has been
excluded from the computation of net loss per share as their effect would be
anti-dilutive. In addition to the shares used in computing the net loss per
share above, pro forma net loss per share is calculated as if the outstanding
shares of convertible preferred stock were converted to common stock at the
time of issuance.
F-41
<PAGE>
HEALTHCENTRAL.COM
PRO FORMA COMBINED STATEMENT OF OPERATIONS--(Continued)
(unaudited)
The 4,134,264 shares of common stock issued in connection with the
acquisitions have been included in the calculation of pro forma basic and
diluted net loss per share as follows:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June
1998 30, 1999
------------ ----------
<S> <C> <C>
Shares used in computing basic and diluted net loss
per share......................................... 5,221,800 5,238,187
Adjustment to reflect assumed conversion of
preferred stock................................... 24,855 1,134,000
Adjustment to reflect common stock issued in
acquisitions...................................... 2,357,341 4,134,264
--------- ----------
Shares used in computing pro forma basic and
diluted net loss per share........................ 7,603,996 10,506,451
========= ==========
</TABLE>
NOTE 3--PRO FORMA ADJUSTMENTS:
The following pro forma adjustments are based upon management's preliminary
estimates of the value of the tangible and intangible assets acquired. These
estimates are subject to finalization.
(A) Represents $3,606,000 of other intangible assets, summarized as
follows:
<TABLE>
<S> <C>
Core technology....................................... $1,617,000
Contracts............................................. 1,189,000
Trade name............................................ 443,000
Other................................................. 357,000
----------
$3,606,000
==========
</TABLE>
(B) Represents $23,625,000 of goodwill.
(C) Represents $805,000 of acquired in-process research and
development. Management concluded that technological feasibility of
the acquired in-process technologies was not established and that
the in-process technology had no alternative future use. Such
amounts are reflected as a charge to accumulated deficit in the
unaudited pro forma balance sheet at June 30, 1999.
(D) Represents amortization of other intangible assets over two to
three years.
(E) Represents amortization of goodwill over three years.
(F) Represents elimination of balances between HealthCentral.com and
Windom Health.
(G) Represents accrued transaction costs associated with the
acquisitions.
(H) Represents the elimination of equity accounts of the acquired
companies.
(I) Represents the common stock issued in connection with the
acquisitions.
(J) Represents the cash paid and notes payable issued in connection
with the Windom Health acquisition.
(K)Represents the rollforward of actual net liabilities of Windom
Health and ePills.com from the pro forma financial statement date of
June 30, 1999 to the respective acquisition dates on which the
purchase price was established and allocated.
F-42
<PAGE>
Inside Back Cover
HealthCentral.com logo and URL
HealthCentral.com Strategic Partners include:
Yahoo!
AltaVista
Snap!
Excite
[Looksmart]
Ask Jeeves!
Broadcast.com
NetPulse
<PAGE>
Shares
[HEALTHCENTRAL.COM LOGO]
Common Stock
-----------
PROSPECTUS
, 1999
-----------
Lehman Brother_________________________________________________Hambrechts& Quist
Pacific Growth Equities, Inc.
Wit Capital Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by HealthCentral.com in
connection with the sale of the common stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
Securities and Exchange Commission registration fee .............. 23,977.50
NASD filing fee................................................... *
Nasdaq National Market listing fee................................ *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky qualification fees and expenses.......................... *
Transfer Agent and Registrar fees................................. *
Miscellaneous fees and expenses................................... *
Total......................................................... *
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Article XII of
our certificate of incorporation (Exhibit 3.3 hereto) and Article VI of our
Bylaws (Exhibit 3.5 hereto) provide for indemnification of HealthCentral.com's
directors, officers, employees and other agents to the maximum extent
permitted by Delaware Law. In addition, HealthCentral.com has entered into
Indemnification Agreements (Exhibit 10.24 hereto) with certain officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-
indemnification among HealthCentral.com and the underwriters with respect to
certain matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a) Since September 1, 1996, the Registrant has issued and sold the
following unregistered securities:
(1) In December 1998, the Registrant issued and sold shares of Series A
Preferred Stock convertible into an aggregate of 1,134,000 shares of
common stock, and warrants to purchase 544,320 shares of Series A
Preferred Stock at a purchase price of $1.79 to investors.
(2) In May 1999, the Registrant issued a warrant to purchase 13,720 shares
of Series A Preferred Stock at a purchase price of $1.79 per share to
individuals affiliated with a lender in connection with a financing
transaction.
(3) In April 1999, the Registrant issued a warrant to purchase 80,784
shares of Common Stock at a purchase price of $5.81 per share to a
strategic partner.
(4) In July 1999, the Registrant issued promissory notes in the aggregate
principal amount of $600,000 to investors and warrants to purchase an
aggregate of 18,666 shares of common stock at a purchase price of $3.21
per share to investors.
II-1
<PAGE>
(5) In July 1999, we issued a promissory note in the principal amount of
$100,000 to an individual. The principal amount of this note was
converted into shares of Series B Preferred Stock and the interest was
paid in full in September 1999.
(6) In August 1999, the Registrant issued 2,357,341 shares of its common
stock to individuals in connection with an acquisition of a company.
(7) In August and September 1999, the Registrant issued and sold shares of
Series B Preferred Stock convertible into an aggregate of 4,523,065
shares of common stock to investors for an aggregate purchase price of
$20,999,998.50.
(8) In August 1999, we issued promissory notes in the aggregate principal
amount of $300,000 and warrants to purchase 9,332 shares of Series B
Preferred Stock at a purchase price of $3.21 per share to a stockholder
in connection with a bridge financing. The principal amount of this
note was converted into shares of Series B Preferred Stock and the
interest was paid in full in September 1999.
(9) In August, 1999 the Registrant issued to Hambrecht & Quist LLC a
warrant to purchase 77,539 shares of Series B Preferred Stock at a
purchase price of $4.64 per share.
(10) As of August 31, 1999, 376,758 shares of common stock had been issued
upon exercise of options or pursuant to restricted stock purchase
agreements and 1,890,177 shares of common stock were issuable upon
exercise of outstanding options under the Registrant's 1998 Stock
Plan.
(11) In August 1998, the Registrant effected a 1.844-for-1 split of its
outstanding common stock in which every outstanding share of common
stock was split into 1.844 shares of common stock.
(12) Prior to the completion of this offering, the Registrant intends to
effect a 1.4-for-1 split of its outstanding common stock in which
every outstanding share of common stock will be split into 1.4 shares
of common stock.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
All of the foregoing information gives effect to the 1.4-for-1 split of the
Registrant's common stock to be effected prior to completion of the offering.
The issuances described in Items 15(a)(1) through 15(a)(9) were deemed to be
exempt from registration under the Securities Act in reliance upon Section 4(2)
thereof as transactions by an issuer not involving any public offering. The
issuances described in Items 15(a)(10) were deemed exempt from the registration
under the Securities Act in reliance upon Rule 701 promulgated thereunder in
that they were offered and sold either pursuant to written compensatory benefit
plans or pursuant to a written contract relating to compensation, as provided
by Rule 701. In addition such issuances were deemed to be exempt from
registration under Section 4(2) of the Securities Act as transactions by an
issuer not involving any public offering. The issuances described in Items
15(a)(11) and (12) were or will be exempt from registration under Section 2(3)
of the Securities Act on the basis that such transaction did not involve a
"sale" of securities. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends where affixed to the securities issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Articles of Incorporation of the Registrant
(current).
3.2 Amended and Restated Certificate of Incorporation of the Registrant (as
proposed for reincorporation in Delaware).
3.3 Amended and Restated Certificate of Incorporation of the Registrant (as
proposed for public company).
3.4 Bylaws of the Registrant, as amended (current).
3.5 Amended and Restated Bylaws of the Registrant (as proposed for public
company).
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the common stock
being registered.
10.1 First Amended and Restated Investors' Rights Agreement dated August 27,
1999 between the Registrant and certain investors.
10.2* 1999 Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.3 Amended and Restated 1998 Stock Plan, and form of stock option
agreement and restricted stock purchase agreement.
10.4* 1999 Employee Stock Purchase Plan, and form of subscription agreement.
10.5* 1999 Directors' Stock Option Plan, and form of stock option agreement.
10.6 Form of Common Stock Agreement between the Registrant and each of Dean
S. Edell M.D. and James J. Hornthal.
10.7 Engagement Letter between the Registrant and Hambrecht & Quist dated
March 22, 1999.
10.8 Consulting Agreement between the Registrant and Michael D. McDonald
dated August 12, 1999.
10.9 Employment Agreements between the Registrant and each of Deryk Van
Brunt and Marcos A. Athanasoulis.
10.10 Employment Agreement between the Registrant and Albert Greene dated
August 16, 1999.
10.11 Offer Letter from the Registrant to C. Fred Toney dated June 16, 1999.
10.12 Letter Agreement between the Registrant and Ann Marie Buddrus dated
August 4, 1999.
10.13 Lock-Up Agreement between the Registrant and Dr. Dean S. Edell dated
August 27, 1999.
10.14 Form of Change of Control Agreement between the Registrant and Albert
L. Greene.
10.15 License and Confidential Information Agreement between the Registrant
and Dr. Dean S. Edell dated May 14, 1999.
10.16 Office Lease between the Registrant and Christie Avenue Partners JS
dated March 26, 1999.
10.17 Landlord's Consent and Agreement (Sublease) between the Registrant and
Burnham Pacific Operating Partnership, L.P. dated July 22, 1999.
10.18 Joint Development Agreement/Base Agreement by and between the
Registrant, Windom Health Enterprises and Global Health Initiatives
dated August 12, 1999.
10.19+ Co-Branded Site Agreement by and between the Registrant, Graedon
Enterprises, Inc., and Joe Graedon and Teresa Graedon dated September
9, 1999.
10.20* Agreement between the Registrant and AltaVista Company dated September
1999.
10.21+ Agreement and Plan of Reorganization by and between the Registrant, HC2
Acquisition Corporation and ePills, Inc. dated September 28, 1999.
10.22* Internet Fulfillment Services Agreement between ePills, Inc. and Bergen
Brunswig Drug Company dated September 16, 1999.
10.23* Pharmacy Services Fulfillment Agreement between ePills, Inc. and Medi-
Mail, Inc. dated August 1999.
10.24 Form of Indemnification Agreement.
21.1 List of subsidiaries.
23.1 Form of Consent of Independent Accountants.
23.1b Consent of Independent Accountants.
23.2 Consent of Attorney (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions of this Exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules
All financial statement schedules have been omitted because they are not
required, are not applicable or because the information required to be included
in such schedules is included in the financial statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Emeryville, State of
California, on September 29, 1999.
HEALTHCENTRAL.COM
/s/ Albert L. Greene
By:__________________________________
Albert L. Greene President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Albert L. Greene
and C. Fred Toney and each of them, as his or her attorney-in-fact, with full
power of substitution, for him or her in any and all capacities, to sign any
and all amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this Registration Statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Albert L. Greene President, Chief Executive September 29, 1999
____________________________________ Officer and Director
Albert L. Greene (Principal Executive
Officer)
/s/ C. Fred Toney Chief Financial Officer September 29, 1999
____________________________________ (Principal Financial and
C. Fred Toney Accounting Officer)
/s/ James J. Hornthal Co-Chairman of the Board September 29, 1999
____________________________________
James J. Hornthal
/s/ Michael D. McDonald Co-Chairman of the Board September 29, 1999
____________________________________
Michael D. McDonald
/s/ Louis M. Andersen Director September 29, 1999
____________________________________
Louis M. Andersen
/s/ Sheryle J. Bolton Director September 29, 1999
____________________________________
Sheryle J. Bolton
/s/ Annette Campbell-White Director September 29, 1999
____________________________________
Annette Campbell-White
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dean S. Edell Director September 29, 1999
____________________________________
Dean S. Edell
/s/ Wesley D. Sterman Director September 29, 1999
____________________________________
Wesley D. Sterman
/s/ Robin Wolaner Director September 29, 1999
____________________________________
Robin Wolaner
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Articles of Incorporation of the Registrant
(current).
3.2 Amended and Restated Certificate of Incorporation of the Registrant (as
proposed for reincorporation in Delaware).
3.3 Amended and Restated Certificate of Incorporation of the Registrant (as
proposed for public company).
3.4 Bylaws of the Registrant, as amended (current).
3.5 Amended and Restated Bylaws of the Registrant (as proposed for public
company).
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the common stock
being registered.
10.1 First Amended and Restated Investors' Rights Agreement dated August 27,
1999 between the Registrant and certain investors.
10.2* 1999 Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.3 Amended and Restated 1998 Stock Plan, and form of stock option
agreement and restricted stock purchase agreement.
10.4* 1999 Employee Stock Purchase Plan, and form of subscription agreement.
10.5* 1999 Directors' Stock Option Plan, and form of stock option agreement.
10.6 Form of Common Stock Agreement between the Registrant and each of Dean
S. Edell M.D. and James J. Hornthal.
10.7 Engagement Letter between the Registrant and Hambrecht & Quist dated
March 22, 1999.
10.8 Consulting Agreement between the Registrant and Michael D. McDonald
dated August 12, 1999.
10.9 Employment Agreements between the Registrant and each of Deryk Van
Brunt and Marcos A. Athanasoulis.
10.10 Employment Agreement between the Registrant and Albert Greene dated
August 16, 1999.
10.11 Offer Letter from the Registrant to C. Fred Toney dated June 16, 1999.
10.12 Letter Agreement between the Registrant and Ann Marie Buddrus dated
August 4, 1999.
10.13 Lock-Up Agreement between the Registrant and Dr. Dean S. Edell dated
August 27, 1999.
10.14 Form of Change of Control Agreement between the Registrant Albert L.
Greene.
10.15 License and Confidential Information Agreement between the Registrant
and Dr. Dean S. Edell dated May 14, 1999.
10.16 Office Lease between the Registrant and Christie Avenue Partners JS
dated March 26, 1999.
10.17 Landlord's Consent and Agreement (Sublease) between the Registrant and
Burnham Pacific Operating Partnership, L.P. dated July 22, 1999.
10.18 Joint Development Agreement/Base Agreement by and between the
Registrant, Windom Health Enterprises and Global Health Initiatives
dated August 12, 1999.
10.19+ Co-Branded Site Agreement by and between the Registrant, Graedon
Enterprises, Inc., and Joe Graedon and Teresa Graedon dated September
9, 1999.
10.20* Agreement between the Registrant and AltaVista Company dated September
1999.
10.21+ Agreement and Plan of Reorganization by and between the Registrant, HC
Acquisition Corporation and ePills, Inc. dated September 28, 1999.
10.22* Internet Fulfillment Services Agreement between ePills, Inc. and Bergen
Brunswig Drug Company dated September 16, 1999.
10.23* Pharmacy Services Fulfillment Agreement between ePills, Inc. and Medi-
Mail, Inc. dated August 1999.
10.24 Form of Indemnification Agreement.
21.1 List of subsidiaries.
23.1 Form of Consent of Independent Accountants.
23.1b Consent of Independent Accountants.
23.2 Consent of Attorney (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions of this Exhibit.
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HEALTHCENTRAL.COM
The undersigned, Albert L. Greene and Mark A. Medearis, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of HealthCentral.com, a California corporation.
2. The Articles of Incorporation of this corporation shall be amended and
restated to read in full as follows:
"ARTICLE I
The name of this corporation is HealthCentral.com (the "Corporation").
-----------
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
Twenty Six Million Nine Hundred Thousand (26,900,000) shares, each with a par
value of $0.001 per share. Twenty Two Million Two Hundred Thousand (22,200,000)
shares shall be Common Stock and Four Million Seven Hundred Thousand (4,700,000)
shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by these Second Amended and Restated Articles of Incorporation
(the "Restated Articles") may be issued from time to time in one or more series.
The first series of Preferred Stock shall be designated "Series A Preferred
------------------
Stock" and shall consist of One Million Two Hundred Eight Thousand Six Hundred
- -----
(1,208,600) shares. The second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of Three Million Four Hundred
- -------------------------
Thousand (3,400,000) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A and Series B Preferred Stock
are as set forth below in this Article III(B).
<PAGE>
1. Dividend Provisions. The holders of shares of Series A and
-------------------
Series B Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rate of (i) $0.20 per share per annum on
each outstanding share of Series A Preferred Stock (as adjusted for stock
splits, stock dividends or recapitalizations and the like with respect to such
shares) and (ii) $0.52 per share per annum on each outstanding share of Series B
Preferred Stock (as adjusted for stock splits, stock dividends or
recapitalizations and the like with respect to such shares), in each case
payable quarterly when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative.
2. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series A and Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $2.50 per share for each outstanding share of Series A
Preferred Stock then held by them (the "Original Series A Issue Price") and (ii)
$6.50 per share for each outstanding share of Series B Preferred Stock then held
by them (the "Original Series B Issue Price"), plus declared but unpaid
dividends on such share (subject to adjustment of such fixed dollar amounts for
any stock splits, stock dividends, combination, recapitalizations or the like).
If, upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series A and Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A and Series B Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by subsection (a) of this Section 2, all of the remaining assets of the
Corporation available for distribution to shareholders shall be distributed
among the holders of the Common Stock pro rata based on the number of shares of
Common Stock held by each.
(c) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to
occur if the Corporation shall sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which the
shareholders of the Corporation immediately prior thereto own less than a
majority of outstanding shares of voting stock of the Corporation (or its
successor or parent) immediately
-2-
<PAGE>
thereafter, provided that this Section 2(c)(i) shall not apply to a merger
--------
effected solely for the purpose of changing the domicile of the Corporation.
(ii) Valuation of Consideration. In the event of a deemed
--------------------------
liquidation as described in Section 2(c)(i) above, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability:
(1) If traded on a securities exchange or The
Nasdaq National Market, the value shall be deemed to be the average of the
closing sale prices of the securities on such exchange over the thirty-day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter other than
through The Nasdaq National Market, the value shall be deemed to be the average
of the closing bid or sale prices (whichever is applicable) over the thirty-day
period ending three (3) days prior to the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Corporation.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined in good faith by the Board of
Directors of the Corporation and the holders of a majority of the shares of
Preferred Stock outstanding.
(iii) Notice of Transaction. The Corporation shall give
---------------------
each holder of record of Series A and Series B Preferred Stock written notice of
a transaction described in 2(c)(i) not later than ten (10) days prior to the
shareholders' meeting called to approve such transaction, or ten (10) days prior
to the closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than ten (10) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of Preferred Stock that are entitled to such
notice rights or similar notice rights and
-3-
<PAGE>
that represent at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(iv) Effect of Noncompliance. In the event the
-----------------------
requirements of this Section 2(c) are not complied with, the Corporation shall
forthwith either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A and Series
B Preferred Stock shall revert to and be the same as such rights, preferences
and privileges existing immediately prior to the date of the first notice
referred to in Section 2(c)(iii) hereof.
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Series A and Series B Preferred
----------
Stock shall have conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(c), each share of
----------------
Series A and Series B Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing (i) $2.50 in the case of the Series A Preferred Stock and (ii) $6.50 in
the case of the Series B Preferred Stock by the Conversion Price applicable to
such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share shall be $2.50 for shares of Series A Preferred Stock and $6.50 for shares
of Series B Preferred Stock. Such initial Conversion Price shall be subject to
adjustment as set forth in Section 4(d).
(b) Automatic Conversion. Each share of Series A and Series B
--------------------
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such share immediately upon the
earlier of (i) except as provided below in Section 4(c), the Corporation's sale
of its Common Stock in a firm commitment underwritten public offering (the
"IPO") pursuant to a registration statement under the Securities Act of 1933, as
---
amended (the "Securities Act"), in which the Pre-Money Valuation (as defined
--------------
below) of the Company is at least $125 million and which results in aggregate
cash proceeds to the Corporation of not less than $15,000,000 (net of
underwriting discounts and commissions) or (ii) the date specified by written
consent or agreement of the holders of two thirds (66 2/3%) of the then
outstanding shares of Preferred Stock, voting as a single class on an as-
converted basis. Upon such automatic conversion, any declared but unpaid
dividends shall be paid in accordance with Section 4(c). For the purpose of this
subsection the term "Pre-Money Valuation" means the product obtained by
-------------------
multiplying (i) the per share public offering price by (ii) the number of shares
of Common Stock outstanding on the date on which the Form S-1 registration
statement for the IPO (the "Form S-1") is filed (assuming, for the purpose of
--------
calculating such number of shares of Common Stock (1) the conversion of all
shares of Preferred Stock then outstanding, (2) the exercise and conversion of
all options and warrants then outstanding, and (3) the issuance,
-4-
<PAGE>
exercise and conversion of all shares then reserved for issuance under the
Company's stock and option plans).
(c) Mechanics of Conversion. Before any holder of Series A or
-----------------------
Series B Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for such series of Preferred Stock, and shall give written notice to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of such series of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act the conversion may, at the option of any holder tendering
such Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
A and Series B Preferred Stock shall be subject to adjustment from time to time
as follows:
(i) Issuance of Additional Stock below Purchase Price. If
-------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Series B
Preferred Stock were first issued (the "Purchase Date"), any Additional Stock
-------------
(as defined below) without consideration or for a consideration per share less
than the Conversion Price for a series in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series in
effect immediately prior to each such issuance shall automatically be adjusted
as set forth in this Section 4(d)(i), unless otherwise provided in this Section
4(d)(i).
(A) Price Adjustment. Whenever the Conversion Price
----------------
is adjusted pursuant to this Section 4(d)(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction, (x)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (the "Outstanding Common") plus the number of
------------------
shares of Common Stock that the aggregate consideration received by the
Corporation for such issuance would purchase at such Conversion Price; and (y)
the denominator of which shall be the number of shares of Outstanding Common
plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation,
-5-
<PAGE>
the term "Outstanding Common" shall include shares of Common Stock deemed issued
pursuant to Section 4(d)(i)(E) below.
(B) Definition of "Additional Stock". For purposes
--------------------------------
of this Section 4(d)(i), "Additional Stock" shall mean any shares of Common
----------------
Stock issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by
the Corporation after the Purchase Date) other than
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof,
(2) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Corporation pursuant to restricted
stock purchase or stock option plans or agreements approved by the Board of
Directors of the Corporation,
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or other lenders or
lessors in connection with loans, leases, equipment financings or similar
transactions,
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants outstanding as of the date of these Amended
and Restated Articles of Incorporation (and issuable on the conversion of shares
issuable upon such exercise),
(5) Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions, mergers
or similar transactions, the terms of which are approved by the Board of
Directors of the Corporation,
(6) Shares of Common Stock issued or issuable upon
conversion of the Series A or Series B Preferred Stock,
(7) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock, and
(8) Securities issued in connection with research
and development partnerships, licensing or collaborative arrangements and
similar transactions approved by the Board of Directors of the Corporation.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for the Series A or Series B Preferred Stock shall be made in
an amount less than one cent per share, provided that any adjustments which are
not required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the date of the
event giving rise to the adjustment being carried forward.
-6-
<PAGE>
(D) Determination of Consideration. In the case of
------------------------------
the issuance of Common Stock for cash, the consideration shall be deemed to be
the amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Common Stock for a consideration in whole or
in part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors irrespective of
any accounting treatment.
(E) Deemed Issuances of Common Stock. In the case of
--------------------------------
the issuance (whether before, on or after the Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
4(d)(i)(D).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A or the Series B Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities,
shall be
-7-
<PAGE>
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A or Series B Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) No Increased Conversion Price. Notwithstanding
-----------------------------
any other provisions of this Section (4)(d)(i), except to the limited extent
provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of the
Conversion Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of the Series A and Series B Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 4(d)(i)(E).
(iii) Reverse Stock Splits. If the number of shares of
--------------------
Common Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the
-8-
<PAGE>
Conversion Price for the Series A and Series B Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(ii), then, in
each such case for the purpose of this Section 4(e), the holders of Series A and
Series B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A and Series B Preferred Stock shall thereafter be entitled to receive
upon conversion of such Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of such Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of such
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of
-------------
its Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A or Series B Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. The number of shares issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A and Series B
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
-9-
<PAGE>
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A or Series B Preferred Stock pursuant to this
Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A or Series B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price for the Series A
or Series B Preferred Stock at the time in effect, and (C) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of the Series A or Series B
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A and Series B Preferred Stock, at least ten
(10) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A and Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of such series of Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of such series of Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to these articles.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A or Series B Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.
5. Voting Rights. The holder of each share of Series A and Series B
-------------
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common
-10-
<PAGE>
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any shareholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
6. Protective Provisions. So long as at least 1,000,000 shares of
---------------------
Preferred Stock are outstanding (as adjusted for stock splits, stock dividends
or recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Preferred Stock, voting
together as a class:
(a) effect a transaction described in Section 2(c)(i) above;
(b) alter or change the rights, preferences or privileges of the
shares of Preferred Stock so as to affect adversely such shares;
(c) increase the total number of authorized shares of Preferred
Stock;
(d) authorize or issue any other equity security, including any
other security convertible into or exercisable for any equity security, having a
preference over, or being on a parity with, the Preferred Stock with respect to
voting, dividends, conversion, redemptions or upon liquidation;
(e) redeem, purchase or otherwise acquire (or pay into or set
funds aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
-------- -------
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost upon the occurrence of certain events,
such as the termination of such employment or consulting relationship, or
through the exercise of any right of first refusal;
(f) pay or declare any dividends on Common Stock (other than in
Common Stock of the Company); or
(g) take any action that would result in the taxation of the
holders of Preferred Stock under Section 305 of the Internal Revenue Code.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Articles of
Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
-11-
<PAGE>
8. Repurchase of Shares. In connection with repurchases by the
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
(A) The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
(B) The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law.
(C) Any amendment or repeal or modification of the foregoing provisions of
this Article IV by the shareholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification."
* * *
3. The foregoing amendment has been approved by the Board of Directors of
this corporation.
4. The foregoing amendment was approved by the holders of the requisite
number of shares of this corporation in accordance with Sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 4,001,926 shares of
Common Stock and 810,000 shares of Series A Preferred Stock. The number of
shares voting in favor of the foregoing amendment equaled or
-12-
<PAGE>
exceeded the vote required. The percentage vote required was (i) a majority of
the outstanding shares of Common Stock and Preferred Stock, voting together on
an as-converted basis, (ii) a majority of the outstanding shares of Common
Stock, voting as a separate class and (iii) a majority of the outstanding shares
of Preferred Stock, voting as a separate class.
-13-
<PAGE>
The undersigned certify under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Executed at Menlo Park, California, on August 6, 1999.
/s/ Albert L. Greene
---------------------------------
Albert L. Greene, President
/s/ Mark A. Medearis
---------------------------------
Mark A. Medearis, Secretary
-14-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHCENTRAL.COM, INC.
The undersigned, C. Fred Toney and Mark A. Medearis, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of HealthCentral.com, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on September 15, 1999
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
"ARTICLE I
The name of this corporation is HealthCentral.com, Inc. (the
"Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle, Delaware, 19801. The
name of its registered agent at such address is Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
Twenty Six Million Nine Hundred Thousand (26,900,000) shares, each with a par
value of $0.001 per share. Twenty Two Million Two Hundred Thousand (22,200,000)
shares shall be Common Stock and Four Million Seven Hundred Thousand (4,700,000)
shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Amended and Restated Certificate of Incorporation (the
"Restated
<PAGE>
Certificate") may be issued from time to time in one or more series. The first
series of Preferred Stock shall be designated "Series A Preferred Stock" and
------------------------
shall consist of One Million Two Hundred Eight Thousand Six Hundred (1,208,600)
shares. The second series of Preferred Stock shall be designated "Series B
--------
Preferred Stock" and shall consist of Three Million Four Hundred Thousand
- ---------------
(3,400,000) shares. The rights, preferences, privileges, and restrictions
granted to and imposed on the Series A and Series B Preferred Stock are as set
forth below in this Article IV(B).
1. Dividend Provisions. The holders of shares of Series A and Series
-------------------
B Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rate of (i) $0.20 per share per annum on
each outstanding share of Series A Preferred Stock (as adjusted for stock
splits, stock dividends or recapitalizations and the like with respect to such
shares) and (ii) $0.52 per share per annum on each outstanding share of Series B
Preferred Stock (as adjusted for stock splits, stock dividends or
recapitalizations and the like with respect to such shares), in each case
payable quarterly when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative.
2. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series A and Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $2.50 per share for each outstanding share of Series A
Preferred Stock then held by them (the "Original Series A Issue Price") and (ii)
$6.50 per share for each outstanding share of Series B Preferred Stock then held
by them (the "Original Series B Issue Price"), plus declared but unpaid
dividends on such share (subject to adjustment of such fixed dollar amounts for
any stock splits, stock dividends, combination, recapitalizations or the like).
If, upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series A and Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A and Series B Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by subsection (a) of this Section 2, all of the remaining assets of the
Corporation available for distribution to shareholders shall be distributed
among the holders of the Common Stock pro rata based on the number of shares of
Common Stock held by each.
(c) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to
occur if the
<PAGE>
Corporation shall sell, convey, or otherwise dispose of all or substantially all
of its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect any
other transaction or series of related transactions in which the shareholders of
the Corporation immediately prior thereto own less than a majority of
outstanding shares of voting stock of the Corporation (or its successor or
parent) immediately thereafter, provided that this Section 2(c)(i) shall not
--------
apply to a merger effected solely for the purpose of changing the domicile of
the Corporation.
(ii) Valuation of Consideration. In the event of a deemed
--------------------------
liquidation as described in Section 2(c)(i) above, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability:
(1) If traded on a securities exchange or The
Nasdaq National Market, the value shall be deemed to be the average of the
closing sale prices of the securities on such exchange over the thirty-day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter other
than through The Nasdaq National Market, the value shall be deemed to be the
average of the closing bid or sale prices (whichever is applicable) over the
thirty-day period ending three (3) days prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the Corporation.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined in good faith by the Board of
Directors of the Corporation and the holders of a majority of the shares of
Preferred Stock outstanding.
(iii) Notice of Transaction. The Corporation shall give
---------------------
each holder of record of Series A and Series B Preferred Stock written notice of
a transaction described in 2(c)(i) not later than ten (10) days prior to the
shareholders' meeting called to approve such transaction, or ten (10) days prior
to the closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place
<PAGE>
sooner than ten (10) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
(iv) Effect of Noncompliance. In the event the requirements
-----------------------
of this Section 2(c) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A and Series
B Preferred Stock shall revert to and be the same as such rights, preferences
and privileges existing immediately prior to the date of the first notice
referred to in Section 2(c)(iii) hereof.
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Series A and Series B Preferred
----------
Stock shall have conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(c), each share of
----------------
Series A and Series B Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing (i) $2.50 in the case of the Series A Preferred Stock and (ii) $6.50 in
the case of the Series B Preferred Stock by the Conversion Price applicable to
such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share shall be $2.50 for shares of Series A Preferred Stock and $6.50 for shares
of Series B Preferred Stock. Such initial Conversion Price shall be subject to
adjustment as set forth in Section 4(d).
(b) Automatic Conversion. Each share of Series A and Series B
--------------------
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such share immediately upon the
earlier of (i) except as provided below in Section 4(c), the Corporation's sale
of its Common Stock in a firm commitment underwritten public offering (the
"IPO") pursuant to a registration statement under the Securities Act of 1933, as
---
amended (the "Securities Act"), in which the Pre-Money Valuation (as defined
--------------
below) of the Company is at least $125 million and which results in aggregate
cash proceeds to the Corporation of not less than $15,000,000 (net of
underwriting discounts and commissions) or (ii) the date specified by written
consent or agreement of the holders of two thirds (66 2/3%) of the then
outstanding shares of Preferred Stock, voting as a single class on an as-
converted basis. Upon such automatic conversion, any declared but unpaid
dividends shall be paid in accordance with Section 4(c). For the purpose of this
subsection the term "Pre-Money Valuation" means the product obtained by
-------------------
multiplying (i) the per share public offering price by (ii) the number of shares
of Common Stock outstanding on the date on which the Form S-1 registration
statement
<PAGE>
for the IPO (the "Form S-1") is filed (assuming, for the purpose of calculating
--------
such number of shares of Common Stock (1) the conversion of all shares of
Preferred Stock then outstanding, (2) the exercise and conversion of all options
and warrants then outstanding, and (3) the issuance, exercise and conversion of
all shares then reserved for issuance under the Company's stock and option
plans).
(c) Mechanics of Conversion. Before any holder of Series A or
-----------------------
Series B Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for such series of Preferred Stock, and shall give written notice to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of such series of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act the conversion may, at the option of any holder tendering
such Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
A and Series B Preferred Stock shall be subject to adjustment from time to time
as follows:
(i) Issuance of Additional Stock below Purchase Price. If
-------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Series B
Preferred Stock were first issued (the "Purchase Date"), any Additional Stock
-------------
(as defined below) without consideration or for a consideration per share less
than the Conversion Price for a series in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series in
effect immediately prior to each such issuance shall automatically be adjusted
as set forth in this Section 4(d)(i), unless otherwise provided in this Section
4(d)(i).
(A) Price Adjustment. Whenever the Conversion Price is
----------------
adjusted pursuant to this Section 4(d)(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction, (x)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (the "Outstanding Common") plus the number of
------------------
shares of Common Stock that the aggregate consideration received by the
Corporation for such issuance would purchase at such Conversion
<PAGE>
Price; and (y) the denominator of which shall be the number of shares of
Outstanding Common plus the number of shares of such Additional Stock. For
purposes of the foregoing calculation, the term "Outstanding Common" shall
include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E)
below.
(B) Definition of "Additional Stock". For purposes of
-------------------------------
this Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the
Corporation after the Purchase Date) other than
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof,
(2) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Corporation pursuant to restricted
stock purchase or stock option plans or agreements approved by the Board of
Directors of the Corporation,
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or other lenders or
lessors in connection with loans, leases, equipment financings or similar
transactions,
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants outstanding as of the date of these Amended
and Restated Certificate of Incorporation (and issuable on the conversion of
shares issuable upon such exercise),
(5) Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions, mergers
or similar transactions, the terms of which are approved by the Board of
Directors of the Corporation,
(6) Shares of Common Stock issued or issuable upon
conversion of the Series A or Series B Preferred Stock,
(7) Shares of Common Stock issued or issuable in
a public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock, and
(8) Securities issued in connection with research
and development partnerships, licensing or collaborative arrangements and
similar transactions approved by the Board of Directors of the Corporation.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for the Series A or Series B Preferred Stock shall be made in
an amount less than one cent per share, provided that any adjustments which are
not required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three years from the date of the event giving rise to the
<PAGE>
adjustment being carried forward, or shall be made at the end of three years
from the date of the event giving rise to the adjustment being carried forward.
(D) Determination of Consideration. In the case of
------------------------------
the issuance of Common Stock for cash, the consideration shall be deemed to be
the amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Common Stock for a consideration in whole or
in part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors irrespective of
any accounting treatment.
(E) Deemed Issuances of Common Stock. In the case of
--------------------------------
the issuance (whether before, on or after the Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
4(d)(i)(D).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or
<PAGE>
exchangeable securities, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price of the Series A or the
Series B Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A or Series B Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) No Increased Conversion Price. Notwithstanding
-----------------------------
any other provisions of this Section (4)(d)(i), except to the limited extent
provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of the
Conversion Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of the Series A and Series B Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 4(d)(i)(E).
<PAGE>
(iii) Reverse Stock Splits. If the number of shares of
--------------------
Common Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A and
Series B Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(ii), then, in
each such case for the purpose of this Section 4(e), the holders of Series A and
Series B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A and Series B Preferred Stock shall thereafter be entitled to receive
upon conversion of such Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of such Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of such
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A or Series B Preferred Stock,
and the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. The number of shares issuable upon such conversion shall be
determined on the basis of the total number of shares of
<PAGE>
Series A and Series B Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A or Series B Preferred Stock pursuant to this
Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A or Series B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price for the Series A
or Series B Preferred Stock at the time in effect, and (C) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of the Series A or Series B
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A and Series B Preferred Stock, at least ten
(10) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A and Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of such series of Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of such series of Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to this certificate.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A or Series B Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.
<PAGE>
5. Voting Rights. The holder of each share of Series A and Series B
-------------
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
6. Protective Provisions. So long as at least 1,000,000 shares of
---------------------
Preferred Stock are outstanding (as adjusted for stock splits, stock dividends
or recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Preferred Stock, voting
together as a class:
(a) effect a transaction described in Section 2(c)(i) above;
(b) alter or change the rights, preferences or privileges of the
shares of Preferred Stock so as to affect adversely such shares;
(c) increase the total number of authorized shares of Preferred
Stock;
(d) authorize or issue any other equity security, including any
other security convertible into or exercisable for any equity security, having a
preference over, or being on a parity with, the Preferred Stock with respect to
voting, dividends, conversion, redemptions or upon liquidation;
(e) redeem, purchase or otherwise acquire (or pay into or set
funds aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
-------- -------
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost upon the occurrence of certain events,
such as the termination of such employment or consulting relationship, or
through the exercise of any right of first refusal;
(f) pay or declare any dividends on Common Stock (other than in
Common Stock of the Company); or
(g) take any action that would result in the taxation of the
holders of Preferred Stock under Section 305 of the Internal Revenue Code.
<PAGE>
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any
<PAGE>
action or proceeding accruing or arising or that, but for this Article VII,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision."
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at _____________, California, on ____________, 1999.
_______________________________________
C. Fred Toney, President and Chief
Financial Officer
_______________________________________
Mark A. Medearis, Secretary
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHCENTRAL.COM
THE UNDERSIGNED, ALBERT L. GREENE AND MARK A. MEDEARIS, HEREBY CERTIFY
THAT:
1. They are the duly elected and acting President and Secretary,
respectively, of HealthCentral.com, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on September 15, 1999 and the
original name at the time of filing was "HealthCentral.com, Inc."
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
"ARTICLE I
The name of this corporation is HealthCentral.com (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle. The name of its
registered agent at such address is Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
105,000,000 shares, each with a par value of $0.001 per share. 100,000,000 of
such shares shall be Common Stock, and 5,000,000 of such shares shall be
Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the
<PAGE>
number of shares constituting any such series and the designation thereof, or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
"Listing Event" as used in this Amended and Restated Certificate of
-------------
Incorporation shall mean the first annual meeting of stockholders following such
time as the Corporation meets the criteria set forth in subdivisions (1), (2) or
(3) of Section 2115(c) the California Corporations Code as of the record date of
such meeting.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, its directors and its stockholders or any class
thereof, as the case may be, it is further provided that, effective upon the
occurrence of the Listing Event:
(i) The number of directors which shall constitute the entire Board of
Directors, and the number of directors in each class, shall be fixed exclusively
by one or more resolutions adopted from time to time by the Board of Directors.
The Board of Directors shall be divided into three classes, designated as Class
I, Class II and Class III, respectively. Directors shall be assigned to each
class in accordance with a resolution or resolutions adopted by the Board of
Directors. Until changed by a resolution of the Board of Directors, Class I
shall consist of three directors, each of whom shall be designated by the Board
of Directors; Class II shall consist of three directors, each of whom shall be
designated by the Board of Directors; and Class III shall consist of three
directors, each of whom shall be designated by the Board of Directors.
Upon the occurrence of the Listing Event, the terms of office of the
Class I directors shall expire, and Class I directors shall be elected for a
full term of three years. At the first annual meeting of stockholders following
the Listing Event, the term of office of the Class II directors shall expire,
and Class II directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Listing Event, the term of
office of the Class III directors shall expire, and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the
-2-
<PAGE>
holders of a majority of the voting power of the then-outstanding shares of
voting stock of the corporation entitled to vote generally in the election of
directors (the "Voting Stock") voting together as a single class; or (ii) by the
------------
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such newly created directorship
shall be filled by the stockholders, be filled only by the affirmative vote of
the directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
In addition to the requirements of law and any other provisions hereof
(and notwithstanding the fact that approval by a lesser vote may be permitted by
law or any other provision hereof), the affirmative vote of the holders of at
least 66 2/3 percent of the voting power of the then outstanding shares of stock
of all classes and all series of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to amend, alter, repeal, or adopt any provision inconsistent with this Section
(i) of this Article VI.
(ii) There shall be no right with respect to shares of stock of the
Corporation to cumulate votes in the election of directors.
(iii) Any director, or the entire Board of Directors, may be removed
from office at any time (i) with cause by the affirmative vote of the holders of
at least a majority of the voting power of the then-outstanding shares of the
Voting Stock, voting together as a single class; or (ii) without cause by the
affirmative vote of the holders of at least 66-2/3% of the voting power of the
then-outstanding shares of the Voting Stock.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE IX
-3-
<PAGE>
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this Article
XII shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits the Corporation
to provide indemnification) though bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of this
Article XIII shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
-4-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at ______________, California, on ____________________.
-----------------------
Albert L. Greene , President
-----------------------
-----------------------
Mark A. Medearis , Secretary
-----------------------
-5-
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
DR. DEAN ONLINE, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES............................................... 1
1.1 Principal Office................................................ 1
1.2 Other Offices................................................... 1
ARTICLE II MEETINGS OF SHAREHOLDERS........................................ 1
2.1 Place Of Meetings............................................... 1
2.2 Annual Meeting.................................................. 1
2.3 Special Meeting................................................. 2
2.4 Notice Of Shareholders' Meetings................................ 2
2.5 Manner Of Giving Notice; Affidavit Of Notice.................... 3
2.6 Quorum.......................................................... 3
2.7 Adjourned Meeting; Notice....................................... 3
2.8 Voting.......................................................... 4
2.9 Validation Of Meetings; Waiver Of Notice; Consent............... 5
2.10 Shareholder Action By Written Consent Without A Meeting......... 5
2.11 Record Date For Shareholder Notice, Voting, Or Giving Consents.. 6
2.12 Proxies......................................................... 6
2.13 Inspectors Of Election.......................................... 7
ARTICLE III DIRECTORS....................................................... 8
3.1 Powers.......................................................... 8
3.2 Number Of Directors............................................. 8
3.3 Election And Term Of Office Of Directors........................ 8
3.4 Resignation And Vacancies....................................... 8
3.5 Place Of Meetings; Meetings By Telephone........................ 9
3.6 Regular Meetings................................................ 9
3.7 Special Meetings; Notice........................................ 9
3.8 Quorum.......................................................... 10
3.9 Waiver Of Notice................................................ 10
3.10 Adjournment..................................................... 10
3.11 Notice Of Adjournment........................................... 10
3.12 Board Action By Written Consent Without A Meeting............... 11
3.13 Fees And Compensation Of Directors.............................. 11
3.14 Approval Of Loans To Officers................................... 11
ARTICLE IV COMMITTEES...................................................... 11
4.1 Committees Of Directors......................................... 11
4.2 Meetings And Action Of Committees............................... 12
ARTICLE V OFFICERS........................................................ 12
5.1 Officers........................................................ 12
5.2 Election Of Officers............................................ 13
5.3 Subordinate Officers............................................ 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.4 Removal And Resignation Of Officers............................. 13
5.5 Vacancies In Offices............................................ 13
5.6 Chairman Of The Board........................................... 13
5.7 President....................................................... 13
5.8 Vice Presidents................................................. 14
5.9 Secretary....................................................... 14
5.10 Chief Financial Officer......................................... 14
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS.................................................... 15
6.1 Indemnification Of Directors And Officers....................... 15
6.2 Indemnification Of Others....................................... 15
6.3 Payment Of Expenses In Advance.................................. 15
6.4 Indemnity Not Exclusive......................................... 16
6.5 Insurance Indemnification....................................... 16
6.6 Conflicts....................................................... 16
ARTICLE VII RECORDS AND REPORTS............................................. 16
7.1 Maintenance And Inspection Of Share Register.................... 16
7.2 Maintenance And Inspection Of Bylaws............................ 17
7.3 Maintenance And Inspection Of Other Corporate Records........... 17
7.4 Inspection By Directors......................................... 18
7.5 Annual Report To Shareholders; Waiver........................... 18
7.6 Financial Statements............................................ 18
7.7 Representation Of Shares Of Other Corporations.................. 19
ARTICLE VIII GENERAL MATTERS................................................. 19
8.1 Record Date For Purposes Other Than Notice And Voting........... 19
8.2 Checks; Drafts; Evidences Of Indebtedness....................... 19
8.3 Corporate Contracts And Instruments; How Executed.............. 20
8.4 Certificates For Shares......................................... 20
8.5 Lost Certificates............................................... 20
8.6 Construction; Definitions....................................... 20
ARTICLE IX AMENDMENTS...................................................... 21
9.1 Amendment By Shareholders....................................... 21
9.2 Amendment By Directors.......................................... 21
</TABLE>
(ii)
<PAGE>
BYLAWS
OF
DR. DEAN ONLINE, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Principal Office.
----------------
The Board of Directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the Board
of Directors shall fix and designate a principal business office in the State of
California.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 Place Of Meetings.
-----------------
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 Annual Meeting.
--------------
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the Board of Directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the second
Tuesday of April. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
<PAGE>
2.3 Special Meeting.
---------------
A special meeting of the shareholders may be called at any time by the
Board of Directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the Board of Directors may be held.
2.4 Notice Of Shareholders' Meetings.
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
-2-
<PAGE>
2.5 Manner Of Giving Notice; Affidavit Of Notice.
--------------------------------------------
Written notice of any meeting of shareholders shall be given either
(i) personally or (ii) by first-class mail or (iii) by third-class mail but only
if the corporation has outstanding shares held of record by five hundred (500)
or more persons (determined as provided in Section 605 of the Code) on the
record date for the shareholders' meeting, or (iv) by telegraphic or other
written communication. Notices not personally delivered shall be sent charges
prepaid and shall be addressed to the shareholder at the address of that
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 Quorum.
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 Adjourned Meeting; Notice.
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are
-3-
<PAGE>
announced at the meeting at which the adjournment is taken. However, if a new
record date for the adjourned meeting is fixed or if the adjournment is for more
than forty-five (45) days from the date set for the original meeting, then
notice of the adjourned meeting shall be given. Notice of any such adjourned
meeting shall be given to each shareholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of
these bylaws. At any adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting.
2.8 Voting.
------
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the articles of incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any shareholder entitled to vote on
any matter may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or, except when the matter is the election of
directors, may vote them against the proposal; but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively, it
will be conclusively presumed that the shareholder's approving vote is with
respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
-4-
<PAGE>
2.9 Validation Of Meetings; Waiver Of Notice; Consent.
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though taken at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 Shareholder Action By Written Consent Without A Meeting.
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors. However, a director may be elected at any
time to fill any vacancy on the Board of Directors, provided that it was not
created by removal of a director and that it has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have
-5-
<PAGE>
not consented in writing and shall be given in the manner specified in Section
2.5 of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, or (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
2.11 Record Date For Shareholder Notice, Voting, Or Giving Consents.
--------------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the Board of Directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 Proxies.
-------
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's attorney-in-
fact. A validly executed proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) the person who executed the
proxy revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
-6-
<PAGE>
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 Inspectors Of Election.
----------------------
Before any meeting of shareholders, the Board of Directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (l) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (l) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (l) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
-7-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to actions required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors.
3.2 Number Of Directors.
-------------------
The number of directors of the corporation shall be not less than
three (3) nor more than five (5). The exact number of directors shall be three
(3) until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the Board of Directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 Election And Term Of Office Of Directors.
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 Resignation And Vacancies.
-------------------------
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
-8-
<PAGE>
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 Place Of Meetings; Meetings By Telephone.
----------------------------------------
Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
if the times of such meetings are fixed by the Board of Directors.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
-9-
<PAGE>
Notice of the time and place of special meetings shall be delivered
personally or by telephone (including a voice messaging system or other system
or technology designed to record and communicate messages), facsimile,
electronic mail, or other electronic means, to each director or sent by first-
class mail or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telegram, facsimile, electronic mail or
other electronic means, it shall be delivered at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given personally
or by telephone, facsimile or electronic mail may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.8 Quorum.
------
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 Waiver Of Notice.
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors.
3.10 Adjournment.
-----------
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
-10-
<PAGE>
3.11 Notice Of Adjournment.
---------------------
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 Board Action By Written Consent Without A Meeting.
-------------------------------------------------
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 Fees And Compensation Of Directors.
----------------------------------
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 Approval Of Loans To Officers.
-----------------------------
The corporation may, upon the approval of the Board of Directors
alone, make loans of money or property to, or guarantee the obligations of, any
officer of the corporation or its parent or subsidiary, whether or not a
director, or adopt an employee benefit plan or plans authorizing such loans or
guaranties provided that (i) the Board of Directors determines that such a loan
or guaranty or plan may reasonably be expected to benefit the corporation, (ii)
the corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
----------
4.1 Committees Of Directors.
-----------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more
-11-
<PAGE>
directors, to serve at the pleasure of the board. The board may designate one
(1) or more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. The appointment of members or
alternate members of a committee requires the vote of a majority of the
authorized number of directors. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, except with
respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the Board
of Directors; or
(g) the appointment of any other committees of the Board of Directors
or the members of such committees.
4.2 Meetings And Action Of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
--------
-12-
<PAGE>
5.1 Officers.
--------
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the Board of Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 Election Of Officers.
--------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment. Any contract of employment with an
officer shall be unenforceable unless in writing and specifically authorized by
the Board of Directors.
5.3 Subordinate Officers.
--------------------
The Board of Directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the Board of Directors may
from time to time determine.
5.4 Removal And Resignation Of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the board or, except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies In Offices.
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 Chairman Of The Board.
---------------------
The chairman of the board, if such an officer is elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as
-13-
<PAGE>
may from time to time be assigned to him by the Board of Directors or as may be
prescribed by these bylaws. If there is no president, then the chairman of the
board shall also be the chief executive officer of the corporation and shall
have the powers and duties prescribed in Section 5.7 of these bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if there is such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
or She shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the Board of
Directors. The President shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
bylaws.
5.8 Vice Presidents.
---------------
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these bylaws,
the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required to be given by law or
by these bylaws. He or
-14-
<PAGE>
she shall keep the seal of the corporation, if any, in safe custody and shall
have such other powers and perform such other duties as may be prescribed by the
Board of Directors or by these bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president and directors, whenever they request
it, an account of all of his or her transactions as chief financial officer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
--------------------------------------------------
AND OTHER AGENTS
----------------
6.1 Indemnification Of Directors And Officers.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 Indemnification Of Others.
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of
-15-
<PAGE>
the corporation. For purposes of this Article VI, an "employee" or "agent" of
the corporation (other than a director or officer) includes any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 Payment Of Expenses In Advance.
------------------------------
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the articles of
incorporation.
6.5 Insurance Indemnification.
-------------------------
The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the articles of
incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
-16-
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance And Inspection Of Share Register.
--------------------------------------------
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either is appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14A with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 Maintenance And Inspection Of Bylaws.
------------------------------------
The corporation shall keep at its principal executive office or, if
its principal executive office is not in the State of California, at its
principal business office in California the original or a copy of these bylaws
as amended to date, which bylaws shall be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
-17-
<PAGE>
7.3 Maintenance And Inspection Of Other Corporate Records.
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the Board of Directors, and of any committee or committees of
the Board of Directors shall be kept at such place or places as are designated
by the Board of Directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and make extracts.
Such rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
7.4 Inspection By Directors.
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 Annual Report To Shareholders; Waiver.
-------------------------------------
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 Financial Statements.
--------------------
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred
-18-
<PAGE>
twenty (120) days after the close of such fiscal year, deliver or mail to the
person making the request, within thirty (30) days thereafter, a copy of a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause such statement or statements to be prepared, if
not already prepared, and shall deliver personally or mail such statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders its
annual report for the last fiscal year, the statements referred to in the first
paragraph of this Section 7.6 shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 Representation Of Shares Of Other Corporations.
----------------------------------------------
The chairman of the board, the president, any vice president, the
chief financial officer, the secretary or assistant secretary of this
corporation, or any other person authorized by the Board of Directors or the
president or a vice president, is authorized to vote, represent, and exercise on
behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by the person having such authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Record Date For Purposes Other Than Notice And Voting.
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding
-19-
<PAGE>
any transfer of any shares on the books of the corporation after the record date
so fixed, except as otherwise provided in the Code.
If the Board of Directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 Checks; Drafts; Evidences Of Indebtedness.
-----------------------------------------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.3 Corporate Contracts And Instruments; How Executed.
--------------------------------------------------
The Board of Directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 Certificates For Shares.
-----------------------
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the chairman of
the board or the vice chairman of the board or the president or a vice president
and by the chief financial officer or an assistant treasurer or the secretary or
an assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation
-20-
<PAGE>
and canceled at the same time. The Board of Directors may, in case any share
certificate or certificate for any other security is lost, stolen or destroyed,
authorize the issuance of replacement certificates on such terms and conditions
as the board may require; in such case, the board may require indemnification of
the corporation secured by a bond or other adequate security sufficient to
protect the corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement certificate.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Code shall govern the construction of
these bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 Amendment By Shareholders.
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the articles of
incorporation of the corporation set forth the number of authorized directors of
the corporation, then the authorized number of directors may be changed only by
an amendment of the articles of incorporation.
9.2 Amendment By Directors.
----------------------
Subject to the rights of the shareholders as provided in Section 9.1
of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing
the authorized number of directors (except to fix the authorized number of
directors pursuant to a bylaw providing for a variable number of directors), may
be adopted, amended or repealed by the Board of Directors.
-21-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
DR. DEAN ONLINE, INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the articles of incorporation to act as
the Incorporator of Dr. Dean Online, Inc. hereby adopts the foregoing bylaws,
comprising twenty-one (21) pages, as the Bylaws of the corporation.
Executed this 9th day of August, 1996.
/s/ Cathy Gudel
-----------------------------
Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of Dr. Dean Online, Inc., and that the foregoing
Bylaws, comprising twenty-one (21) pages, were adopted as the Bylaws of the
corporation on August 12, 1996, by the person appointed in the articles of
incorporation to act as the Incorporator of the corporation.
Executed this 12th day of August 1996.
/s/ Mark A. Medearis
-----------------------------
Mark A. Medearis, Secretary
-22-
<PAGE>
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
HEALTHCENTRAL.COM
The undersigned, being the duly acting and appointed Secretary of
HealthCentral.com, a California corporation, hereby certifies that the Bylaws of
this corporation were amended by a resolution duly adopted by the Board of
Directors at a meeting held on October 27, 1998, pursuant to which the second
sentence of Article III, Section 3.2 was amended to read as follows:
"The exact number of directors shall be five (5) until changed, within
the limits specified above, by a bylaw amending this Section 3.2, duly
adopted by the Board of Directors or by the shareholders."
Dated: October 27, 1998 /s/ Mark A. Medearis
------------------------------
Mark A. Medearis
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
HEALTHCENTRAL.COM
The undersigned, being the duly acting and appointed Secretary of
HealthCentral.com, a California corporation, hereby certifies that the Bylaws of
this corporation were amended by a resolution duly adopted by the Board of
Directors at a meeting held on December 3, 1998, pursuant to which the second
sentence of Article III, Section 3.2 was amended to read as follows:
"The number of directors of the corporation shall be not
less than four (4) or more than seven (7). The exact number
of directors shall be six (6) until changed, within the
limits specified above, by a bylaw amending this Section
3.2, duly adopted by the Board of Directors or by the
shareholders."
Dated: December 3, 1998 /s/ Mark A. Medearis
--------------------------
Mark A. Medearis
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
HEALTHCENTRAL.COM
The undersigned, being the duly acting and appointed Secretary of
HealthCentral.com, a California corporation, hereby certifies that the Bylaws of
this corporation were amended by a resolution duly adopted by the Board of
Directors at a meeting held on February 5, 1999, pursuant to which the
second sentence of Article III, Section 3.2 was amended to read as follows:
"The number of directors of the corporation shall be not
less than four (4) or more than seven (7). The exact number
of directors shall be seven (7) until changed, within the
limits specified above, by a bylaw amending this Section
3.2, duly adopted by the Board of Directors or by the
shareholders."
Dated: February 5, 1999 /s/ Mark A. Medearis
-------------------------
Mark A. Medearis
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
HEALTHCENTRAL.COM
The undersigned, being the duly acting and appointed Secretary of
HealthCentral.com, a California corporation, hereby certifies that the Bylaws of
this corporation were amended by a resolution duly adopted by the Board of
Directors at a meeting held on August 4, 1999, pursuant to which the
second sentence of Article III, Section 3.2 was amended to read as follows:
"The number of directors of the corporation shall be not
less than five (5) or more than nine (9). The exact number
of directors shall be nine (9) until changed, within the
limits specified above, by a bylaw amending this Section
3.2, duly adopted by the Board of Directors or by the
shareholders."
Dated: August 4, 1999 /s/ Mark A. Medearis
-------------------------
Mark A. Medearis
Secretary
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED BYLAWS
OF
HEALTHCENTRAL.COM, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES..................................... 5
1.1 Registered Office........................................ 5
1.2 Other Offices............................................ 5
ARTICLE II - MEETINGS OF STOCKHOLDERS............................. 5
2.1 Place of Meetings........................................ 5
2.2 Annual Meeting........................................... 1
2.3 Special Meeting.......................................... 3
2.4 Notice of Shareholder's Meeting; Affidavit of Notice..... 3
2.5 Advance Notice of Stockholder Nominees................... 3
2.6 Quorum................................................... 4
2.7 Adjourned Meeting; Notice................................ 4
2.8 Conduct of Business...................................... 4
2.9 Voting................................................... 5
2.10 Waiver of Notice........................................ 5
2.11 Record Date for Stockholder Notice; Voting.............. 5
2.12 Proxies................................................. 6
ARTICLE III - DIRECTOR............................................ 6
3.1 Powers................................................... 6
3.2 Number of Directors...................................... 6
3.3 Election, Qualification and Term of Office of Directors.. 6
3.4 Resignation and Vacancies................................ 6
3.5 Place of Meetings; Meetings by Telephone................. 7
3.6 Regular Meetings......................................... 8
3.7 Special Meetings; Notice................................. 8
3.8 Quorum................................................... 8
3.9 Waiver of Notice......................................... 8
3.10 Board Action by Written Consent without a Meeting....... 9
3.11 Fees and Compensation of Directors...................... 9
3.12 Approval of Loans to Officers........................... 9
3.13 Removal of Directors.................................... 9
3.14 Chairman of the Board of Directors...................... 10
ARTICLE IV - COMMITTEES........................................... 10
4.1 Committees of Directors.................................. 10
4.2 Committee Minutes........................................ 11
4.3 Meetings and Action of Committees........................ 11
ARTICLE V - OFFICERS.............................................. 11
5.1 Officers................................................. 11
5.2 Appointment of Officers.................................. 11
5.3 Subordinate Officers..................................... 11
5.4 Removal and Resignation of Officers...................... 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
5.5 Vacancies in Offices....................................................... 12
5.6 Chief Executive Officer.................................................... 16
5.7 President.................................................................. 16
5.8 Vice Presidents............................................................ 13
5.9 Secretary.................................................................. 13
5.10 Chief Financial Officer................................................... 17
5.11 Representation of Shares of Other Corporations............................ 18
5.12 Authority And Duties of Officers.......................................... 18
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.... 18
6.1 Indemnification of Directors and Officers.................................. 18
6.2 Indemnification of Others.................................................. 18
6.3 Payment of Expenses in Advance............................................. 19
6.4 Indemnity Not Exclusive.................................................... 19
6.5 Insurance.................................................................. 19
6.6 Conflicts.................................................................. 19
ARTICLE VII - RECORDS AND REPORTS................................................... 20
7.1 Maintenance and Inspection of Records...................................... 20
7.2 Inspection by Directors.................................................... 20
7.3 Annual Statement to Stockholders........................................... 20
ARTICLE VIII - GENERAL MATTERS...................................................... 21
8.1 Checks..................................................................... 21
8.2 Execution of Corporate Contracts and Instruments........................... 21
8.3 Stock Certificates; Partly Paid Shares..................................... 21
8.4 Special Designation on Certificates........................................ 22
8.5 Lost Certificates.......................................................... 22
8.6 Construction; Definitions.................................................. 22
8.7 Dividends.................................................................. 22
8.8 Fiscal Year................................................................ 23
8.9 Seal....................................................................... 23
8.10 Transfer of Stock......................................................... 23
8.11 Stock Transfer Agreements................................................. 23
8.12 Registered Stockholders................................................... 23
ARTICLE IX - AMENDMENTS............................................................. 23
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
HEALTHCENTRAL.COM, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is Corporation Trust Company.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 Annual Meeting.
--------------
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be transacted by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice with respect to such meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of the notice provided for in this
Section 2.2,
-5-
<PAGE>
who is entitled to vote at the meeting and who has complied with the notice
procedures set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for nominations or
other business to be properly brought before an annual meeting by a stockholder
pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder
must have given timely notice thereof in writing to the secretary of the
Corporation and such business must be a proper matter for stockholder action
under the General Corporation Law of Delaware. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 20 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 20th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (A) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (B) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
-6-
<PAGE>
2.3 Special Meeting.
---------------
(a) A special meeting of the stockholders may be called at any time by the
Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to such notice of meeting (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in Section 2.5, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in Section 2.5.
2.4 Notice of Stockholder's Meetings; Affidavit of Notice.
-----------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.5 Advance Notice of Stockholder Nominees.
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 60 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation which are beneficially owned by
-7-
<PAGE>
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act (including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and (ii)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 2.5. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
2.6 Quorum.
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (a) the chairman of the meeting or (b) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 Conduct of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
-8-
<PAGE>
2.9 Voting.
------
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 Record Date for Stockholder Notice; Voting.
------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board of Directors does not
so fix a record date:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-9-
<PAGE>
2.12 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 Number of Directors.
-------------------
The number of directors of the corporation shall be seven (7) until
changed by a bylaw amending this Section 3.2, duly adopted by the board of
directors or by the shareholders.
3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies.
-------------------------
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so
-10-
<PAGE>
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office as provided in this section in the
filling of other vacancies. A vacancy created by the removal of a director by
the vote of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the quorum. Each director so elected shall hold
office until the next annual meeting of the stockholders and until a successor
has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of the shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone.
----------------------------------------
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may
-11-
<PAGE>
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 Quorum.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
-12-
<PAGE>
3.9 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
3.10 Board Action by Written Consent without a Meeting.
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 Fees and Compensation of Directors.
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 Approval of Loans to Officers.
-----------------------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 Removal of Directors.
--------------------
-13-
<PAGE>
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 Chairman of the Board of Directors.
----------------------------------
The Corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series), (b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the
-14-
<PAGE>
Corporation or a revocation of a dissolution, or (e) amend the Bylaws of the
Corporation; and, unless the board resolution establishing the committee, the
Bylaws or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 Meetings and Action of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment of Officers.
-----------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 Subordinate Officers.
--------------------
-15-
<PAGE>
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 Vacancies in Offices.
--------------------
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
-16-
<PAGE>
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the Corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the
-17-
<PAGE>
financial condition of the Corporation, and shall have other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
5.11 Representation of Shares of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this Corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.
5.12 Authority and Duties of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of
the Corporation shall respectively have such authority and perform such duties
in the management of the business of the Corporation as may be designated from
time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 Indemnification of Directors and Officers.
-----------------------------------------
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification of Others.
-------------------------
The Corporation shall have the power, to the maximum extent and in
the manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
Corporation.
-18-
<PAGE>
For purposes of this Section 6.2, an "employee" or "agent" of the Corporation
(other than a director or officer) includes any person (a) who is or was an
employee or agent of the Corporation, (b) who is or was serving at the request
of the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (c) who was an employee or agent of
a corporation which was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor corporation.
6.3 Payment of Expenses in Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation
6.5 Insurance.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
-19-
<PAGE>
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Records.
-------------------------------------
The Corporation shall, either at its principal executive offices or
at such place or places as designated by the Board of Directors, keep a record
of its stockholders listing their names and addresses and the number and class
of shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors.
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the Corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement to Stockholders.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
-20-
<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon
-21-
<PAGE>
partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
8.4 Special Designation on Certificates.
-----------------------------------
If the Corporation is authorized to issue more than one class of
stock or more than one series of any class, then the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate that the
Corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or the owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 Dividends.
---------
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
-22-
<PAGE>
The directors of the Corporation may set apart out of any of the
funds of the Corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include but
not be limited to equalizing dividends, repairing or maintaining any property of
the Corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the Corporation shall be fixed by resolution of
the Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock.
-----------------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the Corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the Corporation may,
in its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact
-23-
<PAGE>
that such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
Bylaws.
-24-
<PAGE>
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
OF
HEALTHCENTRAL.COM, INC.
Certificate by Secretary of Adoption
------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of HealthCentral.com, Inc. (the "Company"), and that the
foregoing Bylaws were adopted by the board of directors of the Company as the
Amended and Restated Bylaws of the Company on September 23, 1999, to be
effective as of _____________, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this __ day
of ________________, 1999.
____________________________
Mark A. Medearis, Secretary
-25-
<PAGE>
EXHIBITS 10.1
HEALTHCENTRAL.COM
FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
August 27, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Registration Rights....................................................... 1
1.1 Definitions........................................................ 1
1.2 Request for Registration........................................... 2
1.3 Company Registration............................................... 4
1.4 Form S-3 Registration.............................................. 4
1.5 Obligations of the Company......................................... 5
1.6 Furnish Information................................................ 7
1.7 Expenses of Registration........................................... 7
1.8 Underwriting Requirements.......................................... 8
1.9 Delay of Registration.............................................. 8
1.10 Indemnification.................................................... 8
1.11 Reports Under Securities Exchange Act of 1934...................... 11
1.12 Assignment of Registration Rights.................................. 11
1.13 Limitations on Subsequent Registration Rights...................... 12
1.14 Market-Standoff Agreement.......................................... 12
1.15 Termination of Registration Rights................................. 13
2. Covenants of the Company.................................................. 13
2.1 Delivery of Financial Statements................................... 13
2.2 Inspection......................................................... 13
2.3 Right of First Offer............................................... 13
2.4 Termination of Covenants........................................... 15
3. Miscellaneous............................................................. 15
3.1 Successors and Assigns............................................. 15
3.2 Amendments and Waivers............................................. 15
3.3 Notices............................................................ 15
3.4 Severability....................................................... 16
3.5 Governing Law...................................................... 16
3.6 Counterparts....................................................... 16
3.7 Titles and Subtitles............................................... 16
3.8 Aggregation of Stock............................................... 16
3.9 Waiver of Right of First Offer and Amendment and Restatement of
Prior Rights Agreement............................................ 16
</TABLE>
-i-
<PAGE>
HEALTHCENTRAL.COM
FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------------
This First Amended and Restated Investors' Rights Agreement (the
"Agreement") is made as of the 27th day of August, 1999, by and among
---------
HealthCentral.com, a California corporation (the "Company"), the investors
-------
listed on Exhibits A1 and A2 hereto, as may be amended by the Company to add
------------------
Additional Purchasers (as defined in the Purchase Agreement) and the holders of
Common Stock listed on Exhibit B (the "Common Holders," and together with the
investors listed on Exhibits A1 and A2, the "Investors").
RECITALS
--------
The Company and certain of the Investors (the "Existing Investors") entered
------------------
into an Investor Rights Agreement dated December 23, 1998 (the "Prior Rights
------------
Agreement") in connection with the purchase of an aggregate of 810,000 shares of
- ---------
Series A Preferred Stock and the issuance of an aggregate of 388,800 shares of
Series A Preferred Stock issuable upon exercise of warrants to purchase Series A
Preferred Stock (the "Series A Shares"). The Company and certain of the
---------------
Investors (the "New Investors") are entering into a Series B Preferred Stock
-------------
Purchase Agreement (the "Purchase Agreement") of even date herewith pursuant to
------------------
which the Company desires to sell to the New Investors and the New Investors
desire to purchase from the Company shares of the Company's Series B Preferred
Stock. A condition to the New Investors' obligations under the Purchase
Agreement is that the Company and the Existing Investors and the Common Holders
amend and restate the Prior Rights Agreement in order to provide the New
Investors with (i) certain rights to register shares of the Company's Common
Stock issuable upon conversion of the Series B Preferred Stock purchased by the
Investors pursuant to the Purchase Agreement, as may be amended (the "Series B
--------
Shares"), (ii) certain rights to receive or inspect information pertaining to
- ------
the Company and (iii) a right of first offer with respect to certain issuances
by the Company of its securities.
AGREEMENT
---------
The parties hereby agree as follows:
1. Registration Rights. The Company and the Investors covenant and
-------------------
agree as follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
--------------
registration statement or document;
<PAGE>
(b) The term "Registrable Securities" means (i) the shares of
----------------------
Common Stock issuable or issued upon conversion of the Series A Shares and
Series B Shares, (ii) 5,435,744 shares of Common Stock issued to Dean Edell,
James Hornthal, Albert L. Greene, and Michael McDonald as of the date hereof
(the "Common Holders' Stock"), provided, however, that the Common Holders' Stock
--------------------- -------- -------
shall not be deemed to be Registrable Securities for the purposes of Sections
1.2, 1.4 and 1.13, (iii) shares of Common Stock issuable upon conversion of
shares of Series A Preferred Stock issuable on exercise of warrants to purchase
an aggregate of 9,800 shares of Series A Preferred Stock issued to William
Kirsch, Glen McLaughlin and David Campbell pursuant to warrants dated May 14,
1999 (the "Costella Kirsch Shares"), provided however that the Costella Kirsch
Shares shall not be deemed to be Registrable Securities for the purposes of
Sections 1.2, 1.4 and 1.13, and (iv) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the shares listed in
(i), (ii) or (iii); provided, however, that the foregoing definition shall
-------- -------
exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- -----------
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
------
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the Securities Act
--------
as in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange Commission;
---
and
(g) The term "Qualified IPO" means a firm commitment
-------------
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, in which the Pre-
Money Valuation (as defined in the Company's Articles of Incorporation) is at
least $125 million and in which the aggregate cash proceeds to the Company (net
of underwriting discounts and commissions) are at least $15,000,000.
1.2 Request for Registration.
------------------------
-2-
<PAGE>
(a) If the Company shall receive at any time after the earlier
of (i) January 1, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or an SEC Rule 145 transaction), a written request from the Holders
of fifty percent (50%) of the Registrable Securities then outstanding that the
Company file a registration statement under the Securities Act covering the
registration of all of their Registrable Securities then outstanding and with
anticipated aggregate proceeds in excess of $15,000,000, then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within 60
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
------------------
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
-------- -------
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not
-3-
<PAGE>
more than 120 days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more than once in
- -------- -------
any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder of at
least 250,000 shares of Registrable Securities, as adjusted for stock splits,
stock dividends and the like (a "Major Investor") written notice of such
--------------
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.3,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
1.4 Form S-3 Registration. In case the Company shall receive from any
---------------------
Major Investor a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Major
Investor, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale
-4-
<PAGE>
and distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 15 days after receipt
of such written notice from the Company; provided, however, that the Company
-------- -------
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for
such offering by the Holders; (ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than 120 days after receipt of the request of the Holder or
Holders under this Section 1.4; provided, however, that the Company shall not
-------- -------
utilize this right more than once in any twelve month period; (iv) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two registrations on Form S-3 for the Holders pursuant
to this Section 1.4; (v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance;
or (vi) during the period ending one hundred eighty (180) days after the
effective date of a registration statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days. The
Company shall not be required to file, cause to become effective or maintain the
effectiveness of any registration statement that contemplates a distribution of
securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to
-5-
<PAGE>
the disposition of all securities covered by such registration statement for up
to one hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
- --------
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters
-6-
<PAGE>
in an underwritten public offering, addressed to the underwriters, if any, and
to the Holders requesting registration of Registrable Securities.
1.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.4(b)(2), whichever is applicable.
1.7 Expenses of Registration.
------------------------
(a) Demand Registration. All expenses other than underwriting
-------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders selected by the Holders of
a majority of the Registrable Securities to be registered with the approval of
the Company, which approval shall not be unreasonably withheld, shall be borne
by the Company; provided, however, that the Company shall not be required to pay
-------- -------
for any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
(b) Company Registration. All expenses other than underwriting
--------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Section 1.3 for each Holder
(which right may be assigned as provided in Section 1.12), including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders selected by the Holders of a majority of the Registrable Securities to
be registered with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company.
(c) Registration on Form S-3. All expenses incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by the Holders of a
-7-
<PAGE>
majority of the Registrable Securities to be registered with the approval of the
Company, which approval shall not be unreasonably withheld, and counsel for the
Company, and any underwriters' discounts or commissions associated with
Registrable Securities, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30 %) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case, the selling shareholders may be excluded entirely if the underwriters make
the determination described above and no other shareholder's securities are
included, or (ii) any of the Costella Kirsch Shares be included if any
Registrable Securities other than the Costella Kirsch Shares are excluded, or
(iii) any shares of Common Holders' Stock be included if any Registrable
Securities other than the shares of Common Holders' Stock and Costella Kirsch
Shares are excluded. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder that is a Holder of Registrable
Securities and that is a partnership or corporation, the partners, retired
partners and shareholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder," and
-------------------
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
-8-
<PAGE>
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
------------
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
---------
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) 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 (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will pay to
each such Holder, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable to any Holder, underwriter or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
-------- -------
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
--------
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
-9-
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
-------- -------
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
--------
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
-10-
<PAGE>
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to (i) a transferee
or assignee of all of such Holder's Registrable Securities, (ii) another Holder
of Registrable Securities who prior to such assignment or transfer held
Registrable Securities, (iii) a transferee or assignee of at least ten percent
(10%) of the Company's securities outstanding at the time of such transfer or
assignment, or (iv) an affiliated limited partnership, limited partner, general
partner or other affiliate of a Major Investor, provided the Company is, within
--------
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
-------- -------
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act, and provided, further, that in any such
-------- -------
transfer or assignment such transferee or assignee shall not be a person
-11-
<PAGE>
or entity reasonably deemed by the Company to be a competitor of the Company.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under Section 1.
1.13 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.14 Market-Standoff Agreement.
-------------------------
(a) Market-Standoff Period; Agreement. In connection with a
---------------------------------
public offering of the Company's securities and upon request of the Company or
the underwriters managing such offering of the Company's securities, each Holder
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of such public offering.
(b) Limitations. The obligations described in Section 1.14(a)
-----------
shall apply only if all officers and directors of the Company enter into similar
agreements, and shall not apply to a registration relating solely to employee
benefit plans, or to a registration relating solely to a transaction pursuant to
Rule 145 under the Securities Act.
(c) Stop-Transfer Instructions. In order to enforce the
--------------------------
foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of each Holder (and the securities of every other
person subject to the restrictions in Section 1.14(a)).
(d) Transferees Bound. Each Holder agrees that it will not
-----------------
transfer securities of the Company unless each transferee agrees in writing to
be bound by all of the
-12-
<PAGE>
provisions of this Section 1.14, provided that this Section 1.14(d) shall not
--------
apply to transfers pursuant to a registration statement.
1.15 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after the earlier of (i)
five (5) years following the consummation of a Qualified IPO, or (ii) such time
as Rule 144 or another similar exemption under the Securities Act is available
for the sale of all of such Holder's shares during a three (3)-month period
without registration.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Major Investor (other than a Major Investor reasonably deemed by the
Company to be a competitor of the Company):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
----
and certified by an independent public accounting firm of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within thirty (30)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, a statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of such
fiscal quarter; and
(c) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget for the next fiscal year,
prepared on a monthly basis.
2.2 Inspection. The Company shall permit each Major Investor (except
----------
for a Major Investor reasonably deemed by the Company to be a competitor of the
Company), at such Holder's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
-------- -------
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information.
2.3 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.3, the Company hereby grants to each Major Investor
a right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.3, a Major Investor
includes any general partners and affiliates of a Major Investor. A Major
Investor who chooses to exercise the right of first offer may designate as
purchasers under such right itself or its partners or affiliates (other than a
person or entity reasonably deemed by the Company to be a competitor of the
Company) in such proportions as it deems appropriate.
-13-
<PAGE>
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
------
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
------
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice, the
Major Investors may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issued or issuable upon
conversion and exercise of all convertible or exercisable securities then held,
by such Major Investor bears to the total number of shares of Common Stock then
issued or issuable upon conversion and exercise of all convertible or
exercisable securities.
(c) The Company may, during the 45-day period following the
expiration of the period provided in subsection 2.3(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Holders in accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors, (ii) to or after consummation of
a Qualified IPO, (iii) to the issuance of securities pursuant to the conversion
or exercise of convertible or exercisable securities, (iv) to the issuance of
securities in connection with a bona fide acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, (v) to the issuance of securities to financial institutions or other
lenders or lessors in connection with loans, leases, equipment financings, or
similar transactions, (vi) to the issuance or sale of the Series B Shares, (vii)
to the issuance of securities in connection with research and development
partnerships, licensing or collaborative arrangements and similar transactions
approved by the Board of Directors, or (viii) to the issuance of securities
that, with unanimous approval of the Board of Directors of the Company, are not
offered to any existing shareholder of the Company.
2.4 Termination of Covenants.
------------------------
(a) The covenants set forth in this Section 2 shall terminate as
to each Holder and be of no further force or effect upon the earlier of the
following dates: (i) immediately prior to the consummation of a Qualified IPO,
(ii) when the Company shall sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or
-14-
<PAGE>
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which the shareholders of the Company immediately prior thereto own less than
a majority of the outstanding shares of voting stock of the Company (or its
successor or parent) immediately thereafter, provided that this subsection (ii)
shall not apply to a merger effected exclusively for the purpose of changing the
domicile of the Corporation, or (iii) when the Company first becomes subject to
the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series A Shares, Series B Shares or
any Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding, not including the
Common Holders' Stock; provided that if such amendment would reasonably affect
the Common Holders' Stock (i) in a manner different than the Registrable
Securities other than the shares of Common Holders' Stock and (ii) in a manner
adverse to the interests of the holders of the Common Holders' Stock, then such
amendment shall require the consent of the holder or holders of a majority of
the Common Holders' Stock. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and the
Company.
3.3 Notices. Unless otherwise provided, any notice required or
-------
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or by facsimile
transmission (as evidenced by sender's confirmation receipt), or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, and addressed to the party to be notified at such
party's address or fax number as set forth below or on exhibits attached hereto
--------
or as subsequently modified by written notice.
3.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
-15-
<PAGE>
3.5 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
3.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.8 Aggregation of Stock. All shares of the Preferred Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
3.9 Waiver of Right of First Offer and Amendment and Restatement of
---------------------------------------------------------------
Prior Rights Agreement. Pursuant to Section 3.2 of the Prior Rights Agreement,
- ----------------------
the Company and the undersigned holders of the requisite majority of Registrable
Securities needed to amend the Prior Rights Agreement, do hereby (i) waive the
Right of First Offer (including any notice provision) contained in Section 2.3
of the Prior Rights Agreement with respect to the issuance of the Series B
Shares and (ii) hereby amend and restate the Prior Rights Agreement to read in
its entirety as set forth in this Agreement.
[Signature Page Follows]
-16-
<PAGE>
The parties have executed this First Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
HEALTHCENTRAL.COM
By: /s/ Albert L. Greene
------------------------------------
Albert L. Greene, President
Address: Marketplace Tower
6001 Shellmound Street
Suite 800
Emeryville, CA 94608
Fax: (510) 250-2701
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
NEW INVESTORS:
INTERWEST PARTNERS VII, L.P.
By: Member of InterWest Management Partners
VII, L.L.C., the General Partner of
InterWest Partners VII, L.P.
By: /s/ Gilbert H. Klimon
------------------------------------------
(Signature)
Name: Gilbert H. Klimon
----------------------------------------
(Printed Name)
INTERWEST INVESTORS VII, L.P.
By: Member of InterWest Management
Partners VII, L.L.C., the General Partner
of InterWest Investors VII, L.P.
By: /s/ Gilbert H. Klimon
------------------------------------------
(Signature)
Name: Gilbert H. Klimon
----------------------------------------
(Printed Name)
Delphi Ventures IV, L.P.
By: Delphi Management Partners IV, L.L.C.
General Partner
By: /s/ David Douglas
------------------------------------------
Managing Member
Name: David Douglas
----------------------------------------
(Printed Name)
Delphi BioInvestments IV, L.P.
By: Delphi Management Partners IV, L.L.C.
General Partner
By: /s/ David Douglas
------------------------------------------
Managing Member
Name: David Douglas
----------------------------------------
(Printed Name)
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MedVen Affiliates III, L.P.
/s/ Annette Campbell-White
-----------------------------------------
By: Annette Campbell-White, Managing
Member of MedVenture Associates
Management III, Co., LLC, the General Partner
of MedVen Affiliates III, L.P.
MedVen Affiliates III, L.P.
/s/ Annette Campbell-White
-----------------------------------------
By: Annette Campbell-White, Managing
Member of MedVenture Associates
Management III, Co., LLC, the General Partner
of MedVen Affiliates III, L.P.
ANGEL INVESTORS, L.P.
By: Angel Management, LLC its general partner
/s/ J. Casey McGlynn
-----------------------------------------
J. Casey McGlynn, Member
ANGEL (Q) INVESTORS, L.P.
By: Angel Management, LLC its general partner
/s/ J. Casey McGlynn
-----------------------------------------
J. Casey McGlynn, Member
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
Alta California Partners II, L.P.
By: Alta California Management Partners II, L.P.
By: /s/ Guy Nohra
--------------------------------------
General Partner
Name: Guy Nohra
------------------------------------
(Printed Name)
Alta Embarcadero Partners II, LLC
By: /s/ Guy Nohra
--------------------------------------
Member
Name: Guy Nohra
------------------------------------
(Printed Name)
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
VLG INVESTMENTS 1999
By: /s/ Elias Blaurie
------------------------------------
Name: Elias Blaurie
-------------------------------
Title:
------------------------------
/s/ Mark A. Medearis
---------------------------------------
Mark A. Medearis
CNA TRUST COMPANY, TTEE VLG
401(K) PLAN FBO LAUREL FINCH
By: /s/ CNA Trust Co.
------------------------------------
Name:
-------------------------------
Title:
------------------------------
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
/s/ C. Fred Toney
------------------------------------
C. Fred Toney
TENET HEALTHCARE CORPORATION
By: /s/ Jeffrey C. Barbakow
---------------------------------
Name: Jeffrey C. Barbakow
-------------------------------
(print)
Title: CEO
------------------------------
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
/s/ Margaret L. Taylor
------------------------------------
Margaret L. Taylor
/s/ Christopher Lenzo
------------------------------------
Christopher Lenzo
DAVID A. DUFFIELD TRUST
By: /s/ David A Duffield
-------------------------------
Name: David A. Duffield
--------------------------
(print)
Title:
-------------------------
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
CLOUSER FAMILY INVESTMENT
PARTNERSHIP, LLP
By: /s/ Christopher E. Clouser
-------------------------------
Name: Christopher E. Clouser
Title: General Partner
MARK L. VORSATZ AND LIZ VORSATZ
REVOKABLE TRUST
By: /s/ Mark L. Vorsatz
-------------------------------
Name: Mark L. Vorsatz
Title: Trustee
/s/ Janice Lehrer-Stein
----------------------------------
Janice Lehrer-Stein
/s/ Leonard R. Stein
----------------------------------
Leonard R. Stein
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
COSTELLA KIRSCH HOLDERS:
/s/ William Kirsch
----------------------------------
William Kirsch
/s/ Glen McLaughlin
----------------------------------
Glen McLaughlin
/s/ David Campbell
----------------------------------
David Campbell
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
EXISTING INVESTORS:
/s/ Albert L. Greene
-------------------------------------
Albert L. Greene
/s/ James Hornthal
-------------------------------------
James Hornthal
HORNTHAL LIVING TRUST
By: /s/ James Hornthal
----------------------------------
Name: James Hornthal
--------------------------------
(print)
Title: Trustee
-------------------------------
/s/ William S. Broadbent
-------------------------------------
William S. Broadbent
/s/ Robert R. Broadbent
-------------------------------------
Robert R. Broadbent
/s/ Kevin Castner
-------------------------------------
Kevin Castner
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
INVESTORS:
/s/ Colonel Swan
-------------------------------------
Colonel Swan
DAVID S. POTTRUCK, TEE, DAVID S. POTTRUCK
CRT #3 UTD 7/27/97
By: /s/ David Pottruck
----------------------------------
Name: David Pottruck
--------------------------------
(print)
Title: Trustee
-------------------------------
THOMAS W. CARDY FAMILY TRUST
By: /s/ T. W. Cardy
----------------------------------
Name: T. W. Cardy
--------------------------------
(print)
Title: Trustee
-------------------------------
/s/ Philipp Hornthal
-------------------------------------
Philipp Hornthal
/s/ Sheila Hornthal
-------------------------------------
Sheila Hornthal
LEO B. AND FLORENCE HELZEL LIVING TRUST
By: /s/ Leo Helzel
----------------------------------
Name: Leo Helzel
--------------------------------
(print)
Title: Trustee
-------------------------------
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
INVESTORS:
HELZEL KIRSHMAN L.P.
By: /s/ Leo Helzel
----------------------------------
Name: Leo Helzel
--------------------------------
(print)
Title: G.P
-------------------------------
/s/ Robin Wolaner
-------------------------------------
Robin Wolaner
EAST PEAK PARTNERS
C/O JGE CAPITAL MANAGEMENT
By: /s/ Jeff Edwards
----------------------------------
Name: Jeff Edwards
--------------------------------
(print)
Title:
-------------------------------
/s/ James W. Fordyce
-------------------------------------
James W. Fordyce
ROBERT SAMUEL TANDLER,
AS TRUSTEE UTA DD 4/30/90
By: /s/ Robert Samuel Tandler
----------------------------------
Name: Robert Samuel Tandler
--------------------------------
(print)
Title:
-------------------------------
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
<PAGE>
INVESTORS:
/s/ John Porter
________________________________________
John Porter
/s/ Wesley D. Sterman
________________________________________
Wesley D. Sterman
/s/ Sheryle J. Bolton
________________________________________
Sheryle J. Bolton
/s/ Stephen Shane
________________________________________
Stephen Shane
COMMON HOLDERS:
/s/ Michael D. McDonald
________________________________________
Michael D. McDonald
/s/ Dean Edell
________________________________________
Dean Edell
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
EXHIBIT A1
----------
Schedule of New Investors
<TABLE>
<CAPTION>
Series Aggregate Purchase
------------------
Name B Shares Price Per Share Price
---- -------- --------------- -----
<S> <C> <C> <C>
InterWest Partners VII, L.P. 735,846 $6.50 $4,782,999.00
InterWest Investors VII, L.P. 33,385 $6.50 $217,002.50
InterWest Partners
3000 Sand Hill Road
Building Three, Suite 255
Menlo Park, CA 94025
Delphi Venture IV, L.P. 753,693 $6.50 $4,899,004.50
Delphi BioInvestments IV, L.P. 15,538 $6.50 $100,997.00
Delphi Ventures
3000 Sand Hill Road
Building One, Suite 135
Menlo Park, CA 94025
MedVenture Associates III, L.P. 516,493 $6.50 $3,357,204.50
MedVen Affiliates III, L.P. 21,969 $6.50 $142,798.50
MedVenture Associates
Four Ordina Way
Building D, Suite 150
Ordina, CA 94563
Tenet Healthcare Corporation 307,692 $6.50 $1,999,998.00
3820 State Street
Santa Barbara, CA 93105
Alta California Partners II, L.P. 455,780 $6.50 2,962,570.00
Alta Embarcadero Partners II, LLC 5,758 $6.50 37,427.00
Alta Partners
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series Aggregate Purchase
------------------
Name B Shares Price Per Share Price
---- -------- --------------- -----
<S> <C> <C> <C>
East Peak Partners 69,231 $6.50 $450,001.50
c/o JGE Capital Management, LLC
555 Montgomery Street, Suite 850
San Francisco, CA 94111
Angel Investors, L.P. 25,501 $6.50 $165,756.50
Angel (Q) Investors, L.P. 20,653 $6.50 $134,244.50
Angel Investors
c/o Casey McGlynn
650 Page Mill Road
Palo Alto, CA 94304
David S. Pottruck, ttee, David S. Pottruck 46,153 $6.50 $299,994.50
CRT #3, utd 7/27/97
3501 Jackson Street
San Francisco, CA 94118
C. Fred Toney 48,923 $6.50 $317,999.50
3383 Clay Street
San Francisco, CA 94118
Richard Osgood 11,800 $6.50 $ 76,700.00
c/o Pacific Growth Equities, Inc.
4 Maritime Plaza
San Francisco, CA 94111
Steven J. Massocca 6,200 $6.50 $ 40,300.00
c/o Pacific Growth Equities, Inc.
4 Maritime Plaza
San Francisco, CA 94111
John Coleman, Jr. 4,500 $6.50 $ 29,250.00
c/o Pacific Growth Equities, Inc.
4 Maritime Plaza
San Francisco, CA 94111
John Murray 4,500 $6.50 $ 29,250.00
c/o Pacific Growth Equities, Inc.
4 Maritime Plaza
San Francisco, CA 94111
James W. Newman 1,000 $6.50 $ 6,500.00
c/o Pacific Growth Equities, Inc.
4 Maritime Plaza
San Francisco, CA 94111
Hornthal Living Trust 15,384 $6.50 $ 99,996.00
Preview Travel
747 Front Street
San Francisco, CA 94111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series Aggregate Purchase
--------------------
Name B Shares Price Per Share Price
---- -------- --------------- -----
<S> <C> <C>
William S. Broadbent 15,384 $6.50 <C> $ 99,996.00
c/o Lehman Brothers, Inc.
3 World Financial Center, 21st Floor
New York, NY 10285
Wesley D. Sterman 15,384 $6.50
2122 Sacramento Street $ 99,996.00
Apt. 604
San Francisco, CA 94109
Al Greene 7,692 $6.50
3819 Cottonwood Drive $ 49,998.00
Danville, CA 94506
Margaret L. Taylor 7,692 $6.50
40 Kentfield Court $ 49,998.00
Alamo, CA 94507
Christopher Lenzo 7,692 $6.50
1 Sansome Street $ 49,998.00
Suite 2900
San Francisco, CA 94104
David A. Duffield Trust 7,692 $6.50
c/o Nevada Pacific Consulting $ 49,998.00
796 Lakeshore
Incline Village, NV 89450
VLG Investments 1999 3,846 $6.50
Attn: Elias Blawie $ 24,999.00
2800 Sand Hill Road
Menlo Park, CA 94025
Mark Medearis 1,846 $6.50
c/o Venture Law Group $ 11,999.00
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Elias Blawie
CNA Trust Company, TTEE VLG 462 $6.50
401(K) Plan FBO Laurel Finch $ 3,003.00
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Total 3,167,689
========= $20,589,978.50
==============
</TABLE>
<PAGE>
EXHIBIT A2
----------
Schedule of Existing Investors
<TABLE>
<CAPTION>
Series A Series A
Name Shares Warrant Shares
---- ------ --------------
<S> <C> <C>
Hornthal Living Trust 40,000 19,200
c/o James J. Hornthal
Preview Travel
747 Front Street
San Francisco, CA 94111
Albert L. Greene 10,000 4,800
3819 Cottonwood Drive
Danville, CA 94506
William S. Broadbent 100,000 48,000
c/o Lehman Brothers, Inc.
3 World Financial Center, 21st Floor
New York, NY 10285
Robert R. Broadbent 20,000 9,600
Tower City Center
2900 Terminal Tower
Cleveland, OH 44113-2204
Kevin Castner 30,000 14,400
c/o Merrill Lynch
580 California Street
San Francisco, CA 94104
Colonel Swan 40,000 19,200
Brand Optical Corp.
33971 Selva Road, Suite 260
Dana Point, CA 92629
David S. Pottruck, ttee, David S. Pottruck CRT 50,000 24,000
#3, utd 7/27/97
3501 Jackson Street
San Francisco, CA 94118
Thomas W. Cardy Family Trust 10,000 4,800
c/o Thomas W. Cardy
Communications Equity Associates
101 E. Kennedy Blvd.
Tampa, FL 33602
Philipp and Sheila Hornthal 10,000 4,800
4135 Yorkshire Lane
Northbrook, IL 60062
Leo B. and Florence Helzel Living Trust 100,000 48,000
c/o Leo Helzel
5550 Redwood
Oakland, CA 94619
Helzel Kirshman L.P 100,000 48,000
c/o Lawrence Helzel
5550 Redwood Road
Oakland, CA 94619
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series A Series A
Name Shares Warrant Shares
---- ------ --------------
<S> <C> <C>
Robin Wolaner 20,000 9,600
2240 Hyde Street, Apt. 9
San Francisco, CA 94109
East Peak Partners 160,000 76,800
c/o JGE Capital Management, LLC
555 Montgomery Street, Suite 850
San Francisco, CA 94111
James W. Fordyce 10,000 4,800
539 Danbury Road
Wilton, CA 06897-2216
Robert Samuel Tandler, Trustee 20,000 9,600
Fritzi Realty
199 First Street
San Francisco, CA 94105
John Porter 20,000 9,600
2112 Hyde Street, Apt. 4
San Francisco, CA 94109
Wesley D. Sterman 60,000 28,800
2122 Sacramento Street
Apt. 604
San Francisco, CA 94109
Sheryle J. Bolton and Stephen Shane 10,000 4,800
5576 Glenbrook Drive
Oakland, CA 94618
--------------- ----------------
TOTALS 810,000 388,800
</TABLE>
<PAGE>
EXHIBIT B
---------
Common Holders
<TABLE>
<CAPTION>
Common
Name Shares
---- ------
<S> <C>
Dean Edell 1,844,000
c/o KGO
900 Front Street
San Fransicso, CA 94111
James Hornthal 1,844,000
Preview Travel
747 Front Street
San Francisco, CA 94111
Al Greene
3819 Cottonwood Drive 63,926
Danville, CA 94506
Michael McDonald
10604 Crossing Creek Road 1,683,818
Potomac, MD 20854
C. Fred Toney
3383 Clay Street 250,000
San Francisco, CA 94118
Total 5,685,744
</TABLE>
<PAGE>
EXHIBIT 10.3
HEALTHCENTRAL.COM
AMENDED AND RESTATED 1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an Option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns an equity interest.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any Stock Exchange and the
applicable laws of any other country or jurisdiction where Options are granted
under the Plan.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Change in Control" means a sale of all or substantially all of
-----------------
the Company's assets, or a merger, consolidation or other capital reorganization
of the Company with or into another corporation; provided however that a merger,
consolidation or other capital reorganization in which the holders of more than
50% of the shares of capital stock of the Company outstanding immediately prior
to such transaction continue to hold (either by the voting securities remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the total voting power represented by the voting
securities of the Company, or such surviving entity, outstanding immediately
after such transaction shall not constitute a Change in Control.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means the Committee appointed by the Board of
---------
Directors to administer the Plan in accordance with Section 4 below.
(h) "Common Stock" means the Common Stock of the Company.
------------
(i) "Company" means HealthCentral.com, a California corporation.
-------
<PAGE>
(j) "Consultant" means any person, including an advisor, who renders
----------
services to the Company, or any Parent, Subsidiary or Affiliate, and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(k) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
a period of not more than 90 days, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Parent(s), Affiliates, Subsidiaries or their respective successors. For purposes
of this Plan, a change in status from an Employee to a Consultant or from a
Consultant to an Employee will not constitute an interruption of Continuous
Status as an Employee or Consultant.
(l) "Director" means a member of the Board.
--------
(m) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent, Subsidiary or Affiliate of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a director shall not be sufficient to constitute "employment"
of such director by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(o) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
-2-
<PAGE>
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
(q) "Listed Security" means any security of the Company which is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(r) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means a written agreement between an Optionee
----------------
and the Company reflecting the terms of an Option granted under the Plan and
includes any documents attached to such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
(u) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(w) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(x) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(y) "Plan" means this 1998 Stock Plan.
----
(z) "Reporting Person" means an officer, director, or greater than
----------------
10% shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(aa) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 10 below.
(bb) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between a holder of a Stock Purchase Right and the Company reflecting the terms
of a Stock Purchase Right granted under the Plan and includes any documents
attached to such agreement.
-3-
<PAGE>
(cc) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(ee) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(ff) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(gg) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 2,400,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option expires or
becomes unexercisable for any reason without having been exercised in full, or
is surrendered pursuant to an Option Exchange Program, the unpurchased Shares
that were subject thereto shall, unless the Plan shall have been terminated,
become available for future grant under the Plan. In addition, any Shares of
Common Stock that are retained by the Company upon exercise of an Option or
Stock Purchase Right in order to satisfy the exercise or purchase price for such
Option or Stock Purchase Right or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan. Shares repurchased by the Company pursuant to any repurchase right
that the Company may have shall not be available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
grants under the Plan may be made by different bodies with respect to Directors,
non-Director officers and Employees or Consultants who are not Reporting
Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, such grants shall be made by (A) the Board if the Board may
make grants to Reporting Persons under the Plan in compliance with Rule 16b-3,
or (B) a Committee designated by the Board to
-4-
<PAGE>
make grants to Reporting Persons under the Plan, which Committee shall be
constituted in such a manner as to permit grants under the Plan to comply with
Rule 16b-3. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly make grants to Reporting Persons under the
Plan, all to the extent permitted by Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
- ---------
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights or any combination thereof may from time to time be
granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
-5-
<PAGE>
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(g) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees; provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Purchase Right
may, if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
(b) Type of Option. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) At-Will Relationship. The Plan shall not confer upon the holder
--------------------
of any Option or Stock Purchase Right any right with respect to continuation of
employment or consulting relationship with the Company, nor shall it interfere
in any way with such holder's
-6-
<PAGE>
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board and
set forth in the Option Agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any other eligible person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in
-7-
<PAGE>
the case of an Incentive Stock Option, shall be determined at the time of grant)
and may consist entirely of (1) cash, (2) check, (3) promissory note, (4)
cancellation of indebtedness, (5) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (6) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (7) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (8) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (9) any combination of the foregoing methods of
payment, or (10) such other consideration and method of payment for the issuance
of Shares to the extent permitted under the Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator and reflected in the Option Agreement, which
may include vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however, that any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become exercisable at the rate of at least 20% per year over five years from the
date the Option is granted. In the event that any of the Shares issued upon
exercise of an Option (which exercise occurs prior to the date, if any, upon
which the Common Stock becomes a Listed Security) should be subject to a right
of repurchase in the Company's favor, such repurchase right shall lapse at the
rate of at least 20% per year over five years from the date the Option is
granted. Notwithstanding the above, in the case of an Option granted to an
officer, Director or Consultant of the Company or any Parent or Subsidiary of
the Company, the Option may become fully exercisable, or a repurchase right, if
any, in favor of the Company shall lapse, at any time or during any period
established by the Administrator. The Administrator shall have the discretion
to determine whether and to what extent the vesting of Options shall be tolled
during any unpaid leave of absence; provided however that in the absence of such
determination, vesting of Options shall be tolled during any such leave.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the
-8-
<PAGE>
Option and the Company has received full payment for the Shares with respect to
which the Option is exercised. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 8(b) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, not withstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three months (or such other period of time not less than 30 days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan. No termination shall be deemed to occur and this Section 9(b) shall
not apply if (i) the Optionee is a Consultant who becomes an Employee, or (ii)
the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of
-9-
<PAGE>
total and permanent disability (as set forth in Section 22(e)(3) of the Code),
such Optionee may, but only within six months from the date of such termination
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. However, to the extent
that such Optionee fails to exercise an Option which is an Incentive Stock
Option (within the meaning of Section 422 of the Code) within three months of
the date of such termination, the Option will not qualify for Incentive Stock
Option treatment under the Code. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or if the Optionee
does not exercise such Option to the extent so entitled within six months from
the date of termination, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within 30 days following termination of the
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six months following the date of death (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), by such Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of the Optionee's Continuous Status as an Employee or
Consultant. To the extent that the Optionee was not entitled to exercise the
Option at the date of death or termination, as the case may be, or if the
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 10(b), 10(c)
and 10(d) above or in the Option Agreement to such greater time as the Board
shall deem appropriate, provided, that in no event shall such option be
exercisable later than the date of expiration of the term of such Option as set
forth in the Option Agreement.
(f) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(g) Buy-Out Provisions. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time such offer is made.
-10-
<PAGE>
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer, or, in the case of
a person owning stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
price shall not be less than 100% of the Fair Market Value of the Shares as of
the date of the offer), and the time within which such person must accept such
offer, which shall in no event exceed 30 days from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
offer shall be accepted by execution of a Restricted Stock Purchase Agreement in
the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to an Optionee
who is not an officer, director or Consultant of the Company or of any Parent or
Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
-11-
<PAGE>
combination of the following methods: (a) by cash or check payment, (b) out of
the Optionee's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to or less than the amount required to be
withheld, or (d) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, or the Shares to be issued in connection
with the Stock Purchase Right, if any, that number of Shares having a Fair
Market Value equal to the amount required to be withheld. For this purpose, the
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined (the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or
-12-
<PAGE>
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent it has not been
previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Change in Control. In the event of a Change in Control, each
-----------------
outstanding Option or Stock Purchase Right shall be assumed or an equivalent
option or right shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation, unless such successor corporation does
not agree to assume the outstanding Options or Stock Purchase Rights or to
substitute equivalent options or rights, in which case the vesting of such
Option or stock obtainable upon exercise of any Stock Purchase Right outstanding
or previously granted under the Plan, shall automatically be accelerated in full
such that the Option shall be exercisable as to 100% of the Shares or the
Company's Repurchase Option shall terminate as to 100% of the Shares, as
applicable, upon the consummation of the Change of Control transaction.
For purposes of this Section 12(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon such Change in Control, each
holder of an Option or Stock Purchase Right would be entitled to receive upon
exercise of the Option or Stock Purchase Right the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 12); provided however that if such consideration received in the
Change in Control was not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
Option to be solely common stock of the successor corporation or its Parent
equal to the Fair Market Value of the per Share consideration received by
holders of Common Stock in the transaction.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator
-13-
<PAGE>
may, in its discretion, appropriately adjust the price per Share of Common Stock
covered by each outstanding Option or Stock Purchase Right to reflect the effect
of such distribution.
13. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee or the holder of Stock Purchase Rights only by the Optionee or
holder of Stock Purchase Rights; provided however that, after the date, if any,
upon which the Common Stock becomes a Listed Security, the Administrator may in
its discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying (i) the manner in which such Nonstatutory Stock Options
are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option or Stock Purchase Right may be exercised,
during the lifetime of the holder of the Option or Stock Purchase Right, only by
such holder or a transferee permitted by this Section 13.
14. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board; provided,
however, that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the determination
shall be given to each Employee or Consultant to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as
-14-
<PAGE>
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written Option Agreements and Restricted Stock Purchase Agreements,
respectively, in such form(s) as the Administrator shall approve from time to
time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve months before or after
the date the Plan is adopted. Such shareholder approval shall be obtained in the
degree and manner required under applicable state and federal law and the rules
of any Stock Exchange upon which the Common Stock is listed. All Options and
Stock Purchase Rights issued under the Plan shall become void in the event such
approval is not obtained.
20. Information and Documents to Optionees and Purchasers. The Company
-----------------------------------------------------
shall provide financial statements at least annually to each Optionee and to
each individual who acquired Shares pursuant to the Plan, during the period such
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares. The Company shall
not be required to provide such information if the issuance of Options or Stock
Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee or the purchaser a copy of the Plan and any
agreement(s) pursuant to which securities granted under the Plan are issued.
-15-
<PAGE>
HEALTHCENTRAL.COM
1998 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Address:
You have been granted an option to purchase Common Stock "Common Stock" of
------------
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date:
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting):
Vesting Commencement Date:
Exercise Price per Share:
Total Number of Shares Granted:
Total Exercise Price:
Type of Option: Incentive Stock Options
Nonstatutory Stock Options
__
Term/Expiration Date:
Vesting Schedule: This Option may be exercised,
in whole or in part, in
accordance with the following
schedule: 1/48 of the total
number of Shares subject to
the Option shall vest on the
monthly anniversary of the
Vesting Commencement Date.
Termination Period: This Option may be exercised for
30 days after termination of
employment or consulting
relationship except as set out in
Sections 6 and 7 of the Stock
Option Agreement (but in no event
later than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1998 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
HEALTHCENTRAL.COM
________________________ By:______________________
Signature
________________________ ______________________
Print Name Print Name and Title
<PAGE>
HEALTHCENTRAL.COM
1998 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. HealthCentral.com, a California corporation (the
---------------
"Company"), hereby grants to ____________ ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the HealthCentral.com 1998 Stock Plan (the "Plan")
----
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a
share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by
------------------
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
--------- ------------------
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the Shares
shall be considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash or check;
(b) cancellation of outstanding indebtedness;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six months on the date of surrender,
and (ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Exchange Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the Exercise
Price.
4. Restrictions on Exercise. This Option may not be exercised until
------------------------
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at such Termination Date, or if Optionee does not exercise this
Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the
<PAGE>
Expiration Date set forth in the Notice of Stock Option Grant), exercise this
Option to the extent Optionee was entitled to exercise it as of such Termination
Date. To the extent that Optionee was not entitled to exercise the Option as of
the Termination Date, or if Optionee does not exercise such Option (to the
extent so entitled) within the time specified in this Section 6(a), the Option
shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the Fair Market Value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option at
the Termination Date, or if Optionee does not exercise such Option to the extent
so entitled within the time specified in this Section 6(b), the Option shall
terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
<PAGE>
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case, the
long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 20% if the Shares are held more than
one year after exercise. If Shares purchased under an Incentive Stock Option are
disposed of within one year after exercise or within two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (i) the Fair Market Value of the
Shares on the date of exercise, or (ii) the sale price of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations. Optionee understands that, upon
---------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then Fair Market Value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to 6 months if Optionee is subject to Section 16 of the
Exchange Act. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation, or collect from Optionee and pay to the
applicable
<PAGE>
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if
permitted by the Administrator, in its discretion, by surrendering to the
Company Shares which (i) in the case of Shares previously acquired from the
Company, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal to
or greater than Optionee's marginal tax rate times the ordinary income
recognized, or (d) by electing to have the Company withhold from the Shares to
be issued upon exercise of the Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. For this purpose, the Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
--------
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
-------
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature Page Follows]
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
HEALTHCENTRAL.COM
By:______________________
______________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
NAME OF OPTIONEE
<PAGE>
EXHIBIT A
---------
HEALTHCENTRAL.COM
1998 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
HealthCentral.com, a California corporation (the "Company"), and ____________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1998 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $______________ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
-------------------
of Shares to be transferred to each Proposed Transferee; and (iv) the terms and
conditions of each proposed sale or transfer. The Holder shall offer the Shares
at the same price (the "Offered Price") and upon the same terms (or terms as
-------------
similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time
----------------------------------
within 30 days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price")
-------------- --------------
for the Shares purchased by the Company or its assignee(s) under this Section
3(a) shall be the Offered Price. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration shall
be determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made,
-------
at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) Exception for Certain Family Transfers. Anything to
--------------------------------------
the contrary contained in this Section 3(a) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by will
or intestacy to Purchaser's Immediate Family (as defined below) or a trust for
the benefit of Purchaser's Immediate Family shall be exempt from the provisions
of this Section 3(a). "Immediate Family" as used herein shall mean spouse,
----------------
lineal descendant or antecedent, father, mother, brother or sister. In such
case, the transferee or other recipient shall receive and hold the Shares so
transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section 3.
<PAGE>
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(b)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such
<PAGE>
period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO, OR IN CONNECTION
<PAGE>
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION
OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
<PAGE>
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
HEALTHCENTRAL.COM
By:________________________________
Name:______________________________
(print)
Title:_____________________________
PURCHASER:
___________________________________
(Signature)
___________________________________
(Print Name)
Address:___________________________
I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
___________________________________
Spouse of
<PAGE>
EXHIBIT 10.6
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Common Stock Purchase Agreement (the "Agreement") is made as of August
---------
30, 1996 by and between Dr. Dean Online, Inc., a California corporation (the
"Company"), and ________________("Purchaser").
------- ---------
1. Sale of Stock. Subject to the terms and conditions hereof, on the
-------------
Closing Date (as defined below) the Company will issue and sell to Purchaser,
and Purchaser agrees to purchase from the Company, ____________shares of the
Company's Common Stock (the "Shares") at a purchase price of ___________ per
------
Share for a total purchase price of ___________. The term "Shares" refers to
the purchased Shares and all securities received in replacement of or in
connection with the Shares pursuant to stock dividends or splits, all Shares
received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Closing. The closing of the purchase and sale of the Shares hereunder
-------
(the "Closing") shall be held at the principal office of the Company
-------
simultaneously with the execution of this Agreement by the parties or at such
other time and place as the Company and Purchaser shall agree (the "Closing
-------
Date"). At the Closing, the Company will deliver to Purchaser a certificate
- ----
representing the Shares to be purchased by Purchaser (which shall be issued in
Purchaser's name) in exchange for Purchaser's consent to the assignment by News
Travel Network ("NTN") to the Company of its rights under Section 2.2 of that
certain Distribution Agreement, dated October 1, 1995, between NTN and
Purchaser.
3. Limitations on Transfer. Purchaser shall not assign, encumber or
-----------------------
dispose of any interest in the Shares except in compliance with the provisions
below and applicable securities laws.
(a) Right of First Refusal. If, at any time after the date of this
----------------------
Agreement, Purchaser or Purchaser's transferee desires to sell or transfer
Shares, Purchaser shall first offer such Shares for sale to the Company by means
of a written notice (the "Transfer Notice") stating the name, address and phone
---------------
number of each proposed transferee and the terms and conditions upon which
Purchaser proposes to dispose of such Shares. For a period of thirty (30) days
following receipt by the Company of the Transfer Notice, the Company shall have
a right to purchase such Shares upon the same terms as (or terms as similar as
reasonably possible to) the terms contained in the Transfer Notice (the "Right
-----
of First Refusal"). If the Company desires to exercise the Right of First
- ----------------
Refusal, it shall so notify Purchaser in writing within such thirty day period.
In the event the Shares are not disposed of on the terms proposed in the
Transfer Notice within thirty (30) days following the lapse of the Right of
First Refusal, or if at any time Purchaser proposes to change the price or other
terms to make them more favorable to the buyer, then the Shares shall once again
be subject to the Right of First Refusal.
(b) Involuntary Transfer. In the event, at any time after the date of
--------------------
this Agreement, of any transfer by operation of law or other involuntary
transfer (including death or divorce) of all or a portion of the Shares by the
record holder thereof, (i) the person acquiring the
<PAGE>
Shares shall promptly notify the Secretary of the Company of such transfer and
(ii) the Company shall have an option, for a period of thirty (30) days
following receipt of such notice, to purchase all of the Shares so transferred.
The price per Share shall be set by the Board of Directors of the Company to
reflect the current value of the Shares in terms of present earnings and future
prospects of the Company. The decision of the Board of Directors as to the
purchase price shall be final.
(c) Assignment. The Company's right to purchase any Shares may be
----------
assigned in whole or in part to any shareholder or shareholders of the Company
or other persons or organizations.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the requirements of this Agreement are met.
(e) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate at such time as a Public Market exists for the Company's capital
stock (or any other stock issued in exchange for the Shares purchased under this
Agreement). For the purpose of this Agreement, a "Public Market" shall be
-------------
deemed to exist if (i) such stock is listed on a national securities exchange
(as that term is used in the Securities Exchange Act of 1934, as amended) or
(ii) such stock is traded on the over-the-counter market and prices are
published daily on business days in a recognized financial journal. Upon
termination of the Right of First Refusal, a new certificate or certificates
representing the Shares not repurchased shall be issued, on request, without the
legend referred to in Section 5(b) below and delivered to Purchaser.
(f) Lockup. Notwithstanding the foregoing, Purchaser and Purchaser's
------
transferees will not, without the prior written consent of the Company, offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
any of the Shares for a period of 180 days following the effectiveness of a
registration statement under the Securities Act of 1933, as amended, in
connection with the Company's initial public offering of securities.
(g) Exempt Transfers. The restrictions on transfer of this Section 3
----------------
shall not apply to a transfer of Shares to Purchaser's ancestors or descendants
or spouse or to a trustee for their benefit, provided that such transferees
shall agree in writing to take such Shares subject to all the terms of this
Agreement, including restrictions on further transfer.
4. Investment Representations. In connection with the purchase of the
--------------------------
Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for Purchaser's own account only and not
with a view to, or for resale in connection with,
-2-
<PAGE>
any "distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
--------------
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Shares. Purchaser understands that the certificate evidencing the
Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
(d) Purchaser is aware of the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain of the conditions specified by
Rule 144, including, among other things: (1) the sale being made through a
broker in an unsolicited "brokers transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable.
In the event that the Company does not qualify under Rule 701, then the
Shares may be resold in certain limited circumstances subject to the provisions
of Rule 144, which requires among other things: (1) the resale occurring not
less than two years after the party has purchased, and made full payment for,
within the meaning of Rule 144, the Shares to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the Shares less than three years,
(2) the availability of certain public information about the Company, (3) the
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as such term is defined under the
Securities Exchange Act of 1934), and (4) the amount of securities being sold
during any three month period not exceeding the specified limitations stated
therein, if applicable. Purchaser further acknowledges that payment for the
Shares with a promissory note is not deemed payment unless the note is secured
by assets other than the Shares.
(e) Purchaser further understands that at the time Purchaser wishes
to sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser will be precluded from selling the Shares under Rule 144
even if the two-year minimum holding period had been satisfied.
-3-
<PAGE>
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 and Rule 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A or some other
registration exemption will be required; and that, notwithstanding the fact that
Rule 701 and Rule 144 are not exclusive, the staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 701 and Rule 144 will have a substantial burden of proof
in establishing that an exemption from registration is available for such offers
or sales and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
5. Legends. The certificate or certificates representing the Shares shall
-------
bear the following legends (as well as any legends required by applicable state
and federal corporate and securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in
-4-
<PAGE>
writing signed by the parties to this Agreement. The failure by either party to
enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (x) such
provision shall be excluded from this Agreement, (y) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (z) the
balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(h) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-5-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
first set forth above.
Dr. Dean Online, Inc.
By: ____________________________________
Title:__________________________________
ADDRESS:
747 Front Street
San Francisco, CA 94111
PURCHASER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL
CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT
OR CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY
WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
___________________________
________________________________________
ADDRESS:
________________________________________
________________________________________
-6-
<PAGE>
EXHIBIT 10.7
[HAMBRECHT & QUIST LETTERHEAD]
March 22, 1999
Albert Greene
President and Chief Executive Officer
HealthCentral, Inc.
2600 Tenth Street
Berkeley, CA 94710
Dear Al:
Hambrecht & Quist LLC ("Hambrecht & Quist" or the "Placement Agent") is pleased
to represent HealthCentral.com ("HealthCentral" or the "Company") as its
exclusive placement agent in connection with the proposed private placement of a
new issue of preferred stock or a similar financial security (the "Securities").
This letter sets forth the terms and conditions under which the Company and
Hambrecht & Quist agree to work in connection with the proposed sale of the
Securities.
Exclusive Agency; Best Efforts
Hambrecht & Quist will use its best efforts to place approximately $15.0 million
of the Securities at a price to which the Company and Hambrecht & Quist shall
mutually agree. The Company will not offer any of the Securities for sale to, or
solicit any offers to buy from, any person or persons, whether directly or
indirectly, otherwise than through Hambrecht & Quist; provided, however, that
under no circumstances shall Hambrecht & Quist be liable for failure to obtain
or produce the proposed financing.
Fees and Expenses
The Company will pay Hambrecht & Quist an initial retainer of $25,000 upon
receiving an appropriate amount of bridge financing to be mutually agreed upon
by the Company and Hambrecht & Quist. This retainer is nonrefundable but shall
be credited against any further fees payable to Hambrecht & Quist as part of
this engagement. In addition, the Company will promptly reimburse Hambrecht &
Quist upon request for all of its reasonable out-of-pocket expenses, including
the reasonable fees and expenses of counsel to the Placement Agent not in excess
of $35,000. As is customary in private placements, the Company will also pay the
fees and expenses of one counsel for the purchasers of the Securities up to a
maximum amount which shall be agreed between the Company and the lead
purchasers. Finally, the Company agrees to indemnify Hambrecht & Quist in
accordance with the Standard Form of Indemnification Agreement set forth as
Exhibit A hereto.
As compensation for its services as Placement Agent hereunder, the Company will
pay to Hambrecht & Quist at each closing for the sale of Securities a cash fee
to 6.0% of the value of the Securities sold at such closing, together with
warrants equal in value to 2.0% of the Securities sold at such closing;
provided, however, that the minimum aggregate cash consideration, if any, to be
paid to Hambrecht & Quist in connection with this engagement shall not be less
than $350,000.
In the event the Company enters into a strategic transaction involving a
significant portion of the equity of the Company instead of, or in addition to,
completing the proposed private placement, the Company agrees to pay Hambrecht &
Quist a cash fee for its services equal to the greater of (i) the fee Hambrecht
& Quist would have earned for the proposed private placement (subject to the
limitations contained in this letter) or (ii) a fee for acting as financial
advisor to the Company in connection with such strategic transaction (such fee
to be consistent with market practice for such services when provided by
nationally recognized investment banking firms).
Confidential Private Placement Memorandum
The Company hereby authorizes the Placement Agent to transmit to the prospective
purchasers of the Securities a Confidential Private Placement Memorandum with
attached exhibits and such supplements as may from time to time be prepared or
approved by the Company (collectively, the "Memorandum"). The Memorandum will
contain information and financial data concerning the Company and will be
prepared, reviewed, and approved by the management of the Company. The documents
comprising the Memorandum are
<PAGE>
the only documents that are to be delivered to the prospective purchasers by
Hambrecht & Quist and the Company in connection with the offering of the
Securities.
The Company agrees that the Memorandum will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company will advise Hambrecht & Quist
immediately of the occurrence of any event or any other change known to the
Company which results in the Memorandum containing an untrue statement of a
material fact or omitting to state a material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. The Company agrees
that Hambrecht & Quist shall be entitled to rely upon all reports of the Company
and information, whether written or oral, supplied to Hambrecht & Quist by or on
behalf of the Company, and Hambrecht & Quist shall not in any respect to be
responsible for the accuracy or completeness of any such report or information
or assume any obligation to verify the same. Hambrecht & Quist will not make any
representation to any person which is materially different from the information
contained in the Memorandum.
Termination
This agreement may be terminated by the Company or Hambrecht & Quist, with or
without cause, effective 5 days following receipt by the non-terminating party
of written notice of such termination. Any such termination shall not (except as
otherwise provided herein) affect the compensation, reimbursement, right of
first refusal or indemnification provisions set forth herein, all of which will
remain in full force and effect. In addition, if any person introduced to the
Company by Hambrecht & Quist during the term of this engagement purchases
Securities during the 9-month period following termination of this agreement,
the Company shall pay Hambrecht & Quist upon the closing of such sale, a cash
fee equal to the amount of the cash fee that would be payable had this agreement
not been terminated.
Miscellaneous
Notwithstanding its engagement as placement agent hereunder, Hambrecht & Quist
may not, without its prior written consent, be quoted or referred to in any
document, release or communication prepared, issued or transmitted by the
Company (including any entity controlled by, or under common control with, the
Company and any director, officer, employee or agent thereof).
Following completion of this engagement, Hambrecht & Quist shall have the right
to place advertisements in financial and other newspapers and journals at its
own expense describing its services to the Company hereunder.
This agreement shall be binding upon the Company, Hambrecht & Quist and their
respective successors and assigns and shall be governed and construed in
accordance with the laws of the State of California without giving effect to the
conflicts of laws principles thereof.
If the foregoing correctly sets forth our understanding, please so indicate by
executing this letter, together with the enclosed duplicate originals, in the
space indicated and returning two (2) of these originals for our files. By so
doing, the Company represents and warrants that it has obtained, or within 15
calendar days will obtain, Board of Directors' or other approval of this
agreement necessary to cause this agreement to be duly authorized, executed and
delivered by the Company.
2
<PAGE>
We look forward to working with you and your management team to conclude a
successful financing.
Cordially,
HAMBRECHT & QUIST LLC
/s/ E. EVANS STRANTON
---------------------------------
By: E. Evans Stranton
Title: Managing Director
Accepted and agreed as of March 22, 1999:
HealthCentral.com
/s/ AL GREENE
---------------------------------
By: President
3
<PAGE>
EXHIBIT A
HAMBRECHT & QUIST LLC
Standard Form of Indemnification Agreement
The following provisions regarding indemnification are an integral part of the
letter agreement (the "Letter Agreement") to which they are attached between
Hambrecht & Quist LLC (the "Placement Agent") and the Company named therein.
Capitalized terms used but not defined below have the meanings given to them in
the Letter Agreement.
Indemnification by the Company
In connection with the services which the Placement Agent has agreed to render
to the Company in the Letter Agreement, the Company shall indemnify the
Placement Agent, each of its directors, officers, employees, and agents and each
person, if any, who controls the Placement Agent within the meaning of Section
15 of the Securities Act of 1933, as amended (the "Act") (collectively, the
Placement Agent), and hold the Placement Agent harmless to the fullest extent
permitted by law against any and all losses, claims, damages, and liabilities
(and actions in respect thereof) to which the Placement Agent may become subject
in connection with (i) the Placement Agent's use of information contained in the
Memorandum that is materially inaccurate or alleged to be materially inaccurate
in any respect (as a result of misrepresentation, omission, failure to update or
otherwise) that is provided to the Placement Agent by the Company or its
representatives, agents, or advisors, regardless of whether the Placement Agent
knew or should have known of such inaccuracy, (ii) the breach of any
representation, warranty or covenant of the Company contained in the Letter
Agreement, or (iii) any other aspect of the rendering by the Placement Agent of
services under the Letter Agreement, unless it is finally judicially determined
that losses, claims, damages, or liabilities relating thereto were incurred
solely as a result of the bad faith, intentional wrongdoing or willful
misconduct of the Placement Agent. Notwithstanding the foregoing, the Company
shall not be required to indemnify the Placement Agent for matters for which the
Company is indemnified by the Placement Agent hereafter.
Indemnification by the Placement Agent
The Placement Agent shall indemnify the Company and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, and hold such
person harmless to the fullest extent permitted by law, against any and all
losses, claims, damages, and liabilities (and actions in respect thereof) to
which such person may become subject if such loss, claim, damage, liability or
action arises out of or is based upon (i) any untrue statement of a material
fact contained in the Memorandum (as amended or supplemented) or the omission to
state therein a material fact necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Placement Agent specifically for
inclusion therein, or (ii) any known violation by the Placement Agent of the
provisions of Rule 502(c) of Regulation D.
Notice of Indemnification
Each party hereto agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it, or upon
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnify may be
sought hereunder, it will promptly give written consent notice (the "Notice") of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification otherwise provided for hereunder
shall be available to any party who shall fail so to give the notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnify agreement.
Defense by Indemnifying Party
Any indemnifying party shall be entitled at its own expense to participate in
the defense of any action, suit or proceeding against, or investigation or
inquiry of, an indemnified party. Any indemnifying party shall be entitled, if
it so elects by giving written notice (the "Notice of Defense") to the
indemnified party within a reasonable time after receipt of the Notice, to
assume (alone or in conjunction with any other indemnifying party or parties)
the entire defense of such action, suit, investigation, inquiry or
4
<PAGE>
proceedings, in which event such defense shall be conducted at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties, and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense.
If, within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense, and counsel chosen by the indemnifying party or
parties is reasonable satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(x) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding paragraph, and (y) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
the receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding. The indemnifying party shall
not be liable for settlement of any such action effected without its written
consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action, the indemnifying party shall
indemnify with respect to such settlement or judgment.
Contribution if Indemnification Not Available
If for any reason the foregoing indemnity is unavailable to the indemnified
party or insufficient to hold the indemnified party harmless, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such claims, liabilities, losses, damages or
expenses, in such proportions as is appropriate to reflect not only the relative
benefits received by the indemnifying party, on the one hand, and the
indemnified party, on the other hand, but also the relative fault of the
indemnifying party and the indemnified party, as well as any relevant equitable
considerations. Notwithstanding any contrary provisions in this agreement, the
aggregate contribution of the Placement Agent to all claims, liabilities,
losses, damages, and expenses shall not exceed the amount of fees actually
received by the Placement Agent pursuant to its engagement by the Company. It is
hereby further agreed that the relative benefits to the Company, on the one
hand, and Placement Agent, on the other hand, with respect to the transaction
contemplated in the Letter Agreement shall be deemed to be in the same
proportion as (i) the net proceeds actually received by the Company resulting
from the sale of the Securities bears to (ii) the fees paid to Placement Agent
with respect to such sale. The indemnifying party agrees that its
indemnification commitments herein set forth shall apply whether or not the
indemnified party is a formal party to any such actions or proceedings, that
such commitments shall be in addition to any liability that the indemnifying
party may have to the indemnified party at common law or otherwise, and that
such commitments shall survive any termination of the Letter Agreement.
Survival and Effect
This indemnity agreement and the representations and warranties of the parties
contained in the Letter Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of the Placement Agent, and
shall survive any termination of such Letter Agreement or the issuance and
delivery of the Securities.
5
<PAGE>
EXHIBIT 10.8
HEALTHCENTRAL.COM
CONSULTING AGREEMENT
--------------------
This Consulting Agreement (the "Agreement") is entered into by and between
---------
HealthCentral.com (the "Company") and Dr. Michael D. McDonald ("Consultant").
------- ----------
This Agreement is entered into in connection with and is ancillary to an
Agreement and Plan of Reorganization (the "Plan") dated as of May 6, 1999 among
----
Company, HC Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Company ("Merger Sub"), and Windom Health Enterprises, a
----------
California corporation ("Windom"), pursuant to which Merger Sub is to merge with
------
and into Windom, Merger Sub will continue as the surviving corporation in the
merger, and the shares of Windom capital stock outstanding immediately prior to
the effective time of the merger will be converted into shares of Company Common
Stock, all as set forth in the Plan (the "Merger"). The date on which the
------
Merger becomes effective will be the effective date of this Agreement (the
"Effective Date").
--------------
Consultant is the owner of a majority of the shares of capital stock of
Windom and has been actively involved in the development and/or marketing of
Company's products. Company intends to continue the business of Windom after
the Merger and integrate such business into Company's ongoing business. To
preserve and protect the assets of Windom, including Windom's goodwill,
customers and trade secrets of which Consultant has and will have knowledge in
Consultant's role as a consultant of Company and to preserve and protect
Company's goodwill and business interests going forward, and in consideration
for Company's entering into and performing under the Plan, Consultant has agreed
to enter into this Agreement.
In addition, as required by and defined in Section 6 below, Consultant is
concurrently herewith entering into a Proprietary Information Agreement and a
Non-Competition Agreement in favor of Company designed to protect Company's
proprietary rights.
1. Consulting Relationship. Beginning on the Effective Date and ending on
-----------------------
the date that is three years after the Effective Date (subject to earlier
termination as set forth in Section 1(c) below), Consultant will provide
consulting services to the Company as described on Exhibit A attached to this
---------
Agreement (the "Consultancy"). Consultant shall use Consultant's best efforts
-----------
to perform the consulting services in a manner satisfactory to the Company.
(a) Fees; Support. As consideration for the consulting services to be
-------------
provided by Consultant, the Company will pay Consultant a monthly fee of Five
Thousand Dollars ($5,000.00) for his provision of services during the term of
the Consultancy (and after the term of the Consultancy to the extent provided in
Section 7 herein). As additional consideration for the services, the Company
will provide Consultant with such support facilities and space as may be
required in the Company's judgment to enable Consultant to properly perform the
services.
<PAGE>
(b) Independent Contractor. During the Consultancy, Consultant's
----------------------
relationship with the Company will be that of an independent contractor and not
that of an employee. Consultant will not be eligible for any employee benefits,
nor will the Company make deductions from payments made to Consultant for taxes,
all of which will be Consultant's responsibility. Consultant agrees to
indemnify and hold the Company harmless from any liability for, or assessment
of, any such taxes imposed on the Company by relevant taxing authorities.
(c) Termination. Either party may terminate the Consultancy at any
-----------
time upon ten (10) days' written notice.
(d) Bonus. The Company will pay Consultant a bonus in the amount of
-----
Eighty Five Thousand Dollars ($85,000.00) in respect of certain past due
compensation and loan amounts owed by Windom to Consultant, at the later of (i)
the closing of the Company's sale of Series B Preferred Stock, or (ii) the
Effective Date.
2. Expenses. The Company will reimburse Consultant for reasonable
--------
expenses actually incurred in connection with his performance of services as a
consultant, and evidenced by his submission of receipts.
3. Supervision of Consultant's Services. Any services in addition to
------------------------------------
those specified on Exhibit A that are to be performed by Consultant will be as
agreed between Consultant and the Company's Chief Executive Officer. Consultant
will be required to report to the Company's Chief Executive Officer concerning
the services performed under this Agreement. The nature and frequency of these
reports will be left to the discretion of the Chief Executive Officer.
4. Place of Employment. During the term of this Agreement, Consultant
-------------------
shall render his services from any location of Consultant's choosing.
Consultant shall do such traveling as shall be reasonably necessary in
connection with his duties and responsibilities hereunder.
5. Confidentiality Agreement and Non-Competition Agreement. Consultant
-------------------------------------------------------
shall sign, or has signed, a Confidential Information and Invention Assignment
Agreement substantially in the form attached to this Agreement as Exhibit B (the
---------
"Proprietary Information Agreement"), and a Non-Competition Agreement in the
---------------------------------
form attached as Exhibit C (the "Non-Competition Agreement") prior to or on the
--------- --------------- ---------
date on which Consultant's consulting relationship with the Company commences.
6. Conflicts with this Agreement. Consultant represents and warrants that
-----------------------------
Consultant is not under any pre-existing obligation in conflict or in any way
inconsistent with the provisions of this Agreement. Consultant warrants that
Consultant has the right to disclose or use all ideas, processes, techniques and
other information, if any, which Consultant has gained from third parties, and
which Consultant discloses to the Company in the course of performance of this
Agreement, without liability to such third parties. Consultant represents and
warrants that Consultant has not granted any rights or licenses to any
intellectual property or technology that
-2-
<PAGE>
would conflict with Consultant's obligations under this Agreement. Consultant
will not knowingly infringe upon any copyright, patent, trade secret or other
proprietary right of any former client, employer or third party in the
performance of the services required by this Agreement.
7. Severance. If, during the period beginning on the Effective Date and
---------
ending on the date that is three years after the Effective Date (the "Severance
---------
Period"), the Company terminates Consultant's Consultancy without Cause (as
- ------
defined below), and does not release Consultant from the continuing obligations
under the Non-Competition Agreement, Consultant will be entitled to receive
continued payment of his monthly base salary on a monthly basis for each
remaining month in the Severance Period (subject to proration for any remaining
partial month) (the "Severance"), subject to Consultant's continued compliance
---------
with all the terms of the Proprietary Information Agreement, the Non-Competition
Agreement and the surviving terms of this Agreement. In addition, Consultant
may waive his right to receive the Severance payment, in which case the Company
shall release Consultant from his obligations to the Company under the Non-
Competition Agreement.
8. Definition of "Cause." As used in this Agreement, the term "Cause"
--------------------
shall mean:
(a) Consultant personally engaging in knowing and intentional illegal
conduct which is seriously injurious to Company or its affiliates;
(b) Consultant being convicted of a felony, or committing an act of
dishonesty or fraud against, or the misappropriation of property belonging to,
Company or its affiliates;
(c) The performance by Consultant of those acts identified in Section
2924 of the California Labor Code;
(d) Consultant knowingly and intentionally breaching any material
term of this Agreement, the Proprietary Information or the Non-Competition
Agreement;
(e) Consultant's failure to cease providing services to a person or
entity that the Company reasonably deems to be a competitor of the Company
within two weeks after receipt of written notice that the Company reasonably
deems such person or entity to be a competitor; or
(f) any material breach by Consultant of any material provision of
this Agreement, the Proprietary Information Agreement or the Non-Competition
Agreement which continues uncured for 30 days following notice thereof.
9. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the parties.
-3-
<PAGE>
(b) Sole Agreement. This Agreement, including the Exhibits hereto,
--------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(c) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(e) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(f) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(g) Arbitration. Any dispute or claim arising out of or in
-----------
connection with any provision of this Agreement, will be finally settled by
binding arbitration in Alameda County, California in accordance with the rules
of the American Arbitration Association by one arbitrator appointed in
accordance with said rules. The arbitrator shall apply California law, without
reference to rules of conflicts of law or rules of statutory arbitration, to the
resolution of any dispute. Judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Notwithstanding the
foregoing, the parties may apply to any court of competent jurisdiction for
preliminary or interim equitable relief, or to compel arbitration in accordance
with this paragraph, without breach of this arbitration provision. This
subsection shall not apply to the Proprietary Information Agreement.
(h) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING
-----------------
THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF
INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY
PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
-4-
<PAGE>
(i) Surviving Terms. Sections 5, 8 and 9 of this Agreement shall
---------------
survive the termination of this Agreement for any reason or no reason. The
Proprietary Information Agreement and Non-Competition Agreement shall survive
the termination of this Agreement.
[Signature Page Follows]
-5-
<PAGE>
The parties have executed this Agreement on the respective dates set forth
below.
HEALTHCENTRAL.COM
By: /s/ Albert L. Greene
______________________________________
Name: Albert L. Greene
_________________________________
Title: CEO
________________________________
Address: 6001 Shellmound Street, Suite 800
Emeryville, CA 94608
Date:____________________________________
/s/ Michael D. McDonald
_________________________________________
Dr. Michael D. McDonald
Address: 10604 Crossing Creek Road
Potomac, MD 20854
Date: August 12, 1999
____________________________________
EXHIBIT A
---------
DESCRIPTION OF CONSULTING SERVICES
----------------------------------
Consultant will spend 25 hours per month performing services for the
Company, during which he will assist in strategic development of the Company, in
particular the development of corporate alliances and website functionality to
enable consumers to use the website within the broader context virtual health
management. Service in addition to such 25 hours per month will be as agreed
between the Company and Consultant, and Consultant will be paid $200 per hour
for such additional services
SIGNATURE PAGE TO HEALTHCENTRAL.COM CONSULTING AGREEMENT
<PAGE>
EXHIBIT B
---------
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
-----------------------------------------------------------
-7-
<PAGE>
HEALTHCENTRAL.COM
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
-----------------------------------------------------------
In exchange for my becoming retained as a consultant or director (or my
consulting or director relationship being continued), by HealthCentral.com, a
California corporation, or its subsidiaries, affiliates, or successors
(collectively, the "Company") and in consideration of my receipt of shares of
-------
capital stock in the Company in connection with a merger (the "Merger") of a
------
wholly-owned subsidiary of the Company with and into Windom Health Enterprises
("Windom"), I hereby agree as follows:
------
1. Inventions. As used in this Agreement, the term "Inventions" means
---------- ----------
designs, trademarks, discoveries, formulae, processes, manufacturing techniques,
trade secrets, inventions, developments, original works of authorship, concepts,
know-how, improvements, and ideas, whether or not patentable or registrable
under copyright or similar laws, including all rights to obtain, register,
perfect and enforce these proprietary interests.
2. Confidential Information. As used in this Agreement, the term
------------------------
"Confidential Information" means information pertaining to any aspects of the
------------------------
Company's business, including but not limited to its research, technical data,
products, services, plans for products or services, customers and potential
customers, markets and marketing, finances, financial projections, employees
(including employee compensation), patents, patent applications, developments,
inventions, processes, designs, drawings, engineering, formulae, scientific or
other information, business plans, and agreements with third parties, disclosed
to me by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment, or created by me during the
period of my consulting or director relationship with the Company (whether
commenced prior to or upon the date of this Agreement), whether or not during
working hours.
3. Assignment of Inventions. I hereby sell, transfer, assign and convey
------------------------
to the Company or its designee, my entire right, title, and interest throughout
the world in and to all Inventions and all intellectual property rights thereto
that relate primarily to the business of Windom that I conceived, developed or
reduced to practice (solely or jointly) at any time prior to the closing of the
Merger. No rights are hereby conveyed in the Inventions listed on Exhibit A
---------
hereto, which relate primarily to the business of Windom and which were made by
me prior to the closing of the Merger. I hereby waive and irrevocably quitclaim
to the Company any and all claims, of any nature whatsoever, that I now or
hereafter have for infringement of any and all proprietary rights assigned to
the Company.
4. Confidentiality Obligation. During the period of my consulting or
--------------------------
director relationship with the Company and for a period of three years
thereafter, (1) I agree to hold in confidence and not directly or indirectly to
use or disclose to any third person or entity any Confidential Information I
obtain or create during the period of my consulting or director relationship
with the Company (whether commenced prior to or upon the date of this
-8-
<PAGE>
Agreement), whether or not during working hours, except to the extent authorized
by the Company, until such Confidential Information becomes generally known by
the public, and (2) I agree not to make copies of such Confidential Information
except as authorized by the Company. Upon termination of my consulting or
director relationship or upon an earlier request of the Company, I will return
or deliver to the Company all tangible forms of such Confidential Information in
my possession or control, including but not limited to drawings, specifications,
documents, records, devices, models or any other material and copies or
reproductions thereof.
5. No Conflicts. I represent that my performance of all the terms of this
------------
Agreement and my provision of services as a director of or consultant to the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by me in confidence or in
trust prior to my becoming a consultant or director of the Company, and I will
not disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any written or oral agreement that conflicts
with the provisions of this Agreement.
6. Effects of Agreement. This Agreement (a) shall survive my consulting
--------------------
or director relationship with the Company, (b) does not in any way restrict my
right or the right of the Company to terminate my consulting relationship, with
or without cause, (c) inures to the benefit of successors and assigns of the
Company, and (d) is binding upon my heirs and legal representatives.
7. No Interference. I certify that, to the best of my information and
---------------
belief, I am not a party to any other agreement that will interfere with my full
compliance with this Agreement.
8. Miscellaneous. This Agreement supersedes any oral, written or other
-------------
communications or agreements concerning the subject matter of this Agreement,
and may be amended or waived only by a written instrument signed by the parties.
This Agreement shall be governed by the laws of the State of California
applicable to contracts entered into and performed entirely within the State,
without giving effect to principles of conflict of laws. If any provision of
this Agreement is held to be unenforceable under applicable law, then such
provision shall be excluded from this Agreement only to the extent
unenforceable, and the remainder of such provision and of this Agreement shall
be enforceable in accordance with its terms.
-9-
<PAGE>
9. Acknowledgment. I certify and acknowledge that I have carefully read
--------------
all of the provisions of this Agreement and that I understand and will fully and
faithfully comply with such provisions.
HEALTHCENTRAL.COM
By: /s/ Albert L. Greene /s/ Michael D. McDonald
______________________________ _________________________________
Name: Albert L. Greene Dr. Michael D. McDonald
_________________________
Title: CEO
________________________
Dated: _______________, ____ _________________________________
-10-
<PAGE>
EXHIBIT A
---------
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED FROM SECTION 5
Identifying Number
Title Date or Brief Description
--------- -------- ------------------------
Tune-In Series Development started in 1977 High-Level well being and
and is currently ongoing personel development
system, consisting of
written materials and
software
GHI Agreement August 1999 The GHI Agreement conveys
certain intellectual
property that will
continue to belong to GHI
and not Windom or
HealthCentral after the
merger
Healthy Cities Development started in 1991 Matters covered in
Communications and is currently ongoing Mike's Berkeley
Toolbox dissertation and worked
on during his tenure with
the Koop Foundation
___ No inventions or improvements
___ Additional Sheets Attached
Signature:/s/ Michael D. McDonald
______________________________
Print Name: Michael D. McDonald
_____________________________
Date:___________________________________
<PAGE>
EXHIBIT C
---------
NON-COMPETITION AGREEMENT
-------------------------
<PAGE>
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (this "Agreement") is made as of this
---------
_____ day of _____, 1999 by and between HealthCentral.com, a California
corporation ("Parent"), and Dr. Michael D. McDonald ("Consultant").
------ ----------
BACKGROUND
----------
This Agreement is entered into in connection with and is ancillary to
an Agreement and Plan of Reorganization (the "Plan") dated as of May 6, 1999
----
among Parent, HC Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Windom Health Enterprises, a California
----------
corporation ("Company"), pursuant to which the Company is to merge with and into
-------
Merger Sub, Merger Sub will continue as the surviving corporation in the merger,
and the shares of Company capital stock outstanding immediately prior to the
effective time of the merger will be converted into shares of Parent Common
Stock, all as set forth in the Plan (the "Merger"). The date on which the Merger
------
becomes effective will be the effective date of this Agreement (the "Effective
---------
Date").
- ----
Consultant is the majority shareholder and Chairman of the Board of
Company and has been actively involved in the development and/or marketing of
Company's products. Parent intends to continue the business of Company after the
Merger and integrate such business into Parent's ongoing business as a
subsidiary of Parent. To preserve and protect the assets of Company, including
Company's goodwill, customers and trade secrets of which Consultant has and will
have knowledge in his or her role as an employee of Parent and to preserve and
protect Parent's goodwill and business interests going forward, and in
consideration for Parent's entering into and performing under the Plan,
Consultant has agreed to enter into this Agreement. Parent and Consultant have
entered into a Consulting Agreement (the "Consulting Agreement") concurrently
--------------------
with execution of this Agreement.
Consultant and Parent believe the limitations as to time, geographical
area and scope of activity contained in this Agreement are reasonably necessary
to, and no greater than that required to, protect the goodwill and business
interests of Parent.
1. For the period beginning on the Effective Date and ending on
the three-year anniversary of the Effective Date, Consultant will not
individually or as an employee, consultant, partner, officer, director or
shareholder or in any other capacity whatsoever (including through GHI) of or
for any person, firm, partnership, company or corporation other than Parent or
its subsidiaries, work as an employee or consultant, sell products or services
to, or own, manage, operate, sell, control or participate in the ownership,
management, operation, sales or control of any business engaged, in the
geographical areas referred to in Section 3 below, in the provision of health
information, products and services directly to the general public (including
linkages between consumers and health providers, payors and ancillary entities)
in various media, including but not limited to radio, television, internet,
interactive television, interactive cable and satellite (the "Restricted
----------
Business").
- --------
<PAGE>
2. For the period beginning on the Effective Date and ending 36
months thereafter, Consultant shall not directly or indirectly solicit, induce,
recruit or encourage any of Parent's employees or consultants to terminate their
relationship with Parent, or attempt any of the foregoing, either for the
benefit of Consultant or any other person or entity. For the period beginning on
the Effective Date and ending 36 months thereafter, Consultant shall not solicit
any licensor to or customer of the Parent or licensee of the Parent's products
that are known to Consultant with respect to any Restricted Business.
3. The geographical areas in which the restrictions provided
for in this Agreement apply include all cities, counties and states of the
United States, and all other countries in which Parent or Company has engaged in
sales or otherwise conducted business or selling or licensing efforts in any
aspect of the Restricted Business at any time prior hereto or during the term of
this Agreement. Consultant acknowledges that the scope and period of
restrictions and the geographical area to which the restrictions imposed in this
Section 3 applies are fair and reasonable and are reasonably required for the
protection of Parent and that this Agreement accurately describes the business
to which the restrictions are intended to apply.
4. Consultant acknowledges that any breach of the covenants of
this Agreement will result in immediate and irreparable injury to Parent and,
accordingly, consents to the application of injunctive relief and such other
equitable remedies for the benefit of Parent as may be appropriate in the event
such a breach occurs or is threatened. The foregoing remedies will be in
addition to all other legal remedies to which Parent may be entitled hereunder,
including, without limitation, monetary damages.
5. Termination. Notwithstanding any provision in this Agreement
-----------
to the contrary, either party may at any time terminate the Consulting Agreement
between Parent and Consultant of even date herewith (the "Consulting Agreement")
--------------------
and all obligations thereunder, in which case this Agreement shall terminate in
its entirety and be of no further force or effect, provided however that if the
----------------
Company terminates Consultant's Consultancy (as defined in the Consulting
Agreement) for Cause (as defined in the Consulting Agreement), then,
notwithstanding anything to the contrary in this Section 5, this Agreement shall
remain in full force and effect..
6. Miscellaneous.
-------------
(a) Notices. Any and all notices permitted or required to
-------
be given under this Agreement must be in writing. Notices will be deemed given
(i) when personally received or when sent by facsimile transmission (to the
receiving party's facsimile number), (ii) on the first business day after having
been sent by commercial overnight courier with written verification of receipt,
or (iii) on the third business day after having been sent by registered or
certified mail from a location on the United States mainland, return receipt
requested, postage prepaid, whichever occurs first, at the address set forth
below or at any new address, notice of which will have been given in accordance
with this Section 6(a):
<PAGE>
If to Parent: HealthCentral.com
2600 Tenth Street, Suite 400
Berkeley, CA 94710
Attn: Chief Executive Officer
If to Consultant: 10604 Crossing Creek Road
Potomac, MD 20854
(b) Amendments. This Agreement contains the entire
----------
agreement and supersedes and replaces all prior agreements between Parent and
Consultant or Company and Consultant concerning the subject matter hereof. This
Agreement may not be changed or modified in whole or in part except by a writing
signed by the party against whom enforcement of the change or modification is
sought.
(c) Successors and Assigns. This Agreement will not be
----------------------
assignable by either Consultant or Parent, except that the rights and
obligations of Parent under this Agreement may be assigned to a corporation
which becomes the successor to Parent as the result of a merger or other change
of control of Parent.
(d) Governing Law. This Agreement will be governed by and
-------------
interpreted according to the substantive laws of the State of California without
regard to such state's conflicts law.
(e) No Waiver. The failure of either party to insist on
---------
strict compliance with any of the terms of this Agreement in any instance or
instances will not be deemed to be a waiver of any term of this Agreement or of
that party's right to require strict compliance with the terms of this Agreement
in any other instance.
(f) Severability. It is the intent of the parties that the
------------
provisions of this Agreement will be enforced to the fullest extent permissible
under applicable law. Consultant and Parent recognize that the limitations
contained herein are reasonably and properly required for the adequate
protection of the interests of Parent. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be invalid or unenforceable, this
Agreement will be deemed amended to revise that provision or portion to the
minimum extent necessary to render it enforceable. Such amendment will apply
only with respect to the operation of this paragraph in the particular
jurisdiction in which such adjudication was made, and the remaining provisions
of this Agreement will be interpreted so as best to reasonably effect the intent
of the parties. The parties further agree that the court or arbitrator shall
replace any such invalid or unenforceable provisions with valid and enforceable
provisions designed to achieve, to the extent possible, the business purposes
and intent of such unenforceable provisions.
<PAGE>
(g) Counterparts. This Agreement may be executed in
------------
counterparts which when taken together will constitute one instrument. Any copy
of this Agreement with the original signatures of all parties appended will
constitute an original.
(h) Dispute Resolution. To the fullest extent permitted by
------------------
law, any dispute, claim or controversy of any kind (including but not limited to
tort, contract and statute) arising under, in connection with, or relating to
this Agreement or Consultant's employment, shall be resolved exclusively by
binding arbitration in Alameda County, California in accordance with the
commercial rules of the American Arbitration Association then in effect. Parent
and Consultant agree to waive any objection to personal jurisdiction or venue in
any forum located in Alameda County, California. No claim, lawsuit or action of
any kind may be filed by either party to this Agreement (other than to enforce
any such arbitration); arbitration is the exclusive dispute resolution mechanism
between the parties hereto. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
[The remainder of this page is intentionally blank.]
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the
Effective Date.
HEALTHCENTRAL.COM CONSULTANT
By: /s/ Albert L. Greene /s/ Michael D. McDonald
__________________________ _______________________________
Name: Albert L. Greene Dr. Michael D. McDonald
_____________________
Title: CEO
____________________
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the Effective
---------
Date indicated below by and between HealthCentral.com, a California corporation
("Parent") and Deryk Van Brunt ("Employee").
--------
BACKGROUND
This Agreement is entered into in connection with and is ancillary to an
Agreement and Plan of Reorganization (the "Plan") dated as of ______, 1999
----
among Parent, HC Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Windom Health Enterprises, a California
----------
corporation ("Company"), pursuant to which Company is to merge with and into
-------
Merger Sub, Merger Sub will continue as the surviving corporation in the merger,
and the shares of Company capital stock outstanding immediately prior to the
effective time of the merger will be converted into shares of Parent Common
Stock, all as set forth in the Plan (the "Merger"). The date on which the Merger
------
becomes effective will be the effective date of this Agreement (the "Effective
---------
Date").
- ----
Employee is COO of Company and has been actively involved in the
development and/or marketing of Company's products. Parent intends to continue
the business of Company after the Merger and integrate such business into
Parent's ongoing business as a subsidiary of Parent.
Employee acknowledges and agrees that, prior to or concurrently with the
execution of this Agreement, Employee has terminated, or will terminate,
Employee's employment agreement dated _____ between the Company and Employee
(the "Windom Employment Agreement"), and that neither the Company, the Merger
---------------------------
Sub or Parent will have any obligations under the Windom Employment Agreement,
including but not limited to the obligation to issue Employee any options to
purchase shares, or shares of capital stock, of Parent.
To preserve and protect the assets of Company, including Company's
goodwill, customers and trade secrets of which Employee has and will have
knowledge in Employee's role as an employee of Parent and to preserve and
protect Parent's goodwill and business interests going forward, and in
consideration for Parent's entering into and performing under the Plan, Employee
has agreed to enter into this Agreement.
In addition, as required by and defined in Section 5 below, Employee is
concurrently herewith entering into a Proprietary Information and Non-
Solicitation Agreement in favor of Parent designed to protect Parent's
proprietary rights.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
of the parties contained herein, Parent and Employee hereby agree as follows:
1. Duties. Employee will be employed as a full-time employee of Parent
------
and initially will serve as SVP Operations, and agrees to perform such services
as are commensurate with such a position and as may be required or directed by
the Chief Executive
<PAGE>
Officer of Parent. Employee agrees to perform such other duties and
responsibilities as may be reasonably required of him by the Chief Executive
Officer of Parent. Employee agrees that, to the best of Employee's ability and
experience, Employee will at all times conscientiously perform all of the duties
and obligations assigned to Employee in accordance with this Agreement.
2. Full-time Employment. Employee's employment will be on a full-time
--------------------
basis, in accordance with standard employee policies for Parent. Except for such
activities, if any, as may be set forth in Exhibit A attached hereto or as may
---------
hereafter be consented to by Parent in its sole discretion, Employee will not
engage in any other business or render any commercial or professional services,
directly or indirectly, to any other person or organization, whether for
compensation or otherwise, provided that Employee may (i) provide incidental
assistance to family members on matters of family business, and (ii) sit on the
boards of charitable and nonprofit organizations which do not compete with
Parent, provided in each case that such activities do not conflict with or
interfere with Employee's obligations to Parent. Employee may make personal
investments in nonpublicly traded corporations, partnerships or other entities,
which do not at the time of such investment provide health information, products
and services directly to the general public (including linkages between
consumers and health providers, payors and ancillary entities) in various media,
including but not limited to radio, television, Internet, interactive
television, interactive cable and satellite (the foregoing description of
business activities and markets shall be referred to in this Agreement as
"Competitive Businesses"). Notwithstanding anything to the contrary contained in
----------------------
this Agreement, Employee may make personal investments in publicly traded
corporations regardless of the business they are engaged in, provided that
Employee does not at any time own in excess of 1% of the issued and outstanding
stock of any such publicly traded corporation that is engaged in any Competitive
Businesses.
3. Place of Employment. During the term of employment, Employee shall
-------------------
render his services principally at the principal executive offices of Parent. In
addition, Employee shall do such traveling as shall be reasonably necessary in
connection with his duties and responsibilities hereunder.
4. Compensation.
-------------
(a) Salary. Employee's initial monthly base salary shall be
------
$10,000.00 per month (the "Monthly Base Salary") ($118,000.00 on an annualized
-------------------
basis), subject to review and adjustment from time to time thereafter in
accordance with the Company's policies. Such salary shall be paid in accordance
with Parent's normal payroll practices.
(b) Bonus Plan. In addition to the base salary specified in Section
----------
4(a), Employee shall be eligible to participate in any bonus plan adopted by
Parent, provided however that Parent is not obligated to adopt any such bonus
plan.
(c) Business Expenses. Parent shall reimburse Employee for all
-----------------
reasonable business expenses incurred by Employee in the course of performing
services for Parent under
-2-
<PAGE>
this Agreement in accordance with Parent's then existing policy relating to
reimbursement of business expenses for Parent's employees.
(d) Other Benefits. Employee will be entitled to participate in or
--------------
receive benefits commensurate with Employee's position and those of similarly
situated employees of Parent in accordance with Parent's standard employee
policies in effect from time to time. Parent may change, amend, modify or
terminate any benefit plan from time to time.
(e) Withholding, Etc. Parent may make such deductions, withholdings
----------------
and other payments from all sums payable pursuant to this Agreement which are
required by law or as Employee requests for taxes and other charges.
5. Confidentiality and Noncompetition. Simultaneously with the execution
----------------------------------
of this Agreement, Employee is executing and delivering and hereby adopts and
agrees to be bound by Parent's standard Proprietary Information and Inventions
Agreement, a copy of which is attached to this Agreement as Exhibit B (the
---------
"Proprietary Information and Non-Solicitation Agreement"), which is deemed a
------------------------------------------------------
part of this Agreement.
6. Termination. Employee's employment with the Company will be on an "at
-----------
will" basis, which means that either Employee or Parent may terminate Employee's
employment at any time for any reason or no reason, without further obligation
or liability, subject to the terms and conditions of this Agreement. In
particular,
(a) Employee's employment shall terminate upon the death of Employee.
(b) Parent may terminate Employee's employment by written notice to
Employee in the event Employee is or will be unable, for a period of three or
more months, due to illness, accident or other physical or mental incapacity, to
perform his duties hereunder.
(c) Parent may terminate Employee's employment for "Cause" (as defined
below) by written notice to Employee.
(d) Parent may terminate Employee's employment for any other reason by
written notice to Employee.
(e) Employee may terminate Employee's employment for any reason at any
time by written notice to Parent.
(f) Sections 5, 6, 7 and 9 of this Agreement and the Proprietary
Information and Non-Solicitation Agreement shall survive the termination of this
Agreement as a result of the termination of Employee's employment for any
reason.
7. Definition of "Cause." As used in Section 6 of this Agreement, the term
--------------------
"Cause" shall mean:
(a) Employee personally engaging in knowing and intentional illegal
conduct which is seriously injurious to Parent or its affiliates;
-3-
<PAGE>
(b) Employee being convicted of a felony, or committing an act of
dishonesty or fraud against, or the misappropriation of property belonging to,
Parent or its affiliates;
(c) The performance by Employee of those acts identified in Section
2924 of the California Labor Code;
(d) Employee knowingly and intentionally breaching any material term
of this Agreement or the Proprietary Information and Non-Solicitation Agreement;
(e) Employee's commencement of employment with another employer while
he is an employee of Parent; or
(f) any material breach by Employee of any material provision of this
Agreement or the Proprietary Information and Non-Solicitation Agreement which
continues uncured for 30 days following notice thereof.
8. Severance Payment. If Parent terminates Employee's employment pursuant
-----------------
to Section 6(d) during the period beginning on the Effective Date and ending one
year thereafter (the "Severance Period"), then Parent will pay Employee on a
----------------
monthly basis and at a monthly rate the Monthly Base Salary for each month
remaining in the Severance Period (subject to proration for any partial month so
remaining), subject to Employee's continued compliance with all the terms of the
Proprietary Information and Non-Solicitation Agreement and the surviving terms
of this Agreement, and provided, however, that if Employee begins rendering
-------- -------
services as an employee or consultant in excess of twenty (20) hours per week to
any person or entity during the Severance Period, then the Company will cease
making such severance payments at such time.
9. Miscellaneous.
-------------
(a) Notices. Any and all notices permitted or required to be given
-------
under this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (as evidenced by the
sender's confirmation receipt), (ii) on the first business day after having been
sent by commercial overnight courier with written verification of receipt, or
(iii) forty-eight (48) hours after having been sent by registered or certified
mail from a location on the United States mainland, return receipt requested,
postage prepaid, whichever occurs first, at the address set forth below or at
any new address, notice of which will have been given in accordance with this
Section 9(a):
If to Parent: HealthCentral.com
Marketplace Tower
6001 Shellmound Street
Suite 800
Emeryville, CA 94608
fax: (510) 250-2701
Attn: Chief Executive Officer
-4-
<PAGE>
If to Employee: [name] Deryk Van Brunt
[address] 137 Bolinas Ave.
Ross, CA 94960
(b) Entire Agreement; Amendments. Employee acknowledges and agrees
----------------------------
that Employee has, prior to or concurrently with the execution of this
Agreement, terminated the Windom Employment Agreement, and that neither the
Company, the Merger Sub or Parent has any obligations under the Windom
Employment Agreement, including but not limited to any obligation to issue
Employee any options to purchase shares, or shares of capital stock, of Parent.
This Agreement and the Proprietary Information and Non-Solicitation Agreement
contain the entire agreement and supersede and replace all prior agreements
between Parent and Employee or Company and Employee concerning Employee's
employment. This Agreement may not be changed or modified in whole or in part
except by a writing signed by the party against whom enforcement of the change
or modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by
----------------------
either Employee or Parent, except that the rights and obligations of Parent
under this Agreement may be assigned to a corporation which becomes the
successor to Parent as the result of a merger or other change of control of
Parent and which continues the business of Parent, or any subsidiary of Parent.
(d) Governing Law. This Agreement will be governed by and interpreted
-------------
according to the substantive laws of the State of California without regard to
such state's conflicts law.
(e) No Waiver. The failure of either party to insist on strict
---------
compliance with any of the terms of this Agreement in any instance or instances
will not be deemed to be a waiver of any term of this Agreement or of that
party's right to require strict compliance with the terms of this Agreement in
any other instance.
(f) Severability. Employee and Parent recognize that the limitations
------------
contained herein are reasonably and properly required for the adequate
protection of the interests of Parent. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as best to reasonably effect
the intent of the parties. The parties further agree that the court or
arbitrator shall replace any such invalid or unenforceable provisions with valid
and enforceable provisions designed to achieve, to the extent possible, the
business purposes and intent of such unenforceable provisions.
(g) Counterparts. This Agreement may be executed in counterparts which
------------
when taken together will constitute one instrument. Any copy of this Agreement
with the original signatures of all parties appended will constitute an
original.
(h) Arbitration; Governing Law. To the fullest extent permitted by
--------------------------
law, any dispute, claim or controversy of any kind (including but not limited to
tort, contract and statute) arising under, in connection with, or relating to
this Agreement or Employee's employment, shall
-5-
<PAGE>
be resolved exclusively by binding arbitration in Alameda County, California in
accordance with the commercial roles of the American Arbitration Association
then in effect. Parent and Employee agree to waive any objection to personal
jurisdiction or venue in any forum located in Alameda County, California. No
claim, lawsuit or action of any kind may be filed by either party to this
Agreement (other than to enforce any such arbitration); arbitration is the
exclusive dispute resolution mechanism between the parties hereto. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
(i) Survival. The definitions contained in this Agreement and Section
--------
9 shall survive the termination of this Agreement.
[The remainder of this page is intentionally blank.]
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the
Effective Date.
HEALTHCENTRAL.COM EMPLOYEE
/s/ Deryk Van Brunt
By: ______________________________ _______________________________
Name: ________________________
Title: _______________________
Effective Date: __________________
-7-
<PAGE>
EXHIBIT A
PERMITTED ACTIVITIES
1. Deryk Van Brunt teaches 1 course (Health Intermetrics) at U.C. Berkeley's
School of Public Health each year.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND NONSOLICITATION AGREEMENT
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the Effective
---------
Date indicated below by and between HealthCentral.com, a California corporation
("Parent") and Marcos Athanasoulis ("Employee").
--------
BACKGROUND
This Agreement is entered into in connection with and is ancillary to an
Agreement and Plan of Reorganization (the "Plan") dated as of 7/28, 1999
----
among Parent, HC Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Windom Health Enterprises, a California
----------
corporation ("Company"), pursuant to which Company is to merge with and into
-------
Merger Sub, Merger Sub will continue as the surviving corporation in the merger,
and the shares of Company capital stock outstanding immediately prior to the
effective time of the merger will be converted into shares of Parent Common
Stock, all as set forth in the Plan (the "Merger"). The date on which the Merger
------
becomes effective will be the effective date of this Agreement (the "Effective
---------
Date").
- ----
Employee is V.P., Engineering of Company and has been actively involved in
the development and/or marketing of Company's products. Parent intends to
continue the business of Company after the Merger and integrate such business
into Parent's ongoing business as a subsidiary of Parent.
Employee acknowledges and agrees that, prior to or concurrently with the
execution of this Agreement, Employee has terminated, or will terminate,
Employee's employment agreement dated 11/1/95 between the Company and Employee
(the "Windom Employment Agreement"), and that neither the Company, the Merger
---------------------------
Sub or Parent will have any obligations under the Windom Employment Agreement,
including but not limited to the obligation to issue Employee any options to
purchase shares, or shares of capital stock, of Parent.
To preserve and protect the assets of Company, including Company's
goodwill, customers and trade secrets of which Employee has and will have
knowledge in Employee's role as an employee of Parent and to preserve and
protect Parent's goodwill and business interests going forward, and in
consideration for Parent's entering into and performing under the Plan, Employee
has agreed to enter into this Agreement.
In addition, as required by and defined in Section 5 below, Employee is
concurrently herewith entering into a Proprietary Information and Non-
Solicitation Agreement in favor of Parent designed to protect Parent's
proprietary rights.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
of the parties contained herein, Parent and Employee hereby agree as follows:
1. Duties. Employee will be employed as a full-time employee of Parent and
------
initially will serve as V.P., Engineering, and agrees to perform such services
as are commensurate with such a position and as may be required or directed by
the Chief Executive
<PAGE>
Officer of Parent. Employee agrees to perform such other duties and
responsibilities as may be reasonably required of him by the Chief Executive
Officer of Parent. Employee agrees that, to the best of Employee's ability and
experience, Employee will at all times conscientiously perform all of the duties
and obligations assigned to Employee in accordance with this Agreement.
2. Full-time Employment. Employee's employment will be on a full-time
--------------------
basis, in accordance with standard employee policies for Parent. Except for such
activities, if any, as may be set forth in Exhibit A attached hereto or as may
---------
hereafter be consented to by Parent in its sole discretion, Employee will not
engage in any other business or render any commercial or professional services,
directly or indirectly, to any other person or organization, whether for
compensation or otherwise, provided that Employee may (i) provide incidental
assistance to family members on matters of family business, and (ii) sit on the
boards of charitable and nonprofit organizations which do not compete with
Parent, provided in each case that such activities do not conflict with or
interfere with Employee's obligations to Parent. Employee may make personal
investments in nonpublicly traded corporations, partnerships or other entities,
which do not at the time of such investment provide health information, products
and services directly to the general public (including linkages between
consumers and health providers, payors and ancillary entities) in various media,
including but not limited to radio, television, Internet, interactive
television, interactive cable and satellite (the foregoing description of
business activities and markets shall be referred to in this Agreement as
"Competitive Businesses"). Notwithstanding anything to the contrary contained in
----------------------
this Agreement, Employee may make personal investments in publicly traded
corporations regardless of the business they are engaged in, provided that
Employee does not at any time own in excess of 1% of the issued and outstanding
stock of any such publicly traded corporation that is engaged in any Competitive
Businesses.
3. Place of Employment. During the term of employment, Employee shall
-------------------
render his services principally at the principal executive offices of Parent. In
addition, Employee shall do such traveling as shall be reasonably necessary in
connection with his duties and responsibilities hereunder.
4. Compensation.
------------
(a) Salary. Employee's initial monthly base salary shall be $9166.66
------
per month (the "Monthly Base Salary") ($110,000 on an annualized basis),
-------------------
subject to review and adjustment from time to time thereafter in accordance with
the Company's policies. Such salary shall be paid in accordance with Parent's
normal payroll practices within 30 days, an adjustment to at least $140,000 will
be made. (Annual)
(b) Bonus Plan. In addition to the base salary specified in Section
----------
4(a), Employee shall be eligible to participate in any bonus plan adopted by
Parent, provided however that Parent is not obligated to adopt any such bonus
plan.
(c) Business Expenses. Parent shall reimburse Employee for all
-----------------
reasonable business expenses incurred by Employee in the course of performing
services for Parent under
<PAGE>
this Agreement in accordance with Parent's then existing policy relating to
reimbursement of business expenses for Parent's employees.
(d) Other Benefits. Employee will be entitled to participate in or
--------------
receive benefits commensurate with Employee's position and those of similarly
situated employees of Parent in accordance with Parent's standard employee
policies in effect from time to time. Parent may change, amend, modify or
terminate any benefit plan from time to time.
(e) Withholding, Etc. Parent may make such deductions, withholdings
----------------
and other payments from all sums payable pursuant to this Agreement which are
required by law or as Employee requests for taxes and other charges.
5. Confidentiality and Noncompetition. Simultaneously with the
----------------------------------
execution of this Agreement, Employee is executing and delivering and hereby
adopts and agrees to be bound by Parent's standard Proprietary Information and
Inventions Agreement, a copy of which is attached to this Agreement as Exhibit B
---------
(the "Proprietary Information and Non-Solicitation Agreement"), which is deemed
------------------------------------------------------
a part of this Agreement.
6. Termination. Employee's employment with the Company will be on an "at
-----------
will" basis, which means that either Employee or Parent may terminate Employee's
employment at any time for any reason or no reason, without further obligation
or liability, subject to the terms and conditions of this Agreement. In
particular,
(a) Employee's employment shall terminate upon the death of Employee.
(b) Parent may terminate Employee's employment by written notice to
Employee in the event Employee is or will be unable, for a period of three or
more months, due to illness, accident or other physical or mental incapacity, to
perform his duties hereunder.
(c) Parent may terminate Employee's employment for "Cause" (as defined
below) by written notice to Employee.
(d) Parent may terminate Employee's employment for any other reason by
written notice to Employee.
(e) Employee may terminate Employee's employment for any reason at any
time by written notice to Parent.
(f) Sections 5, 6, 7 and 9 of this Agreement and the Proprietary
Information and Non-Solicitation Agreement shall survive the termination of this
Agreement as a result of the termination of Employee's employment for any
reason.
7. Definition of "Cause." As used in Section 6 of this Agreement, the
--------------------
term "Cause" shall mean:
(a) Employee personally engaging in knowing and intentional illegal
conduct which is seriously injurious to Parent or its affiliates;
<PAGE>
(b) Employee being convicted of a felony, or committing an act of
dishonesty or fraud against, or the misappropriation of property belonging to,
Parent or its affiliates;
(c) The performance by Employee of those acts identified in Section
2924 of the California Labor Code;
(d) Employee knowingly and intentionally breaching any material term
of this Agreement or the Proprietary Information and Non-Solicitation Agreement;
(e) Employee's commencement of employment with another employer while
he is an employee of Parent; or
(f) any material breach by Employee of any material provision of this
Agreement or the Proprietary Information and Non-Solicitation Agreement which
continues uncured for 30 days following notice thereof.
8. Severance Payment. If Parent terminates Employee's employment pursuant
-----------------
to Section 6(d) during the period beginning on the Effective Date and ending one
year thereafter (the "Severance Period"), then Parent will pay Employee on a
----------------
monthly basis and at a monthly rate the Monthly Base Salary for each month
remaining in the Severance Period (subject to proration for any partial month so
remaining), subject to Employee's continued compliance with all the terms of the
Proprietary Information and Non-Solicitation Agreement and the surviving terms
of this Agreement, and provided, however, that if Employee begins rendering
-------- -------
services as an employee or consultant in excess of twenty (20) hours per week to
any person or entity during the Severance Period, then the Company will cease
making such severance payments at such time.
9. Miscellaneous.
-------------
(a) Notices. Any and all notices permitted or required to be given
-------
under this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (as evidenced by the
sender's confirmation receipt), (ii) on the first business day after having been
sent by commercial overnight courier with written verification of receipt, or
(iii) forty-eight (48) hours after having been sent by registered or certified
mail from a location on the United States mainland, return receipt requested,
postage prepaid, whichever occurs first, at the address set forth below or at
any new address, notice of which will have been given in accordance with this
Section 9(a):
If to Parent: HealthCentral.com
Marketplace Tower
6001 Shellmound Street
Suite 800
Emeryville, CA 94608
fax: (510) 250-2701
Attn: Chief Executive Officer
<PAGE>
If to Employee: [name] Marcos Athanasoulis
[address] 277 Amherst Ave
Kensington, CA 94708
(b) Entire Agreement; Amendments. Employee acknowledges and agrees
----------------------------
that Employee has, prior to or concurrently with the execution of this
Agreement, terminated the Windom Employment Agreement, and that neither the
Company, the Merger Sub or Parent has any obligations under the Windom
Employment Agreement, including but not limited to any obligation to issue
Employee any options to purchase shares, or shares of capital stock, of Parent.
This Agreement and the Proprietary Information and Non-Solicitation Agreement
contain the entire agreement and supersede and replace all prior agreements
between Parent and Employee or Company and Employee concerning Employee's
employment. This Agreement may not be changed or modified in whole or in part
except by a writing signed by the party against whom enforcement of the change
or modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by
----------------------
either Employee or Parent, except that the rights and obligations of Parent
under this Agreement may be assigned to a corporation which becomes the
successor to Parent as the result of a merger or other change of control of
Parent and which continues the business of Parent, or any subsidiary of Parent.
(d) Governing Law. This Agreement will be governed by and interpreted
-------------
according to the substantive laws of the State of California without regard to
such state's conflicts law.
(e) No Waiver. The failure of either party to insist on strict
---------
compliance with any of the terms of this Agreement in any instance or instances
will not be deemed to be a waiver of any term of this Agreement or of that
party's right to require strict compliance with the terms of this Agreement in
any other instance.
(f) Severability. Employee and Parent recognize that the limitations
------------
contained herein are reasonably and properly required for the adequate
protection of the interests of Parent. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as best to reasonably effect
the intent of the parties. The parties further agree that the court or
arbitrator shall replace any such invalid or unenforceable provisions with valid
and enforceable provisions designed to achieve, to the extent possible, the
business purposes and intent of such unenforceable provisions.
(g) Counterparts. This Agreement may be executed in counterparts which
------------
when taken together will constitute one instrument. Any copy of this Agreement
with the original signatures of all parties appended will constitute an
original.
(h) Arbitration: Governing Law. To the fullest extent permitted by
--------------------------
law, any dispute, claim or controversy of any kind (including but not limited to
tort, contract and statute) arising under, in connection with, or relating to
this Agreement or Employee's employment, shall
<PAGE>
be resolved exclusively by binding arbitration in Alameda County, California in
accordance with the commercial rules of the American Arbitration Association
then in effect. Parent and Employee agree to waive any objection to personal
jurisdiction or venue in any forum located in Alameda County, California. No
claim, lawsuit or action of any kind may be filed by either party to this
Agreement (other than to enforce any such arbitration); arbitration is the
exclusive dispute resolution mechanism between the parties hereto. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
(i) Survival. The definitions contained in this Agreement and Section
--------
9 shall survive the termination of this Agreement.
[The remainder of this page is intentionally blank.]
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the
Effective Date.
HEALTHCENTRAL.COM EMPLOYEE
By: ____________________________ /s/ Marcos Athanasoulis
------------------------------
Name: ______________________
Title: _____________________
Effective Date: ________________
<PAGE>
EXHIBIT A
PERMITTED ACTIVITIES
1) Consulting on Employee's own time for non-profit and/or government health
care organizations provided that they are not a "competitive business."
Employee agrees to notify Employer should said activities exceed 10 hours
per month.
2) Honorarians for speaking engagements not reimbursable by employer.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND NONSOLICITATION AGREEMENT
<PAGE>
EXHIBIT 10.10
HEALTHCENTRAL.COM
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into by and between
---------
HealthCentral.com (the "Company") and Albert Greene ("Greene") effective as of
------- ------
the 16th day of August, 1999 (the "Employment Start Date"), provided however
---------------------
that if the Consulting Agreement (defined below) is terminated by either
party for any reason or no reason, this Agreement shall be null, void and of
no effect.
1. Employment Relationship. If the Consulting Agreement dated July 1,
-----------------------
1998 between the Company and Greene (the "Consulting Agreement") is not
-------------------
terminated earlier pursuant to Section 1(c) thereof, beginning on the Employment
Start Date, Greene will be employed as a full-time employee of Company and
initially will serve as Chief Executive Officer. Greene agrees to perform such
services as are commensurate with such a position and as may be required or
directed by the Board of Directors of Company. Greene agrees to perform such
other duties and responsibilities as may be reasonably required of him by the
Board of Directors of Company. Greene agrees that, to the best of his ability
and experience, Greene will at all times conscientiously perform all of the
duties and obligations assigned to Greene in accordance with this Agreement.
(a) Salary. Beginning on the Employment Start Date, Greene's initial
------
monthly base salary as an employee shall be $19,583.33 per month ($235,000 on
an annualized basis), subject to review and adjustment from time to time
thereafter in accordance with the Company's policies. Such salary shall be paid
in accordance with Company's normal payroll practices.
(b) Bonus. In addition to the base salary specified in Section 1(a),
-----
during the first three years of this Agreement, the Company will pay Greene on a
monthly basis a bonus amount, equal to between 30% and 60% of Greene's monthly
base salary (such percentage to be determined upon Greene's achievement of
certain performance milestones as mutually agreed between Greene and the Board
of Directors), provided however that if Greene's employment is terminated for
any reason or no reason, he shall not receive the continued payment of any such
monthly bonus amount.
(c) Stock Option. The Company will recommend to the Board of
------------
Directors that Greene be granted an incentive stock option to purchase 359,325
shares of Common Stock of the Company, with an effective grant date as of the
Employment Start Date and with an exercise price per share equal to the fair
market value per share of the Company's Common Stock on the date of grant, as
determined by the Board of Directors, which option shall vest as follows:
1/36th of the total shares shall vest on the monthly anniversary of the
vesting commencement date (the date of grant), subject to Greene's continued
employment by the Company.
(d) Other Benefits. After the Employment Start Date, Greene will be
--------------
entitled to participate in or receive benefits commensurate with Greene's
position and those of similarly situated employees of Company in accordance
with Company's standard employee policies in effect from time to time. Company
may change, amend, modify or terminate any benefit plan from time to time.
(e) Withholding. Etc. Company may make such deductions, withholdings
----------------
and other payments from all sums payable pursuant to this Agreement which are
required by law or as Greene requests for taxes and other charges.
<PAGE>
(f) Termination. Greene's employment with the Company will be on an
-----------
"at will" basis, which means that either Greene or Company may terminate
Greene's employment at any time for any reason or no reason, without further
obligation or liability, subject to the terms and conditions of this Agreement.
2. Expenses. The Company will reimburse Greene for reasonable expenses
--------
actually incurred in connection with his performance of services as an employee,
and evidenced by his submission of receipts. In addition, Greene will be
entitled to four weeks paid vacation per year, which shall begin to accrue as of
July 1, 1998. The Company will pay Greene a monthly automobile allowance of
$500.00, a monthly club allowance of $500.00 per month, and his annual YPO dues
for the international and local chapters.
3. Supervision of Greene's Services. All services to be performed by
--------------------------------
Greene will be as agreed between Greene and the Company's Board of Directors.
Greene will be required to report to the Board of Directors concerning the
services performed under this Agreement. The nature and frequency of these
reports will be left to the discretion of the Board of Directors.
4. Non-Competition. While Greene is providing employment services
---------------
hereunder, and except for such activities, if any, as may be set forth in
Exhibit A attached hereto or as may hereafter be consented to by Company in
- ---------
its sole discretion, Greene will not engage in any other business or render
any commercial or professional services, directly or indirectly, to any other
person or organization, whether for compensation or otherwise, provided that
Greene may (i) provided incidental assistance to family members on matters of
family business, and (ii) sit on the boards of charitable and nonprofit
organizations which do not compete with Company, provided in each case that
such activities do not conflict with or interfere with Greene's obligations to
Company. Greene may make personal investments in nonpublicly traded
corporations, partnerships or other entities, which do not at the time of such
investment provide health information, products and services directly to the
general public (including linkages between consumers and health providers,
payors and ancillary entities) in various media, including but not limited to
radio, television, internet, interactive television, interactive cable and
satellite (the foregoing description of business activities and markets shall
be referred to in this Agreement as "Competitive Businesses"). Notwithstanding
----------------------
anything to the contrary contained in this Agreement, Greene may make personal
investments in publicly traded corporations regardless of the business they
are engaged in, provided that Greene does not at any time own in excess of 1%
of the issued and outstanding stock of any such publicly traded corporation
that is engaged in any Competitive Businesses.
5. Place of Employment. During the term of this Agreement, Greene shall
-------------------
render his services principally at the principal executive offices of Company
(Company currently anticipates that such offices will be relocated). In
addition, Greene shall do such traveling as shall be reasonably necessary in
connection with his duties and responsibilities hereunder.
6. Confidentiality Agreement. Greene shall sign, or has signed, a
-------------------------
Confidential Information and Invention Assignment Agreement substantially in
the from attached to this
-2-
<PAGE>
Agreement as Exhibit B (the "Proprietary Information Agreement"), prior to or on
--------- ---------------------------------
the date on which Greene's consulting relationship with the Company commences.
7. Conflicts with this Agreement. Greene represents and warrants that
-----------------------------
Greene is not under any pre-existing obligation in conflict or in any way
inconsistent with the provisions of this Agreement. Greene warrants that Greene
has the right to disclose or use all ideas, processes, techniques and other
information, if any, which Greene has gained from third parties, and which
Greene discloses to the Company in the course of performance of this Agreement,
without liability to such third parties. Greene represents and warrants that
Greene has not granted any rights or licenses to any intellectual property or
technology that would conflict with Greene's obligations under this Agreement.
Greene will not knowingly infringe upon any copyright, patent, trade secret or
other property right of any former client, employer or third party in the
performance of the services required by this Agreement.
8. Severance. If, during the period beginning on the Employment Start
---------
Date and ending on the later of: (i) one year after the date a merger between
the Company and Windom Health Enterprises (the "Merger") is consummated, or (ii)
------
one year after the earlier of: (A) the date the merger agreement relating to the
Merger is terminated, or (B) the letter of intent relating to the Merger is
terminated (the "Severance Period"), Greene's employment is terminated by the
----------------
Company or its successor for any reason other than Cause (as defined below), as
determined by the Company's Board of Directors, Green will be entitled to
receive continued payment of his monthly base salary on a monthly basis, for
each remaining month in the Severance Period (subject to proration for any
remaining partial month) (the "Severance") , subject to Greene's continued
---------
compliance with all the terms of the Proprietary Information Agreement, the Non-
Competition Agreement and the surviving terms of this Agreement.
9. Definition of "Cause." As used in this Agreement, the term "Cause"
--------------------
shall mean:
(a) Greene personally engaging in knowing and intentional illegal
conduct which is seriously injurious to Company or its affiliates;
(b) Greene being convicted of a felony, or committing an act of
dishonesty or fraud against, or the misappropriation of property belonging to,
Company or its affiliates;
(c) The performance by Greene of those acts identified in Section
2924 of the California Labor Code;
(d) Greene knowingly and intentionally breaching any material term of
this Agreement, the Proprietary Information or the Non-Competition Agreement;
-3-
<PAGE>
(e) Greene's commencement of employment with another employer while
he is an employee of Company; or
(f) any material breach by Greene of any material provision of this
Agreement, the Proprietary Information Agreement or the Non-Competition
Agreement which continues uncured for 30 days following notice thereof.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the parties.
(b) Sole Agreement. This Agreement, including the Exhibits hereto,
--------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(c) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(e) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(f) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(g) Arbitration. Any dispute or claim arising out of or in
-----------
connection with any provision of this Agreement, will be finally settled by
binding arbitration in Santa Clara County or San Mateo County, California in
accordance with the rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules. The arbitrator shall apply
California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. Judgement on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable
-4-
<PAGE>
relief, or to compel arbitration in accordance with this paragraph, without
breach of this arbitration provision. This subsection shall not apply to the
Proprietary Information Agreement.
(h) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING
-----------------
THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF
INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY
PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
(i) Surviving Terms. Sections 6, 9 and 10 of this Agreement shall
---------------
survive the termination of this Agreement for any reason or no reason. The
Proprietary Information Agreement and Non-Competition Agreement shall survive
the termination of this Agreement.
[Signature Page Follows]
-5-
<PAGE>
The parties have executed this Agreement on the respective dates set forth
below:
HEALTHCENTRAL.COM
By:/s/ Albert L. Greene
---------------------------
Name: Albert L. Greene
Title: President
Address: 747 Front Street
San Francisco, CA 94111
Date: 9-29-98
/s/ Albert L. Greene
--------------------------------
Albert Greene
Address:___________________________
Date: 9-29-98
SIGNATURE PAGE TO DR.DEAN ONLINE, INC. EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT A
---------
PERMITTED ACTIVITIES
--------------------
<PAGE>
EXHIBIT B
---------
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
------------------------------
<PAGE>
EXHIBIT 10.11
[LETTERHEAD OF HEALTHCENTRAL APPEARS HERE]
Mr. C. Fred Toney
3383 Clay Street
San Francisco, CA 94118
June 16, 1999
Dear Fred,
On behalf of HealthCentral.com, I am pleased to offer you the position of
Senior Vice President/Chief Financial Officer of the HealthCentral.com. Speaking
for myself, as well as the other members of the HealthCentral.com's management
team, we are all very impressed with your credentials and we look forward to
your future success in this position.
The terms of your new position with HealthCentral.com are set forth below:
1. Position.
--------
a. You will become the Senior Vice President/ Chief Financial Officer
of HealthCentral.com, working out of HealthCentral.com's headquarters office in
Emeryville, California. You will report to HealthCentral.com's Chief Executive
Officer.
b. You agree to the best of your ability and experience that you will
at all times loyally and conscientiously perform all of the duties and
obligations required of you and from you pursuant to the express and implicit
terms hereof, and to the reasonable satisfaction of HealthCentral.com. During
the term of your employment, you further agree that you will devote all of your
business time and attention to the business of HealthCentral.com,
HealthCentral.com will be entitled to all of the benefits and profits arising
from or incident to all such work services and advice, you will not render
commercial or professional services of any nature to any person or organization,
whether or not for compensation, without the prior written consent of
HealthCentral.com's Chief Executive Officer, and you will not directly or
indirectly engage or participate in any business that is competitive in any
manner with the business of HealthCentral.com. Nothing in the letter agreement
will prevent you from accepting, speaking or presentation engagements in
exchange for honoraria or from serving on boards of charitable organizations, or
form owning no more than one percent (1%) of the outstanding equity securities
of a corporation whose stock is listed on the national stock exchange.
Exceptions are noted in Attachment A.
2. Start Date. Subject to fulfillment of any conditions imposed by this
----------
letter agreement, you will commence this new position with HealthCentral.com on
or about July 12, 1999.
<PAGE>
[LETTERHEAD OF HEALTHCENTRAL]
June 22, 1999
Page 2
3. Proof of Right to Work. For purpose of federal immigration law, you
----------------------
will be required to provide to HealthCentral.com documentary evidence of you
identity and eligibility for employment in the United States. Such documentation
must be provided to us within three (3) business days of your date of hire, or
our employment relationship with you may be terminated.
4. Compensation.
------------
a. Base Salary. You will be paid a semi-monthly salary, of $8,333.33
-----------
which is equivalent to $200,000.00 on an annualized basis. Your salary will be
payable in pursuant to HealthCentral.com's regular payroll policy (or in the
same manner as other officers of HealthCentral.com).
b. Bonus. You will be eligible to receive an incentive bonus of up to
-----
30% of your base salary, with an incentive bonus of 15% of your base salary
guaranteed for the first 12 months of your employment, paid out semi-monthly.
Payment of the remainder of your potential bonus will be based on achievement of
certain performance goals to be determine by the Chief Executive Officer within
60 days of your Start Date.
c. Annual Review. Your base salary will be reviewed at the end of
-------------
each calendar year as part of HealthCentral.com's normal salary review process.
5. Stock Options.
-------------
a. Initial Grant. In connection with the commencement of your
-------------
employment, HealthCentral.com will recommend that the Board of Directors grant
you an option purchase 250,000 shares of HealthCentral.com's Common Stock
("Shares") with an exercise price equal to the fair market value on the date of
grant. These option shares will vest as follows: 1/4/th/ of the total shares
subject to the option will vest on the one year anniversary of the vesting
commencement date (your Start Date), and 1/48/th/ of the total shares will vest
on the monthly anniversary of the vesting commencement date thereafter. Vesting
will, of course, depend on your continued employment with HealthCentral.com. The
option will be an incentive stock option to the maximum extent allowed by the
tax code and will be subject to the terms of HealthCentral.com's 1998 Plan and
Stock Option Agreement between you and HealthCentral.com.
b. Subsequent Option Grants. Subject to the discretion of
------------------------
HealthCentral.com's Board of Directors, you may be eligible to receive
additional grants of stock options or restricted stock issuances from time to
time in the future, on such terms and subject to such conditions as the Board
of Directors shall determine as of the date of any such grant.
<PAGE>
[LETTERHEAD OF HEALTHCENTRAL]
June 22, 1999
Page 3
c. Acceleration of Vesting in Event of Change of Control.
-----------------------------------------------------
(i) Definition of Change of Control. A "Change of Control"
------------------------------- -----------------
means an acquisition of HealthCentral.com, whether by merger (except for a
merger effected solely for the purpose of changing the domicile of
HealthCentral.com) or any other transaction or series of related transactions in
which the shareholders of HealthCentral.com immediately prior thereto own less
than 50% of the outstanding shares of capital stock of HealthCentral.com (or its
successor or parent) immediately thereafter.
(ii) Acceleration Upon Change of Control. Upon the closing of a
-----------------------------------
Change of Control, fifty percent (50%) of your options to purchase Common Stock
of HealthCentral.com and/or shares of restricted stock of HealthCentral.com that
are unvested as of the date of the Change of Control (the "Unvested Shares")
---------------
shall immediately become vested.
(iii) Vesting of Remaining Unvested Shares. Upon a change of
------------------------------------
Control, the remainder of the Unvested Shares for which vesting was not
accelerated pursuant to Section 5 (c)(ii) shall continue to vest at the same
monthly rate as prior to the Change of Control (i.e., if 200 shares vested per
month prior to the Change of Control, the remaining Unvested Shares will
continue to vest at a rate of 200 shares per month after the Change of Control)
and in accordance with the applicable stock option or restricted stock purchase
agreement.
(iv) Acceleration of Vesting on Termination Following A change
---------------------------------------------------------
of Control. If HealthCentral.com (or its successor or parent) terminates you
- ----------
without Cause (as defined below) within twelve months after a Change of Control,
then the remaining Unvested Shares shall immediately become vested on such
termination date.
(iv) Effects on Pooling Accounting. Notwithstanding anything to
-----------------------------
the contrary in this Section 5, if such potential vesting acceleration would
cause a contemplated Change of Control transaction that was intended to be
accounted for as a "pooling-of-interests" transaction to become ineligible for
--------------------
such accounting treatment under generally accepted accounting principles, as
determined by HealthCentral.com's independent public accountants prior to the
Change of Control, the vesting of such shares and/or options shall not be so
accelerated.
<PAGE>
[LETTERHEAD OF HEALTHCENTRAL APPEARS HERE]
June 22, 1999
Page 4
6. Benefits.
--------
a. Insurance Benefits. HealthCentral.com will provide you with
------------------
standard medical and dental insurance benefits when they become available
(Q3/99). Until such benefits are available, we will reimburse you for any ERISA
payments you make to maintain your current health and dental insurance benefits.
In addition, HealthCentral current indemnifies all officers and directors to
the maximum extent permitted by law, and you will be requested to enter into
HealthCentral.com's standard form of Indemnification Agreement giving you such
protection. Pursuant to the Indemnification Agreement, Health Central will agree
to advance any expenses for which indemnification is available to the extent
allowed by applicable law.
b. Paid Time Off. You will be entitled to 20 paid time off days per
-------------
year in addition to 8 paid holidays per year, pro-rated for the remainder of
this calendar year. Vacation accrues according to the following schedule: you
accrue 1/24 (based on 24 pay periods each year) of your annual paid time off
each pay period. For example, if you are a full-time employee and are eligible
to earn three weeks of paid time off each year, you accrue 1/24 of 120 hours (3
weeks X 40 hours) or 5 hours, each pay period.
7. Confidential Information and Invention Assignment Agreement. Your
-----------------------------------------------------------
acceptance of this offer and commencement of employment with HealthCentral.com
is contingent upon the execution, and delivery to an offer of HealthCentral.com,
HealthCentral.com's Confidential Information and Invention Assignment Agreement,
a copy of which is enclosed for your review and execution (the "Confidentiality
---------------
Agreement"), prior to or on your Start Date.
- ---------
8. Severance Provision.
-------------------
a. Severance Payment. If, during the first year after your Start Date
-----------------
you are terminated for any reason other than "Cause" (as defined below), then
HealthCentral.com shall continue to pay you on a monthly basis and at a monthly
rate your monthly base salary in effect immediately prior to such termination
(less applicable withholding tax) during the period from your termination date
until the one year anniversary of your Start Date (the "Severance Period") but
in no event shall it be less than six months, subject to your continued
compliance with all of the terms of the Confidentiality Agreement and the
surviving terms of this Agreement (including but not limited to Section 8(c)).
b. Definition of "Cause". As used in Section 8 of this Agreement, the
---------------------
term "Cause" shall mean:
(i) you personally engaging in knowing and intentional illegal
conduct which is seriously injurious to HealthCentral.com or its affiliates;
<PAGE>
[LETTERHEAD OF HEALTHCENTRAL]
June 22, 1999
Page 5
(ii) you being convicted of a felony, or committing an act of
dishonesty or fraud against, or the misappropriation of property belonging to,
HealthCentral.com or its affiliates;
(iii) your performance of those acts identified in Section 2924 of the
California Labor Code;
(iv) you knowingly and intentionally breaching any material term of
this Agreement or Confidentiality Agreement;
(v) your commencement of employment with another employer while an
employee with HealthCentral.com; or
(vi) any material breach by you of any material provision of this
Agreement or Confidentiality Agreement which continues uncured for 20 days
following notice thereof.
(c) Non-Competition. During the period, if any, in which HealthCentral.com
---------------
pays you severance benefits pursuant to Section 8(a), you will not individually
or as an employee, consultant, partner, officer, director, or shareholder or in
any other capacity whatsoever of or for any person, firm partnership, company or
corporation, work as an employee or consultant, or own, manage, operate, sell,
control or participate in the ownership, management, operation, sales or control
of any business engaged in the provision of health information, products and
services to the general public (including linkages between consumers and health
providers, payors, and ancillary entitles) in various media, including but not
limited to radio, television, internet, interactive television, interactive
cable and satellite. This provision shall survive the termination of this
Agreement for any reason or no reason.
9. Confidentiality of Terms. You agree to follow HealthCentral.com's
------------------------
strict policy that employees must not disclose, either directly or indirectly,
any information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any persons, including other
employees of HealthCentral.com; provided, however, that you may discuss such
terms with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advise.
10. At-Will Employment. Your employment with HealthCentral.com will be on
------------------
an "at will" basis, meaning that either you or HealthCentral.com may terminate
your employment at any time for any reason or no reason, without further
obligation or liability, subject to Section 5 and 8.
<PAGE>
[LETTERHEAD OF HEALTHCENTRAL]
June 22, 1999
Page 6
11. Employee Resignation; Termination For Cause. If you resign from
-------------------------------------------
HealthCentral.com (or its successor or parent), or if you are terminated for
Cause, then you shall not be entitled to receive any severance benefits pursuant
to Section 8 or any acceleration benefits pursuant to Section 5 (c)(iv). You
will receive payment(s) for all salary and unpaid vacation accrued as of the
date of your termination of employment and your benefits will be continued under
HealthCentral.com's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination and in accordance
with applicable law.
12. Miscellaneous. This Agreement shall be governed by laws of the State
-------------
of California applicable to contacts entered into and preformed entirely within
the State, without giving effect to principles or conflict of law. If one or
more provisions of this Agreement are held to be unenforceable under applicable
law, the parties agree to renegotiate such provision in good faith. In the event
that the parties cannot reach a mutually agreeable and enforceable replacement
for such provision, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of the Agreement shall be interpreted as if such
provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
Fred, letter such as this are usually rather cold and legalistic. Let
me assure you that we are all delighted to be able to extend you this offers and
look forward to working with you. To indicated your acceptance of
HealthCentral.com's offer, please sign and date this letter in the space
provided below and return it to me, along with a signed and dated copy of the
Confidentiality Agreement. This letter, together with the Confidentiality
Agreement, set forth the terms of your employment with HealthCentral.com and
supersede any prior representations or agreements, whether written or oral. This
letter may not be modified or amended except by a written agreement, signed by
HealthCentral.com and by you.
Very truly yours,
/s/ Albert L. Greene
Albert L. Greene
President and Chief Executive Officer
<PAGE>
[LETTERHEAD OF HEALTHCENTRAL APPEARS HERE]
June 22, 1999
Page 7
By:__________________
Date:________________
ACCEPTED AND AGREED:
C. Fred Toney
/s/ C. Fred Toney
- --------------------
Signature
6/23/99
- --------------------
Date
Attachment A: Permitted Outside Directorships and Ownership positions of more
than 1% of corporations listed on a national stock exchange
Attachment B: Confidential Information and Invention Assignment Agreement
<PAGE>
EXHIBIT 10.12
[HEALTHCENTRAL LETTERHEAD]
August 4, 1999
Ms. Anne Marie Buddrus
HealthCentral.com
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
Dear Anne Marie,
This letter will address the concerns regarding Severance.
If, during the first year after your State Date, you are terminated for any
reason other than "Cause" (as defined below), then HealthCentral.com shall
continue to pay you on a monthly basis and at a monthly rate your monthly base
salary in effect immediately prior to such termination (less applicable
withholding tax) during the period from your termination date until the one year
anniversary of your Start Date (the "Severance Period") but in no event shall it
be less than six months, subject to your continued compliance with all of the
terms of the Confidentiality Agreement and your letter of employment.
The term "Cause" shall mean:
(i) you personally engaging in knowing and intentional illegal conduct
which is seriously injurious to HealthCentral.com or its affiliates;
(ii) you being convicted of a felony, or committing an act of dishonesty
or fraud against, or the misappropriation of property belonging to,
HealthCentral.com or its affiliates;
(iii) your performance of those acts as identified in Section 2924 of the
California Labor Code;
(iv) you knowingly and intentionally breaching any material term of this
Agreement or Confidentiality Agreement;
(v) your commencement of employment with another employer while an
employee with HealthCentral.com; or
(vi) any material breach by you of any material provision of this
Agreement, your letter of employment, or Confidentiality/Non-
competition Agreement which continues uncured for 20 days following
notice thereof.
Sincerely,
/s/ AL GREENE
--------------
Al Greene
President & CEO
<PAGE>
EXHIBIT 10.13
LOCK-UP AGREEMENT
August 27, 1999
HealthCentral.com
Marketplace Tower
6001 Shellmound Street
Suite 800
Emeryville, CA 94608
Ladies and Gentlemen:
Pursuant to a Common Stock Purchase Agreement dated August 30, 1996,
HealthCentral.com (the "Company") sold and issued 1,844,000 shares of its Common
-------
Stock (the "Shares") to Dr. Dean Edell ("the Shareholder"). The Company and the
------ ---------------
Shareholder recognize that, in order to provide the Company with an enhanced
opportunity to raise additional capital for the benefit of all shareholders,
including of the Shareholder, it is necessary and appropriate for the
Shareholder to agree to subject 50% of the Shares, or 922,000 shares of Common
Stock (as adjusted for any future stock splits, combinations, recapitalizations
and the like) (the "Locked-Up Securities"), to certain restrictions on transfer.
--------------------
The Shareholder understands that certain investors (the "New
---
Investors") are simultaneously entering into a Series B Preferred Stock Purchase
- ---------
Agreement with the Company (the "Purchase Agreement") of even date herewith
------------------
pursuant to which the Company desires to sell to the New Investors and the New
Investors desire to purchase from the Company shares of the Company's Series B
Preferred Stock. A condition to the New Investors' obligations under the
Purchase Agreement is that the Company and the Shareholder enter into this
agreement (this "Letter") in which the Shareholder agrees to subject the Locked-
------
Up Securities to certain restrictions on transfer as described below.
In consideration of the execution of the Purchase Agreement by the New
Investors, and for other consideration, the sufficiency of which is hereby
acknowledged, the Shareholder agrees that, for a period beginning upon the date
hereof and ending upon the earlier of (i) two years from the date hereof, or
(ii) one year after the consummation of a firm commitment public offering by the
Company of its shares of Common Stock under the Securities Act of 1933, as
amended (the "Lock-Up Period"), without the prior written consent of the
--------------
Company and the holders of a majority of the shares of the Company's Preferred
Stock (or Common Stock issuable upon conversion thereof) held by the New
Investors then outstanding, the Shareholder will not, directly or indirectly,
offer, sell, contract to sell, grant any option or warrant for the sale of,
register, or otherwise transfer, dispose of, loan, pledge or grant any rights
with respect to (any one of which being referred to herein as a "Disposition")
-----------
the Locked-Up Securities. The foregoing restriction is expressly agreed to
preclude the Shareholder from
<PAGE>
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of the Locked-Up Securities
during the Lock-Up Period, even if such Locked-Up Securities would be disposed
of by someone other than the Shareholder. The lock-up restriction described in
this paragraph shall not apply to: (a) the 922,000 shares (as adjusted for any
future stock splits, combinations, recapitalizations and the like) currently
held of record by the Shareholder that are not considered Locked-Up Securities
pursuant to this Letter, (b) transactions relating to securities acquired in
open market transactions during the Lock-Up Period, (c) bona fide gifts,
provided the donee or donees thereof agree to be bound by this Lock-Up
Agreement, or (d) dispositions to any trust for the direct or indirect benefit
of the Shareholder or the immediate family of the Shareholder, provided that
such trust agrees in writing to be bound by the terms of this Letter.
The Shareholder agrees and consents to the entry of stop transfer
instructions with the transfer agent for the Company's capital stock against any
transfer of shares of capital stock of the Company in contravention of the
restrictions set forth above. The Shareholder confirms that it understands that
the New Investors and the Company will rely upon the representations set forth
in this letter in proceeding with the sale of the Series B Preferred Stock under
the Purchase Agreement.
The Shareholder hereby represents and warrants that the Shareholder
has full power and authority to enter into this Letter, and that, upon request,
the Shareholder will execute any additional documents necessary or desirable in
connection with the enforcement hereof. The Shareholder understands and
acknowledges that the restrictions set forth in this Letter serve as additional
restrictions on transfer for the Locked-Up Securities, and do not diminish in
any way the restrictions agreed to by the Shareholder and imposed upon the
securities held by the Shareholder in Section 1.14 of the First Amended and
Restated Investors' Rights Agreement between the Company and certain investors,
including the Shareholder, and the restrictions agreed to by the Shareholder and
imposed upon the securities held by the Shareholder in Section 3(f) of the
Common Stock Purchase Agreement between the Company and the Shareholder, or any
other restriction on transfer which the Shareholder may agree to be bound by in
the future. This Letter may be executed in counterparts.
-2-
<PAGE>
The Shareholder has executed this Letter as of the day and year first set
forth above.
THE SHAREHOLDER:
Dr. Dean Edell
/s/ Dean Edell
___________________________________
ADDRESS:
___________________________________
AGREED AND ACCEPTED
THIS 27 DAY OF AUGUST:
HEALTHCENTRAL.COM:
/s/ Albert L. Greene
______________________________
Albert L. Greene, President
ADDRESS:
Marketplace Tower
6001 Shellmound Street
Suite 800
Emeryville, CA 94608
-3-
<PAGE>
EXHIBIT 10.14
HEALTHCENTRAL.COM
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement") is made and entered
---------
into by and between Albert L. Greene (the "Employee") and HealthCentral.com, a
--------
California corporation (the "Company"), effective as of ______________, ____.
-------
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
-----
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his or
her employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
certain benefits, upon a Change of Control and upon Employee's termination of
employment thereafter, that provide the Employee with enhanced financial
security and incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.
D. Certain capitalized terms used in this Agreement are defined in
Section 6 below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement or as may otherwise be
available in accordance with the Company's established employee plans and
practices or pursuant to other agreements with the Company.
<PAGE>
3. CHANGE OF CONTROL.
(a) Acceleration Upon Change of Control. Upon a Change of Control,
fifty percent (50%) of the Employee's options to purchase Common Stock of the
Company and/or shares of restricted stock of the Company that are unvested as of
the date of the Change of Control (the "Unvested Shares") shall immediately
---------------
become vested.
(b) Vesting of Remaining Unvested Shares. Upon a Change of Control,
the remainder of the Unvested Shares for which vesting was not accelerated
pursuant to Section 3(a) shall continue to vest at the same monthly rate as
prior to the Change of Control (i.e., if 200 shares vested per month prior to
the Change of Control, the remaining Unvested Shares will continue to vest at
the rate of 200 shares per month after the Change of Control) and in accordance
with the applicable stock option or restricted stock purchase agreement.
(c) Termination Following a Change of Control. If the Employee's
employment terminates as a result of Involuntary Termination other than for
Cause at any time within 12 months following a Change of Control, then, subject
to Section 4, all of the remaining Unvested Shares then held by the Employee
shall automatically be accelerated in full so as to become completely vested as
of the date of such Involuntary Termination.
(d) Pooling of Interests. Notwithstanding any other provision of this
Agreement, in the event that any potential vesting acceleration pursuant to the
foregoing Sections 3(a), (b) or (c) would cause a contemplated Change of Control
transaction that was intended to be accounted for as a "pooling-of-interests"
transaction to become ineligible for such accounting treatment under generally
accepted accounting principles, as determined by the Company's independent
public accountants (the "Accountants") prior to the Change of Control,
Employee's stock options and restricted stock shall not have their vesting so
accelerated.
(e) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive any benefits except for those
(if any) as may then be established under the Company's then existing severance
and benefits plans and practices or pursuant to other agreements with the
Company.
(f) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or such Employee's
employment is terminated due to the death of the Employee, then the Employee
shall not be entitled to receive any benefits except for those (if any) as may
then be established under the Company's then existing severance and benefits
plans and practices or pursuant to other agreements with the Company.
(g) Termination Apart from Change of Control. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve-month period following a
Change of Control, then the Employee shall not be entitled to receive any
benefits except for those (if any) as may then be established
<PAGE>
under the Company's existing severance and benefits plans and practices or
pursuant to other agreements with the Company.
4. LIMITATION ON PAYMENTS. In the event that the any of the Employee's
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
Section 4, would be subject to the excise tax imposed by Section 4999 of the
Code (or any corresponding provisions of state income tax law), then such
benefits shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to excise tax under Section 4999 of the
Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-tax-basis, of the
greater amount of benefits, notwithstanding that all or some portion of such
benefits may be taxable under Section 4999 of the Code. Unless the Company and
the Employee otherwise agree in writing, any determination required under this
Section 4 shall be made in writing by the Accountants, whose determination shall
be conclusive and binding upon the Employee and the Company for all purposes.
For purposes of making the calculations required by this Section 4, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and the Employee shall furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 4. In the
event that subsection (a) above applies, then Employee shall be responsible for
any excise taxes imposed with respect to such benefits. In the event that
subsection (b) above applies, then each benefit provided hereunder shall be
proportionately reduced to the extent necessary to avoid imposition of such
excise taxes.
5. DEFINITION OF TERMS. The following terms used in this Agreement shall
have the following meanings:
(a) "Cause" shall mean (i) gross negligence or willful misconduct in
-----
the performance of the Employee's duties to the Company; (ii) repeated
unexplained or unjustified absence from the Company; (iii) a material and
willful violation of any federal or state law or any agreement with the Company;
(iv) refusal or failure to act in accordance with any specific direction or
order of the Company; (v) commission of any act of fraud with respect to the
Company; or (vi) conviction of a felony or a crime involving moral turpitude
causing material harm to the standing and reputation of the Company, in each
case as determined by the Board of Directors of the Company.
<PAGE>
(b) "Change of Control" means the consummation of any of the
-----------------
following events:
(i) the sale of all or substantially all of the assets of the
Company; or
(ii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iii) a tender or exchange offer or other transaction or series
of transactions resulting in less than a majority of the outstanding voting
shares of the surviving corporation being held, immediately after such
transaction or series of transactions, by the holders of the voting shares of
the Company outstanding immediately prior to such transaction or series of
transactions.
(c) "Disability" shall mean that the Employee has been unable to
----------
perform his or her Company duties as the result of his or her incapacity due to
physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and reasonably acceptable to the Employee or the
Employee's legal representative (such Agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its intention
to terminate the Employee's employment. In the event that the Employee resumes
the performance of substantially all of his or her duties hereunder before the
termination of his or her employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(d) "Involuntary Termination" shall mean (i) without the Employee's
-----------------------
express written consent, the significant reduction of the Employee's duties,
authority or responsibilities, relative to the Employee's duties, authority or
responsibilities as in effect immediately prior to such reduction, or the
assignment to Employee of such reduced duties, authority or responsibilities;
(ii) without the Employee's express written consent, a substantial reduction,
without good business reasons, of the facilities and prerequisites (including
office space and location) available to the Employee immediately prior to such
reduction; (iii) a reduction by the Company in the base salary of the Employee
as in effect immediately prior to such reduction; (iv) a material reduction by
the Company in the kind or level of employee benefits, including bonuses, to
which the Employee was entitled immediately prior to such reduction with the
result that the Employee's overall benefits package is significantly reduced;
(v) the relocation of the Employee to a facility or a location more than thirty
(30) miles from the Employee's then present location, without the Employee's
express written consent; (vi) any purported termination of the Employee by the
Company which is not effected for Disability or for Cause, or any purported
termination for which the grounds relied upon are not valid; (vii) the failure
of the Company to obtain the assumption of this Agreement by any successors
contemplated in Section 6(a) below;
<PAGE>
or (viii) any act or set of facts or circumstances which would, under California
case law or statute, constitute a constructive termination of the Employee.
(e) "Termination Date" shall mean (i) if this Agreement is terminated
----------------
by the Company for Disability, thirty (30) days after notice of termination is
given to the Employee (provided that the Employee shall not have returned to the
performance of the Employee's duties on a full-time basis during such thirty
(30)-day period), (ii) if the Employee's employment is terminated by the Company
for any other reason, the date on which a notice of termination is given,
provided that if within thirty (30) days after the Company gives the Employee
notice of termination, the Employee notifies the Company that a dispute exists
concerning the termination or the benefits due pursuant to this Agreement, then
the Termination Date shall be the date on which such dispute is finally
determined, either by mutual written agreement of the parties, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected), or (iii)
if this Agreement is terminated by the Employee, the date on which the Employee
delivers the notice of termination to the Company.
6. SUCCESSORS.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
-------
which executes and delivers the assumption agreement described in this Section
6(a) or which becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
7. NOTICE.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or five (5) days after being mailed by U.S. registered
or certified mail, return receipt requested and postage prepaid. In the case of
the Employee, mailed notices shall be addressed to him or her at the home
address which he or she most recently communicated to the Company in writing.
In the case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation and any Involuntary
Termination shall be
<PAGE>
communicated by a notice of termination to the other party hereto given in
accordance with Section 7(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 30 days after the giving of such notice). The
failure by the Employee to include in the notice any fact or circumstance which
contributes to a showing of Involuntary Termination shall not waive any right of
the Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his or her rights hereunder.
8. MISCELLANEOUS PROVISIONS.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. This Agreement represents the entire agreement
between the Employee and the Company with respect to the matters set forth
herein. No agreements, representations or understandings (whether oral or
written and whether express or implied) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
<PAGE>
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the date set forth
above.
COMPANY: HEALTHCENTRAL.COM
By:_____________________________________
Title:__________________________________
EMPLOYEE: ________________________________________
Signature
________________________________________
Please print name
<PAGE>
EXHIBIT 10.15
HEALTHCENTRAL.COM
LICENSE AND CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------------------
This License and Confidential Information Agreement is entered into this
14th day of May, 1999 between Dean Edell, M.D. (the "Founder") and
HealthCentral.com, a California corporation (the "Company").
A. The Founder is a founding shareholder of the Company and owns 1,844,000
shares of Common Stock of the Company (the "Founder's Shares"). The Company is
engaged in the business of providing health care services, products and
information via the internet and other interactive media, excluding radio and
television (the "Business").
B. The Founder owns the trade name, trademark and servicemark "Dr. Dean
Edell" (the "Trademark"). The parties desire that the Company use the
Trademark, as well as Founder's likeness and image (together with Trademark, the
"Name") in connection with the Business and own the Work (as defined below) that
the Founder creates for or provides to the Company.
Therefore, the parties agree as follows:
1. Exclusive License to Use Name in Company's Business. In consideration
---------------------------------------------------
of the rights granted to Founder in Section 5, Founder hereby grants to Company
(including its successors and assigns) an exclusive, worldwide, transferable,
royalty-free right and license (with the right to sublicense) to use and
reproduce the Name solely in connection with the Company's Business. The Company
agrees to maintain the same or improved standards of quality for the
information, services and products that it provides in the Business as those
established and in effect as of the date of this Agreement. The Company
covenants and agrees that it will not intentionally permit, do or commit any act
that would degrade, tarnish or deprecate the Founder or the Founder's public
image in society or standing in the community. Founder hereby represents and
warrants that he has all right, title and interest in the Name.
2. Assignment of Work Relating to Company's Business. During the course
-------------------------------------------------
of Founder's relationship as a director or advisor of the Company (which
advisory or director relationship between the Company and Founder, whether
commenced prior to or upon the date of this Agreement shall be referred to
herein as the "Relationship"), Founder shall from time to time, and as mutually
------------
agreed between Founder and the Company, provide to or create for the Company
articles and other written or electronically transmitted information relating to
the Company's Business (the "Work"). The Founder hereby assigns and agrees to
assign to the Company or its designee, Founder's entire right, title, and
interest throughout the world in and to the Work and all intellectual property
rights thereto. Founder further acknowledges that all Work that is made by
Founder (solely or jointly with others) within the scope of and during the
period of the Relationship is "works made for hire," and that the Company will
be the owner of all copyrights relating to the Work. Founder agrees to perform,
during and after the Relationship, all acts deemed reasonably necessary by the
Company to permit and assist it, at its expense, in obtaining and enforcing the
full benefits, enjoyment, rights and title throughout the world in the Work and
all intellectual property rights thereto.
3. Confidentiality Obligation. Founder agrees to hold in confidence and
--------------------------
not to use (except in connection with the provision of services as a director or
advisor and in the best interests of the Company) or disclose to any third
person or entity, either during or after the termination of the Relationship,
any Confidential Information Founder obtains or creates during the period of the
<PAGE>
Relationship, whether or not during working hours, until such Confidential
Information becomes generally known by the public. Founder agrees not to make
copies of such Confidential Information except as authorized by the Company.
Upon termination of the Relationship, Founder will return or deliver to the
Company all tangible forms of such Confidential Information in his possession or
control. As used in this Agreement, the term "Confidential Information" means
------------------------
information pertaining to the Business of the Company disclosed to Founder by
the Company either directly or indirectly in writing, orally or by drawings or
observation of parts or equipment or created by Founder during the Relationship
and relating to the Business.
4. No Conflicts. Founder represents that the performance of all the terms
------------
of this Agreement and provision of services as a director and advisor to the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by Founder in confidence or
in trust prior to the Relationship, and Founder will not disclose to the
Company, or induce the Company to use, any confidential or proprietary
information or material belonging to any previous employer or others. Founder
has not entered into, and agrees not to enter into, any written or oral
agreement that conflicts with the provisions of this Agreement.
5. Approval of Content and Advertising. Founder has the right to review
-----------------------------------
and reasonably approve (within ten business days after receipt) all content and
advertising to be located on the "Dr. Dean" section of the Company's
"HealthCentral.com" web site. Founder agrees that he will not unreasonably
withhold his consent to the Company's choice of any such content and/or
advertising.
6. Competitive Protection. Founder agrees that the Company shall be the
----------------------
sole vehicle through which his services will be commercialized in the Internet
field (except for the publication of radio broadcast transcripts over the
Internet, pursuant to an agreement between Founder and Premier Radio Networks,
Inc. dated January 1, 1998). During the term of this Agreement, Founder will not
invest in, or provide any services, including but not limited to services as an
author, host or contributor, or publicity or advertising services to, nor will
Founder participate in the development, production or promotion of any products
or services offered by, any person or entity which the Company's Board of
Directors (in a vote in which Founder abstains) reasonably deems to be a
competitor in the Business.
7. Term and Termination for Breach. This Agreement (and all licenses
-------------------------------
hereunder) shall be deemed to be effective beginning on the first day of the
Relationship and shall terminate on May 13, 2014 (the "Expiration Date"). A
party may terminate this Agreement in advance of the Expiration Date if the
other party has breached a material provision of this Agreement and has not
cured such breach within thirty (30) days after receiving written notice of such
breach from the nonbreaching party. If Founder terminates this Agreement
pursuant to this Section 7, Sections 1, 5 and 6 of this Agreement shall
terminate, but all other provisions of this Agreement shall survive such
termination until the Expiration Date. If the Company terminates this Agreement
pursuant to this Section 7, Section 5 of this Agreement shall terminate, but all
other provisions of this Agreement shall survive such termination until the
Expiration Date.
<PAGE>
8. Miscellaneous. This Agreement sets forth the entire agreement between
-------------
the Company and Founder relating to the subject matter herein, and supersedes
any oral, written or other communications or agreements concerning the subject
matter of this Agreement. This Agreement may be amended or waived only by a
written instrument signed by the parties. This Agreement shall be governed by
the laws of the State of California applicable to contracts entered into and
performed entirely within the State, without giving effect to principles of
conflict of law. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
This Agreement (a) shall survive the Relationship, (b) inures to the benefit of
successors and assigns of the Company, and (c) is binding upon Founder`s heirs
and legal representatives. Any notice given hereunder shall be in writing and
shall be sent to the address for the party on the signature page below (and as
may be changed by prior written notice to the other party) and shall deemed to
be delivered: 1) upon receipt, if by express overnight courier, personal
delivery or facsimile transmission (as evidenced by sender's confirmation
receipt), or 2) 48 hours after posting in the U.S. mail, by either certified or
registered mail.
This Agreement is entered into as of this 14 day of May, 1999.
HEALTHCENTRAL.COM
By: /s/ Albert Greene /s/ Dean Edell
--------------------------- -------------------------------------
Name: Albert Greene Dean Edell, M.D.
----------------------
Title: CEO
---------------------
Dated: May 14, 1999
Address: 2600 Tenth Street, #400 Address: ____________________________
Berkeley, CA
____________________________
<PAGE>
EXHIBIT 10.16
OFFICE LEASE
MARKETPLACE TOWER
EMERYVILLE, CALIFORNIA
- --------------------------------------------------------------------------------
LANDLORD
CHRISTIE AVENUE PARTNERS - JS
TENANT
HEALTHCENTRAL.COM
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions............................................................................ 1
1.1. Terms Defined............................................................... 1
1.2. Effect of Certain Defined Terms............................................. 4
2. Lease of Premises...................................................................... 4
3. Term; Condition and Acceptance of Premises............................................. 4
3.1. Commencement and Acceptance................................................. 4
3.2. Option to Extend............................................................ 4
4. Rent................................................................................... 6
4.1. Obligation to Pay Base Rent................................................. 6
4.2. Manner of Rent Payment...................................................... 6
4.3. Additional Rent............................................................. 6
4.4. Late Payment of Rent, Interest.............................................. 6
5. Calculation and Payment of Rent........................................................ 6
5.1. Payment of Estimated Rent................................................... 6
5.2. Statement and Adjustment.................................................... 7
5.3. Proration for Partial Year.................................................. 7
6. Impositions Payable by Tenant.......................................................... 7
7. Use of Premises........................................................................ 7
7.1. Permitted Use............................................................... 7
7.2. No Violation of Legal and Insurance Requirements............................ 7
7.3. Compliance with Legal, Insurance and Life Safety Requirements............... 8
7.4. No Nuisance................................................................. 8
7.5. Hazardous Substance......................................................... 8
7.6. Special Provisions Relating to The Americans With Disabilities Act of 1990.. 9
8. Building Services...................................................................... 10
8.1. Maintenance of Marketplace.................................................. 10
8.2. Building Standard Services.................................................. 10
8.3. Interruption or Unavailability of Services.................................. 10
8.4. Tenant's Use of Excess Electricity and Water................................ 11
8.5. Provision of Additional Services............................................ 11
9. Maintenance of Premises................................................................ 11
10. Alterations to Premises................................................................ 11
10.1. Landlord Consent; Procedure................................................. 11
10.2. General Requirements........................................................ 11
10.3. Removal of Alterations...................................................... 12
11. Liens.................................................................................. 12
12. Damage or Destruction.................................................................. 12
12.1. Obligation to Repair........................................................ 12
12.2. Landlord's Election......................................................... 12
12.3. Cost of Repairs............................................................. 12
12.4. Damage at End of Term....................................................... 13
12.5. Waiver of Statutes.......................................................... 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
13. Eminent Domain......................................................................... 13
13.1. Effect of Taking............................................................ 13
13.2. Condemnation Proceeds....................................................... 13
13.3. Restoration of Premises..................................................... 13
13.4. Taking at End of Term....................................................... 13
13.5. Tenant Waiver............................................................... 14
14. Insurance.............................................................................. 14
14.1. Liability Insurance......................................................... 14
14.2. Form of Policies............................................................ 14
14.3. Workers' Compensation Insurance............................................. 14
14.4. Additional Tenant Insurance................................................. 14
15. Waiver of Subrogation Rights........................................................... 14
16. Tenant's Waiver of Liability and Indemnification....................................... 15
16.1. Waiver and Release........................................................... 15
16.2. Indemnification of Landlord.................................................. 15
16.3. Indemnification of Tenant.................................................... 15
17. Assignment and Subletting.............................................................. 15
17.1. Compliances Required........................................................ 15
17.2. Request by Tenant, Landlord Response........................................ 16
17.3. Conditions for Landlord Approval............................................ 16
17.4. Costs and Expenses.......................................................... 16
17.5. Payment of Excess Rent and Other Consideration.............................. 16
17.6. Assumption of Obligations; Further Restrictions on Subletting............... 17
17.7. No Release.................................................................. 17
17.8. No Encumbrance.............................................................. 17
18. Rules and Regulations.................................................................. 17
19. Entry of Premises by Landlord.......................................................... 17
19.1. Right to Enter.............................................................. 17
19.2. Tenant Waiver of Claims..................................................... 18
20. Default and Remedies................................................................... 18
20.1. Events of Default........................................................... 18
20.2. Notice to Tenant............................................................ 18
20.3. Remedies Upon Occurrence of Default......................................... 19
20.4. Damages Upon Termination.................................................... 19
20.5. Computation of Certain Rent for Purposes of Default......................... 19
20.6. Landlord's Right to Cure Defaults........................................... 19
20.7. Remedies Cumulative......................................................... 19
21. Subordination, Attornment and Nondisturbance........................................... 20
21.1. Subordination and Attornment................................................ 20
21.2. Nondisturbance.............................................................. 20
22. Sale or Transfer by Landlord; Lease Non-Recourse....................................... 20
22.1. Release of Landlord on Transfer............................................. 20
22.2. Lease Nonrecourse to Landlord............................................... 20
23. Estoppel Certificate................................................................... 20
23.1. Procedure and Content....................................................... 20
23.2. Effect of Certificate....................................................... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
24. No Light, Air or View Easement......................................................... 21
25. Holding Over........................................................................... 21
26. Intentionally Omitted.................................................................. 21
27. Waiver................................................................................. 21
28. Notices and Consents; Tenant's Agent for Service....................................... 21
29. Tenant's Authority..................................................................... 21
30. Automobile Parking..................................................................... 22
30.1. Tenant's Appurtenant Parking Rights......................................... 22
30.2. Parking Fee................................................................. 22
30.3. Allocation of Risk.......................................................... 22
31. Intentionally Omitted.................................................................. 22
32. Tenant's Signs......................................................................... 22
33. Miscellaneous.......................................................................... 23
33.1. No Joint Venture............................................................ 23
33.2. Successors and Assigns...................................................... 23
33.3. Construction and Interpretation............................................. 23
33.4. Severability................................................................ 23
33.5. Entire Agreement; Amendments................................................ 23
33.6. Governing Law............................................................... 23
33.7. Litigation Expenses......................................................... 23
33.8. Standards of Performance and Approvals...................................... 23
33.9. Brokers..................................................................... 24
33.10. Memorandum of Lease......................................................... 24
33.11. Quiet Employment............................................................ 24
33.12. Surrender of Premises....................................................... 24
33.13. Name of Building; Address................................................... 24
33.14. Exhibits.................................................................... 24
33.15. Time of the Essence......................................................... 24
</TABLE>
<PAGE>
OFFICE LEASE
MARKETPLACE TOWER
6001 Shellmound Street
Emeryville, California
___________________________
BASIC LEASE INFORMATION
Lease Date: March 26, 1999
Landlord: Christie Avenue Partners - JS, a California limited
partnership
Tenant: HealthCentral.com, a California corporation
Premises: A portion of the 8th Floor of the Building, as shown on
the Floor Plan attached to this Lease as Exhibit A,
initially containing approximately 3,855 square feet of
Rentable Area (defined in Section 1.1 of the Lease as the
Initial Premises), subsequently increased to a total of
7,278 square feet of Rentable Area upon delivery of the
Expansion Area (defined in Section 1.1 of the Lease)
Term: Five (5) years from the Commencement Date, subject to one
(1) option to extend the Term for one (1) period of five
(5) years (defined in Section 3.2 of the Lease as the
Extended Term)
Commencement Date: The date of Landlord's delivery of the Initial Premises
to Tenant pursuant to Section 3.1 of the Lease
Expiration Date: The date which is five (5) years after the Commencement
Date, subject to extension pursuant to Section 3.2 of the
Lease
Base Rent:
<TABLE>
<CAPTION>
PERIOD OF TERM AMOUNT
-------------- ------
<S> <C> <C>
Commencement Date through 6th month following $8,288.00/month, subject to adjustment
Commencement Date pursuant to Section 26
7th month following Commencement Date through
12th month following Commencement Date $15,647.00/month
13th month following Commencement Date through
24th month following Commencement Date $16,011.00/month
25th month following Commencement Date through
36th month following Commencement Date $16,375.00/month
37th month following Commencement Date through
48th month following Commencement Date $16,739.00/month
49th month following Commencement Date through
60th month following Commencement Date $17,467.00/month
Extended Term: The greater of: (i) $17,467.00/month plus Escalation Rent or (ii) the Fair Market Rent for the Premises,
as determined in accordance with Section 3.2 of the Lease.
</TABLE>
8
<PAGE>
Base Year: Calendar year 1999
Tenant's Percentage Share: 6.84%
Permitted Use: General office use
Initial Security Deposit: $22,500.00, subject to adjustment as provided in
Section 26.
Tenant's Address: HealthCentral.com
_________________________________________________
_________________________________________________
and
Marketplace Tower
6001 Shellmound Street, Suite 850
Emeryville, California 94608
Landlord's Address c/o The Martin Group of Companies, Inc.
100 Bush Street
Suite 2600
San Francisco, California 94104
Brokers:
Landlord's Broker: Colliers International
Tenant's Broker: CB/Richard Ellis
Exhibits and Addenda
Exhibit A: Floor Plan of Premises
Exhibit B: Legal Description of Land
Exhibit C: Work Letter
Exhibit D: Rules and Regulations of the Marketplace
Exhibit E: Confirmation of Lease Term
The Basic Lease Information is incorporated into and made a part of the Lease.
Each reference in the Lease to any Basic Lease Information shall mean the
applicable information set forth above. In the event of any conflict between an
item in the Basic Lease Information and the Lease, the Lease shall control.
9
<PAGE>
OFFICE LEASE
THIS LEASE is made and entered into by and between Landlord and Tenant as
of the Lease Date. Landlord and Tenant hereby agree as follows:
1. Definitions.
1.1 Terms Defined. The following terms have the meanings set forth below.
Certain other terms have the meanings set forth in the Basic Lease Information
or elsewhere in this Lease.
Alterations: Alterations, additions or other improvements to the Premises
made by or on behalf of Tenant (but not including the alterations, additions or
other improvements, if any, made by or behalf of Tenant during the initial
improvement of the Premises pursuant to and governed by the provisions of the
Work Letter attached hereto as Exhibit C).
Base Operating Expenses and Base Real Estate Taxes: The Operating Expenses
and the Real Estate Taxes paid or incurred by Landlord in the Base Year.
Building: The office building consisting of an 8-story tower and parking at
grade located on the Land, commonly known as 6001 Shellmound Street, Emeryville,
California.
Marketplace: The Land, the Building, the Shopping Center, landscaping, paved
walkways, driveways and all other improvements at any time located on the Land,
and all appurtenances related thereto, commonly known as The Marketplace.
Escalation Rent: Tenant's Percentage Share of the total dollar increase, if
any, in Operating Expenses and in Real Estate Taxes, each as paid or incurred by
Landlord in each calendar year, or part thereof, after the Base Year, over the
amount of Base Operating Expenses and Base Real Estate Taxes. If the Building or
the Marketplace is less than ninety-five percent (95%) occupied during any part
of any year (including the Base Year), Landlord shall make an appropriate
adjustment of the variable components of Operating Expenses and Real Estate
Taxes for that year, as reasonably determined by landlord using sound accounting
and management principles, to determine the amount of Operating Expenses and
Real Estate Taxes that would have been incurred during such year if the Building
and the Marketplace had been ninety-five percent (95%) occupied during the
entire year (and, if applicable, if the tenant improvements in the Building had
been fully constructed and the Land, the Marketplace, the Building, and all
tenant improvements in the Building and the Marketplace had been fully assessed
for Real Estate Tax purposes). This amount shall be considered to have been the
amount of Operating Expenses and Real Estate Taxes for that year. For purposes
hereof, "variable components" include only those component expenses that are
affected by variations in occupancy levels.
Expansion Area: That portion of the 8th Floor of the Building commonly
referred to as Suite 800, containing approximately 3,423 square feet of Rentable
Area and located adjacent to the Initial Premises.
Impositions: Taxes, assessments, charges, excises and levies, business
taxes, licenses, permits, inspection and other authorization fees, transit
development fees, assessments or charges for housing funds, service payments in
lieu of taxes and any other fees or charges of any kind at any time levied,
assessed, charged or imposed by any federal, state or local entity, (i) upon,
measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures or other personal property located in the
Premises, or the cost or value of any alterations, additions or other
improvements to the Premises made by or on behalf of Tenant during the initial
improvement of the Premises pursuant to and governed by the Work Letter and any
subsequent Alterations; (ii) upon, or measured by, any Rent payable hereunder,
including any gross receipts tax; (iii) upon, with respect to or by reason of
the development, possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or any portion
thereof; or (iv) upon this Lease transaction, or any document to which Tenant is
a party creating or transferring any interest or estate in the Premises.
Impositions do not include Real Estate Taxes, franchise, transfer, inheritance
or capital stock taxes, or income taxes measured by the net income of Landlord
from all sources, unless any such taxes are levied or assessed against Landlord
as a substitute for, in whole or in part, any Imposition.
Initial Premises: That portion of the 8th floor of the Building commonly
referred to as Suite 850, containing approximately 3,855 square feet of Rentable
Area and located adjacent to the Expansion Area.
10
<PAGE>
Land: The parcel of land described on Exhibit B attached to this Lease.
Operating Expenses: All costs of management, operation, maintenance and
repair of the Marketplace, including, but not limited to, the following: (i)
salaries, wages, benefits and other payroll expenses of employees engaged in the
operation, maintenance or repair of the Marketplace; (ii) property management
fees and expenses; (iii) rent (or rentable value) and expenses for Landlord's
and any property manager's offices in the Marketplace; (iv) electricity, natural
gas, water, waste disposal, sewer, heating, lighting, air conditioning and
ventilating and other utilities; (v) janitorial, maintenance, security, life
safety and other services, such as alarm service, window cleaning and elevator
maintenance and uniforms for personnel providing services; (vi) repair and
replacement, resurfacing or repaving of paved areas, sidewalks, curbs and
gutters (except that any such work which constitutes a capital improvement shall
be included in Operating Expenses in the manner provided in clause (xiv) below);
(vii) landscaping, ground keeping, management, operation, and maintenance and
repair of all public, private and park areas adjacent to the Building; (viii)
materials, supplies, tools and rental equipment; (ix) license, permit and
inspection fees and costs; (x) insurance premiums and costs (including an
imputed insurance premium if Landlord self-insures, or a proportionate share if
Landlord insures under a "blanket" policy), and the deductible portion of any
insured loss under Landlord's insurance; (xi) sales, use and excise taxes; (xii)
legal, accounting and other professional services for the Marketplace, including
costs, fees and expenses of contesting the validity or applicability of any law,
ordinance, rule, regulation or order relating to the Building; (xiii)
depreciation on personal property, including exterior window draperies provided
by Landlord and floor coverings in the Common Areas and other public portions of
the Building, and/or rental costs of leased furniture, fixtures, and equipment;
and (xiv) the cost of any capital improvements to the Marketplace made at any
time to the Marketplace that are intended in Landlord's judgment as labor saving
devices, or to reduce or eliminate other Operating Expenses or to effect other
economies in the operation, maintenance, or management of the Marketplace, or
that are necessary or appropriate in Landlord's judgment for the health and
safety of occupants of the Marketplace, or that are required under any law,
ordinance, rule, regulation or order which was not applicable to the Marketplace
at the time it was construed, all amortized over such reasonable period as
Landlord shall determine at an interest rate of ten percent (10%) per annum, or,
if applicable, the rate paid by Landlord on funds borrowed for the purpose of
constructing or installing such capital improvements. Operating Expenses shall
not include: (A) Real Estate Taxes; (B) legal fees, brokers' commissions or
other costs incurred in the negotiation, termination, or extension of leases or
in proceedings involving a specific tenant; (C) depreciation, except as set
forth above; (D) interest, amortization or other payments on loans to Landlord
except as a component of amortization as set forth above; and (E) the cost of
capital improvements, except as set forth above and provided that such capital
improvements are made to the Marketplace during the Term. Subject to the
provisions of this definition, the determination of Operating Expenses shall be
made by Landlord in accordance with generally accepted accounting principles and
practices consistently applied. The term ""Operating Expenses" shall include the
following: (i) 100% of Operating Expenses, as defined above, paid or incurred
with respect to the office portion of the Building, (ii) 87.75% of Operating
Expenses, as defined above, paid or incurred with respect to the common area
portion of the Building, and (iii) 40.9% of Operating Expenses, as defined
above, paid or incurred with respect to the Marketplace in general.
Real Estate Taxes: 40.93% of all taxes, assessments and charges now or
hereafter levied or assessed upon, or with respect to, the Marketplace or any
portion thereof, or any personal property of Landlord used in the operation
thereof or located therein, or Landlord's interest in the Marketplace or such
personal property, by any federal, state or local entity, including: (i) all
real property taxes and general and special assessments; (ii) charges, fees or
assessments for transit, housing, day care, open space, art, police, fire or
other governmental services or benefits to the Marketplace; (iii) service
payments in lieu of taxes; (iv) any tax, fee or excise on the use or occupancy
of any part of the Marketplace, or on rent for space in the Marketplace; (v) any
other tax, fee or excise, however described, that may be levied or assessed as a
substitute for, or as an addition to, in whole or in part, any other Real Estate
Taxes; and (vi) reasonable fees and expenses, including those of consultants or
attorneys, incurred in connection with proceedings to contest, determine or
reduce Real Estate Taxes. Real Estate Taxes do not include: (A) franchise,
transfer, inheritance or capital stock taxes, or income taxes measured by the
net income of Landlord from all sources, unless any such taxes are levied or
assessed against Landlord as a substitute for, in whole or in part, any Real
Estate Tax; (B) Impositions and all similar amounts payable by tenants of the
Marketplace under their leases; and (C) penalties, fines, interest or charges
due for late payment of Real Estate Taxes by Landlord. If any Real Estate Taxes
are payable, or may at the option of the taxpayer be paid, in installments, such
Real Estate Taxes shall, together with any interest that would otherwise be
payable with such installment, be deemed to have been paid in installments,
amortized over the maximum time period allowed by applicable law.
Rent: Base Rent, Escalation Rent and all other additional charges and
amounts payable by Tenant in accordance with this Lease.
11
<PAGE>
Rentable Area: As to a floor leased entirely by Tenant, all areas within
exterior permanent Building walls measured to the inside glass surface of outer
Building walls, including restrooms, janitor, telephone and electrical closets,
mechanical areas, and columns and projections necessary to the Building, but
excluding public stairs, elevator shafts and pipe shafts. As to a floor only a
portion of which is leased by Tenant, the aggregate of (i) the Leased Area (as
defined below) of the portion of the floor occupied by Tenant, plus (ii) the
result obtained by multiplying (1) the area of the Common Area (as defined
below) on such floor by (2) a fraction whose numerator is the Leased Area of
Tenant's portion of the floor and whose denominator is the Leased Area of all
tenant space on such floor, plus (iii) in the event that Landlord must enlarge
or alter in any way, shape or fashion the Common Area to accommodate Tenant's
Leased Area, the total additional Common Area space. For purposes hereof,
"Leased Area" shall mean all floor area in a tenant space, measured to the
inside glass surface of exterior Building walls, to the center of corridors and
other permanent partitions, and to the center of partitions that separate tenant
space from adjoining tenant spaces, without deductions for columns and
projections necessary to the Building; and "Common Area" shall mean the total
area on a floor consisting of restrooms, janitor, telephone and electrical
closets, mechanical areas and public corridors providing access to tenant space
on such floor, but excluding public stairs, elevator shafts and pipe shafts.
Shopping Center: The retail center and movie theater located on the Land.
Tenant's Percentage Share: The percentage figure specified in the Basic
Lease Information. Landlord and Tenant acknowledge that Tenant's Percentage
Share has been obtained by dividing the Rentable Area of the Premises, as
specified in the Basic Lease Information by the total Rental Area of the
Building, and multiplying such quotient by one hundred (100). In the event
Tenant's Percentage Share is changed during a calendar year by reason of a
change in the Rentable Area of the Premises or a change in the total Rentable
Area of the Building, Tenant's Percentage Share shall thereafter mean the result
obtained by dividing the then Rentable Area of the Premises by the then total
Rentable Area of the Building and multiplying such quotient by one hundred
(100). For the purposes of determining Tenant's Percentage Share of Escalation
Rent, Tenant's Percentage Share shall be determined on the basis of the number
of days during such calendar year at each such Percentage Share.
Term: The period from the Commencement Date to the Expiration Date.
Wattage Allowance: The product obtained by multiplying the Rentable Area of
the Premises by 4.5 watts. "Lighting Wattage Allowance" means thirty-three
percent (33%) of the Wattage Allowance.
1.2. Effect of Certain Defined Terms. The parties acknowledge that the
Rentable Area of the Premises and the Building have been finally determined by
the parties as part of this Lease for all purposes, including the calculation of
Tenant's Percentage Share and will not, except as otherwise provided in this
Lease, be changed.
2. Lease of Premises. Landlord leases to Tenant and Tenant leases from
Landlord the Premises, together with the non-exclusive right to use, in common
with others, the lobbies, entrances, stairs, elevators, plazas, pedestrian
walkways, restrooms, and other public portions of the Building, all subject to
the terms, covenants and conditions set forth in this Lease. All the windows and
exterior walls of the Premises, the terraces adjacent to the Premises, if any,
and any space in the Premises used for shafts, columns, projections, stacks,
pipes, conduits, ducts, electric utilities, sinks or other Building facilities,
and the use thereof and access thereto through the Premises for the purposes of
management, operation, maintenance and repairs, are reserved to Landlord.
3. Term; Condition and Acceptance of Premises.
3.1 Commencement and Acceptance.
3.1.1. Initial Premises. Except as hereinafter provided, and unless sooner
terminated pursuant to the provisions of this Lease, the Term of this Lease
shall commence on the Commencement Date and end on the Expiration Date. Landlord
shall deliver the Initial Premises to Tenant on the Commencement Date in
accordance with the provisions of the Tenant Improvement Agreement attached to
this Lease as Exhibit C (the "Work Letter"). Subject to the provisions of
Section 7 of the Work Letter, the "Commencement Date" shall be the earlier of:
(i) the date Landlord offers to deliver possession of the Initial Premises to
Tenant following temporary approval by the applicable building inspector
sufficient to permit Tenant to legality occupy the Initial Premises and
substantial completion of all improvements to be constructed by Landlord
pursuant to the Work Letter, except for punchlist items which do not materially
interfere with Tenant's ability to use the Initial Premises and such work as
Landlord is required to perform but cannot complete until Tenant performs
necessary portions of construction work it has elected or is required to do, or
(ii) the date
12
<PAGE>
Tenant enters into occupancy of the entire Initial Premises and commences the
operation of its normal business activities. No delay in delivery of the Initial
Premises for any reason whatsoever shall operate to extend the Expiration Date
or the Term. Upon the occurrence of the Commencement Date, Landlord and Tenant
shall execute a Confirmation of Lease Term in the form as set forth in Exhibit E
attached to this Lease. Tenant's occupancy of all or any portion of the Initial
Premises shall constitute Tenant's acceptance of the Initial Premises in the
condition called for by this Lease.
3.1.2. Expansion Area. Landlord shall deliver the Expansion Area to Tenant
on the earlier of: (i) the date Landlord offers to deliver possession of the
Expansion Area to Tenant following temporary approval by the applicable building
inspector sufficient to permit Tenant to legally occupy the Expansion Area and
substantial completion of all improvements to be constructed by Landlord
pursuant to the Work Letter, except for punchlist items which do not materially
interfere with Tenant's ability to use the Expansion Area and such work as
Landlord is required to perform but cannot complete until Tenant performs
necessary portions of construction work it has elected or is required to do, or
(ii) the date Tenant enters into occupancy of the entire Expansion Area and
commences the operation of its normal business activities, but in no event later
than September 1, 1999. Tenant's occupancy of all or any portion of the
Expansion Area shall constitute Tenant's acceptance of the Expansion Area in the
condition called for by this Lease.
3.2 Option to Extend.
3.2.1. Exercise of Option to Extend Term. If no "Suspension Condition" (as
hereinafter defined) exists at the time of Tenant's exercise of its option to
extend the initial Term or at the commencement of the Extended Term, as the case
may be, Tenant shall have one (1) option ("Extension Option") to extend the
initial Term for one (1) additional period of five (5) years ("Extended Term").
To exercise Tenant's option with respect to the Extended Term, Tenant shall give
notice to Landlord not less than twelve (12) months prior to the expiration of
the initial Term ("Election Notice"). A "Suspension Condition" shall mean the
existence of any event or condition of material default with respect to any
obligation under this Lease where notice of default has been given by Landlord
and such default has not been cured by Tenant within the applicable notice and
cure period specified in this Lease. Tenant's exercise of the Extension Option
shall in no way result in, or constitute, a waiver by Landlord of any default by
Tenant under this Lease.
3.2.2. Fair Market Rent. If Tenant properly and timely exercise Tenant's
option to extend pursuant to Section 3.2.1 above, such extension shall be upon
all of the same terms, covenants and conditions of this Lease; provided,
however, that the Base Rent applicable to the Premises for the Extended Term
shall be the greater of: (i) the Base Rent and Escalation Rent as of the last
month of the initial Term, or (ii) the "Fair Market Rent" for space comparable
to the Premises as of the commencement of the Extended Term. "Fair Market Rent"
shall mean the annual rental being charged for space comparable to the Premises
in a steel-frame comparable first-class office building in the
Berkeley/Emeryville area, taking into account location, parking, condition and
improvements to the space. Landlord shall not be obligated to pay any leasing
commissions or consulting fees in connection with such expansions. All other
terms and conditions of the Lease, which may be amended from time to time by the
parties in accordance with the provisions of the Lease, shall remain in full
force and effect and shall apply during the Extended Term, except that there
shall be no further option to extend, there shall be no further rent
concessions, there shall be no tenant improvement allowance and similar
provisions.
3.2.3. Determination of Rent. Within forty-five (45) days after the date
of the Election Notice, Landlord and Tenant shall negotiate in good faith in an
attempt to determine Fair Market Rent for the Extended Term. If they are unable
to agree within said forty-five (45) day period, then the Fair Market Rent shall
be determined as provided in Section 3.2.4 below.
3.3.4. Appraisal. If it becomes necessary to determine the Fair Market
Rent for the Premises by appraisal, the real estate appraiser(s) indicated in
this Section 3.2.4, each of whom shall be members of the Appraisal Institute and
each of whom have at least five (5) years experience appraising office space
located in the vicinity of the Premises, shall be appointed and shall act in
accordance with the following procedures:
(i) If the parties are unable to agree on the Fair Market Rent within
the allowed time, either party may demand an appraisal by giving written notice
to the other party, which demand to be effective must state the name, address
and qualifications of an appraiser selected by the party demanding the appraisal
("Notifying Party"). Within twenty (20) days following the Notifying Party's
appraisal demand, the other party ("Non-Notifying Party") shall either approve
the appraiser selected by the Notifying Party or select a second properly
qualified appraiser by giving written notice of the name, address and
qualification of said appraiser to the Notifying Party. If the Non-Notifying
Party fails to select an appraiser within the twenty (20) day period, the
appraiser selected by the Notifying Party shall be deemed selected by both
parties and no other appraiser shall be selected. If two (2) appraisers are
selected, they shall select a third appropriately qualified appraiser. If the
two (2) appraisers fail to
13
<PAGE>
select a third qualified appraiser, the third appraiser shall be appointed by
the then presiding judge of the county where the Premises are located upon
application by either party.
(ii) If only one appraiser is selected, that appraiser shall notify the
parties in simple letter form of its determination of the Fair Market Rent for
the Premises within fifteen (15) days following his or her selection, which
appraisal shall be conclusively determinative and binding on the parties as the
appraised Fair Market Rent.
(iii) If multiple appraisers are selected, the appraisers shall meet not
later than ten (10) days following the selection of the last appraiser. At such
meeting, the appraisers shall attempt to determine the Fair Market Rent for the
Premises as of the commencement date of the Extended Term by the agreement of at
least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the Fair Market Rent
for the Premises at the initial meeting, such agreement shall be determinative
and binding upon the parties hereto and the agreeing appraisers shall forthwith
notify both Landlord and Tenant of the amount set by such agreement. If multiple
appraisers are selected and two (2) appraisers are unable to agree on the Fair
Market Rent for the Premises, each appraiser shall submit to Landlord and Tenant
his or her respective independent appraisal of the Fair Market Rent for the
Premises, in simple letter form, within twenty (20) days following appointment
of the final appraiser. The parties shall then determine the Fair Market Rent
for the Premises by averaging the appraisals; provided that any high or low
appraisal, differing from the middle appraisal by more than ten percent (10%) of
the middle appraisal, shall be disregarded in calculating the average.
(v) If only one (1) appraiser is selected, then each party shall pay one-
half (1/2) of the fees and expenses of that appraiser. If three (3) appraisers
are selected, each party shall bear the fees and expenses of the appraiser it
selects and one-half (1/2) of the fees and expenses of the third appraiser.
(vi) Notwithstanding anything to the contrary contained in this Section
3.2, in no event shall the Base Rent for the Extended Term be less than the Base
Rent plus Escalation Rent payable by Tenant during the month immediately
preceding the Extended Term.
3.2.5. Restriction on Assignment. The Extension Option shall be personal
to HealthCentral.com, a California corporation, shall not be assignable or
transferable, and shall terminate upon any assignment or sublease of all or any
portion of the Premises greater than ten percent (10%) of the Rentable Area of
the Premises.
3.2.6. Amendment to Lease. Immediately after the Fair Market Rent has been
determined, the parties shall enter into an amendment to this Lease setting
forth the Base Rent for the Extended Term and shall also state the new
Expiration Date of the Term of the Lease.
4. Rent.
4.1 Obligation to Pay Base Rent. Tenant shall pay Base Rent to Landlord, in
advance, in equal monthly installments, commencing on or before the Commencement
Date, and thereafter on or before the first day of each calendar month during
the Term. If the Commencement Date and/or Expiration Date is other than the
first day of a calendar month, the installment of Base Rent for the first and/or
last fractional month of the Term shall be prorated on a daily basis. The sum of
Eight Thousand Two Hundred Eighty-Eight and 00/100 Dollars ($8,288.00)
representing an advance payment of the first monthly installment of Base Rent
for the Premises, shall be paid by Tenant to Landlord upon the execution of this
Lease by Landlord and Tenant.
4.2 Manner of Rent Payment. All Rent shall be paid by Tenant without
notice, demand, abatement, deduction or offset, in lawful money of the United
States of America, payable to Landlord, at Landlord's Address as set forth in
the Basic Lease Information, or to such other person or at such other place as
Landlord may from time to time designate by notice to Tenant.
4.3 Additional Rent. All Rent not characterized as Base Rent or Escalation
Rent shall constitute additional rent, and if payable to Landlord shall, unless
otherwise specified in this Lease, be due and payable thirty (30) days after
Tenant's receipt of Landlord's invoice therefor.
14
<PAGE>
4.4 Late Payment of Rent Interest. Tenant acknowledges that late payment by
Tenant of any Rent will cause Landlord to incur administrative costs not
contemplated by this Lease, the exact amount of which are extremely difficult
and impracticable to ascertain based on the facts and circumstances pertaining
as of the Lease Date. Accordingly, if any Rent is not paid by Tenant when due,
Tenant shall pay to Landlord, with such Rent, a late charge equal to eight
percent (8%) of such Rent. Any Rent, other than late charges, due Landlord under
this Lease, if not paid when due, shall also bear interest from the date due
until paid, at the rate of ten percent (10%) per annum or, if a higher rate is
legally permissible, at the highest rate legally permitted. The parties
acknowledge that such late charge and interest represent a fair and reasonable
estimate of the administrative costs and loss of use of funds Landlord will
incur by reason of a late Rent payment by Tenant, but Landlord's acceptance of
such late charge and/or interest shall not constitute a waiver of Tenant's
default with respect to such Rent or prevent Landlord from exercising any other
rights and remedies provided under this Lease, at law or in equity.
5. Calculation and Payments of Escalation Rent. During each full or partial
calendar year of the Term subsequent to the Base Year, Tenant shall pay to
Landlord Escalation Rent in accordance with the following procedures:
5.1. Payment of Estimated Escalation Rent. During December of the Base Year
and December of each subsequent calendar year, or as soon thereafter as
practicable, Landlord shall give Tenant notice of its estimate of Escalation
Rent due for the next ensuing calendar year. On or before the first day of each
month during such next ensuing calendar year, Tenant shall pay to Landlord in
advance, in addition to Base Rent, one-twelfth (1/12th) of such estimated
Escalation Rent. In the event such notice is given after December 31st of any
year during the Term, (i) Tenant shall continue to pay Escalation Rent on the
basis of the prior calendar year's estimate until the month after such notice is
given, (ii) subsequent payments by Tenant shall be based of the estimate of
Escalation Rent based on the estimate set forth in Landlord's notice, Tenant
shall also pay the difference, if any, between the amount previously paid for
such calendar year and the amount which Tenant would have paid through such
month based on Landlord's noticed estimate, Landlord shall credit such excess
amount against the next monthly payments of Escalation Rent due from Tenant. If
at any time Landlord reasonably determines that the Escalation Rent for the
current calendar year will vary from Landlord's estimate by more than five
percent (5%), Landlord may, by notice to Tenant, revise its estimate for such
calendar year, and subsequent payments by Tenant for such calendar year shall be
based upon such revised estimate.
5.2. Escalation Rent Statement and Adjustment. Within one hundred twenty
(120) days after the close of each calendar year, or as soon thereafter as
practicable, Landlord shall deliver to Tenant a statement of the actual
Escalation Rent for such calendar year, accompanied by a statement prepared by
Landlord showing in reasonable detail the Operating Expenses and the Real Estate
Taxes comprising the actual Escalation Rent. If Landlord's statement shows that
Tenant owes an amount less than the payments previously made by Tenant for such
calendar year, Landlord shall credit the difference first against any sums then
owed by Tenant to Landlord and then against the next payment or payments of Rent
due Landlord, except that if a credit amount is due Tenant after termination of
this Lease, Landlord shall pay to Tenant any excess remaining after Landlord
credits such amount against any sums owed by Tenant to Landlord. If Landlord's
statement shows that Tenant owes an amount more than the payments previously
made by Tenant for such calendar year, Tenant shall pay the difference to
Landlord within fifteen (15) days after delivery of the statement.
5.3. Proration for Partial Year. If this Lease terminates other than on the
last day of a calendar year (other than due to Tenant's default), the amount of
Escalation Rent for such fractional calendar year shall be prorated on a daily
basis. Upon such termination, Landlord may, at its option, calculate the
adjustment in Escalation Rent prior to the time specified in Section 5.2 above.
Tenant's obligation to pay Escalation Rent, as set forth in Section 5.2, above,
shall survive the expiration or termination of this Lease. If Tenant has
overpaid Escalation Rent applicable to any period after the expiration of the
Term, Landlord shall refund the overpayment to Tenant.
6. Impositions Payable by Tenant. Tenant shall pay all Impositions prior to
delinquency. If billed directly to Tenant, Tenant shall pay such Impositions and
concurrently deliver to Landlord evidence of such payments. If any Impositions
are billed to Landlord or included in bills to Landlord for Real Estate Taxes or
other charges, then Tenant shall pay to Landlord all such amounts within thirty
(30) days after delivery of Landlord's invoice therefor. If applicable law
prohibits Tenant from reimbursing Landlord for an Imposition, but Landlord may
lawfully increase the Base Rent to account for Landlord's payment of such
Imposition, the Base Rent payable to Landlord shall be increased to net to
Landlord the same return without reimbursement of such Imposition as would have
been received by Landlord with reimbursement of such Imposition. Tenant's
obligation to pay Impositions which have accrued and remain unpaid upon the
expiration or earlier termination of this Lease shall survive the expiration or
earlier termination of this Lease.
7. Use of Premises.
15
<PAGE>
7.1. Permitted Use. The Premises shall be used solely for the
Permitted Use and for no other use of purpose.
7.2. No Violation of Legal and Insurance Requirements. Tenant shall
not do or permit to be done, or bring or keep or permit to be brought or kept,
in or about the Premises, or any other portion of the Marketplace, anything
which (i) is prohibited by or will in any way conflict with any law, ordinance,
rule or regulation; (ii) would invalidate or be in conflict with the provisions
of any insurance policy carried by Landlord or Tenant on any portion of the
Marketplace or Premises, or any property therein, or (iii) would cause a
cancellation of any such insurance, increase the existing rate of or affect any
such Landlord's insurance, or subject Landlord to any liability or
responsibility for injury to any person or property. If Tenant does or permits
anything to be done which increases the cost of any of Landlord's insurance, or
which results in the need, in Landlord's reasonable judgment, for additional
insurance by Landlord or Tenant with respect to any portion of the Marketplace
or Premises, then Tenant shall reimburse Landlord, upon demand, for any such
additional costs or the costs of such additional insurance, and/or procure such
additional insurance at Tenant's sole cost and expense. Exercise by Landlord of
such right to require reimbursement of additional costs (including the costs of
procuring of additional insurance) shall not limit or preclude Landlord from
prohibiting Tenant's impermissible use of the Premises or from invoking any
other right or remedy available to Landlord under this Lease.
7.3. Compliance with Legal Insurance and Life Safety Requirements.
Except as provided in clauses (i) through (iii) below, Tenant, at its cost and
expense, shall promptly comply with all laws, ordinances, rules, regulations,
orders and other governmental requirements, the requirements of any board of
fire underwriters or other similar body, any directive or occupancy certificate
issued pursuant to any law by any public officer or officers, the provisions of
all recorded documents affecting any portions of the Marketplace and all life
safety programs, procedures and rules implemented or promulgated by Landlord
("Laws"). Tenant shall not, however, be required to comply with Laws requiring
Tenant to make structural changes to the Premises unless necessitated, in whole
or in part, by (i) Tenant's use or occupancy of, or business conducted in, the
Premises, (ii) any acts or omissions of Tenant, its employees, agents,
contractors, invitees or licensees, or (iii) Alterations (including any
alterations, additions or other improvements to the Premises made by or on
behalf of Tenant during the initial improvement of the premises pursuant to the
Work Letter).
7.4. No Nuisance. Tenant shall not (i) do or permit anything to be
done in or about the Premises, or any other portion of the Marketplace, which
would injure or annoy, or obstruct or interfere with the rights of, Landlord or
other occupants of the Marketplace, or others lawfully in or about the
Marketplace; (ii) use or allow the Premises to be used in any manner
inappropriate for a Class A office building, or for any improper or
objectionable purposes; or (iii) cause, maintain or permit any nuisance or waste
in, on or about the Premises, or any other portion of the Marketplace.
7.5. Hazardous Substances. The term "hazardous substances" as used in
the Lease, is defined as follows:
Any element, compound, mixture, solution, particle or substance, which
presents danger or potential danger of damage or injury to health, welfare
or to the environment including, but not limited to: (i) those substances
which are inherently or potentially radioactive, explosive, ignitable,
corrosive, reactive, carcinogenic or toxic and (ii) those substances which
have been recognized as dangerous or potentially dangerous to health,
welfare or to the environment by any federal, municipal, state, county or
other government or quasi-governmental authority and/or any department or
agency thereof.
Tenant represents and warrants to Landlord and agrees that at all times
during the term of this Lease and any extensions or renewals thereof, Tenant
shall:
(i) promptly comply at Tenant's sole cost and expense, with all laws,
orders, rules, regulations, certificates of occupancy, or other
requirements, as the same now exist or may hereafter be enacted, amended or
promulgated, of any federal, municipal, state, county or other governmental
or quasi-governmental authorities and/or any department or agency thereof
relating to the manufacturing, processing, distributing, using, producing,
treating, storing (above or below ground level), disposing or allowing to
be present (the "Environmental Activity") of hazardous substances in or
about the Premises (each, a "Law", and all of them, "Laws").
(ii) indemnify and hold Landlord, its agents and employees, harmless
from any and all demands, claims, causes of action, penalties, liabilities,
judgments, damages (including consequential damages) and expenses
including, without limitation, court costs and reasonable attorneys' fees
incurred by Landlord as a result of (a) Tenant's failure or delay in
properly complying with any Law, or (b) any adverse effect which results
from the Environmental Activity, whether Tenant or Tenant's subtenants or
any
<PAGE>
of their respective agents, employees, contractors or invitees, with or
without Tenant's consent has caused, either intentionally or
unintentionally, such Environmental Activity. If any action or proceeding
is brought against Landlord, its agents or employees by reason of any such
claim, Tenant, upon notice from Landlord, will defend such claim at
Tenant's expense with counsel reasonably satisfactory to Landlord. This
indemnity obligation by Tenant of Landlord will survive the expiration or
earlier termination of this Lease.
(iii) promptly disclose to Landlord by delivering, in the manner
prescribed for delivery of notice in this Lease, a copy of any forms,
submissions, notices, reports, or other written documentation (each, a
"Communication") relating to any Environmental Activity, whether any such
Communication is delivered to Tenant or any of its subtenants or is
requested of Tenant or any of its subtenants by any federal, municipal,
state, county or other government or quasi-governmental authority and/or
any department or agency thereof.
(iv) in the event there is a release of any hazardous substance as a
result of or in connection with any Environmental Activity by Tenant or any
of Tenant's subtenants or any of their respective agents, employees,
contractors or invitees, which must be remediated under any Law, Landlord
shall perform the necessary remediation; and Tenant shall reimburse
Landlord for all costs thereby incurred within fifteen (15) days after
delivery of a written demand therefor from Landlord (which shall be
accompanied by reasonable substantiation of such costs). In the
alternative, Landlord shall have the right to require Tenant, at its sole
cost and expense, to perform the necessary remediation in accordance with a
detailed plan of remediation which shall have been approved in advance in
writing by Landlord. Landlord shall give notice to Tenant within thirty
(30) days after Landlord receives notice or obtains knowledge of the
required remediation. The rights and obligations of Landlord and Tenant set
forth in this subparagraph (iv) shall survive the expiration or earlier
termination of this Lease.
(v) notwithstanding any other provisions of this Lease, allow
Landlord, any authorized representative of Landlord, access and the right
to enter and inspect the Premises for Environmental Activity, at any time
deemed reasonable by Landlord, without prior notice to Tenant.
Compliance by Tenant with any provision of this Section 7.5 shall not be
deemed a waiver of any other provision of this Lease. Without limiting the
foregoing, Landlord's consent to any Environmental Activity shall not relieve
Tenant of its indemnity obligations under the terms hereof.
7.6. Special Provisions Relating to The Americans With Disabilities
Act of 1990. 7.6.1. Allocation of Responsibility to Landlord. As between
Landlord and Tenant, Landlord shall be responsible that the public entrances,
stairways, corridors, elevators and elevator lobbies and other public areas in
the Building and in the Marketplace comply with the requirements of Title III of
the Americans with Disabilities Act of 1990 (42 U.S.C. 12181, et seq., The
Provisions Governing Public Accommodations and Services Operated by Private
Entities), and all regulations promulgated thereunder, and all amendments,
revisions or modifications thereto now or hereafter adopted or in effect in
connection therewith (hereinafter collectively referred to as the "ADA"), and to
take such actions and make such alterations and improvements as are necessary
for such compliance. All costs incurred by Landlord in discharging its
responsibilities under this Section 7.6] shall be included in Operating Expenses
as provided in Section 1.1.
7.6.2. Allocation of Responsibility to Tenant. As between
Landlord and Tenant, Tenant, at its sole cost and expense, shall be responsible
that the Premises, all Alterations to the Premises, Tenant's use and occupancy
of the Premises, and Tenant's performance of its obligations under this Lease,
comply with the requirements of the ADA, and to take such actions and make such
Alterations as are necessary for such compliance; provided, however, that Tenant
shall not make any such Alterations except upon Landlord's prior written consent
pursuant to the terms and conditions of this Lease. Tenant shall protect,
defend, indemnify and hold Landlord harmless from and against any claim, demand,
cause of action, obligation, liability, loss, cost or expense (including
reasonable attorneys' fees) which may be asserted against or incurred by
Landlord as a result of Tenant's failure in any respect to comply with its
obligations set forth hereinabove in this Section 7.6.2. Tenant's indemnity
obligations set forth in the immediately preceding sentence shall survive the
expiration or earlier termination of this Lease.
7.6.3. General. Notwithstanding anything in this Lease to the
contrary, no act or omission of Landlord, including any approval, consent or
acceptance by Landlord or Landlord's agents, employees or other representatives,
shall be deemed an agreement, acknowledgment, warranty, or other representation
by Landlord that Tenant has complied with the ADA or that any action, alteration
or improvement by Tenant complies or will comply with the ADA or constituents a
waiver by Landlord of Tenant's obligations to comply with the ADA under this
Lease or otherwise. Any failure of Landlord to comply with the obligations of
the ADA shall not
<PAGE>
relieve Tenant from any obligations under this Lease or constitute or be
construed as a constructive or other eviction of Tenant or disturbance of
Tenant's use and possession of the Premises.
8. Building Services.
8.1. Maintenance of Marketplace. Landlord shall maintain the
Marketplace (other than the Premises and the premises of other tenants of the
Marketplace) in good order and condition, except for ordinary wear and tear,
damage by casualty or condemnation, or damage occasioned by the act or omission
of Tenant or Tenant's employees, agents, contractors, licensees or invitees,
which damage shall be repaired by Landlord at Tenant's expense. Landlord's
maintenance of, and provision of services to, the Building shall be performed in
a manner consistent with that of comparable Class A office buildings in the
Emeryville/Oakland, California area. Landlord shall have the right in connection
with its maintenance of the Marketplace hereunder (i) to change the arrangement
and/or location of any amenity, installation or improvement in the public
entrances, stairways, corridors, elevators and elevator lobbies, and other
public areas in the Building, or other public areas of the Marketplace, and (ii)
to utilize portions of the public areas in the Building and the Marketplace from
time to time for entertainment, displays, product shows, leasing of kiosks or
such other uses that in Landlord's sole judgment tend to attract the public, so
long as such uses do not materially interfere with or impair Tenant's access to
or use or occupancy of the Premises. Landlord shall not be in default under this
Lease or liable for any damages directly or indirectly resulting from or
incidental to, nor shall the rental reserved in this Lease be abated by reason
of, Landlord's failure to make any repair or to perform any maintenance required
to be made or performed by Landlord under this Section 8.1, unless such failure
shall persist for an unreasonable time after written notice of the need for such
repair or maintenance is given to Landlord by Tenant.
8.2. Building Standard Services. Landlord shall cause to be furnished
to Tenant: (i) tepid and cold water to those points of supply and in volumes
provided for general use of tenants in the Building; (ii) electricity up to the
Wattage Allowance for lighting and the operation of electrically powered office
equipment; (iii) heat, ventilation and air conditioning to the extent reasonably
required for the comfortable occupancy by Tenant of the Premises during the
period from 8:00 a.m. to 6:00 p.m. on weekdays (except Building holidays
determined by Landlord), or such shorter period as may be prescribed by any
applicable policies, regulations or guidelines adopted by any federal, state or
local governmental or quasi-governmental entities or utility suppliers; (iv)
passenger elevator service; (v) freight elevator service subject to then
applicable Building standard procedures and scheduling; (vi) lighting
replacement for Building standard lights; (vii) restroom supplies; (viii) window
washing as determined by Landlord; (ix) janitor service on a five (5) day per
week basis (excluding Building holidays), except for portions of the Premises
used for preparing or consuming food or beverages; and (x) security if and to
the extent deemed appropriate by Landlord for the Marketplace (but not
individually for Tenant or the Premises), except that Landlord shall not be
liable in any manner for acts of others, criminal or otherwise, or for any
direct, consequential or other loss, damage, death or injury related to any
interruption, discontinuance, malfunction, circumvention or failure of such
security service. Landlord may establish in the Premises or other portions of
the Marketplace such measures as are required by laws, ordinances, rules or
regulations or as it deems necessary or appropriate to conserve energy,
including automatic switching of lights and/or more efficient forms of lighting.
8.3. Interruption or Unavailability of Services. Rent shall not abate,
no constructive or other eviction shall be construed to have occurred, Tenant
shall not be relieved from any of its obligations under this Lease, and Landlord
shall not be in default hereunder or liable for any damages directly or
indirectly resulting from, the failure of Landlord to furnish, or delay in
furnishing, any maintenance or services under this Article 8 as a result of
repairs, alterations, improvements or any circumstances beyond Landlord's
reasonable control. Landlord shall use reasonable diligence to remedy any
failure or interruption in the furnishing of such maintenance or services.
8.4. Tenant's Use of Excess Electricity and Water. Tenant shall not,
without Landlord's prior consent, given or withheld in Landlord's sole
discretion, (i) install in the Premises (A) lighting, the aggregate average
daily power usage of which exceeds the Lighting Wattage Allowance, or lighting
and equipment, the aggregate average daily power usage of which exceeds the
Wattage Allowance, or which requires a voltage other than 110 volts single-
phase, (B) heat generating equipment or lighting other than lights deemed
standard for the Building, or (C) supplementary air conditioning facilities, or
(ii) permit occupancy levels in excess of one person per one hundred eighty
(180) square feet of Rentable Area. If, pursuant to this Section 8.4, heat-
generating equipment or lighting other than Building standard lights are
installed or used in the Premises, or occupancy levels are greater than set
forth above, or if the Premises or fixtures therein are reconfigured by
Alterations, and such equipment, lighting, occupancy levels or Premises
reconfiguration affects the temperature otherwise maintained by the Building air
conditioning system, or if equipment is installed in the Premises which requires
a separate temperature-controlled room, Landlord may, at Landlord's election
after notice to Tenant or upon Tenant's request, install supplementary air
conditioning facilities in the Premises, or otherwise modify the ventilating and
air
<PAGE>
conditioning serving the Premises, in order to maintain the temperature
otherwise maintained by the Building air conditioning system or to serve such
separate temperature-controlled room. Tenant shall pay the cost of any
transformers, additional risers, panel boards and other facilities, if, when and
to the extent required to furnish power for, and all maintenance and service
costs of, any supplementary air conditioning facilities or modified ventilating
and air conditioning, or for lighting and/or equipment the power usage of which
exceeds the standards set forth in this Section 8.4. The capital, maintenance
and service costs of such facilities and modifications shall be paid by Tenant
as Rent. Landlord, at its election and at Tenant's expense, may also install and
maintain an electric current meter or water meter (together with all necessary
wiring and related equipment) at the Premises to measure the power and/or water
usage of such lighting, equipment or ventilation and air conditioning equipment,
or may otherwise cause such usage to be measured by reasonable methods.
8.5. Provision of Additional Services. If Tenant desires services in
additional amounts or at different times than set forth in Section 8.2 above, or
any other services that are not provided for in this Lease, Tenant shall make a
request for such services to Landlord with such advance notice as Landlord may
reasonably require. If Landlord provides such services to Tenant, Tenant shall
pay Landlord's charges for such services within thirty (30) days after Tenant's
receipt of Landlord's invoice, except that (i) electricity shall be charged at
Landlord's actual cost, (ii) the initial charge for additional HVAC service
provided by the Building central system shall be at the rate of $28.00 per hour
per full floor (the "HVAC Additional Rate"); (iii) the initial charge for
additional lighting service provided by the Building central system shall be at
the rate of $4.25 per hour per full floor (the "Lighting Additional Rate");
provided, however, that Landlord shall have the right, from time to time during
the Term, to increase the HVAC Additional Rate and the Lighting Additional Rate
to reflect increases in Landlord's actual cost for providing additional HVAC
service and lighting service. Notwithstanding the foregoing, if at any time the
holder of the beneficial interest of deed of trust encumbering the Marketplace,
Teachers Insurance and annuity Association ("Teachers), becomes the Landlord
under this Lease, then during the time that Teachers is the Landlord under this
Lease the amounts charged by Landlord under items (i), (ii) and (iii) of this
Section 8.5 shall be charged at Landlord's actual cost.
9. Maintenance of Premises. Tenant shall, at all times during the Term, at
Tenant's cost and expense, keep the Premises in good condition and repair,
except for ordinary wear and tear and damage by casualty or condemnation. Except
as may be specifically set forth in this Lease (including the Work Letter
attached to this Lease as Exhibit C), Landlord has no obligation to alter,
remodel, improve, repair, decorate or paint the Premises, or any part thereof,
or any obligation respecting the condition, maintenance and repair of the
Premises or any other portion of the Marketplace. Tenant hereby waives all
rights, including those provided in California Civil Code Section 1941 or any
successor statute, to make repairs which are Landlord's obligation under this
Lease at the expense of Landlord or to receive any setoff or abatement of Rent
or in lieu thereof to vacate the premises or terminate this Lease.
10. Alterations to Premises.
10.1. Landlord Consent; Procedure. Tenant shall not make or permit to
be made any structural Alterations without Landlord's prior consent, which
consent may be granted or withheld in Landlord's sole discretion, not make or
permit to be made any non-structural Alterations without Landlord's prior
consent, which consent shall not be unreasonably withheld. Any Alterations to
which Landlord has consented shall be made in accordance with procedures as then
established by Landlord and the provisions of this Article 10.
10.2. General Requirements. All Alterations shall be made at Tenant's
cost and expense. Tenant shall be solely responsible for compliance with
applicable laws, ordinances, rules and regulations in connection with all
Alterations. Tenant shall be responsible for the cost of any additional
alterations required by applicable laws, ordinances, rules and regulations to be
made by Landlord to any portion of the Marketplace as a result of Alterations.
Tenant shall promptly commence or cause the commencement of construction of all
Alterations and complete or cause completion of the same with due diligence as
soon as possible after commencement in order to cause the least disruption to
Marketplace operations and occupants and to continue Tenant's business in the
Premises. In connection with installing or removing Alterations, Tenant shall
pay Landlord's then standard charges for review and approval of Tenant's plans,
specifications and working drawings, and administration by Landlord (or its
agent) of the construction, installation or removal of Alterations, and
restoration of the Premises to their previous condition.
10.3. Removal of Alterations. If required by Landlord at the time
Landlord provides consent to an Alteration and Landlord so notifies Tenant of
such requirement at the time of Landlord's consent, Tenant shall, prior to the
expiration of the Term or termination of this Lease, remove such Alteration at
Tenant's cost and expense and restore the Premises to the condition existing
prior to the installation of such Alteration. If Tenant fails so to do, then
Landlord may remove such Alteration and perform such restoration and
<PAGE>
Tenant shall reimburse Landlord for Landlord's cost and expense incurred to
perform such removal and restoration (which obligation of Tenant shall survive
the expiration or earlier termination of this Lease). Tenant shall repair at its
cost and expense all damage to the Premises or Marketplace caused by the removal
of such Alteration. Subject to the foregoing provisions regarding removal, all
Alterations (including any above Building standard improvements to the Premises)
shall be Landlord's property and from and after the expiration or earlier
termination of this Lease shall remain on the Premises without compensation to
Tenant.
11. Liens. Tenant shall keep the Premises and the Marketplace free from any
liens arising out of any work performed or obligations incurred by or for, or
materials furnished to, Tenant pursuant to this Lease or otherwise. Landlord
shall have the right to post and keep posted on the Premises any notices
required by law or which Landlord may deem to be proper for the protection of
Landlord, the Premises and the Marketplace from such liens and to take any other
action at the expense of Tenant that Landlord deems necessary or appropriate to
prevent, remove or discharge such liens. Tenant shall protect, defend, indemnify
and hold Landlord harmless from and against any claim, demand, cause of action,
obligation, liability, loss, cost or expense (including reasonable attorney's
fees) which may be asserted against or incurred by Landlord as a result of
Tenant's failure to comply with the foregoing obligation (which indemnity
obligation shall survive the expiration or earlier termination of this Lease).
12. Damage or Destruction.
12.1. Obligation to Repair. Except as otherwise provided in this
Article 12, if the Premises, or any other portion of the Marketplace necessary
for Tenant's use and occupancy of the Premises, are damaged or destroyed by fire
or other casualty, Landlord shall, within thirty (30) days after such event,
notify Tenant of the estimated time, in Landlord's reasonable judgment, required
to repair such damage or destruction. If Landlord's estimate of time is less
than one hundred twenty (120) days after the date of damage or destruction, then
(i) Landlord shall proceed with all due diligence to repair the Premises, and/or
the portion of the Marketplace necessary for Tenant's use and occupancy of the
Premises, to substantially the condition existing immediately before such damage
or destruction, as permitted by and subject to then applicable laws, ordinances,
rules and regulations; (ii) this Lease shall remain in full force and effect;
and (iii) to the extent such damage or destruction did not result from the
negligence or willful act or omission of Tenant or Tenant's subtenants or any of
their respective employees, agents, contractors, invitees or licensees, Base
Rent shall abate for such part of the Premises rendered unusable by Tenant in
the conduct of its business during the time such part is so unusable, in the
proportion that the Rentable Area contained in the unusable part of the Premises
bears to the total Rentable Area of the Premises.
12.2. Landlord's Election. If Landlord determines that the necessary
repairs cannot be completed within one hundred twenty (120) days after the date
of damage or destruction, or if such damage or destruction arises from causes
not covered by Landlord's insurance policy then in force, Landlord may elect, in
its notice to Tenant pursuant to Section 12.1, to (i) terminate this Lease or
(ii) repair the Premises or the portion of the Marketplace necessary for
Tenant's use and occupancy of the Premises pursuant to the applicable provisions
of Section 12.1 above. If Landlord terminates this Lease, then this Lease shall
terminate as of the date of occurrence of the damage or destruction.
12.3. Cost of Repairs. Landlord shall pay the cost for repair of the
Marketplace and all improvements in the Premises, other than any Alterations.
Tenant shall pay the costs to repair all Alterations (but Landlord shall make
available to Tenant for such purpose any insurance proceeds received by Landlord
for such purpose under Landlord's insurance policy then in force). Tenant shall
also replace or repair, at Tenant's cost and expense, Tenant's movable
furniture, equipment, trade fixtures and other personal property in the Premises
which Tenant shall be responsible for insuring during the Term of this Lease.
12.4. Damage at End of Term. Notwithstanding anything to the contrary
contained in this Article 12, if the Premises, or any other portion thereof or
of the Marketplace, are damaged or destroyed by fire or other casualty within
the last eighteen (18) months of the Term, then either Landlord or Tenant shall
have the right to terminate this Lease by notice to the other given within
ninety (90) days after the date of such event. Such termination shall be
effective on the date specified in Landlord's or Tenant's notice to terminate,
but in no event later than the end of such 90-day period.
12.5. Waiver of Statutes. The respective rights and obligations of
Landlord and Tenant in the event of any damage to or destruction of the
Premises, or any other portion of the Marketplace, are governed exclusively by
this Lease. Accordingly, Tenant hereby waives the provisions of any law to the
contrary, including California Civil Code Sections 1932(2) and 1993(4) providing
for the termination of a lease upon destruction of the leased property.
13. Eminent Domain.
<PAGE>
13.1. Effect of Taking. Except as otherwise provided in this Article
13, if all or any part of the Premises is taken as a result of the exercise of
the power of eminent domain or condemned for any public or quasi-public purpose,
or if any transfer is made in avoidance of such exercise of the power of eminent
domain (collectively, "taken" or a "taking"), this Lease shall terminate as to
the part of the Premises so taken as of the effective date of such taking. On a
taking of a portion of the Premises, Landlord and Tenant shall each have the
right to terminate this Lease by notice to the other given within thirty (30)
days after the effective date of such taking, if the portion of the Premises
taken is of such extent and nature so as to materially impair Tenant's business
use of the balance of the Premises, as reasonably determined by the party giving
such notice. Such termination shall be operative as of the effective date of the
taking. Landlord may also terminate this Lease on a taking of any other portion
of the Marketplace if Landlord reasonably determines that such taking is of such
extent and nature as to render the operation of the remaining Marketplace
economically infeasible or to require a substantial alteration or reconstruction
of such remaining portion. Landlord shall elect such termination by notice to
Tenant given within thirty (30) days after the effective date of such taking,
and such termination shall be operative as of the effective date of such taking
of the Premises which does not result in a termination of this Lease, the Base
Rent shall thereafter be reduced as of the effective date of such taking in the
proportion that the Rentable area of the Premises so taken bears to the total
Rentable Area of the Premises.
13.2. Condemnation Proceeds. Except as hereinafter provided, in the
event of any taking, Landlord shall have the right to all compensation, damages,
income, rent or awards made with respect thereto (collectively an "award"),
including any award for the value of the leasehold estate created by this Lease.
No award to Landlord shall be apportioned and, subject to Tenant's rights
hereinafter specified, Tenant hereby assigns to Landlord any right of Tenant in
any award made for any taking. So long as such claim will not reduce any award
otherwise payable to Landlord under this Section 13.2, Tenant may seek to
recover, at its cost and expense, as a separate claim, any damages or awards
payable on a taking of the Premises to compensate for the unamortized cost paid
by Tenant for the alterations, additions or improvements, if any, made by or on
behalf of Tenant during the initial improvement of the Premises pursuant to the
Work Letter and for any Alterations, or for Tenant's personal property taken, or
for interference with or interruption of Tenant's business (including goodwill),
or for Tenant's removal and relocation expenses.
13.3. Restoration of Premises. On a taking of the Premises which does
not result in a termination of this Lease, Landlord and Tenant shall restore the
Premises as nearly as possible to the condition they were in prior to the taking
in accordance with the applicable provisions and allocation of responsibility
for repair and restoration of the Premises on damage or destruction pursuant to
Article 12 above, and both parties shall use any awards received by such party
attributable to the Premises for such purpose.
13.4. Taking at End of Term. Notwithstanding anything to the contrary
contained in this Article 13, if the Premises, or any other portion thereof or
of the Marketplace, are taken within the last three hundred sixty-five (365)
days of the Term, then Landlord shall have the right, in its sole discretion, to
terminate this Lease by notice to Tenant given within ninety (90) days after the
date of such taking. Such termination shall be effective on the date specified
in Landlord's notice to Tenant, but in no event later than the end of such 90-
day period.
13.5. Tenant Waiver. The rights and obligations of Landlord and Tenant
on any taking of the premises or any other portion of the Marketplace are
governed exclusively by this Lease. Accordingly, Tenant hereby waives the
provisions of any law to the contrary, including California Code of Civil
Procedure Sections 1265.120 and 1265.130, or any similar successor statute.
14. Insurance.
14.1. Liability Insurance. Landlord, with respect to the Marketplace,
and Tenant, at its cost and expense with respect to the Premises, shall each
maintain or cause to be maintained, from the Lease Date and throughout the Term,
a policy or policies of Commercial General Liability insurance with limits of
liability not less than Two Million Dollars ($2,000,000.00) per occurrence and
in the aggregate. Each policy shall contain coverage for blanket contractual
liability, personal injury liability, and premises operations, coverage deleting
liquor liability exclusions and, as to Tenant's insurance, fire legal liability.
Landlord shall have the right to approve the deductible under each policy of
Tenant's liability insurance, such approval not to be unreasonably withheld.
14.2. Form of Policies. All insurance required by this Article 14
shall be issued on an occurrence basis by solvent companies qualified to do
business in the State of California. Any insurance required under this Article
14 may be maintained under a "blanket policy", insuring other parties and other
locations, so long as the amount and coverage required to be provided hereunder
is not thereby diminished. Notwithstanding the foregoing, Landlord shall have
the right to self-insure against any of the risks required to be
<PAGE>
insured against under this Article 14. Tenant shall provide Landlord a copy of
each policy of insurance or a certificate thereof certifying that the policies
contain the provisions required hereunder. Tenant shall deliver such policies or
certificates to Landlord within (30) days after the Lease Date, but in no event
less than ten (10) business days prior to the Commencement Date or such earlier
date as Tenant or Tenant's contractors, agents, licensees, invitees or employees
first enter the Premises and, upon renewal, not less than thirty (30) days prior
to the expiration of such coverage. All evidence of insurance provided to
Landlord shall provide (i) that Landlord, Landlord's managing agent and any
other person requested by Landlord who has an insurable interest, is designated
as an additional insured without limitation as to coverage afforded under such
policy; (ii) for severability of interests or that the acts or omissions of one
of the insureds or additional insureds shall not reduce or affect coverage
available to any other insured or additional insured; (iii) that the insurer
agrees not to cancel or alter the policy without at least thirty (30) days prior
written notice to all additional insureds; (iv) that the aggregate liability
applies solely to the Premises and the remainder of the Marketplace; and (v)
that Tenant's insurance is primary and noncontributing with any insurance
carried by Landlord.
14.3. Workers' Compensation Insurance. Tenant, at its sole cost and
expense, shall maintain Workers' Compensation insurance as required by law and
employer's liability insurance in an amount of not less than Five Hundred
Thousand Dollars ($500,000).
14.4. Additional Tenant Insurance. Tenant, at its sole cost and
expense, shall maintain such other insurance as Landlord may reasonably require
from time to time, but in no event may Landlord require any other insurance
which is (i) not then being required of comparable tenants leasing comparable
amounts of space in comparable buildings in the vicinity of the Building or (ii)
not then available at commercially reasonable rates.
15. Waiver of Subrogation Rights. Notwithstanding anything to the contrary
contained in this Lease, Landlord and Tenant, for themselves and their
respective insurers, agree to and do hereby release each other of and from any
and all claims, demands, actions and causes of action that each may have or
claim to have against the other for loss or damage to property, both real and
personal, notwithstanding that any such loss or damage may be due to or result
from the negligence of either of the parties hereto or their respective
employees or agents. Each party shall, to the extent such insurance endorsement
is lawfully available at commercially reasonable rates, obtain or cause to be
obtained, for the benefit of the other party, a waiver of any right of
subrogation which the insurer of such party may acquire against the other party
by virtue of the payment of any such loss covered by such insurance.
16. Tenant's Waiver of Liability and Indemnification
16.1. Waiver and Release. Except to the extent due to the gross
negligence of willful misconduct of Landlord, Landlord shall not be liable to
Tenant or Tenant's employees, agents, contractors, licensees or invitees for,
and Tenant waives and releases Landlord and Landlord's managing agent from, all
claims for loss or damage to any property or injury, illness or death of any
person in, upon or about the Premises and/or any other portion of the
Marketplace (including claims caused in whole or in part by the act, omission,
or neglect of other tenants, contractors, licensees, invitees or other occupants
of the Marketplace or their agents or employees). The waiver and release
contained in this Section 16.1 extends to the officers, directors, shareholders,
partners, employees, agents and representatives of Landlord.
16.2. Indemnification of Landlord. From and after the date Tenant
enters into occupancy of the Premises, Tenant shall indemnify, defend, protect
and hold Landlord harmless of and from any and all loss, liens, liability,
claims, causes of action, damages, injury, cost or expense arising out of or in
connection with (i) the making of any alterations, additions or other
improvements made by or on behalf of Tenant during the initial improvement of
the Premises pursuant to the Work Letter or any Alterations, or (ii) injury to
or death of persons or damage to property occurring or resulting directly or
indirectly from: (A) the use of occupancy of, or the conduct of business in, the
Premises by Tenant or its subtenants or any of their respective officers,
directors, employees, agents, contractors, invitees or licensees; (B) any other
occurrence or condition in or on the Premises; and (C) acts, neglect or
omissions of Tenant, or its subtenants or any of their respective officers,
directors, employees, agents, contractors, invitees or licensees, in or about
any portion of the Marketplace. Tenant's indemnity obligation includes
reasonable attorneys' fees and costs, investigation costs and all other
reasonable costs and expenses incurred by Landlord. If Landlord disapproves the
legal counsel proposed by Tenant for the defense of any claim indemnified
against hereunder, Landlord shall have the right to appoint its own legal
counsel, the reasonable fees, costs and expenses of which shall be included as
part of Tenant's indemnity obligation hereunder. The indemnification contained
in this Section 16.2 shall extend to the officers, directors, shareholders,
partners, employees, agents and representatives of Landlord.
16.3. Indemnification of Tenant. Landlord shall indemnify, defend,
protect and hold Tenant harmless of and from any and all loss, liens, liability,
causes of action, damage, injury, cost or expense arising out of or in
connection with (i) any breach or default by
<PAGE>
Landlord in the performance of any of its obligations under this Lease, or (ii)
any loss or damage to property or injury to person occurring in the public
entrances, stairways, corridors, elevators and elevator lobbies, and other
public areas in the Building or other public areas in the Marketplace (except
for such loss, damage or injury for which Tenant is obligated to indemnify
Landlord under Section 16.2).
17. Assignment and Subletting.
17.1. Compliance Required. Tenant shall not, directly or indirectly,
voluntary or by operation of law, sell, assign or otherwise transfer this Lease,
or any interest herein (collectively, "assign" or "assignment"), or sublet the
Premises, or any part thereof, or permit the occupancy of the Premises by any
person other than Tenant (collectively, "sublease" or "subletting", the assignee
or sublessee under an assignment or sublease being referred to as a
"transferee"), without Landlord's prior consent given or withheld in accordance
with the express standards and conditions of this Article 17 and compliance with
the other provisions of this Article 17. Any assignment or subletting made in
violation of this Article 17 shall be void. As used herein, an "assignment"
includes any sale or other transfer (such as by consolidation, merger or
reorganization) of a majority of the voting stock of Tenant, if Tenant is a
corporation, or any sale or other transfer of a majority of the beneficial
interest in Tenant, if Tenant is any other form of entity; provided, however,
that the sale of a majority of the voting stock of HealthCentral.com pursuant to
an initial public offering of such stock shall not constitute an assignment
under this Article 17 and the sale of less than fifty percent (50%) of the
voting stock of HealthCentral.com pursuant to a private placement of such stock
shall not constitute an assignment under this Article 17. Tenant acknowledges
and agrees that the limitations on Tenant's right to sublet or assign which are
set forth in this Article 17 are reasonable and, in particular, that the express
standards and conditions upon Tenant's right to assign or sublet which are set
forth in this Article 17 are reasonable as of the Lease Date.
17.2. Request by Tenant; Landlord Response. If Tenant desires to
effect an assignment or sublease, Tenant shall submit to Landlord a request for
consent together with the identity of the parties to the transaction, the nature
of the transferee's proposed business use for the Premises, the proposed
documentation for and terms of the transaction, and all other information
reasonably requested by Landlord concerning the proposed transaction and the
parties involved therein, including certified financial information, credit
reports, the business background and references regarding the transferee, and an
opportunity to meet and interview the transferee. Within twenty (20) days after
the later of such interview or the receipt of all such information required by
Landlord, or within thirty (30) days after the date of Tenant's request to
Landlord if Landlord does not request additional information or an interview,
Landlord shall have the right, by notice to Tenant, to: (i) consent to the
assignment or sublease, subject to the terms of this Article 17; (ii) decline to
consent to the assignment or sublease; (iii) in the case of a subletting, to
sublet from Tenant the portion of the Premises proposed to be sublet on the
terms and conditions set forth in Tenant's request to Landlord, unless the rent
terms exceed the allocable Rent payable by Tenant hereunder, in which event only
such Rent shall be payable by Landlord under such subletting; or (iv) terminate
this Lease as to the affected portion of the Premises as of the date specified
by Tenant as the effective date of the proposed assignment or sublease, in which
event Tenant will be relieved of all unaccrued obligations hereunder as to such
portion as of such date, other than those obligations which survive termination
of this Lease. If Landlord elects so to terminate, Tenant shall have the right,
by notice to Landlord within five (5) days after Landlord's exercise of such
right, to rescind its request for the proposed assignment or subletting, in
which event this Lease shall not terminate and shall remain in full force and
effect.
17.3. Conditions for Landlord Approval. In the event Landlord elects
not to sublet from Tenant or terminate this Lease (in whole or in part) as
provided in clauses (iii) and (iv) of Section 17.2, Landlord shall not
unreasonably withhold its consent to a proposed subletting or assignment by
Tenant. Without limiting the grounds on which it may be reasonable for Landlord
to withhold its consent to an assignment or sublease, Tenant agrees that
Landlord would be acting reasonably in withholding its consent in the following
instances: (i) if Tenant is in default under this Lease; (ii) if the transferee
is a governmental or quasi-governmental agency, foreign or domestic; (iii) if
the transferee is an existing tenant in the Building; (iv) if, in Landlord's
sole judgment, the transferee's business, use and/or occupancy of the Premises
would (A) violate any of the terms of this Lease or the lease of any other
tenant in the Marketplace, or (B) not be comparable to and compatible with the
types of use by other tenants in the Building, (C) fall within any category of
use for which Landlord would not then lease space in the Building under its
leasing guidelines and policies then in effect, (D) require any Alterations
which would reduce the value of the existing leasehold improvements in the
Premises, or (E) result in increased density per floor or require increased
services by Landlord; (v) in the case of a sublease, it would result in more
than three (3) occupancies in the Premises, including Tenant and subtenants;
(vi) if the financial condition of the transferee does not meet the requirements
applied by Landlord for other tenants in the Building under leases with
comparable terms, or in Landlord's sole judgment the business reputation of the
transferee is not consistent with that of other tenants of the Building; or
(vii) in the case of a sublease, the rent payable by the subtenant is less than
the then prevailing rate being charged by Landlord for the lease of comparable
<PAGE>
space in the Building. If Landlord consents to an assignment or sublease, the
terms of such assignment or sublease transaction shall not be modified without
Landlord's prior written consent pursuant to this Article 17. Landlord's consent
to an assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting.
17.4. Costs and Expenses. As a condition to the effectiveness of any
assignment or subletting under this Article 17, Tenant shall pay to Landlord a
processing fee of Five Hundred Dollars ($500.00) and all reasonable costs and
expenses, including attorneys' fees and disbursements, incurred by Landlord in
evaluating Tenant's requests for assignment or sublease, whether or not Landlord
consents to an assignment or sublease. Tenant shall pay the processing fee with
Tenant's request for Landlord's consent and under Section 17.2. Tenant shall
also pay to Landlord all costs and expenses incurred by Landlord due to a
transferee taking possession of the Premises, including freight elevator
operations, security service, janitorial service and rubbish removal.
17.5. Payment of Excess Rent and Other Consideration. Tenant shall
also pay to Landlord, promptly upon Tenant's receipt thereof, one hundred
percent (100%) of any and all rent, sums or other consideration, howsoever
denominated, realized by Tenant in connection with any assignment or sublease
transaction in excess of the Base Rent and Escalation Rent payable hereunder
(prorated to reflect the Rent allocable to the portion of the Premises if a
sublease), after first deducting, (i) in the case of an assignment, the
unamortized reasonable cost of Alterations paid for by Tenant and reasonable
real estate commissions paid by Tenant in connection with such assignment and,
(ii) in the case of a sublease, the reasonable cost of Alterations made to the
Premises at Tenant's cost to effect the sublease, and the reasonable amount of
any real estate commissions paid by Tenant, both amortized over the term of the
sublease.
17.6. Assumption of Obligations; Further Restrictions on Subletting.
Each assignee shall, concurrently with any assignment, assume all obligations of
Tenant under this Lease. Each sublease shall be made subject to this Lease and
all of the terms, covenants and conditions contained herein, and the surrender
of this Lease by Tenant, or a mutual cancellation thereof, or the termination of
this Lease in accordance with its terms, shall not work a merger and shall, at
the option of Landlord, terminate all or any existing subleases or operate as an
assignment to Landlord of any or all such sublease. No sublessee (other than
Landlord) shall have the right further to sublet. Any assignment by a sublease
of its sublease shall be subject to Landlord's prior consent in the same manner
as a sublease by Tenant. No sublease, once consented to by Landlord, shall be
modified without Landlord's prior consent. No assignment or sublease shall be
binding on Landlord unless the transferee delivers to Landlord a fully executed
counterpart of the assignment or sublease which contains the assumption by the
assignee, or recognition by the sublease, of the provisions of this Section
17.6, in form and substance satisfactory to Landlord, but the failure or refusal
of a transferee to deliver such instrument shall not release or discharge such
transferee from the provisions and obligations of this Section 17.6, but such
failure shall constitute a default by Tenant under this Lease.
17.7. No Release. No assignment or sublease shall release Tenant from
its obligations under this Lease, whether arising before or after the assignment
or sublease. The acceptance of Rent by Landlord from any other person shall not
be deemed a waiver by Landlord of any provision of this Article 17. On a default
by any assignee of Tenant in the performance of any of the terms, covenants or
conditions of this Lease, Landlord may proceed directly against Tenant without
the necessity of commencing or exhausting remedies against such assignee. No
consent by Landlord to any further assignments or sublettings of this Lease, or
any modification, amendment or termination of this Lease, or extension, waiver
or modification of payment or any other obligations under this Lease, or any
other action by Landlord with respect to any assignee or sublessee, or the
insolvency, or bankruptcy or default of any such assignee or sublessee, shall
affect the continuing liability of Tenant for its obligations under this Lease
and Tenant waives any defense arising out of or based thereon, including any
suretyship defense of exoneration. Landlord shall have no obligation to notify
Tenant or obtain Tenant's consent with respect to any of the foregoing matters.
17.8. No Encumbrance. Notwithstanding anything to the contrary
contained in this Article 17, Tenant shall have no right to encumber, pledge,
hypothecate or otherwise transfer this Lease, or any of Tenant's interest or
rights hereunder, as security for any obligations or liability of Tenant.
18. Rules and Regulations. Tenant shall observe and comply, and shall
cause its sublessees, employees, agents, contractors, licensees and invitees to
observe and comply, with the Rules and Regulations of the Marketplace, a copy of
which are attached to this Lease as Exhibit D, and, after notice thereof, with
all modifications and additions thereto from time to time promulgated in writing
by Landlord. Landlord shall not be responsible to Tenant, or Tenant's
sublessees, employees, agents, contractors, licensees or invitees, for
noncompliance with any Rules and Regulations of the Marketplace by any other
tenant, sublessee, employee, agent, contractor,
<PAGE>
licensee, invitee or other occupant of the Marketplace. Landlord shall use
reasonable efforts to enforce the Rules and Regulations in a non-discriminatory
manner.
19. Entry of Premises by Landlord.
19.1. Right to Enter. Upon twenty-four hour advance notice to Tenant
(except in emergencies or in order to provide regularly scheduled or other
routine Building standard services or additional services requested by Tenant,
or post notices of nonresponsibility or other notices permitted or required by
law when no such notice shall be required), Landlord and its authorized agents,
employees, and contractors may enter the Premises at reasonable hours to: (i)
inspect the same; (ii) determine Tenant's compliance with its obligations
hereunder; (iii) exhibit the same to prospective purchasers, lenders or tenants;
(iv) supply any services to be provided by Landlord hereunder; (v) post notices
of nonresponsibility or other notices permitted or required by law, (vi) make
repairs, improvements or alterations, or perform maintenance in or to, the
Premises or any other portion of the Marketplace, including Building systems;
and (vii) perform such other functions as Landlord deems reasonably necessary or
desirable. Landlord may also grant access to the Premises to government or
utility representatives and bring and use on or about the Premises such
equipment as reasonably necessary to accomplish the purposes of Landlord's
entry. Landlord shall use reasonable good faith efforts to effect all entries
and perform all work hereunder in such manner as to minimize interference with
Tenant's use and occupancy of the Premises. Landlord shall have and retain keys
with which to unlock all of the doors in or to the Premises (excluding Tenant's
vaults, safes and similar secure areas designated in writing by Tenant in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem proper in an emergency in order to obtain entry to the
Premises including secure areas.
19.2. Tenant Waiver of Claims. Tenant Waives any claim for damages for
any inconvenience to or interference with Tenant's business, or any loss of
occupancy or quiet enjoyment of the Premises, or any other loss, occasioned by
any entry effected or work performed under this Article 19, and Tenant shall not
be entitled to any abatement of Rent by reason of exercise of any such right of
entry or performance of such work. No entry to the Premises by Landlord or
anyone acting under Landlord shall constitute a forcible or unlawful entry into,
or a detainer of, the Premises or any eviction, actual or constructive of Tenant
from the Premises, or any portion thereof.
20. Default and Remedies.
20.1. Events of Default. The occurrence of any of the following events
shall constitute a default by Tenant under this Lease:
a. Nonpayment of Rent. Failure to pay any Rent when due.
b. Unpermitted Assignment. An assignment or sublease made in
contravention of any of the provisions of Article 17 above.
c. Other Obligation. Failure to perform or fulfill any other
obligation, covenant, condition or agreement under this Lease.
d. Bankruptcy and Insolvency. A general assignment by Tenant for
the benefit of creditors, any action or proceeding commenced by Tenant under any
insolvency or bankruptcy act or under any other statute or regulation for
protection from creditors, or any such action commenced against Tenant and not
discharged within thirty (30) days after the date of commencement; the
employment or appointment of a receiver or trustee to take possession of all or
substantially all of Tenant's assets or the Premises; the attachment, execution
or other judicial seizure of all or substantially all of Tenant's assets or the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of ten (10) days after the levy thereof; the admission
by Tenant in writing of its inability to pay its debts as they become due; or
the filing by Tenant of a petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, the filing by Tenant of an answer
admitting or failing timely to contest a material allegation of a petition filed
against Tenant in any such proceeding or, if within thirty (30) days after the
commencement of any such proceeding against Tenant, such proceeding is not
dismissed. For purposes of this Section 20.1(d), "Tenant" means Tenant and any
partner of Tenant, if Tenant is a partnership, or any person or entity
comprising Tenant, if Tenant is comprised of more than one person or entity, or
any guarantor of Tenant's obligations, or any of them, under this Lease.
<PAGE>
20.2. Notice to Tenant. Upon the occurrence of any default, Landlord shall
give Tenant notice thereof. Such notice shall replace rather than supplement any
equivalent or similar statutory notice, including any notices required by
California Code of Civil Procedure Section 1161 or any similar or successor
statute; and giving of such notice in the manner required by Article 28 shall
replace and satisfy any service-of-notice procedures set forth in any statute,
including those required by California Code of Civil Procedure Section 1162 or
any similar or successor statute. If a time period is specified below for cure
of such default, then Tenant may cure such default within such time period. To
the fullest extent allowed by law, Tenant hereby waives any right under law now
or hereinafter enacted to any other time period for cure of default.
a. Nonpayment of Rent. For failure to pay Rent, within five (5)
days after Landlord's notice, unless Tenant has failed more than two (2) times
during any calendar year timely to pay any Rent, in which event no cure period
shall apply for the balance of such calendar year.
b. Other Obligations. For failure to perform any obligation,
covenant, condition or agreement under this Lease (other than nonpayment of
Rent, an assignment or subletting in violation of Article 17 or Tenant's
abandonment of the Premises) within ten (10) days after Landlord's notice or, if
the failure is of a nature requiring more than ten (10) days to cure, then an
additional thirty (30) days after the expiration of such 10-day period, but only
if Tenant commences cure within such 10-day period and thereafter diligently
pursues such cure to completion within such additional 30-day period. If Tenant
has failed to perform any such obligation, covenant, condition or agreement more
than two (2) times during any calendar year and notice of such event of default
has been given by Landlord in each instance, then no cure period shall apply for
the balance of such calendar year.
c. No Cure Period. No cure period shall apply for any other event
of default specified in Section 20.1.
20.3. Remedies Upon Occurrence of Default. On the occurrence of a default
which Tenant fails to cure after notice and expiration of the time period for
cure, if any, specified in Section 20.2. above, Landlord shall have the right
either (i) to terminate this Lease and recover possession of the Premises, or
(ii) to continue this Lease in effect and enforce all Landlord's rights and
remedies under California Civil Code Section 1951.4 (by which Landlord may
recover Rent as it becomes due, subject to Tenant's right to assign pursuant to
Article 17). Landlord may store any property of Tenant located in the Premises
at Tenant's expense or otherwise dispose of such property in the manner provided
by law. If Landlord does not terminate this Lease, Tenant shall in addition to
continuing to pay all Rent when due, also pay Landlord's costs of attempting to
relet the Premises, any repairs and alterations necessary to prepare the
Premises for such reletting, and brokerage commissions and attorney's fees
incurred in connection therewith, less the rents, if any, actually received from
such reletting. Notwithstanding Landlord's election to continue this Lease in
effect, Landlord may at any time thereafter terminate this Lease pursuant to
this Section 20.3.
20.4. Damages Upon Termination. If and when Landlord terminates this Lease
pursuant to Section 20.3. Landlord may exercise all its rights and remedies
available under California Civil Code Section 1951.2, including the right to
recover from Tenant the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could have been reasonably
avoided. As used herein and in Civil Code Section 1951.2, "time of award" means
either the date upon which Tenant pays to Landlord the amount recoverable by
Landlord, or the date of entry of any determination, order or judgment of any
court or other legally constituted body determining the amount recoverable,
whichever occurs first.
20.5. Computation of Certain Rent for Purposes of Default. For purposes of
computing unpaid Rent pursuant to Section 20.4 above, Escalation Rent for the
balance of the Term shall be determined by averaging the amount paid by Tenant
as Escalation Rent for the calendar year prior to the year in which the default
occurred (or, if the prior year is the Base Year or such default occurs during
the Base Year, Escalation Rent shall be based on Landlord's operating budget for
the Building for the Base Year), increasing such average amount for each
calendar year (or portion thereof) remaining in the balance of the Term at a per
annum compounded rate equal to the mean average rate of increase for the
preceding five (5) calendar years in the United States Department of Labor,
Bureau of Labor Statistics, Consumer Price Index (All Urban Consumers, All
Items, 1982-1984 = 100) for the Metropolitan Area of which San Francisco,
California, is a part, and adding together the resulting amounts. If such Index
is discontinued or revised, such computation shall be made by reference to the
index designated as the successor or substitute index by the United States
Department of Labor, Bureau of Labor Statistics, or its successor agency, and if
none is designated, by a comparable index as determined by Landlord in its sole
discretion, which would likely achieve a comparable result to that achieved by
the use of the Consumer Price Index. If the base year of the Consumer Price
Index is changed, then the conversion factor specified by the Bureau, or
successor agency, shall be utilized to determine the Consumer Price Index.
<PAGE>
20.6. Landlord's Right to Cure Defaults. If Tenant fails to pay Rent
(other than Base Rent and Escalation Rent) required to be paid by it hereunder,
or fails to perform any other obligation under this Lease, and Tenant fails to
cure such default within the applicable cure period, if any, specified in
Section 20.2 above, then Landlord may, without waiving any of Landlord's rights
in connection therewith or releasing Tenant from any of its obligations or such
default, make any such payment or perform such other obligation on behalf of
Tenant. All payments so made by Landlord, and all costs and expenses incurred by
Landlord to perform such obligations, shall be due and payable by Tenant as Rent
immediately upon receipt of Landlord's demand therefor.
20.7. Remedies Cumulative. The rights and remedies of Landlord under this
Lease are cumulative in addition to, and not in lieu of, any other rights and
remedies available to Landlord at law or in equity. Landlord's pursuit of any
such right or remedy shall not constitute a waiver or election of remedies with
respect to any other right or remedy.
21. Subordination, Attornment and Nondisturbance.
21.1. Subordination and Attornment This Lease and all of Tenant's rights
hereunder shall be subordinate to any ground lease or underlying lease, and the
lien of any mortgage, deed of trust, or any other security instrument now or
hereafter affecting or encumbering the Marketplace, or any part thereof or
interest therein, and to any and all advances made on the security thereof or
Landlord's interest therein, and to all renewals, modifications, consolidations,
replacements and extensions thereof (an "encumbrance", the holder of the
beneficial interest thereunder being referred to as an "encumbrancer"). An
encumbrancer may, however, subordinate its encumbrance to this Lease, and if an
encumbrancer so elects by notice to Tenant, this Lease shall be deemed prior to
such encumbrance. If any encumbrance to which this Lease is subordinate is
foreclosed, or a deed in lieu of foreclosure is given to the encumbrancer
thereunder, Tenant shall attorn to the purchaser at the foreclosure sale or to
the grantee under the deed in lieu of foreclosure; and if any encumbrance
consisting of a ground lease or underlying lease to which this Lease is
subordinate is terminated, Tenant shall attorn to the lessor thereof. Tenant
shall execute, acknowledge and deliver in the form requested by Landlord or any
encumbrancer, any documents required to evidence or effectuate the subordination
hereunder, or to make this Lease prior to the lien of any encumbrance, or to
evidence such attornment.
21.2 Nondisturbance. If any encumbrance to which this Lease is
subordinate is foreclosed, or a deed in lieu of foreclosure is given to the
encumbrancer thereunder, or if any encumbrance consisting of a ground lease or
underlying lease to which this Lease is subordinate is terminated, this Lease
shall not terminate, and the rights and possession of Tenant under this Lease
shall not be disturbed if (i) no default by Tenant then exists under this Lease;
(ii) Tenant attorns to the purchaser, grantee, or successor lessor as provided
in Section 21.1 above or, if requested, enters into a new lease for the balance
of the Term upon the same terms and provisions contained in this Lease; and
(iii) Tenant enters into a written agreement in a form reasonably acceptable to
such encumbrancer with respect to subordination, attornment and non-disturbance.
22. Sale or Transfer by Landlord; Lease Non-Recourse.
22.1 Release of Landlord on Transfer. Landlord may at any time
transfer, in whole or in part, its right, title and interest under this Lease
and in the Marketplace, or any portion thereof. If the original Landlord
hereunder, or any successor to such original Landlord, transfers (by sale,
assignment or otherwise) its right, title or interest in the Building, all
liabilities and obligations of the original Landlord or such successor under
this Lease accruing after such transfer shall terminate, the original Landlord
or such successor shall automatically be released therefrom, and thereupon all
such liabilities and obligations shall be binding upon the new owner. Tenant
shall attorn to each such new owner.
22.2 Lease Nonrecourse to Landlord. Landlord shall in no event be
personally liable under this Lease, and Tenant shall look solely to Landlord's
interest in the Building, for recovery of any damages for breach of this Lease
by Landlord or on any judgment in connection therewith. None of the persons or
entities comprising or representing Landlord (whether partners, shareholders,
officers, directors, trustees, employees, beneficiaries, agents or otherwise)
shall ever be personally liable under this Lease or liable for any such damages
or judgment and Tenant shall have no right to effect any levy of execution
against any assets of such persons or entities on account of any such liability
or judgment. Any lien obtained by Tenant to enforce any such judgment, and any
levy of execution thereon, shall be subject and subordinate to all encumbrances
as specified in Article 21 above.
23. Estoppel Certificate.
<PAGE>
23.1. Procedure and Content. From time to time, and within ten (10) days
after written notice by Landlord, Tenant shall execute, acknowledge, and deliver
to Landlord a certificate as specified by Landlord certifying: (i) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, as modified, and
identifying each modification); (ii) the Commencement Date and Expiration Date;
(iii) that Tenant has accepted the Premises (or the reasons Tenant has not
accepted the Premises), and if Landlord has agreed to make any alterations or
improvements to the Premises, that Landlord has properly completed such
alterations or improvements (or the reasons why Landlord has not done so); (iv)
the amount of the Base Rent and current Escalation Rent, if any, and the date to
which such Rent has been paid; (v) that Tenant has not committed any event of
default, except as to any events of default specified in the certificate, and
whether there are any existing defenses against the enforcement of Tenant's
obligations under this Lease; (vi) that no default of Landlord id claimed by
Tenant, except as to any defaults specified in the certificate; and (vii) such
other matters as may be requested by Landlord.
23.2 Effect of Certificate. Any such certificate may be relied upon by
any prospective purchaser of any part or interest in the Marketplace or
encumbrancer (as defined in Section 21.1) and, at Landlord's request, Tenant
shall deliver such certificate to Landlord and/or to any such entity and shall
agree to such notice and cure provisions and such other matters as such entity
may reasonably require. In addition, at Landlord's request, Tenant shall provide
to Landlord for delivery to any such entity such information, including
financial information, that may reasonably be requested by any such entity. Any
such certificate shall constitute a waiver by Tenant of any claims Tenant may
have in contravention to the information contained in such certificate and
Tenant shall be estopped from asserting any such claim. If Tenant fails or
refuses to give a certificate hereunder within the time period herein specified,
then the information contained in such certificate as submitted by Landlord
shall be deemed correct for all purposes, but Landlord shall have the right to
treat such failure or refusal as a default by Tenant. Any prospective purchaser
or encumbrancer shall sign a confidentiality agreement regarding the non-
disclosure of Tenant's financial information prior to delivery of such
information to the prospective purchaser or encumbrancer.
24. No Light, Air or View Easement. Nothing contained in this Lease shall be
deemed, either expressly or by implication, to create any easement for light and
air or access to any view. Any diminution or shutting off of light, air or view
to or from the Premises by any structure which now exists or which may hereafter
be erected, whether by Landlord or any other person, shall in no way affect this
Lease or Tenant's obligations hereunder, entitle Tenant to any reduction of
Rent, or impose any liability on Landlord.
25. Holding Over. No holding over by Tenant shall operate to extend the
Term. If Tenant remains in possession of the Premises after expiration or
termination of this Lease, unless otherwise agreed by Landlord in writing, then
(i) Tenant shall become a tenant at sufferance upon all the applicable terms and
conditions of this Lease, except that Base Rent shall be increased to equal 200%
of the Base Rent then in effect, (ii) Tenant shall indemnify, defend, protect
and hold harmless Landlord, and any tenant to whom Landlord has leased all or
part of the Premises, from any and all liability, loss, damages, costs or
expense (including loss of Rent to Landlord or additional rent payable by such
tenant and reasonable attorneys' fees) suffered or incurred by either Landlord
or such tenant resulting from Tenant's failure timely to vacate the Premises;
and (iii) such holding over by Tenant shall constitute a default by Tenant.
26. Security Deposit.
26.1 Deposit Required; Adjustment to Amount of Security Deposit. Tenant
shall deposit with Landlord the Initial Security Deposit upon the execution of
this Lease by Tenant. On or before July 1, 1999, Tenant shall either (i) provide
written evidence, certified to be true, correct and complete by an authorized
officer of Tenant and otherwise satisfactory to Landlord, that Tenant has raised
equity in addition to that shown on Tenant's financial statement dated December
31, 1998 in the amount of at least Four Million and 00/100 Dollars
($4,000,000.00) (the "Additional Capital") or (ii) deposit with Landlord Twenty
Two Thousand Five Hundred and 00/100 Dollars ($22,500.00) (the "Additional
Security Deposit") in addition to the Initial Security Deposit that Tenant
deposited with Landlord upon execution of the Lease. For purposes of this Lease,
the term "Security Deposit" as used herein shall refer only to the Initial
Security Deposit prior to July 1, 1999, and on and after July 1, 1999, the term
"Security Deposit" shall refer to both the Initial Security Deposit and the
Additional Security Deposit (to the extent Tenant is required to deposit with
Landlord the Additional Security Deposit as provided above). If Tenant fails to
provide to Landlord satisfactory evidence of the Additional Capital on or before
July 1, 1999 and fails to deposit the Additional Security Deposit with Landlord
on or before July 1, 1999, monthly Base Rent shall increase to Fifteen Thousand
Six Hundred Forty Seven and 00/100 ($15,647.00) commencing on July 1, 1999. If
Tenant raises the Additional Capital after July 1, 1999, Landlord shall return
the Additional Security Deposit provided that Tenant shall have provided written
evidence of the Additional Capital, certified to be true, correct and complete
by an authorized officer of Tenant and otherwise satisfactory to Landlord.
<PAGE>
26.2 Consequence of Default. The Security Deposit shall be held by
Landlord as security for the performance by Tenant of all its obligations under
this Lease. If Tenant fails to pay any Rent due hereunder, or otherwise commits
a default with respect to any provision of this Lease, Landlord may use, apply
or retain all or any portion of the Security Deposit for the payment of any such
Rent or for the payment of any other amounts expended or incurred by Landlord by
reason of Tenant's default, or to compensate Landlord for any loss or damage
which Landlord may incur thereby (and in this regard Tenant hereby waives the
provisions of California Civil Code Section 1950.7(c) and any similar or
successor statute providing that Landlord may claim from a security deposit only
those sums reasonably necessary to remedy defaults in the payment of Rent, to
repair damage caused by Tenant, or to clean the Premises). Exercise by Landlord
of its rights hereunder shall not constitute a waiver of, or relieve Tenant from
any liability for, any default. If Tenant performs all of Tenant's obligations
hereunder, the Security Deposit, or so much thereof as has not theretofore been
applied by Landlord, shall be returned, without interest, to Tenant (or, at
Landlord's option, to the last assignee, if any, of Tenant's interest under this
Lease) within thirty (30) days after the later of (i) the date of expiration or
earlier termination of this Lease, or (ii) vacation of the Premises by Tenant if
the Premises has been left in the condition specified by this Lease. Landlord's
receipt and retention of the Security Deposit shall not create any trust or
fiduciary relationship between Landlord and Tenant and Landlord need not keep
the Security Deposit separate from its general accounts. Upon termination of the
original Landlord's (or any successor owner's) interest in the Premises, the
original Landlord (or such successor) shall be released from further liability
with respect to the Security Deposit upon the original Landlord's (or such
successor's) compliance with California Civil Code Section 1950.7(d), or
successor statute.
27. Waiver. Failure of Landlord to declare a default by Tenant upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Landlord shall have the right to declare such
default at any time after its occurrence. To be effective, a waiver of any
provision of this Lease, or any default, shall be in writing and signed by the
waiving party. Any waiver hereunder shall not be deemed a waiver of subsequent
performance of any such provision or subsequent defaults. The subsequent
acceptance of Rent hereunder, or endorsement of any check by Landlord, shall not
be deemed to constitute an accord and satisfaction or a waiver of any preceding
default by Tenant, except as to the particular Rent so accepted, regardless of
Landlord's knowledge of the preceding default at the time of acceptance of the
Rent. No course of conduct between Landlord and Tenant, and no acceptance of the
keys to or possession of the Premises by Landlord before the Expiration Date
shall constitute a waiver of any provision of this Lease or of any default, or
operate as a surrender of this Lease.
28. Notice and Consents; Tenant's Agent for Service. All notices, approvals,
consents, demands and other communications from one party to the other given
pursuant to this Lease shall be in writing and shall be made by personal
delivery, by use of a reputable overnight courier service or by deposit in the
United States mail, certified, registered or Express, postage prepaid and return
receipt requested. Notices shall be addressed if to Landlord, to Landlord's
Address, and if to Tenant, to Tenant's Address. Landlord and Tenant may each
change their respective Addresses from time to time by giving written notice to
the other of such change in accordance with the terms of this Article 28, at
least ten (10) days before such change is to be effected. Any notice given in
accordance with this Article 28 shall be deemed to have been given (i) on the
date of personal delivery or (ii) on the earlier of the date of delivery or
attempted delivery (as shown by the return receipt or other delivery record) if
sent by courier service or mailed.
29. Tenant's Authority. Tenant, and each of the persons executing this Lease
on behalf of Tenant, represent and warrant that (i) Tenant is a duly formed,
authorized and existing corporation, partnership or trust (as the case may be),
(ii) Tenant is qualified to do business in California, (iii) Tenant has the full
right and authority to enter into this Lease and to perform all of Tenant's
obligations hereunder, and (iv) each person signing on behalf of Tenant is
authorized to do so. Tenant shall deliver to Landlord, upon Landlord's request,
such certificates, resolutions, or other written assurances authorizing Tenant's
execution and delivery of this Lease, and such financial information regarding
Tenant and its constituent members, as requested by Landlord from time to time
or at any time in order for Landlord to assess Tenant's then authority and/or
ability to meet its obligations under this Lease.
30. Automobile Parking.
30.1. Tenant Appurtenant Parking Rights. Subject to the terms and
conditions contained in this Article 30, Landlord shall make available to Tenant
parking spaces in the parking areas designated by Landlord for parking in the
Marketplace (such areas being hereinafter collectively referred to as the
"Parking Facility"). For purposes of this Lease, the term "Minimum Spaces" shall
mean an amount equal to four (4) parking space for each 1,000 square feet of
Rentable Area leased by Tenant in the Building. Tenant shall at all times
provide to Landlord, upon Landlord's request, a list of all of the vehicle
makes, colors and license plate numbers of all vehicles of Tenant's employees.
Tenant's use of the parking spaces to be made available to Tenant shall be on a
non-exclusive basis in common with other tenants in the Marketplace; and parking
in such spaces shall be on a first-come-first-served, unassigned, non-reserved
basis. The parking spaces to be made available to Tenant shall be in locations
designated by Landlord; and Landlord reserves
<PAGE>
the right to designate different locations from time to time without any
liability to Tenant and Tenant agrees that any such designation of a different
location shall not give rise to any claims or offset against Landlord hereunder.
Without limiting the generality of the foregoing, Landlord may restrict certain
portions of the Parking Facility for the exclusive use of one or more tenants of
the Marketplace (and their employees and agents) and may designate other areas
in the Parking Facility to be used at large only by licensees, customers and
invitees of tenants of the Marketplace; and Landlord may in its sole and
absolute discretion restrict or prohibit the use of the Parking Facility by any
vehicles other than passenger automobiles such as full-sized vans or trucks.
Notwithstanding the foregoing, Landlord shall not exercise any of the foregoing
rights in a manner which would permanently reduce the total number of parking
spaces available to Tenant on a non-exclusive basis to a number less than the
Minimum Spaces. Tenant shall not permit any vehicles belonging to Tenant or any
of Tenant's subtenants or any of their respective employees, agents, customers,
contractors or invitees to be loaded, unloaded or parked in areas other than
those designated by Landlord for such activities. In its use of the Parking
Facilities Tenant shall comply (and shall cause each of its subtenants and each
of their respective employees, agents, customers, contractors and invitees to
comply) with any and all parking regulations and rules established from time to
time by Landlord or Landlord's parking operator. Landlord or Landlord's parking
operator shall have the right to cause to be removed any vehicles of Tenant, its
subtenants or any of their respective employees, agents, licesees, customers or
invitees, that are parked in violation of any of the provisions of this Article
30 or of the regulations and rules then established by Landlord, and to charge
all of the costs incurred by Landlord in connection with such removal to Tenant
and Tenant shall pay the amount of all such costs to Landlord as additional rent
within five (5) days after receipt of written demand from Landlord. Any such
removal shall be without liability of any kind to Landlord or Landlord's parking
operator or their respective employees or agents; and Tenant shall protect,
defend, indemnify and hold Landlord and Landlord's parking operator and their
respective employees and agents from and against any and all claims, losses,
damages, demands, costs and expenses (including reasonable attorneys' fees)
which may be asserted against or incurred by any of such indemnified parties
arising out of or in connection with such removal of any automobiles.
30.2. Parking Fee. During the initial Term, Landlord shall impose no
charge on Tenant for use of the Parking Facility. After the expiration of the
initial Term, Landlord shall have the right to impose on Tenant a charge for the
use of the Parking Facility. If Landlord imposes any such parking fee (the "Base
Parking Fee") after the expiration of the initial Term, then on the first day of
each and every calendar month thereafter, Tenant shall pay to Landlord the Base
Parking Fee for each parking space utilized by employees of Tenant or its
subtenants. If Tenant shall fail to pay the Base Parking Fee to Landlord as and
when required, Tenant shall have no further right to utilize the parking spaces
for which Tenant shall have failed to pay the Base Parking Fee. Landlord
reserves the right to separately charge Tenant's guests and visitors for
parking. Landlord or Landlord's parking operator shall have the right from time
to time to adjust the amount of the Base Parking Fee to the then-prevailing fair
market rate as reasonably determined by Landlord or its parking operator. Any
such adjustment shall be effective as of the first day of the first calendar
month following Tenant's receipt of such adjustment from Landlord. If any
governmental authority having jurisdiction charges Landlord a fee for parking
during the Term, Landlord shall have the right to include as Operating Expenses
such parking fees.
30.3 Allocation of Risk. Landlord shall have no obligation to monitor
the use of the Parking Facility. The use of the Parking Facility by the
employees of Tenant and its subtenants shall be at the sole risk of Tenant, its
subtenants and their respective employees. Unless caused by the sole active
gross negligence or willful misconduct of Landlord, Landlord shall have no
responsibility or liability for any injury or damage to any person or property
by or as a result of the use of the Parking Facility by Tenant and its
subtenants and their respective employees, whether by theft, collision, criminal
activity, or otherwise; and Tenant hereby assumes, for itself, its subtenants
and their respective employees, all risks associated with any such occurrences
in or about the Parking Facility.
31. Tenant to Furnish Financial Statements. In order to induce Landlord to
enter into this Lease, Tenant agrees that it shall promptly deliver to Landlord,
from time to time, upon Landlord's written request, financial statements
(including a balance sheet and statement of income and expenses on an annualized
basis) reflecting Tenant's then current financial condition. Such statements
shall be delivered to Landlord within fifteen (15) days after Tenant's receipt
of Landlord's request. Tenant represents and warrants that all financial
statements, records, and information furnished by Tenant to Landlord in
connection with this Lease are and shall be true, correct and complete in all
respects.
32. Tenant's Signs. Without Landlord's prior consent, which Landlord may
withhold in its sole discretion, Tenant shall not place on the Premises or on
the Building any exterior signs nor any interior signs that are visible from the
exterior of the Premises or Building. Tenant shall pay all costs and expenses
relating to any such sign approved by Landlord, including without limitation,
the cost of the installation and maintenance of the sign. On the date of
expiration or earlier termination of this Lease, Tenant, at its sole cost and
expense, shall remove all signs and repair any damage caused by such removal.
<PAGE>
33. Miscellaneous.
33.1. No Joint Venture. This Lease does not create any partnership or
joint venture or similar relationship between Landlord and Tenant.
33.2. Successors and Assigns. Subject to the provisions of Article 17
regarding assignment, all of the provisions, terms, covenants and conditions
contained in this Lease shall bind, and inure to the benefit of, the parties and
their respective successors and assigns.
33.3. Construction and Interpretation. The words "Landlord" and "Tenant"
include the plural as well as the singular. If there is more than one person
comprising Tenant, the obligations under this Lease imposed on Tenant are joint
and several. References to a party or parties refers to Landlord or Tenant, or
both, as the context may require. The captions preceding the Articles, Sections
and subsections of this Lease are inserted solely for convenience of reference
and shall have no effect upon, and shall be disregarded in connection with the
construction and interpretation of this Lease. Use in this Lease of the words
"including", "such as", or words of similar import when following a general
manner, shall not be construed to limit such matter to the enumerated items or
matters whether or not language of nonlimitation (such as "without limitation")
is used with reference thereto. All provisions of this Lease have been
negotiated at arm's length between the parties and after advice by counsel and
other representatives chosen by each party and the parties are fully informed
with respect thereto. Therefore, this Lease shall not be construed for or
against either party by reason of the authorship or alleged authorship of any
provision hereof, or by reason of the status of the parties as Landlord or
Tenant, and the provisions of this Lease and the Exhibits hereto shall be
construed as a whole according to their common meaning in order to effectuate
the intent of the parties under the terms of this Lease.
33.4 Severability. If any provision of this Lease, or the application
thereof to any person or circumstance, is determined to be illegal, invalid or
unenforceable, the remainder of this Lease, or its application to persons or
circumstances other than those as to which it is illegal, invalid or
unenforceable, shall not be affected thereby and shall remain in full force and
effect, unless enforcement of this Lease as so invalidated would be unreasonable
or grossly inequitable under the circumstances, or would frustrate the purposes
of this Lease.
33.5 Entire Agreement; Amendments. This Lease, together with the
Exhibits hereto and any Addenda identified on the Basic Lease Information,
contains all the representations and the entire agreement between the parties
with respect to the subject matter hereof and any prior negotiations,
correspondence, memoranda, agreements, representations or warranties are
replaced in total by this Lease, the Exhibits hereto and such Addenda. Neither
Landlord nor Landlord's agents have made any warranties or representations with
respect to the Premises or any other portion of the Marketplace, except as
expressly set forth in this Lease. This Lease may be modified or amended only by
an agreement in writing signed by both parties.
33.6 Governing Law. This Lease shall be governed by and construed
pursuant to the laws of the State of California.
33.7 Litigation Expenses. If either party brings any action or
proceeding against the other (including any cross-complaint, counterclaim or
third party claim) to enforce or interpret this Lease or otherwise arising out
of this Lease, the prevailing party in such action or proceeding shall be
entitled to its costs and expenses of suit, including reasonable attorneys' fees
and accountants' fees.
33.8 Standards of Performance and Approvals. Unless otherwise provided
in this Lease, (i) each party shall act in a reasonable manner in exercising or
undertaking its rights, duties and obligations under this Lease and (ii)
whenever approval, consent or satisfaction (collectively, an "approval") is
required of a party pursuant to this Lease or an Exhibit hereto, such approval
shall not be unreasonably withheld or delayed. Unless provision is made for a
specific time period, approval (or disapproval) shall be given within thirty
(30) days after receipt of the request for approval. Nothing contained in this
Lease shall, however, limit the right of a party to act or exercise its business
judgement in a subjective manner with respect to any matter as to which it has
been (A) specifically granted such right, (B) granted the right to act in its
sole discretion or sole judgment, or (C) granted the right to make a subjective
judgment hereunder, whether "objectively" reasonable under the circumstances and
any such exercise shall not be deemed inconsistent with any covenant of good
faith and fair dealing implied by law to be part of this Lease. The parties have
set forth in this Lease their entire understanding with respect to the terms,
covenants, conditions and standards pursuant to which their obligations are to
be judged and their performance measured, including the provisions of Article 17
with respect to assignments and sublettings.
<PAGE>
33.9. Brokers. Landlord shall pay to Landlord's Broker and Tenant's
Broker as specified in the Basic Lease Information of this Lease, a commission
in connection with each Broker's negotiation of this Lease pursuant to a
separate agreement or agreements between Landlord and such Broker. Other than
such Brokers, Landlord and Tenant each represent and warrant to the other that
no broker, agent, or finder has procured or was involved in the negotiation of
this Lease and no such broker, agent or finder is or may be entitled to a
commission or compensation in connection with this Lease. Landlord and Tenant
shall each indemnify, defend, protect and hold the other harmless from and
against any and all liability, loss, damages, claims costs and expenses
(including reasonable attorneys' fees) resulting from claims that may be
asserted against the indemnified party in breach of the foregoing warranty and
representation.
33.10. Memorandum of Lease. Tenant shall, upon request of Landlord,
execute, acknowledge and deliver a short form memorandum of this Lease (and any
amendment hereto) in form suitable for recording. In no event shall this Lease
or any memorandum thereof be recorded by Tenant.
33.11. Quiet Enjoyment. Upon paying the Rent and performing all its
obligations under this Lease, Tenant may peacefully and quietly enjoy the
Premises during the Term as against all persons or entities claiming by or
through Landlord, subject, however, to the provisions of this Lease any
encumbrances as specified in Article 21.
33.12. Surrender of Premises. Upon the Expiration Date or earlier
termination of this Lease, Tenant shall quietly and peacefully surrender the
Premises to Landlord in the condition specified in Article 9 above. On or before
the Expiration Date or earlier termination of this Lease, Tenant shall remove
all of its personal property from the Premises and repair at its cost and
expense all damage to the Premises or Marketplace caused by such removal. All
personal property of Tenant not removed hereunder shall be deemed, at Landlord's
option, to be abandoned by Tenant and Landlord may store such property in
Tenant's name at Tenant's expense and/or dispose of the same in any manner
permitted by law.
33.13. Name of Building Address. Tenant shall not use the name of the
Building or Marketplace for any purpose other than as the address of the
business conducted by Tenant in the Premises. Tenant shall, in connection with
all correspondence, mail or deliveries made to or from the Premises, use the
official Building address specified from time to time by Landlord.
33.14. Exhibits. The Exhibits specified in the Basic Lease Information
are by this reference made a part hereof.
33.15. Time of the Essence. Time is of the essence of this Lease and of
the performance of each of the provisions contained in this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the Lease
Date.
LANDLORD
CHRISTIE AVENUE PARTNERS-JS,
a California limited partnership
By: 64th Street Partners,
a California limited partnership
Its: General Partner
By /s/ [Signature Illegible]
---------------------------------
General Partner
TENANT:
HEALTHCENTRAL.COM
a California corporation
By: /s/ AL GREENE
----------------------------------------
<PAGE>
Its: President and CEO
----------------------------
By:______________________________
Its:_____________________________
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
EXHIBIT B
Legal Description
EmeryBay MarketPlace
Emeryville, CA
The Premises referred to herein is all that certain property situated in the
County of Alameda, State of California, described as follows:
PARCEL ONE:
Parcel 2, 3, and 4, of Parcel Map 5303, filed February 26, 1988, Map Book 174,
Pages 91 and 92 Alameda County Records.
Excepting Therefrom
Being a portion of Parcel 2 of Parcel Map 5303 filed in the office of the
Recorder of Alameda County February 26, 1988 in Book 174 of Maps at Page 91,
situate in the City of Emeryville, County of Alameda, State of California, more
particularly described as follows:
Beginning at the northeasterly corner of said Parcel 2 as shown on said Parcel
map; thence leaving said point of beginning along the general easterly line of
said parcel 2 south 13 degrees 11'44" east 471.54 feet, along a tangent curve to
the right with a radius of 5,593.25 feet, through a central angle of 00 degrees
18'49" for an arc length of 30.62 feet to the true point of beginning; thence
continuing along said general easterly line along a tangent curve to the right
with a radius of 5,593.25 feet, through a central angle of 00 degrees 45'15" for
an arc length of 73.61 feet; thence leaving said general easterly line the
following courses and distances: from a tangent which bears south 40 degrees
12'19" west along a curve to the right with a radius of 196.00 feet, through a
central angle of 02' degrees 8'54" for an arc length of 9.06 feet to a point of
reverse curvature, from a tangent which bears south 42 degrees 51'14" west,
along a curve to the left with a radius of 503.00 feet, through a central angle
of 06 degrees 08'45" for an arc length of 53.63 feet; south 36 degrees 42'29"
west 3.00 feet; along a tangent curve to the left with a radius of 149.00 feet,
through a central angle of 24 degrees 34'21" for an arc length of 63.90 feet;
south 12 degrees 08'08" west, 323.20 feet; along a tangent curve to the left
with a radius of 198.00 feet, through a central angle of 10 degrees 30'50" for
an arc length of 36.33 feet to a point on the common dividing line between said
parcel 2 and parcel 1 as shown on said parcel map; thence along said common
dividing line between parcel 1 and parcel 2 south 77 degrees 16'18" west 6.37
feet and south 12 degrees 46'36" east 245.90 feet to a point on the general
southerly line of said parcel 2, said line being also the general northerly line
of shellmound street as shown on said parcel map; thence along said general
southerly line of parcel 2 from a tangent bearing north 12 degrees 50'11" west,
along a curve to the left with a radius of 112.99 feet, through a central angle
of 52 degrees 51'13" for an arc length of 163.39 feet; thence south 82 degrees
28'02" west, 7.76 feet to a point of cusp; thence leaving said general southerly
line of parcel 2 the following courses and distances: from tangent bearing of
north 52 degrees 28'19" east along a curve to the lift having a rate of 44.00
feet, through a central angle of 94 degrees 01'29" for an arc length of 72.21
feet north 11 degrees 33'10" west 22.91 feet; along a tangent curve to the right
with a radius of 250.00 feet, through a central angle of 23 degrees 41'18", for
an arc length of 103.36 feet; north 12 degrees 08'08" east 347.48 feet, along a
tangent curve to the right with a radius of 196.00 feet, through a central angle
of 24 degrees 34'21" for an arc length of 84.06 feet; north 36 degrees 42'29"
east 79.50 feet, along a tangent curve to the left with a radius of 146.00 feet,
through a central angle of 13 degrees 36'42" for an arc length of 34.69 feet to
the true, point of beginning.
Containing 36,522 square feet of land, more or less.
Also Excepting Therefrom
Being a portion of Parcel 4 of Parcel Map 5303 filed in the office of the
Recorder of Alameda County, February 26, 1988 in Book 174 of maps at page 91,
situate in the City of Emeryville, County of Alameda, State of California, more
particularly described as follows:
Commencing at the easterly corner of Parcel 3 as shown on said parcel map; said
corner lies on the general westerly line of Parcel 4 as shown on said parcel map
5303, thence leaving said point of commencing along said general westerly line
of parcel 4, south 13
<PAGE>
degrees 11'44" east 471.54 feet; thence along a tangent curve to the right with
a radius of 5,593.25 feet, through a central angle of 00 degrees 18'49" for an
arc length of 30.62 feet to the true point of beginning; thence leaving said
general westerly line the following courses and distances: from a tangent
bearing of north 23 degrees 05'47" east, along a curve to the left with a radius
of 146.00 feet, through a central angle of 20 degrees 28'19", for an arc length
of 52.17 feet to a point of compound curvature; along a compound curve to the
left with a radius of 148.72 feet, through a central angle of 14 degrees 31'44",
for an arc length of 37.71 feet; north 11 degrees 54'15" west 228.33 feet; along
a tangent curve to the left with a radius of 2,450.00 feet, through a central
angle of 01 degrees 17'29", for an arc length of 55.22 feet; north 13 degrees
11'44" west 588.27 feet to a point on a curve, from a tangent bearing of south
55 degrees 39'34" east, along a curve to the right with a radius of 30.00 feet,
through a central angle of 42 degrees 37'50" for an arc length of 22.32 feet;
south 13 degrees 11'44" east, 904.60 feet; along a tangent curve to the right
with a radius of 5,635.24 feet, through a central angle of 00 degrees 37'06",
for an arc length of 60.82 feet; thence from a tangent bearing of south 22
degrees 20'16" west, along a curve to the right with a radius of 196.00 feet,
through a central angle of 17 degrees 52'04" for an arc length of 61.12 feet, to
a point on a curve on said general westerly line of Parcel 4; thence from a
tangent bearing of north 12 degrees 07'40" west, along a curve to the left with
a radius of 5,593.25 feet, through a central angle of 00 degrees 45'15" for an
arc length of 73.61 feet to the true point of beginning.
Containing 11,809 square feet of land, more or less.
Adding Thereto
Being a portion of "Bay Street" as shown on Parcel Map 5303 filed in the office
of the recorder of Alameda County, February 26, 1988 in Book 174 of maps at Page
91, situate in the City of Emeryville, County of Alameda, State of California,
more particularly described as follows:
Commencing at the Southwesterly corner of land designated as "Bay Street" on
said parcel map 5303; thence along the westerly line of said "Bay Street" from a
tangent bearing of north 10 degrees 02'22" west, along a curve to the left with
a radius of 14,228.94 feet, through a central angle of 00 degrees 48'22" for an
arc length of 200.18 feet; thence north 10 degrees 50'44" west 193.08 feet to
the true point of beginning; thence continuing along said westerly line north 10
degrees 50'44" west 191.84 feet; thence leaving said westerly line of "Bay
Street" and through said "Bay Street" the following three (3) courses and
distances: North 76 degrees 53'00" east 34.15 feet, south 12 degrees 00'05" east
191.98 feet and south 77 degrees 16'18" west 38.02 feet to the point of
beginning.
Containing 6,922 square feet of land, more or less.
Also Adding Thereto
Being a portion of "Bay Street" as shown on Parcel Map 5303 filed in the office
of the Recorder of Alameda County, February 26, 1988 in Book 174 of maps at page
91, situate in the City of Emeryville, County of Alameda, State of California,
more particularly described as follows:
Commencing at the southwesterly corner of land designated as "Bay Street" on
said Parcel Map 5303; thence along the westerly line of said "Bay Street" from a
tangent bearing of North 10 degrees 02'22" west, along a curve to the left with
a radius of 14,228.94 feet, through a central angle of 00 degrees 48'22" for an
arc length of 200.18 feet; thence north 10 degrees 50'44" west 450.97 feet to
the true point of beginning; thence continuing along said westerly line north 10
degrees 50'44" west 33.60 feet; along a tangent curve to the left having a
radius of 5,635.24, through a central angle of 01 degrees 38'24" and arc length
of 161.30 feet; thence leaving said westerly line of "Bay Street" and through
said "Bay Street" the following four (4) courses and distances: south 58 degrees
59'34" east 42.78 feet, from a tangent bearing south 11 degrees 13'49" east,
along a curve to the left having a radius of 1,000.00 feet, through a central
angle of 00 degrees 46'16" an arc length of 13.46 feet, south 12 degrees 00'05"
east 151.63 feet, and south 76 degrees 53'00" west 32.82 feet to the point of
beginning.
Containing 5,672 square feet of land, more or less
PARCEL TWO:
Non-Exclusive Easements, Appurtenant to Parcel One, above, for the use of all
service drives and walkways for ingress and egress, parking areas for parking of
motor vehicles and facilities installed for the comfort and convenience of
customers, invitees, contractors
<PAGE>
and employees within those common area portions of parcel one shown on said
parcel map No. 5303, as said common area is defined in, and as said easements
were granted pursuant to, that certain "Declaration of Easements and
Restrictions", executed by Christie Avenue Partners, a California partnership,
dated February 25, 1988, and recorded February 29, 1988, as series No. 88-
051904, official records of Alameda County, State of California.
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT AGREEMENT
This Tenant Improvement Agreement ("Agreement") is part of the Lease ("Lease")
relating to certain premises (defined therein as the "Initial Premises" and the
"Expansion Area" and collectively as the "Premises") which are more particularly
shown in Exhibit A of the Lease. Landlord and Tenant agree as follows with
respect to the Improvements to be installed in the Premises (the "Tenant
Improvements"):
1. PLANS AND SPECIFICATIONS
A. General Parameters. The plans and specifications for the construction of
the Tenant Improvements shall be developed by Landlord and Tenant. In
developing the preliminary space plans (the "Space Plans"), final space
plans and working drawings, and in determining whether any change orders
shall be requested, Tenant's architect shall initially create such plans
and drawings, with the input of Landlord and/or Landlord's architect, and
any plans shall be subject to the approval of Landlord and its architect
which may be withheld in the subjective, good faith, discretion of
Landlord. Landlord and Tenant acknowledge that the design and aesthetic
characteristics of the Tenant Improvements are an important consideration
to Landlord. The parties further acknowledge that matters of aesthetics
are not easily reduced to an "objective" reasonableness standard. Landlord
agrees, however, that its actions with respect to the approval or
disapproval of the Plans shall be made in good faith. Accordingly, the
parties intend that the "subjective, good faith," standards set forth in
this Lease for Landlord's review and approval of the plans shall take into
account Landlord's right to exercise its subjective aesthetic judgement in
a good faith manner. In addition to the foregoing, Tenant agrees that the
plans shall include acoustical separation requested by Landlord in the
walls separating the Premises from the remainder of the Building. Tenant
shall cause all plans, drawings and specifications for the Tenant
Improvements, whether preliminary or final, to be prepared by licensed
architects and, where appropriate, licensed mechanical, electrical and
structural engineers.
B. Preparation of Space Plans. Within ten (10) days after the full execution
of the Lease, Tenant shall prepare and submit to Landlord two sets of
comprehensive Space Plans. The Space Plans shall be subject to Landlord's
prior written approval in accordance with the provisions of this Work
Letter. Within ten (10) days after receipt of the Space Plans, Landlord
shall return one set of the same with Landlord's approval noted thereon
(which approval may be subject to landlord's suggested modifications), or
with Landlord's disapproval noted thereon (which disapproval shall be
accompanied by Landlord's suggested modifications). If Landlord has
approved the Space Plans subject to modifications, such modifications
shall be deemed to be acceptable to and approved by Tenant, unless Tenant
shall prepare and resubmit to Landlord, within an additional ten (10)
days, revised space Plans for further consideration by Landlord. If
Landlord has disapproved the Space Plans, Tenant shall promptly prepare
and resubmit to Landlord revised Space Plans, with changes highlighted,
and Landlord shall approve or disapprove the same within ten (10) days
after receipt thereof.
C. Working Drawings. Within twenty (20) days after the approval of the Space
Plans by Landlord, Tenant shall prepare and submit to Landlord two sets of
(i) fully dimensioned scale drawings for the Tenant Improvements
(including plans, elevations, sections, perspective renderings and sample
boards), and (ii) specifications for the Tenant Improvements (including a
specification and justification of Tenant's utility requirements)
(collectively, the "Working Drawings"). The Working Drawings shall be
subject to Landlord's written approval, which approval shall not be
unreasonably withheld. Within ten (10) business days after receipt of the
Working Drawings, Landlord shall return one set of the same with
Landlord's approval noted thereon (which approval may be subject to
Landlord's suggested modifications), or with Landlord's disapproval noted
thereon (which disapproval shall be accompanied by Landlord's suggested
modifications). If Landlord has approved the Working Drawings subject to
modifications, such modifications shall be deemed to be acceptable to and
approved by Tenant, unless Tenant shall prepare and resubmit revised
Working Drawings for further consideration by Landlord within ten (10)
days after receipt of Landlord's comments. If Landlord has disapproved the
Working Drawings, Tenant shall promptly prepare and resubmit revised
Working Drawings, with changes highlighted, to Landlord and Landlord shall
approve or disapprove the same within ten (10) business days after receipt
thereof. The Working Drawings which have been approved by Landlord and
Tenant are hereinafter referred to as the "Approved Working Drawings."
<PAGE>
D. Landlord's Approval. Landlord, in its sole discretion, may withhold its
approval of any plans (including any change orders affecting such
documents), to the extent such documents require work that:
(i) Landlord reasonably believes will increase the cost of operation or
maintenance of any of the systems of the Building;
(ii) does not conform to applicable building code or is not approved by
any governmental, quasi-governmental, or utility authority with
jurisdiction over the Premises;
(iii) is not of a first-class character, quality or appearance, consistent
with the overall character, quality and appearance of the Building;
E. Cost Estimates. Landlord shall obtain a cost estimate from its contractor
based on the approved preliminary plans and specifications and Approved
Working Drawings, respectively, and Tenant shall have three (3) business
days after the date of submission to Tenant of each cost estimate to
approve or disapprove. A cost estimate shall be deemed approved if Tenant
fails to disapprove it within the three (3) business day period. If Tenant
disapproves a cost estimate, Tenant shall have five (5) business days
after the date of disapproval to reduce the cost estimate by agreeing to
modifications to the plans and specifications or to the Approved Working
Drawings, which modifications shall be subject to the prior written
approval of Landlord. If Tenant disapproves a cost estimate but fails to
approve modifications which will reduce the cost estimate within the five
(5) business day period, Landlord may either terminate this Agreement and
the Lease or proceed with construction on the basis of the last cost
estimate submitted to Tenant.
F. Tenant's Approval. Whenever Tenant's approval is required pursuant to the
terms of this Agreement, the approval shall not be unreasonably withheld
or delayed. Tenant's approvals or disapprovals shall be in writing.
G. Termination. If this Agreement and the Lease are terminated by Landlord
pursuant to any of the provisions of this Agreement, the parties' rights
and obligations hereunder shall be discharged; provided, however, Tenant
shall pay Landlord, within ten (10) days after the date of Tenant's
receipt of a statement for the same, the costs incurred by Landlord
through the date of termination in connection with the preparation of any
plans, drawings, and specifications and all costs incurred by Landlord in
applying for any governmental approvals, including a building permit,
required for construction of the Tenant Improvements.
2. CONSTRUCTION OF TENANT IMPROVEMENTS.
A. Construction by Landlord. Landlord shall cause construction of the Tenant
Improvements to be completed in a good and workmanlike manner with the
costs to be expended by Landlord not to exceed the amount of Eighty-Seven
Thousand Three Hundred Thirty-Six and 00/100 Dollars ($87,336.00) (the
"Base Allowance"); provided, however, until such time as Tenant either
provides evidence of the Additional Capital (as defined in Section 26.1 of
the Lease) or deposits with Landlord the Additional Security Deposit (as
defined in Section 26.1 of the Lease), Landlord shall have no obligation,
notwithstanding any thing to the contrary contained herein, to expend more
than Forty Six Thousand Two Hundred Sixty and 00/100 Dollars ($46,260.00)
(the "Reduce Base Allowance") for the Tenant Improvements. Upon delivery
of evidence of the Additional Capital or deposit of the Additional
Security Deposit in accordance with Section 26.1, Landlord shall agree to
expend the balance of the Base Allowance for the Tenant Improvements. If
the entire Base Allowance (or the Reduced Base Allowance, as applicable)
is not expended by Landlord, then such unused portion shall be treated as
a credit against the Tenant's next monthly payment(s) of Base Rent.
B. Tenant Improvements Cost. The Tenant Improvements cost ("Tenant
Improvements Cost") to be paid by Landlord, subject to the provisions of
Section 3 of this Agreement, shall include, but not be limited to:
(i) All costs of preliminary and final architectural and engineering
plans, drawings and specifications for the Tenant Improvements, and
engineering costs associated with completion of the State of
California energy utilization calculations under Title 24
legislation;
(ii) All costs of obtaining building permits and other necessary
authorizations from the applicable governmental authority (e.g., the
City in which the Building is located);
<PAGE>
(iii) All costs of interior design and finish schedule plans, drawings and
specifications including as-built drawings;
(iv) All direct and indirect costs of procuring and installing Tenant
Improvements in the Premises, including the contractor's fee for
profit, contractor's fee for overhead, the cost of all of
contractor's on-site supervisory and administrative staff, office,
equipment and temporary services provided in connection with
construction of the Tenant Improvements;
(v) All fees payable to Landlord's architect, engineer or space planner
if they are required to redesign any portion of the Tenant
Improvements following Tenant's approval of the preliminary or
working drawings;
(vi) Sewer connection fees, if any;
(vii) The fee charged by any construction cost consultant and/or
construction manager employed in connection with the Tenant
Improvement; and
(viii) Fire and Builder's All-Risk insurance and public liability
insurance premiums and fees.
3. EXCESS TENANT IMPROVEMENTS COST. If the total Tenant Improvements Cost is
more than the Base Allowance or the Reduced base Allowance, as applicable,
then, the excess Tenant Improvements Cost shall be paid by Tenant to
Landlord, in cash, within ten (10) days after receipt of a statement from
Landlord, as additional rent.
4. CHANGE REQUESTS.
A. No changes to the Approved Working Drawings requested by Tenant shall be
made without Landlord's prior approval, which approval shall not be
unreasonably withheld; provided, however, that no change request shall
affect the structure of the Building. Any changes to the Approved Working
Drawings shall be in writing and shall be signed by both Landlord and
Tenant prior to the change being made. Tenant shall not instruct or direct
Contractor workmen, subcontractors, material suppliers, or others
performing the Tenant Improvements construction. Tenant shall direct all
inquiries and requests relating to the construction work to Landlord or
Landlord's designated agent. Tenant shall be responsible for any added
costs or delays resulting from Tenant's actions which are contrary to this
Paragraph 4.
B. (i) Tenant shall pay Landlord in cash, within thirty (30) days after
receipt of an itemized written bill from Landlord, any additional costs
for changes requested by Tenant, including, without limitation,
architectural fees and increases in construction costs caused by the
delay; (ii) a change request shall constitute an agreement by Tenant to
any reasonable delay in substantial completion caused by reviewing,
processing and implementing the change; and (iii) the Lease, at Landlord's
option, shall commence on the date it would have otherwise commenced but
for any such delays.
C. As soon as reasonably possible after receipt of a written change request
from Tenant, Landlord shall notify Tenant of Landlord's approval or
disapproval of the request; and, if the request is approved, of an
estimated increase or decrease in costs and an estimate of the effect the
change shall have on the projected date for substantial completion of the
Tenant Improvements.
D. Landlord shall have the authority, without the consent of Tenant, to order
minor changes in the Tenant Improvements not involving an increase in cost
to Tenant or a delay in the Commencement Date and not inconsistent with
the intent of the Approved Working Drawings.
5. COOPERATION. Landlord and Tenant shall cooperate and diligently assist the
architect, engineer or space planner in completing the Approved Working
Drawings and specifications and the Contractor in completing construction of
the Tenant Improvements.
6. CONDITION OF TENANT IMPROVEMENTS. Within seven (7) days after the
Commencement Date, Tenant shall "walk-through" the Premises with Landlord and
they shall complete a punch-list of items needing additional work by
Landlord. Other than the items specified in the punch-list, by taking
possession of the Premises, Tenant shall be deemed to have accepted the
Premises and the Building in good, clean and completed condition and repair,
subject to all applicable laws, codes and ordinances.
<PAGE>
The punch-list shall not include any damage to the Premises or the Building
caused by Tenant's move-in, which damage shall be promptly repaired or
corrected by Tenant at its sole expense. If Tenant fails to complete a punch-
list with Landlord's cooperation within the seven (7) day period specified
above, it shall be deemed that there are no items needing additional work or
repair. Contractor shall complete all reasonable punch-list items within
thirty (30) days after the walk-through inspection or as soon as practicable
thereafter and upon notification of completion of the punch-list items,
Tenant shall approve or state its reasons for disapproval of the completed
items in writing to Landlord within seven (7) days or such items shall be
deemed approved by Tenant.
7. TENANT DELAYS. If the date of delivery of the Premises to Tenant by Landlord
is delayed beyond the date anticipated by Landlord, and if the cause of the
delay in the delivery of the Premises is attributable to Tenant, then the
date of delivery of the Premises for purposes of calculating the Commencement
Date and the commencement of Rent shall be the date the delivery of the
Premises would have occurred but for such delay. Payments for any partial
month shall be prorated on the basis of a thirty (30) day month. Delays
attributable to Tenant shall include those caused by:
A. Tenant's failure to furnish information to Landlord for the preparation
of plans and drawings for the Tenant Improvements in accordance with this
Exhibit C;
B. Tenant's request for special materials, finishes or installations which
are not readily available;
C. Tenant's failure to reasonably approve plans and working drawings in
accordance with this Exhibit C;
D. Tenant's change requests pursuant to this Exhibit C that result in
delays;
E. Tenant's failure to approve cost estimates if any approvals are required
pursuant to this Exhibit C; and
F. Interference with Landlord's work caused by Tenant or by Tenant's agents.
8. TENANT IMPROVEMENTS COST AND RENT ADJUSTMENT STATEMENT. Within one hundred
twenty (120) days after the Commencement Date, Landlord shall provide Tenant
with a statement of the Tenant Improvements Cost. The statement shall include
the balance due Landlord, if any (which shall be paid within ten (10) days as
additional rent).
LANDLORD:
CHRISTIE AVENUE PARTNERS-JS,
a California limited partnership
By: 64th Street Partners,
a California limited partnership
Its: General Partner
By: [Signature Illegible]
---------------------
General Partner
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
TENANT:
HEALTHCENTRAL.COM
a California corporation
By: /s/ Albert Greene
---------------------
Its: President and CEO
--------------------
By:_______________________
Its:______________________
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, entrances, lobby, elevators, stairways and public corridors
shall be used only as a means of ingress and egress and shall remain
unobstructed at all times. The entrance and exit doors of all suites are to be
kept closed at all times except as required for orderly passage to and from a
suite. Loitering in any part of the Building or obstruction of any means of
ingress or egress shall not be permitted. Doors and windows shall not be covered
or obstructed.
2. Plumbing fixtures shall not be used for any purposes other than those for
which they were constructed, and no rubbish, newspapers, trash or other
substances of any kind shall be thrown into them. Walls, floors and ceilings
shall not be defaced in any way and no one shall be permitted to mark, drive
nails, screws or drill into, paint or in any way mar any Building surface,
except that pictures, certificates, licenses and similar items normally used in
Tenant's business may be carefully attached to the walls by Tenant in a manner
to be prescribed by Landlord. Upon removal of such items by Tenant any damage to
the walls or other surfaces, except minor nail holes, shall be repaired by
Tenant.
3. No awning, shade, sign, advertisement or notice shall be inscribed,
painted, displayed or affixed on, in or to any window, door or balcony or any
other part of the outside or inside of the Building or the demised premises. No
window displays or other public displays shall be permitted without the prior
written consent of Landlord. All tenant identification on public corridor doors
beyond building standard will be installed by Landlord for Tenant but the cost
shall be paid by Tenant. No lettering or signs other than the name of Tenant
will be permitted on public corridor door with the size and type of letters to
be prescribed by Landlord. The directory of the Building will be provided for
the display and location of Tenant and Landlord reserves the right to exclude
all other names therefrom. All requests for listing on the Building directory
shall be submitted to the office of Landlord in writing. Landlord reserves the
right to approve all listing on the Building directory. Landlord reserves the
right to approve all listing requests. Any change required by Tenant of Landlord
of the name or names posted on directory, after initial posting, will be charged
to Tenant.
4. The cost of any special electrical circuits for items such as copying
machines, computers, microwaves, etc., shall be borne by Tenant unless the same
are part of the building standard improvements. Prior to installation of
equipment Tenant must receive written approval from Landlord.
5. The weight size and position of all safes and other unusually heavy
objects used or placed in the Building shall be prescribed by Landlord and
shall, in all cases, stand on metal plates of such size as shall be prescribed
by Landlord. Tenant shall reimburse Landlord for the cost of landlord's
architect or structural engineer in reviewing the weight and locations of
unusually heavy equipment. The repair of any damage done to the Building or
property therein by putting or taking out or maintaining such safes or other
unusually heavy objects shall be paid for by Tenant.
6. All freight, furniture, fixtures and other personal property shall be
moved into, within and out of the Building at times designated by and under the
supervision of Landlord and in accordance with such regulations as may be posted
in the office of the Building manager. In no event will Landlord be responsible
for any loss or damage to such freight, furniture, fixtures or personal property
from any cause except for the willful misconduct of Landlord, its agents,
employees or contractors or a breach of Landlord's obligations under this Lease.
7. No improper noises, vibrations or odors will be permitted in the Building,
nor shall any person be permitted to interfere in any way with tenants or those
having business with them. No person will be permitted to bring or keep within
the Building any animal, bird or bicycle or any toxic or flammable substances
without Landlord's prior permission, provided, however, that seeing eye dogs
and/or other animals used to assist the physically impaired are allowed in the
Building. No person shall throw trash, refuse, cigarettes or other substances of
any kind any place within or out of the Building except in the refuse containers
provided therefor. Landlord reserves the right to exclude or expel from the
Building any person who, in the judgment of Landlord, is intoxicated or under
the influence of liquor or drugs or who shall in any manner do any act in
violation of the rules and regulations of the Building.
8. All re-keying of office doors or changes to the card access system, after
occupancy, will be at the expense of Tenant. Tenant shall not re-key any doors,
add additional locks to doors or change the card access system in any way
without making prior arrangements with Landlord.
<PAGE>
9. Tenant will not install or use any window coverings except those provided
by Landlord, nor shall Tenant use the balconies, if any, for storage, barbecues,
drying of laundry or any other activity which would detract from the appearance
of the Building or interfere in any way with the use of the Building by other
tenants.
10. If Tenant uses the Premises after regular business hours or on non-
business days, Tenant shall lock any entrance doors to the Building used by
Tenant or take such other steps as are necessary to secure the Building's doors
immediately after entering or leaving the Building.
11. Tenant shall provide and cause all Tenant's employees to use protective
floor mats under all desk chairs used in the Premises.
12. If Tenant requires telegraphic, telephonic, burglar or of similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
13. Tenant shall not waste electricity, water or air-conditioning and agrees
to cooperate fully with Landlord to assure the most effective operation of the
Building's beating and air-conditioning systems.
14. Tenant shall not install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building elsewhere. Canvassing, soliciting and distribution of handbills or any
other written material, and peddling in the Building, are prohibited, and each
tenant shall cooperate to prevent same.
15. Tenant shall not use in any space or in the public halls of the Building
any hand trucks except those equipped with rubber tires and side guards, or such
other material-handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles of any kind into the Building.
16. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the building. Tenant shall not
leave vehicles in the Building parking areas overnight nor park any vehicles in
the Building parking areas other than automobiles, motorcycles, motor driven or
non-motor driven bicycles or four-wheeled trucks. Landlord may, in its sole
discretion, designate separate areas for bicycles and motorcycles.
17. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
18. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition to his occupancy of the Premies.
<PAGE>
EXHIBIT E
CONFIRMATION OF LEASE TERM
LANDLORD: CHRISTIE AVENUE PARTNERS - JS
TENANT: HEALTHCENTRAL.COM
LEASE DATE: March __, 1999
PREMISES: 6001 Shellmound Street Emeryville, California
Pursuant to Section 3 of the above referenced Lease, the Commencement Date as
defined in Section 3 shall be_________________.
TENANT:
Dated: HEALTHCENTRAL.COM
a California corporation
By:_______________________
Its:______________________
By:_______________________
Its:______________________
LANDLORD:
Dated: CHRISTIE AVENUE PARTNERS - JS,
a California limited partnership
By: 64th Street Partners,
a California limited partnership
Its: General Partner
By:_________________________________
General Partner
<PAGE>
EXHIBIT 10.17
LANDLORD'S CONSENT AND AGREEMENT
(Sublease)
This Landlord's Consent and Agreement (the "Consent") is attached to that
certain Sublease (the "Sublease"), dated July 22, 1999 (the "Effective Date"),
between Burnham Pacific Operating Partnership, L.P., a Delaware limited
partnership ("Sublessor") and HealthCentral.com, Inc., a California corporation
("Sublessee"). Terms used in this Consent shall have the meaning set forth in
the Sublease.
The undersigned, Christie Avenue Partners - JS, a California limited
partnership ("Landlord"), under the lease referred to as the "Lease" in the
Sublease hereby consents to the subletting described in the Sublease upon the
following express terms and conditions. Terms used in this Consent shall have
the meaning set forth in the Sublease and the Lease.
1. The Sublease is subject and subordinate to the Lease and to all of the
terms, covenants, conditions, provisions and agreements set forth in the Lease.
The Sublease shall automatically terminate on the termination of the Lease.
2. The Sublessee shall perform faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of the Lease, for the period of
such subletting and to the extent of the Subleased Premises.
3. Neither such subletting nor this Consent shall:
(a) release or discharge Sublessor from any liability, whether past,
present or future, under the Lease;
(b) operate as a consent or approval by Landlord to or of any of the
terms, covenants, conditions, provisions or agreements of the Sublease and
Landlord shall not be bound thereby;
(c) be construed to modify, waive or affect any of the terms,
covenants, conditions, provisions or agreements of the Lease or to waive any
breach thereof, or any of Landlord's rights as Landlord thereunder; or to
enlarge or increase Landlord's obligations as Landlord thereunder, or
(d) be construed as a consent by Landlord to any further subletting
either by Sublessor or by Sublessee or to any assignment by Sublessor of the
Lease or assignment by Sublessee of the Sublease, whether or not the Sublease
purports to permit the same and, without limiting the generality of the
foregoing, both Sublessor and Sublessee agree that the Sublessee has no right
whatsoever to assign, mortgage or encumber the Sublease nor to sublet any
portion of the Subleased Premises or permit any portion of the Subleased
Premises to be used or occupied by any other party.
4. Sublessor shall not be released from any liability under the Lease
because of Landlord's failure to give notice of default under or in respect of
the terms, covenants, conditions, provisions or agreements of the Lease.
5. In the event of Sublessor's default under the provisions of the Lease,
the rent due from the Sublessee under the Sublease shall be deemed assigned to
Landlord and Landlord shall have the right, upon such default, at any time at
Landlord's option, to give notice of such assignment to the Sublessee, and
Sublessee shall thereafter pay all rent under the Sublease directly to Landlord.
Landlord shall credit Sublessor with any rent received by Landlord under such
assignment but the acceptance of any payment on account of rent from the
Sublessee as the result of any such default shall in no manner whatsoever be
deemed an attornment by the Sublessee to Landlord, or serve to release Sublessor
from liability under the terms, covenants, conditions, provisions or agreements
under the Lease.
6. Both Sublessor and Sublessee shall be and continue to be liable for the
payment of all bills rendered by Landlord for charges incurred by Landlord for
services and materials supplied to the Subleased Premises.
<PAGE>
7. The term of the Sublease shall expire and come to an end on its natural
expiration date or any premature termination date thereof or concurrently with
any premature termination of the Lease (whether by consent or other right, now
or hereafter agreed to by Landlord or Sublessor), or by operation of law or at
Landlord's option in the event of default by Sublessor.
8. This Consent is not assignable, nor shall this Consent be a consent to
any amendment, modification, extension or renewal of the Sublease, without
Landlord's prior written consent.
9. Sublessor and Sublessee covenant and agree that, under no circumstances
shall Landlord be liable for any brokerage commission or other charge or expense
in connection with the Sublease, and Sublessor and Sublessee agree to indemnify
Landlord against same and against any cost or expense (including but not limited
to counsel fees) incurred by Landlord in resisting any claim for any such
brokerage commission.
10. Sublessor and Sublessee understand and acknowledge that Landlord's
consent hereto is not a consent to any improvement or alteration work being
performed in Subleased Premises, that Landlord's consent must be separately
sought for such work.
11. Notwithstanding any provision of the Sublease or this Consent to the
contrary, Sublessee agrees that Landlord shall not be (i) liable for any act or
omission of Sublessor under the Sublease, (ii) liable for any act or omission by
any party which occurred prior to the termination date, (iii) subject to any
offsets or defenses which Sublessee may have against Sublessor, (iv) bound by
any payment of rent or other sums made by Sublessee for any advance period under
the Sublease, (v) bound by any security deposits which Sublessee might have paid
to Sublessor or any other party, or (v) bound by any amendment or modification
of the Sublease made without Landlord's prior written consent, which may be
withheld in the sole and absolute discretion of Landlord.
12. This Consent shall for all purposes be construed in accordance with and
governed by the laws of the State of California.
13. This Consent shall not be effective until executed by all the parties
hereto.
14. If any one or more of the provisions contained in this Consent shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained in this Consent shall not
in any way be affected or impaired thereby.
15. Landlord shall be named as an additional insured under all insurance
required to be carried by Sublessee pursuant to Section 10 of the Sublease, and
Sublessor shall furnish Landlord with a certificate of insurance within thirty
(30) days of the commencement of the term of the Sublease.
The execution of a copy of this Consent by Sublessor and by the Sublessee
shall indicate your joint and several confirmation of the foregoing conditions
and of your agreement to be bound thereby and shall constitute Sublessee's
acknowledgment that it has received a copy of the Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the
day and year of the Sublease.
LANDLORD:
Christie Avenue Partners - JS, A California limited partnership
By: 64th Street Partners,
a California limited partnership
Its: General Partner
By: _________________________________________
General Partner
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
SUBLESSOR:
Burnham Pacific Operating Partnership, L.P.,
a Delaware limited partnership
By: Burnham Pacific Properties, Inc.,
a Maryland corporation
Its: General Partner
By: /s/ DONNA D. GODBOUT
---------------------------------------
Donna D. Godbout
Its: Vice President
SUBLESSEE:
HealthCentral.com,
a California corporation
By: /s/ Albert Greene
---------------------------------------------
Its: President
---------------------------------------------
<PAGE>
[CB COMMERCIAL LOGO]
1. PARTIES.
This Sublease, dated July 22, 1999, is made between Burnham Pacific
Operating Partnership, L.P., a Delaware limited partnership ("Sublessor"), ad
HealthCentral.com, Inc., a California corporation ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated December 30, 1998,
wherein Christie Avenue Partners - JS. a California limited partnership
("Lessor") leased to Sublessor the real property located in the City of
Emeryville, County of Alameda, State of California, described as Suite 250,
containing approximately 8,815 square feet of rentable area, together with
certain appurtenant parking rights, all as more particularly described therein,
("Master Premises"). Said lease has been amended by the following amendments:
none. Said lease and amendments are herein collectively referred to as the
"Master Lease" and are attached hereto as Exhibit "A".
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Maser Premises ("Premises");
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that to
Sublessor's actual knowledge, sublessor is not now, and as of the commencement
of the Term hereof will not be, in default or breach of any of the provisions of
the Master Lease, and that Sublessor has no actual knowledge of any claim by
Lessor that Sublessor is in default or breach of any of the provisions of the
Master Lease.
5. TERM.
The term of this Sublease shall commence on August 1, 1999 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is required
under the Master Lease), whichever shall last occur, and on December 31, 2003
("Termination Date"), unless otherwise sooner terminated in accordance with the
provisions of this Sublease. In the event the Term commences on a date other
than the Commencement Date, Sublessor and Sublessee shall execute a memorandum
setting forth the actual date of commencement of the Term. Possession of the
Premises ("Possession") shall be delivered to Sublessee on the commencement of
the Term. If for any reason Sublessor does not deliver Possession to Sublessee
on the commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delay and
the validity of this Sublease shall not be impaired, but rent shall abate until
delivery of Possession. Notwithstanding the foregoing, if Sublessor has not
delivered Possession to Sublessee within thirty (30) days after the Commencement
Date, then at any time thereafter and before delivery of Possession, Sublessee
may give written notice to Sublessor of Sublessee's intention to cancel this
Sublease. Said notice shall set forth an effective date for such cancellation
which shall be at least ten (10) days after delivery of said notice to
Sublessor. If Sublessor delivers Possession to Sublessee on or before such
effective date, this Sublease shall remain in full force and effect. If
Sublessor fails to deliver Possession to Sublessee on or before such effective
date, this Sublease shall be returned to Sublessor, this Sublease shall
thereafter be of no further force or effect and Sublessor shall have no further
liability to Sublessee on account of such delay or cancellation. If Sublessor
permits Sublessee to take Possession prior to the commencement of the Term, such
early Possession shall not advance the Termination Date and shall be subject to
the provisions of the Sublease, including without limitation the payment of
rent.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at 100 Bush Street,
Suite 2400, San Francisco, California 94104 or at such other place as
Sublessor shall designate from time to time by notice to Sublessee,
the sum of Twelve Thousand, Five Hundred Seventeen ad 30/100 Dollars
($12,517.30) per month, in advance on the first day of each month of
the Term. Sublessee shall pay to Sublessor upon execution of the
Sublease the sum of Twelve Thousand Five Hundred Seventeen and 30/100
Dollars ($12,517.30) as rent for the first month of the term. If the
<PAGE>
term begins or ends on a day other than the first or last day of a
month, the rent for the partial months shall be prorated on a per diem
basis. Additional provisions: from and after January 1, 2002, the
amount of monthly minimum rent payable by Sublessee to Sublessor shall
increase to Twelve Thousand Seven Hundred Eighty One and 75/100
$(12,781.75).
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent one hundred
percent (100%) of the amounts payable by Sublessor for Operating Costs
incurred during the Term. Such additional rent shall be payable as and
when Operating Costs are payable by Sublessor to Tenant. If XXXX xxxxx
xxxxx provides for the payment by Sublessor of Operating Costs on the
basis of an estimation thereof, then as and when adjustments between
estimated and actual Operating Costs are made under the xxxxxx Lease,
the obligations of Sublessor and Sublessee hereunder shall be adjusted
in a like manner and if any such adjustment shall occur after the
expiration of earlier termination of the Term, then the obligations of
the Sublessor and Sublessee under the Subsection 6.2 shall survive
such expiration or termination. Sublessor shall, upon request by
Sublessee, furnish Sublessee with copies of all statements submitted
by Lessor of actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Twelve Thousand Five Hundred Eighteen and no/100 Dollars
($12,518.00) as security for Sublessor's faithful performance of
Sublessee's obligations hereunder ("Security Deposit"). If Sublessee fails
to pay rent or other charges when due under this Sublease, or fails to
perform any of its other obligations hereunder, Sublessor may use or apply
all or any portion of the Security Deposit, for the payment of any rent or
other amount then due hereunder and unpaid, for the payment of any other
sum for which Sublessor may become obligated by reason of Sublessee's
default or breach, or for any loss or damage sustained by Sublessor as a
result of Sublessee's default or breach. If Sublessor so uses any portion
of the Security Deposit Sublessee shall, within ten (10) days after written
demand by sublessee, restore the security deposit to the full amount
originally deposited, and Sublessee's failure to do so shall constitute a
default under the Sublease, Sublessor shall not be required to keep the
Security Deposit separate from its general accounts, and shall have no
obligation or liability for payment of interest on the Security Deposit. In
the event Sublessor assigns its interest in this Sublease, Sublessor shall
deliver to its assignee so much of the Security Deposit as is then held by
Sublessor. Within ten (10) days after the Term has expired, or Sublessee
has vacated the Premises, or any final adjustment pursuant to Subsection
6.2 hereof has been made, whichever shall last occur, and provided
Sublessee is not then in default of any of its obligations hereunder, the
Security Deposit, or so much thereof as had not theretofore been applied by
Sublessor, shall be returned to Sublessee.
8. USE OF PREMISES.
The Premises shall be used and occupied only for general office use, and
for no other use or purposes.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder Sublessee the lessee thereunder, and the Premises the Master
Premises, except for the following: Section 3.2.
Sublessee assumes and agrees to perform the Lessee's obligations under the
Master Lease during the Term to the extent that such obligations are
applicable to the Premises, except that the obligation to pay rent to
Lessor under the Maser Lease shall be considered performed by Sublessee to
the extent and in the amount rent is paid to Sublessor in accordance with
Section 6 of the Sublease. Sublessee shall not commit or suffer any act or
omission that will violate any of the provisions of the Master Lease.
Sublessor shall exercise due diligence in attempting to cause Lessor to
perform the obligations under the Master Lease for the benefit of the
Sublessee. If the Master Lease terminates, this Sublease shall terminate
and the parties shall be relieved of any further liability or obligation
under this Sublease, provided, however, that the Master Lease terminates as
a result of a default or breach by sublessor or Sublessee under the
Sublease and/or the Master Lease, then the defaulting party shall be liable
to the
<PAGE>
nondefaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives
Sublessor any right to terminate the Master Lease in the event of the
partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except CB COMMERCIAL
REAL ESTATE GROUP, INC., who represents Sublessee and Colliers
International, who represents Sublessor.
13. COMMISSION.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent as set
forth in the incorporated provisions of the Master Lease, addressed to the
Sublessee at the Premises, and to the address hereunder, or to such other
place the Sublessee may from time to time designate in a notice to the
Sublessor. All notices and demands by the Sublessee to Sublessor shall be
sent as set forth in the incorporated provisions of the Master Lease and
addressed to the Sublessor at the address set forth hereunder, and to such
other person or place as the Sublessor may from time to time designate in a
notice to the Sublessee.
To Sublessor: 100 Bush Street, Floor 24, San Francisco, California 94104
Attn: Legal Department
To Sublessee: 6001 Shellmound Street, Emeryville, California 94608
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
IN WRITING WITHIN 20 DAYS AFTER EXECUTION HEREOF.
Sublessor: Burnham Pacific Operating Sublessee: HealthCentral.com,
Partnership, a Delaware a California corporation
limited partnership
By: Burnham Pacific Properties, Inc. By: /s/ ALBERT L. STERNS
----------------------------------------- -----------------------
a Maryland corporation, Albert L. Sterns
its General Partner
_________________________________________ Title: President
-----------------------
By: Donna D. Godhour By: _______________________
-----------------------------------------
Title: Vice President Title: _______________________
-----------------------------------------
Date: July 22, 1999 Date: ______________________
-----------------------------------------
<PAGE>
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
time of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor: ________________________________
By: ________________________________
Title: ________________________________
By: ________________________________
Title: ________________________________
Date: ________________________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, Industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
<PAGE>
OFFICE LEASE
MARKETPLACE
Emeryville, California
LANDLORD
CHRISTIE AVENUE PARTNERS - JS
TENANT
BURNHAM PACIFIC PROPERTIES, INC.
<PAGE>
Exhibits and Addenda:
Exhibit A: Floor Plan(s) of Premises
Exhibit B: Legal Description of Land
Exhibit C: Intentionally Omitted
Exhibit D: Rules and Regulations of the Marketplace
Exhibit E: Confirmation of Lease Term
The Basic Lease Information is incorporated into and made a part of the Lease.
Each reference in the Lease to any Basic Lease Information shall mean the
applicable information set forth above. In the event of any conflict between an
item in the Basic Lease Information and the Lease, the Lease shall control.
<PAGE>
OFFICE LEASE
MARKETPLACE
6005 Shellmound Street
Emeryville, California
BASIC LEASE INFORMATION
Lease Date: December 30, 1998
Landlord: Christie Avenue Partners - JS,
A California limited partnership
Tenant: Burnham Pacific Properties, Inc. a Maryland Corporation
Premises: Suite 250, containing approximately 8,815 square feet of
Rentable Area located on the Second Floor(s) of the
Building, as shown on the Floor Plan(s) attached to this
Lease as Exhibit A
Term: Sixty (60) months
Commencement Date: January 1, 1999
Expiration Date: December 31, 2003
Base Rent: Months Rent Per Month
------ --------------
01-12 $11,459.50
13-24 $11,803.29
25-36 $12,157.38
37-48 $12,522.11
49-60 $12,897.77
Tenant's
Percentage Share: 8.94%
Permitted Use: General office use
Tenant's Address: 100 Bush Street
24th Floor
San Francisco, CA 94104
Landlord's Address: Christie Avenue Partners - JS
c/o The Martin Group
100 Bush Street
26th Floor
San Francisco, CA 94104
Brokers:
Landlord's Broker: Colliers International
Tenant's Broker: None
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.................................................................................... 1
1.1. Terms Defined......................................................................... 1
1.2. Effect of Certain Defined Terms....................................................... 4
2. Lease of Premises.............................................................................. 4
2.1. Premises.............................................................................. 4
3. Term; Condition and Acceptance of Premises..................................................... 4
3.1 Commencement and Acceptance........................................................... 4
3.2 Option to Extend...................................................................... 4
4. Rent........................................................................................... 6
4.1. Obligation to Pay Base Rent........................................................... 6
4.2. Manner of Rent Payment................................................................ 6
4.3. Additional Rent....................................................................... 6
4.4. Late Payment of Rent, Interest........................................................ 6
5. Calculation and Payment of Rent................................................................ 6
5.1. Payment of Estimated Rent............................................................. 6
5.2. Statement and Adjustment.............................................................. 7
5.3. Proration for Partial Year............................................................ 7
6. Impositions Payable by Tenant.................................................................. 7
7. Use of Premises................................................................................ 7
7.1. Permitted Use......................................................................... 7
7.2. No Violation of Legal and Insurance Requirements...................................... 7
7.3. Compliance with Legal, Insurance and Life Safety Requirements......................... 8
7.4. No Nuisance........................................................................... 8
7.5. Hazardous Substance................................................................... 8
7.6. Special Provisions Relating to The Americans With Disabilities Act of 1990............ 9
8. Building Services.............................................................................. 10
8.1. Maintenance of Marketplace............................................................ 10
8.2. Building Standard Services............................................................ 10
8.3. Interruption or Unavailability of Services............................................ 10
8.4. Tenant's Use of Excess Electricity and Water.......................................... 11
8.5. Provision of Additional Services...................................................... 11
9. Maintenance of Premises........................................................................ 11
10. Alterations to Premises........................................................................ 11
10.1. Landlord Consent; Procedure........................................................... 11
10.2. General Requirements.................................................................. 11
10.3. Removal of Alterations................................................................ 12
11. Liens.......................................................................................... 12
12. Damage or Destruction.......................................................................... 12
12.1. Obligation to Repair.................................................................. 12
12.2. Landlord's Election................................................................... 12
12.3. Cost of Repairs....................................................................... 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.4. Damage at End of Term................................................................. 13
12.5. Waiver of Statutes.................................................................... 13
13. Eminent Domain................................................................................. 13
13.1. Effect of Taking...................................................................... 13
13.2. Condemnation Proceeds................................................................. 13
13.3. Restoration of Premises............................................................... 13
13.4. Taking at End of Term................................................................. 13
13.5. Tenant Waiver......................................................................... 14
14. Insurance...................................................................................... 14
14.1. Liability Insurance................................................................... 14
14.2. Form of Policies...................................................................... 14
14.3. Workers' Compensation Insurance....................................................... 14
14.4. Additional Tenant Insurance........................................................... 14
15. Waiver of Subrogation Rights................................................................... 14
16. Tenant's Waiver of Liability and Indemnification............................................... 15
16.1. Waiver and Release.................................................................... 15
16.2. Indemnification of Landlord........................................................... 15
16.3. Indemnification of Tenant............................................................. 15
17. Assignment and Subletting...................................................................... 15
17.1. Compliances Required.................................................................. 15
17.2. Request by Tenant, Landlord Response.................................................. 16
17.3. Conditions for Landlord Approval...................................................... 16
17.4. Costs and Expenses.................................................................... 16
17.5. Payment of Excess Rent and Other Consideration........................................ 16
17.6. Assumption of Obligations; Further Restrictions on Subletting......................... 17
17.7. No Release............................................................................ 17
17.8. No Encumbrance........................................................................ 17
18. Rules and Regulations.......................................................................... 17
19. Entry of Premises by Landlord.................................................................. 17
19.1. Right to Enter........................................................................ 17
19.2. Tenant Waiver of Claims............................................................... 18
20. Default and Remedies........................................................................... 18
20.1. Events of Default..................................................................... 18
20.2. Notice to Tenant...................................................................... 18
20.3. Remedies Upon Occurrence of Default................................................... 19
20.4. Damages Upon Termination.............................................................. 19
20.5. Computation of Certain Rent for Purposes of Default................................... 19
20.6. Landlord's Right to Cure Defaults..................................................... 19
20.7. Remedies Cumulative................................................................... 19
21. Subordination, Attornment and Nondisturbance................................................... 20
21.1. Subordination and Attornment.......................................................... 20
21.2. Nondisturbance........................................................................ 20
22. Sale or Transfer by Landlord; Lease Non-Recourse............................................... 20
22.1. Release of Landlord on Transfer....................................................... 20
22.2. Lease Nonrecourse to Landlord......................................................... 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
23. Estoppel Certificate........................................................................... 20
23.1. Procedure and Content................................................................. 20
23.2. Effect of Certificate................................................................. 21
24. No Light, Air or View Easement................................................................. 21
25. Holding Over................................................................................... 21
26. Intentionally Omitted.......................................................................... 21
27. Waiver......................................................................................... 21
28. Notices and Consents; Tenant's Agent for Service............................................... 21
29. Tenant's Authority............................................................................. 21
30. Automobile Parking............................................................................. 22
30.1. Tenant's Appurtenant Parking Rights................................................... 22
30.2. Parking Fee........................................................................... 22
30.3. Allocation of Risk.................................................................... 22
31. Intentionally Omitted.......................................................................... 22
32. Tenant's Signs................................................................................. 22
33. Miscellaneous.................................................................................. 23
33.1. No Joint Venture...................................................................... 23
33.2. Successors and Assigns................................................................ 23
33.3. Construction and Interpretation....................................................... 23
33.4. Severability.......................................................................... 23
33.5. Entire Agreement; Amendments.......................................................... 23
33.6. Governing Law......................................................................... 23
33.7. Litigation Expenses................................................................... 23
33.8. Standards of Performance and Approvals................................................ 23
33.9. Brokers............................................................................... 24
33.10. Memorandum of Lease................................................................... 24
33.11. Quiet Employment...................................................................... 24
33.12. Surrender of Premises................................................................. 24
33.13. Intentionally Deleted................................................................. 24
33.14. Name of Building; Address............................................................. 24
33.15. Exhibits.............................................................................. 24
33.16. Time of the Essence................................................................... 24
33.17. Effectiveness of Lease................................................................ 24
</TABLE>
<PAGE>
OFFICE LEASE
THIS LEASE is made and entered into by and between Landlord and Tenant as
of the Lease Date, Landlord and Tenant hereby agree as follows:
1. Definitions.
1.1. Terms Defined. The following terms have the meanings set forth
below. Certain other terms have the meanings set forth in the Basic Lease
Information or elsewhere in this Lease.
Alterations: Alterations, additions or other improvements to the Premises
made by or on behalf of Tenant.
Building: The office building consisting of a one and two story brick
building and parking at grade located on the Land, commonly known as 6005
Shellmound Street, Emeryville, California.
Marketplace: The Land, the Building, the Marketplace Tower, landscaping,
paved walkways, driveways and all other improvements at any time located on the
Land, and all appurtenances related thereto, commonly known as The Marketplace.
Impositions: Taxes, assessments, charges, excises and levies, business
taxes, licenses, permits, inspection and other authorization fees, transit
development fees, assessments or charges for housing funds, service payments in
lieu of taxes and any other fees or charges of any kind at any time levied,
assessed, charged or imposed by any federal, state or local entity; (i) upon,
measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures or other personal property located in the
Premises,or the cost or value of any alterations, additions or other
improvements to the Premises made by or on behalf of Tenant during the initial
improvement of the Premises pursuant to and governed by the Work Letter and any
subsequent Alterations; (ii) upon, or measured by, any Rent payable hereunder,
including any gross receipts tax; (iii) upon, with respect to or by reason of
the development, possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or any portion
thereof, or (iv) upon this Lease transaction, or any document to which Tenant is
a party creating or transferring any interest or estate in the Premises.
Impositions do not include Real Estate Taxes, franchise, transfer, inheritance
or capital stock taxes, or income taxes measured by the net income of Landlord
from all sources, unless any such taxes are levied or assessed against Landlord
as a substitute for, in whole or in part, any Imposition.
Land: The parcel of land described on Exhibit B attached to this Lease.
Operating Expenses: All costs of management, operations, maintenance and
repair of the Marketplace, including, but not limited to, the following: (i)
salaries, wages, benefits and other payroll expenses of employees engaged in the
operation, maintenance or repair of the Marketplace; (ii) property management
fees and expenses; (iii) rent (or rental value) and expenses for Landlord's and
any property manager's offices in the Marketplace; (iv) electricity, natural
gas, water, waste disposal, sewer, heating, lighting, air conditioning and
ventilating and other utilities; (v) janitorial, maintenance, security, life
safety and other services, such as alarm service, window cleaning and elevator
maintenance and uniforms for personal providing services; (vi) repair and
replacement, resurfacing or repaving of paved areas, sidewalks, curbs and
gutters (except that any such work which constitutes capital improvement shall
be included in Operating Expenses in the manner provided in clause (xiv) below);
(vii) landscaping, ground keeping, management, operation, and maintenance and
repair of all public, private and park areas adjacent to the Building; (vii)
materials, supplies, tools and rental equipment; (ix) license, permit and
inspection fees and costs; (x) insurance premiums and costs (including an
imputed insurance premium if Landlord self-insurers, or a proportionate share if
Landlord insures under a "blanket" policy), and the deductible portion of any
insured loss under Landlord's insurance (provided, however, that Tenant's
Percentage Share of any "deductible" relating to loss by earthquake or flood
shall not exceed Twenty-Five Thousand Dollars ($25,000) during any twelve (12)
month period); (xi) sales, use and excise trees; (xii) leal, accounting and
other professional services for the Marketplace, including costs, fees and
expenses of contesting the validity or applicability of any law, ordinance,
rule, regulation or order relating to the Building; and (xiii) the cost of any
capital improvements to the Marketplace made at any time to the Marketplace that
are intended in Landlord's judgment as labor saving devices, or to reduce or
eliminate other Operating Expenses or to effect other economics in the
operation, maintenance, or management of the Marketplace, or that are necessary
or appropriate in Landlord's judgment for the health and safety of occupants of
the Marketplace, or that are required under any law, ordinance, rule, regulation
or order which was not applicable to the Marketplace at the time it was
constructed, all amortised over the useful life of the improvement in question
at an
<PAGE>
interest rate of ten percent (10%) per annum, or, if applicable, the rate paid
by Landlord on funds borrowed for the purpose of constructing or installing such
capital improvements. Operating Expenses shall not include: (A) Real Estate
Taxes; (B) legal fees, brokers' commissions, tenant improvement or building
improvement costs (except as specified in item (xiii) above), or other costs
incurred in the negotiation, termination, or extension of leases or in
proceedings involving a specific tenant; (C) depreciation, except as set forth
above; (D) interest, amortization or other payments on loans to Landlord except
as a component of amortization as set forth above; (E) any ground lease rental;
(F) costs of items considered capital repairs, replacements, improvements and
equipment under generally accepted accounting principles, except as provided in
item (xiii) above; (G) rentals for items which if purchased, rather than rented,
would constitute a capital improvement which is specifically excluded in
subsection (F) above; (H) costs incurred by Landlord for the repair of damage to
any portion of the Building or the Marketplace, to the extent that Landlord is
actually reimbursed by insurance proceeds; (I) costs incurred with respect to
the installation of tenant or other occupants' improvements in any portion of
the Marketplace or incurred in renovating or otherwise improving, vacant space
for tenants or other occupants of any portion of the Marketplace; (J)
depreciation, amortization and interest payments; (K) mandating costs including,
without limitation, leasing commissions, attorneys' fees, and other costs and
expenses incurred in connection with lease, sublease and/or assignment
negotiations and transactions with present or prospective tenants or other
occupants of any portion of the Marketplace; (L) expenses in connection with
services or other benefits which are not offered to Tenant or for which Tenant
is charged for directly but which are provided to another tenant or occupant of
the Marketplace; (M) costs incurred by Landlord due to the violation by Landlord
of the terms and conditions of any lease of space in any portion of the
Marketplace; (N) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services in or to the
Marketplace to the extent the same exceeds the costs of such goods and/or
services rendered by unaffiliated third parties on a competitive basis; (O)
interest, principal, points and fees on debts or amortization on any mortgage or
mortgages or any other debt instrument encumbering the Marketplace; (P)
Landlord's general corporate overhead and general administrative expenses,
except as included in any management fee charged by Landlord; (Q) advertising
and promotional expenditures, and costs of signs in or on the Marketplace
identifying the owner of the Marketplace or other tenants' signs; (R) the costs
of any electric power used by any tenant in any portion of the Marketplace in
excess of the standard amount, or electric power costs for which any tenant
directly contracts with the local public service company or for which any tenant
is separately metered or submetered and pays Landlord directly; (S) costs
incurred in connection with upgrading the Marketplace to comply with disability,
life, fire and safety codes, ordinances, statutes, or other laws in effect prior
to the Commencement Date including, without limitation, the Americans with
Disabilities Act, including penalties or damages incurred due to such non-
compliance; (T) tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments and/or to file any tax or
informational returns when due; (U) costs for which Landlord has been
compensated by a management fee, and any management fees in excess of those
management fees which are normally and customarily charged by third party
providers of such services at comparable buildings in the vicinity of the
Marketplace; (V) costs arising from the negligence or fault of other tenants or
Landlord or its agents, or any vendors, contractors, or providers of materials
or services selected, hired or engaged by Landlord or its agents including,
without limitation, the selection of buildings materials; (W) notwithstanding
any contrary provision of the Lease, including, without limitation, any
provision relating to capital expenditures, any and all costs arising from the
presence of Hazardous Materials in or about the Marketplace, including, without
limitation, Hazardous Materials in the ground water or soil, not placed in the
Premises by Tenant; (X) costs arising from Landlord's charitable or political
contributions; (Y) costs arising from latest defects in the Building or the
Marketplace or other improvements installed by Landlord or repair thereof; (Z)
costs for sculpture, paintings or other objects of art; (AA) costs (including in
connection therewith all attorneys' fees and costs of settlement judgments and
payments in lieu thereof) arising from claims, disputes or potential disputes in
connection with potential or actual claims litigation or arbitrations pertaining
to Landlord, or the Marketplace; and (BB) costs associated with the operation of
the business of the partnership or entity which constitutes Landlord as the same
are distinguished from the costs of operation of the Marketplace. Landlord
further agrees that since one of the purposes of the Operating Expenses
provisions is to allow Landlord to require Tenant to pay for the costs
attributable to its Premises, Landlord agrees that Landlord will not collect or
be entitled to collect Operating Expenses from all of its tenants in an amount
which is in excess of one hundred percent (100%) of the Operating Expenses
actually paid by Landlord in connection with the operation of the Marketplace.
Subject to the provisions of this definition, the determination of Operating
Expenses shall be made by Landlord in accordance with generally accepted
accounting principles and practices consistently applied. To reflect the fact
that the Building constitutes approximately 44.9% of the Marketplace, the term
"Operating Expenses" shall include the following: (i) 100% of Operating
Expenses, as defined above, paid or incurred with respect to the Building, (ii)
44.9% of Operating Expenses, as defined above, paid or incurred with respect to
the Marketplace in general, and (iii) fifty (50%) percent of the second floor
lobby expenses in the brick building.
Real Estate Taxes: 44.9% of all taxes, assessments and charges now or
hereafter levied or assessed upon, or with respect to, the Marketplace or any
portion thereof, or any personal property of Landlord used in the operation
thereof or located therein, or Landlord's interest in the Marketplace or such
personal property, by any federal, state or local entity, including: (i) all
real property
<PAGE>
taxes and general and special assessments; (ii) charges, fees or assessments for
transit, housing, day care, open space, art, police, fire or other governmental
services or benefits to the Marketplace; (iii) service payments in lieu of
taxes; (iv) any tax, fee or excise on the use or occupancy of any part of the
Marketplace, or on rent for space in the Marketplace; (v) any other tax, fee or
excise, however described, that may be levied or assessed as a substitute for,
or as an addition to, in whole or in part, any other Real Estate Taxes, and (vi)
reasonable fees and expenses, including those of consultants or attorneys,
incurred in connection with proceedings to contest, determine or reduce Real
Estate Taxes. Real Estate Taxes do not include: (A) franchise, transfer,
inheritance or capital stock taxes, or income taxes measured by the net income
of Landlord from all sources, unless any such taxes are levied or assessed
against Landlord as a substitute for, in whole or in part, any Real Estate Tax;
(B) Impositions and all similar amounts payable by tenants of the Marketplace
under their leases; and (C) penalties, fines, interest or charges due for late
payments of Real Estate Taxes by Landlord. If any Real Estate Taxes or payable,
or may at the option of the taxpayer be paid, in installments, such Real Estate
Taxes shall, together with any interest that would otherwise be payable with
such installments, be deemed to have been paid in installments, amortized over
the maximum time period allowed by applicable law.
Rent: Base Rent, Impositions, Operating Expenses, Real Estate Taxes and all
other additional charges and amounts payable by Tenant in accordance with this
Lease.
Rentable Area: As to a floor leased entirely by Tenant, all areas within
exterior permanent Building walls measured to the inside glass surface of outer
Building walls, including restrooms, janitor, telephone and electrical closets,
mechanical areas, and columns and projections necessary to the Building, but
excluding public stairs, elevator shafts and pipe shafts. As to a floor only a
portion of which is leased by Tenant, the aggregate of (i) the Leased Area (as
defined below) of the portion of the floor occupied by Tenant, plus (ii) the
result obtained by multiplying (1) the area of the Common Area (as defined
below) on such floor by (2) a fraction whose numerator is the Leased Area of
Tenant's portion of the floor and whose denominator is the Leased Area of all
tenant space on such floor, plus (iii) in the event that Landlord must enlarge
or alter in any way, shape or fashion the Common Area to accommodate Tenant's
Leased Area, the total additional Common Area space. For purposes hereof,
"Leased Area" shall mean all floor area in a tenant space, measured to the
inside glass surface of exterior Building walls, to the center of corridors and
other permanent partitions, and to the center of portions that separate tenant
space from adjoining tenant spaces, without deduction for columns and
projections necessary to the Building; and "Common Area" shall mean the total
area on a floor consisting of restrooms, janitor, telephone and electrical
closets, mechanical areas and public corridors providing access to tenant space
on such floor, but excluding public stairs, elevator shafts and pipe shafts.
Tenant's Percentage Share: The percentage figure specified in the Basic
Lease Information. Landlord and Tenant acknowledge that Tenant's Percentage
Share has been obtained by (i) dividing the Rentable Area of the Premises, as
specified in the Basic Lease Information by the total Rentable Area of the
Building, and multiplying such quotient by one hundred (100). In the event
Tenant's Percentage Share is changed during a calendar year by reason of a
change in the Rentable Area of the Premises or a change in the total Rentable
Area of the Building, Tenant's Percentage Share shall thereafter mean the result
obtained by dividing the then Rentable Area of the Premises by the then total
Rentable Area of the Building and multiplying such quotient by one hundred
(100). For the purposes of determining Tenant's Percentage Share of Impositions,
Operating Expenses and Real Estate Taxes, Tenant's Percentage Share shall be
determined on the basis of the number of days during such calendar year at each
such Percentage Share.
Tenant's Marketplace Proportionate Share: That percentage determined by
dividing the Rentable Area of the Premises by the total Rentable Area of the
Marketplace. Landlord and Tenant agree that Tenant's Marketplace Proportionate
Share is 4.01% (which equals the quotient expressed as a percentage of 8815
divided by 219,925.
Term: The period from the Commencement Date to the Expiration Date.
Wattage Allowance: The product obtained by multiplying the Rentable Area of
the Premises by 4.5 watts. "Lighting Wattage Allowance" means thirty-three
percent (33%) of the Wattage Allowance.
1.2. Effect of Certain Defined Terms. The parties acknowledge that the
Rentable Area of the Premises and the Building have been finally determined by
the parties as part of this Lease for all purposes, including the calculation of
Tenant's Percentage Share and will not, except as otherwise provided in this
Lease, be changed.
2. Lease of Premises.
<PAGE>
2.1. Premises. Landlord leases to Tenant and Tenant leases from
Landlord the Premises, together with the non-exclusive right to use, in common
with others, the lobbies, entrances, stairs, elevators, plazas, pedestrian
walkways, restrooms, and other public portions of the Building, all subject to
the terms, covenants and conditions set forth in this Lease. All the windows and
exterior walls of the Premises, the terraces adjacent to the Premises, if any,
and any space in the Premises used for shafts, columns, projections, stacks,
pipes, conduits, ducts, electric utilities, sinks or other Building facilities,
and the use thereof and access thereto through the Premises for the purposes of
management, operation, maintenance and repairs, are reserved to Landlord.
3. Term: Condition and Acceptance of Premises.
3.1 Commencement and Acceptance. Except as hereinafter provided, and
unless sooner terminated pursuant to the provisions of this Lease, the Term of
this Lease shall commence on the Commencement Date and end on the Expiration
Date. Landlord shall deliver the Premises to Tenant on the Commencement Date in
their "as-is" condition without obligation to make any alterations or
improvements to the Premises. If Landlord, for any reason whatsoever, cannot
deliver the Premises to Tenant in the condition specified herein by the
Commencement Date, this Lease shall not be void or voidable, and Landlord shall
not be in default or liable to Tenant for any loss or damage resulting
therefrom, but, subject to the provisions of Section 7 of the Work Letter, in
such event Base Rent shall be waived for the period between the Commencement
Date and the actual date that Landlord delivers the Premises to Tenant. No delay
in delivery of the Premises for any reason whatsoever shall operate to extend
the Expiration Date or the Term. In the event that the Premises are delivered to
Tenant on any date other than the Commencement Date set forth in the Basic Lease
Information of this Lease, Landlord and Tenant shall execute a Confirmation of
Lease Term in the form as set forth in Exhibit E attached to this Lease.
Tenant's occupancy of all or any portion of the Premises shall constitute
Tenant's acceptance of the Premises in the condition called for by this Lease.
3.2 Option to Extend.
3.2.1. Exercise of Option to Extend Term. If no "Suspension
Condition" (as hereinafter defined) exists at the time of Tenant's exercise of
its option to extend the initial Term or at the commencement of the Extended
Term, as the case may be, Tenant shall have one (1) option ("Extension Option")
to extend the initial Term for one (1) additional period of five (5) years
("Extended Term"). To exercise Tenant's option with respect to the Extended
Term, Tenant shall give notice to Landlord not less than nine (9) months prior
to the expiration of the initial Term ("Election Notice"). A "Suspension
Condition" shall mean the existence of any event or condition of material
default with respect to any obligation under this Lease where notice of default
has been given by Landlord and such default has not been cured by Tenant within
the applicable notice and cure period specified in this Lease. Tenant's exercise
of the Extension Option shall in no way result in, or constitute, a waiver by
Landlord of any default by Tenant under this Lease.
3.2.2. Fair Market Rent. If Tenant properly and timely exercises
Tenant's option to extend pursuant to Section 3.2.1 above, such extension shall
be upon all of the same terms, covenants and conditions of this Lease, provided,
however, that the Base Rent applicable to the Premises for the Extended Term
shall be the greater of: (i) the Base Rent as of the last month of the initial
Term, or (ii) one hundred percent (100%) of the "Fair Market Rent" for space
comparable to the Premises as of the commencement of the Extended Term. "Fair
Market Rent" shall mean the annual rental being charged for space comparable to
the Premises in comparable office buildings in the Berkeley/Emeryville area,
taking into account location, parking, condition and improvements to the space.
Neither Landlord nor Tenant shall pay any leasing commissions or consulting fees
payable in connection with such extensions, unless such leasing commissions or
consulting fees arise solely out of a contractual relationship between either
Tenant or Landlord and a broker or consultant, in which event such fees shall be
the sole responsibility of the contracting party. All other terms and conditions
of the Lease, which may be amended from time to time by the parties in
accordance with the provisions of the Lease, shall remain in full force and
effect and shall apply during the Extended Term, except that there shall be no
further option to extend, there shall be no further rent concessions, there
shall be no tenant improvements allowance and similar provisions.
3.2.3 Determination of Rent. Within thirty (30) days after the
date of the Election Notice, Landlord and Tenant shall negotiate in good faith
in an attempt to determine Fair Market Rent for the Extended Term. If they are
unable to agree within said thirty (30) day period, then the Fair Market Rent
shall be determined as provided in Section 3.2.4 below.
3.2.4 Appraisal. If it becomes necessary to determine the Fair
Market Rent for the Premises by appraisal, the real estate appraiser(s)
indicated in this Section 3.2.4, each of whom shall be members of the Appraisal
Institute and each of whom have at least five (5) years experience appraising
office space located in the vicinity of the Premises, shall be appointed and
shall not in accordance with the following procedures:
<PAGE>
(i) If the parties are unable to agree on the Fair Market Rent
within the allowed time, either party may demand an appraisal by giving written
notice to the other party; which demand to be effective must state the name,
address and qualifications of an appraiser selected by the party demanding the
appraisal ("Notifying Party"). Within twenty (20) days following the Notifying
Party's appraisal demand, the other party ("Non-Notifying Party") shall either
approve the appraiser selected by the Notifying Party or select a second
properly qualified appraiser by giving written notice of the name, address and
qualification of said appraiser to the Notifying Party. If the Non-Notifying
Party fails to select an appraiser within the twenty (20) day period, the
appraiser selected by the Notifying Party shall be deemed selected by both
parties and no other appraiser shall be selected. If two (2) appraisers are
selected, they shall select a third approximately qualified appraiser. If the
two (2) appraisers fail to select a third qualified appraiser, the third
appraiser shall be appointed by the then presiding judge of the county where the
Premises are located upon application by either party.
(ii) If only one appraiser is selected, that appraiser shall
notify the parties in simple letter form of its determination of the Fair Market
Rent for the Premises within fifteen (15) days following his or her selection,
which appraisal shall be conclusively determinative and binding on the parties
as the appraised Fair Market Rent.
(iii) If multiple appraisers are selected, the appraisers shall
meet not later than ten (10) days following the selection of the last appraiser.
At such meeting, the appraisers shall attempt to determine the Fair Market Rent
for the Premises as of the commencement date of the Extended Term in question by
the agreement of at least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the Fair
Market Rent for the Premises at the initial meeting, such agreement shall be
determinative and binding upon the parties hereto and the agreeing appraisers
shall forthwith notify both Landlord and Tenant of the amount set by such
agreement. If multiple appraisers are selected and two (2) appraisers are unable
to agree on the Fair Market Rent for the Premises, each appraiser shall submit
to Landlord and Tenant his or her respective independent appraisal of the Fair
Market Rent for the Premises, in simple letter form, within twenty (20) days
following appointment of the final appraiser. The parties shall then determine
the Fair Market Rent for the Premises by averaging the appraisals; provided that
any high or low appraisal, differing from the middle appraisal by more than ten
percent (10%) of the middle appraisal, shall be disregarded in calculating the
average.
(v) If only one (1) appraisal is selected, then each party shall
pay one-half (1/2) of the fees and expenses of that appraiser. If three (3)
appraisers are selected, each party shall bear the fees and expenses of the
appraiser it selects and one-half (1/2) of the fees and expenses of the third
appraiser.
(vi) Notwithstanding anything to the contrary contained in this
Section 3.2, in no event shall the Base Rent for the Exercised Term be less than
the Base Rent payable by Tenant during the month immediately preceding the
Extended Term.
3.2.5. Restriction on Assignment. The Extension Option shall be personal
to Tenant and any entity controlled by or under common control of Burnham
Pacific Properties, Inc., a Maryland corporation, shall not be assignable or
transferable (except in connection with an Exempt Transfer or an Exempt
Sublease), and shall terminate upon any assignment or sublease of all or any
portion of the Premises greater than ten percent (10%) of the Rentable Area of
the Premises (except in connection with an Exempt Transfer or an Exempt
Sublease).
3.2.6. Amendment to Lease. Immediately after the Fair Market Rent has
been determined, the parties shall enter into an amendment to this Lease setting
forth the Base Rent for the Extended Term and shall also state the new
Expiration Date of the Term of the Lease.
4. Rent.
4.1. Obligation to Pay Base Rent. Tenant shall pay Base Rent to
Landlord, in advance, in equal monthly installments, commencing on or before the
Commencement Date, and thereafter on or before the first day of each calendar
month during the Term. If the Commencement Date and/or Expiration Date is other
than the first day of a calendar month, the installment of Base Rent for the
first and/or last fractional month of the Term shall be prorated on a daily
basis. On full execution of this Lease, Tenant shall pay to Landlord the first
month's Base Rent.
<PAGE>
4.2. Manner of Rent Payment. All Rent shall be paid by Tenant without
notice, demand, abatement, deduction or offset, in lawful money of the United
States of America, payable to Landlord, at Landlord's Address as set forth in
the Basic Lease information, or to such other person or at such other place as
Landlord may from time to time designate by notice to Tenant.
4.3. Additional Rent. All Rent not characterized as Base Rent or
Impositions, Operating Expenses and Real Estate Taxes shall constitute
additional rent, and if payable to Landlord shall, unless otherwise specified in
this Lease, be due and payable fifteen (15) days after Tenant's receipt of
Landlord's invoice therefor.
4.4. Late Payment of Rent; Interest. Tenant acknowledges that late
payment by Tenant of any Rent will cause Landlord to incur administrative costs
not contemplated by this Lease, the exact amount of which are extremely
difficult and impracticable to ascertain based on the facts and circumstances
pertaining as of the Lease Date. Accordingly, if any Rent is not paid by Tenant
within five (5) days after Landlord's delivery of notice of payment due, Tenant
shall pay to Landlord, with such Rent, a late charge equal to five percent (5%)
of such Rent; provided, however, that if Tenant is obligated to pay two (2) late
charges in any calendar year, then during the remainder of the calendar year
Tenant shall be obligated to pay a late charge equal to eight percent (8%) of
such unpaid Rent if such Rent is not paid on or before the due date. Any Rent,
other than late charges, due Landlord under this Lease, if not paid when due,
shall also bear interest from the date due until paid, at the rate of ten
percent (10%) per annum or, if a higher rate is legally permissible, at the
highest rate legally permitted. The parties acknowledge that such late charge
and interest represent a fair and reasonable estimate of the administrative
costs and loss of use of funds Landlord will incur by reason of a late Rent
payment by Tenant, but Landlord's acceptance of such late charge and/or interest
shall not constitute a waiver of Tenant's default with respect to such Rent or
prevent Landlord from exercising any other rights and remedies provided under
this Lease, at law or in equity.
5. Calculation and Payments of Rent. During each full or partial calendar
year of the Term, Tenant shall pay to Landlord Impositions, Operating Expenses
and Real Estate Taxes in accordance with the following procedures:
5.1. Payment of Estimated Rent. At the Commencement Date and December
of each subsequent calendar year, or as soon thereafter as practicable, Landlord
shall given Tenant notice of its estimate of Impositions, Operating Expenses and
Real Estate Taxes due for the next ensuing calendar year. On or before the first
day of each month during such next ensuing calendar year, Tenant shall pay to
Landlord in advance, in addition to Base Rent, one-twelfth (1/12th) of such
estimated Impositions, Operating Expenses and Real Estate Taxes. In the event
such notice is given after December 31st of any year during the Term, (i) Tenant
shall continue to pay Impositions, Operating Expenses and Real Estate Taxes on
the basis of the prior calendar year's estimate until the month after such
notice is given, (ii) subsequent payments by Tenant shall be based of the
estimate of Impositions, Operating Expenses and Real Estate Taxes set forth in
Landlord's notice, and (iii) with the first monthly payment of Impositions,
Operating Expenses and Real Estate Taxes based on the estimate set forth in
Landlord's notice, Tenant shall also pay the difference, if any, between the
amount previously paid for such calendar year and the amount which Tenant would
have paid through the month in which such notice is given, based on Landlord's
noticed estimate or, in the alternative, if such amount previously paid by
Tenant for such calendar year through the month in which such notice is given
exceeds the amount which Tenant would have paid through such month based on
Landlord's noticed estimate. Landlord shall credit such excess amount against
the next monthly payments of Impositions, Operating Expenses and Real Estate
Taxes due from Tenant. If at any time Landlord reasonably determines that the
Impositions, Operating Expenses and Real Estate Taxes for the current calendar
year will vary from Landlord's estimate by more than five percent (5%), Landlord
may, by notice to Tenant, revise its estimate for such calendar year, and
subsequent payments by Tenant for such calendar year shall be based upon such
revised estimate.
5.2. Statement and Adjustment. Within one hundred twenty (120) days
after the close of each calendar year, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of the actual Rent for such
calendar year, accompanied by a statement prepared by Landlord showing in
reasonable detail the Operating Expenses, Impositions and the Real Estate Taxes
comprising the actual Rent. If Landlord's statement shows that Tenant owes an
amount less than the payments previously made by Tenant for such calendar year,
Landlord shall credit the difference first against any sums then owed by Tenant
to Landlord and then against the next payment or payments of Rent due Landlord,
except that if a credit amount is due Tenant after termination of this Lease,
Landlord shall pay to Tenant any excess remaining after Landlord credits such
amount against any sums owed by Tenant to Landlord. If Landlord's statement
shows that Tenant owes an amount more than the payments previously made by
Tenant for such calendar year, Tenant shall pay the difference to Landlord
within fifteen (15) days after delivery of the statement. Tenant shall have the
right to audit Landlord's calculation of Operating Expenses, subject to the
following limitations: (i) such audit shall be conducted no more than one time
per calendar year, (ii) Tenant shall pay all of Landlord's reasonable costs and
expenses (including a reasonable allocation of Landlord's internal overhead
costs) incurred in connection with facilitating and monitoring such audit, (iii)
such audit
<PAGE>
may not be conducted by a person or entity whose compensation is in any way
calculated based on the results of such audit, (iv) Landlord shall pay Tenant's
reasonable out-of-pocket cost (but not to exceed $3,000.00) of any such audit
undertaken by Tenant in accordance with the foregoing which is reasonably
approved by Landlord and which discloses an overstatement of Operating Expenses
of more than five percent (5%), and (v) if at the time of the performance of the
audit the Landlord under this lease is Teacher's, defined below, then Tenant
shall only have the right to examine Teacher's books which related to the
Operating Expenses in question.
5.3. Proration for Partial Year. If this Lease terminates other than
on the last day of a calendar year (other than due to Tenant's default), the
amount of Rent for such fractional calendar year shall be prorated on a daily
basis. Upon such termination, Landlord may, at its option, calculate the
adjustment in Rent prior to the time specified in Section 5.2 above. Tenant's
obligation to pay Rent, as set forth in Paragraph 5.2, above, shall survive the
expiration or termination of this Lease. Upon expiration, either Landlord or
Tenant, as the case may be, shall make any payments to the other necessary to
refund or any excess or underpayment of Rent.
6. Impositions Payable by Tenant. Tenant shall pay all Impositions prior
to delinquency. If billed directly to Tenant, Tenant shall pay such Impositions
and concurrently deliver to Landlord evidence of such payments. If any
Impositions are billed to Landlord or included in bills to Landlord for Real
Estate Taxes or other charges, then Tenant shall pay to Landlord all such
amounts within fifteen (15) days after delivery of Landlord's invoice therefor.
If applicable law prohibits Tenant from reimbursing Landlord for an Imposition,
but Landlord may lawfully increase the Base Rent to account for Landlord's
payment of such Imposition, the Base Rent payable to Landlord shall be increased
to net to Landlord the same return without reimbursement of such Imposition as
would have been received by Landlord with reimbursement of such Imposition.
Tenant's obligation to pay Impositions which have accrued and remain unpaid upon
the expiration or earlier termination of this Lease shall survive the expiration
of earlier termination of this Lease.
7. Use of Premises.
7.1 Permitted Use. The Premises shall be used solely for the
Permitted Use and for no other use or purpose.
7.2. No Violation of Level and Insurance Requirements. Tenant shall
not do or permit to be done, or bring or keep or permit to be brought or kept,
in or about the Premises, or any other portion of the Marketplace, anything
which (i) is prohibited by or will in any way conflict with any law, ordinance,
rule or regulation; (ii) would invalidate or be in conflict with the provisions
of any insurance policy carried by Landlord or Tenant on any portion of the
Marketplace or Premises, or any property therein; or (iii) would cause a
cancellation of any such insurance, increase the existing rate of or affect any
such Landlord's insurance, or subject Landlord to any liability or
responsibility for injury to any person or property. If Tenant does or permits
anything to be done which increases the cost of any of Landlord's insurance, or
which results in the need, in Landlord's reasonable judgment, for additional
insurance by Landlord or Tenant with respect to any portion of the Marketplace
or Premises, then Tenant shall reimburse Landlord, upon demand, for any such
additional costs or the costs of such additional insurance, and/or procure such
additional insurance at Tenant's sole cost and expense. Exercise by Landlord of
such right to acquire reimbursement of additional costs (including the costs of
procuring of additional insurance) shall not limit or preclude Landlord from
prohibiting Tenant's impermissible use of the Premises or from invoking any
other right or remedy available to Landlord under this Lease.
7.3. Compliance with Legal Insurance and Life Safety Requirements.
Except as provided in clauses (i) through (iii) below, Tenant, at its cost and
expense, shall promptly comply with all laws, ordinances, rules, regulations,
orders and other governmental requirements, the requirements of any board of
five underwriters or other similar body, any directive or occupancy certificate
issued pursuant to any law by any public officer or officers, the provisions of
all recorded documents affecting any portion of the Marketplace and all life
safety programs, procedures and rules implemented or promulgated by Landlord
("Laws"). Tenant shall not, however, be required to comply with Laws requiring
Tenant to make structural changes to the Premises unless necessitated, in whole
or in part, by (i) Tenant's use or occupancy of, or business conducted in, the
Premises, (ii) any acts or omissions of Tenant, its employees, agents,
contractors, invitees or licensees, or (iii) Alterations (including any
alterations, additions or other improvements to the Premises made by or on
behalf of Tenant during the initial improvement of the Premises pursuant to the
Work Letter).
7.4. No Nuisance. Tenant shall not (i) do or permit anything to be
done in or about the Premises, or any other portion of the Marketplace, which
would injure or annoy, or obstruct or interfere with the rights of, Landlord or
other occupants of the Marketplace, or others lawfully in or about the
Marketplace; (ii) use or allow the Premises to be used in any manner
inappropriate for a Class A office building, or for any improper or
objectionable purposes; or (iii) cause, maintain or permit any nuisance or waste
in, on or about the Premises, or any other portion of the Marketplace.
<PAGE>
7.5. Hazardous Substances. The term "hazardous substances" as used in
the Lease, is defined as follows:
Any element, compound, mixture, solution, particle or substance, which
presents danger or potential danger of damage or injury to health, welfare
or to the environment including, but not limited to: (i) those substances
which are inherently or potentially radioactive, explosive, ignitable,
corrosive, reactive, carcinogenic or toxic and (ii) those substances which
have been recognized as dangerous or potentially dangerous to health,
welfare or to the environment by any federal, municipal, state, county or
other governmental or quasi-governmental authority and/or any department or
agency thereof.
Tenant represents and warrants to Landlord and agrees that all times during
the term of this Lease and any extensions or renewals thereof, Tenant shall:
(i) promptly comply at Tenant's sole cost and expense, with all
laws, orders, rules, regulations, certificates of occupancy, or other
requirements, as the same now exist or may hereafter be enacted, amended or
promulgated, of any federal, municipal, state, county or other governmental
or quasi-governmental authorities and/or any department or agency thereof
relating to the manufacturing, processing, distribution, using, producing,
treating, storing (above or below ground level), disposing or allowing to be
present (the "Environmental Activity") of hazardous substances in or about
the Premises (each, a "Law", and all of them, "Laws") by Tenant, its
assignees and subtenants, and their respective agents, employees,
contractors and invitees, and Tenant shall not allow the release or escape
of any hazardous substances in or about the Building.
(ii) indemnify and hold Landlord, its agents and employees, harmless
from any and all demands, claims, causes of action, penalties, liabilities,
judgments, damages (including consequential damages) and expenses including,
without limitation, court costs and reasonable attorneys' fees incurred by
Landlord as a result of (a) Tenant's failure or delay in properly complying
with any Law, or (b) any adverse effect which results from the Environmental
Activity, whether Tenant or Tenant's subtenants or any of their respective
agents, employees, contractors or invitees, with or without Tenant's consent
has caused, either intentionally or unintentionally, such Environmental
Activity. If any action or proceeding is brought against Landlord, its
agents or employees by reason of any such claim, Tenant, upon notice from
Landlord, will defend such claim at Tenant's expense with counsel reasonably
satisfactory to Landlord. This indemnity obligation by Tenant of Landlord
will survive the expiration or earlier termination of this Lease.
(iii) promptly disclose to Landlord by delivering, in the manner
prescribed for delivery of notice in this Lease, a copy of any forms,
submissions, notices, reports, or other written documentation (each, a
"Communication") relating to any Environmental Activity, whether any such
Communication is delivered to Tenant or any of its subtenants or is
requested of Tenant or any of its subtenants by any federal, municipal,
state, county or other government or quasi-governmental authority and/or any
department or agency thereof.
(iv) in the event there is a release of any hazardous substance as a
result of or in connection with any Environmental Activity by Tenant or any of
Tenant's subtenants or any of their respective agents, employees, contractors or
invitees, which must be remediated under any Law, Landlord shall perform the
necessary remediation; and Tenant shall reimburse Landlord for all costs thereby
incurred within fifteen (15) days after delivery of a written demand therefor
from Landlord (which shall be accompanied by reasonable substantiation of such
costs). In the alternative, Landlord shall have the right to require Tenant, at
its sole cost and expense, to perform the necessary remediation in accordance
with a detailed plan of remediation which shall have been approved in advance in
writing by Landlord. Landlord shall give notice to Tenant within thirty (30)
days after Landlord receives notice or obtains knowledge of the required
remediation. The rights and obligations of Landlord and Tenant set forth in this
subparagraph (iv) shall survive the expiration or earlier termination of this
Lease.
(v) notwithstanding any other provisions of this Lease, allow
Landlord, and any authorized representative of Landlord, access and the right to
enter and inspect the Premises for Environmental Activity, at any time deemed
reasonable by Landlord, without prior notice to Tenant.
(vi) Tenant shall not (either with or without negligence) cause or
permit the escape, disposal or release of any biologically or chemically active
or other hazardous substances, or materials. Tenant shall not allow the storage
or use of such substances or materials in any manner not sanctioned by law or by
the highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Project any such
materials or substances except to use in the ordinary course of Tenant's
<PAGE>
business, and then only after written notice is given to Landlord of the
identity of such substances or materials. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recover Act, as
amended 42 U.S.C. Section 6901 et seq., any applicable state or local laws and
the regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this lease from any
release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant. The
within covenants shall survive the expiration or earlier termination of the
lease term.
Compliance by Tenant with any provision of this Section 7.5 shall not be
deemed a waiver of any other provision of this Lease. Without limiting the
foregoing, Landlord's consent to any Environmental Activity shall not relieve
Tenant of its indemnity obligations under the terms hereof.
7.6. Special Provisions Relating to The Americans With Disabilities
Act of 1990.
7.6.1. Allocation of Responsibility to Landlord. As between
Landlord and Tenant, Landlord shall be responsible that the public entrances,
stairways, corridors, elevators and elevators lobbies and other public areas in
the Building and in the Marketplace comply with the requirements of Title III of
the Americans with Disabilities Act of 1990 (42 U.S.C. 12181, et seq., The
Provisions Governing Public Accommodations and Services Operated by Private
Entities), and all regulations promulgated thereunder, and all amendments,
revisions or modifications thereto now or hereafter adopted or in effect in
connection therewith (hereinafter collectively referred to as the "ADA"), and to
take such actions and make such alterations and improvements as are necessary
for such compliance. All costs incurred by Landlord in discharging its
responsibilities under this Section 7.6.1 shall be included in Operating
Expenses as provided in Section 1.1.
7.6.2. Allocation of Responsibility to Tenant. As between
Landlord and Tenant, at its sole cost and expense, shall be responsible that the
Premises, all Alterations to the Premises, Tenant's use and occupancy of the
Premises, and Tenant's performance of its obligations under this Lease, comply
with the requirements of the ADA, and to take such actions and make such
Alterations as are necessary for such compliance; provided, however, that Tenant
shall not make any such Alterations except upon Landlord's prior written consent
pursuant to the terms and conditions of this Lease. Tenant shall protect,
defend, indemnify and hold Landlord harmless from and against any claim, demand,
cause of action, obligation, liability, loss, cost or expense (including
reasonable attorneys' fees) which may be asserted against or incurred by
Landlord as a result of Tenant's failure in any respect to comply with its
obligations set forth hereinabove in this Section 7.6.2. Tenant's indemnity
obligations set forth in the immediately preceding sentence shall survive the
expiration or earlier termination of this Lease.
7.6.3. General. Notwithstanding anything in this Lease to the
contrary, no act or omission of Landlord, including any approval, consent or
acceptance by Landlord or Landlord's agents, employees or other representatives,
shall be deemed an agreement, acknowledgment, warranty, or other representation
by Landlord that Tenant has complied with the ADA or that any action, alteration
or improvement by Tenant complies or will comply with the ADA or constitutes a
waiver by Landlord of Tenant's obligations to comply with the ADA under this
Lease or otherwise. Any failure of Landlord to comply with the obligations of
the ADA shall not relieve Tenant from any obligations under this Lease or
constitute or be construed as a constructive or other eviction of Tenant or
disturbance of Tenant's use and possession of the Premises.
8. Building Services.
8.1. Maintenance of Marketplace. Landlord shall maintain the
Marketplace (other than the Premises and the premises of other tenants of the
Marketplace) in good order and condition, except for ordinary wear and tear,
damage by casualty or condemnation, or damage occasioned by the act or omission
of Tenant or Tenant's employees, agents, contractors, licensees or invitees,
which damage shall be repaired by Landlord at Tenant's expense (subject to the
provisions of Section 15). Landlord's maintenance of, and provision of services
to, the Building shall be performed in a manner consistent with that of
comparable office buildings in the Emeryville/Oakland, California area. Landlord
shall have the right in connection with its maintenance of the Marketplace
hereunder (i) to change the arrangement and/or location of any amenity,
installation or improvement in the public entrances, stairways, corridors,
<PAGE>
elevators and elevator lobbies, and other public areas in the Building, or other
public areas of the Marketplace, and (ii) to utilize portions of the public
areas in the Building and the Marketplace from time to time for entertainment,
displays, product shows, leasing of kiosks or such other uses that in Landlord's
sole judgment tend to attract the public, so long as such uses do not materially
interfere with or impair Tenant's access to or use or occupancy of the Premises.
Landlord shall not be in default under this Lease or liable for any damages
directly or indirectly resulting from or incidental to, nor shall the rental
reserved in this Lease be abated by reason of Landlord's failure to make any
repair or to perform any maintenance required to be made or performed by
Landlord under this Section 8.1, unless such failure shall persist for an
unreasonable time after written notice of the need for such repair or
maintenance is given to Landlord by Tenant.
8.2. Building Standard Services. Landlord shall cause to be furnished
to Tenant: (i) tepid and cold water to those points of supply and in volumes
provided for general use of tenants in the Building; (ii) electricity up to the
Wattage Allowance for lighting and the operation of electrically powered office
equipment; (iii) heat, ventilation and air conditioning to the extent reasonably
required for the comfortable occupancy by Tenant of the Premises during the
period from 8:00 a.m. to 6:00 p.m. on weekdays (except Building holidays
determined by Landlord), or such shorter period as may be prescribed by any
applicable policies, regulations or guidelines adopted by any federal, state or
local governmental or quasi-governmental entities or utility suppliers; (iv)
elevator service; (v) lighting replacement for Building standard lights; (vi)
restroom supplies; (vii) window washing as determined by Landlord; and (viii)
security if and to the extent deemed appropriate by Landlord for the Marketplace
(but not individually for Tenant or the Premises), except that Landlord shall
not be liable in any manner for acts of others, criminal or otherwise, or for
any direct, consequential or other loss, damage, death or injury related to any
interruption, discontinuance, malfunction, circumvention or failure of such
security service. Landlord shall use reasonable efforts to cause the services
described in items (i) - (iv) above to be provided 24 hours per day. Landlord
may establish in the Premises or other portions of the Marketplace such measures
as are required by laws, ordinances, rules or regulations or as it deems
necessary or appropriate (and are customary in comparable buildings in the
vicinity of the Building) to conserve energy, including automatic switching of
lights and/or more efficient forms of lighting.
8.3. Interruption or Unavailability of Services. Rent shall not abate,
no constructive or other eviction shall be construed to have occurred, Tenant
shall not be relieved from any of its obligations under this Lease, and Landlord
shall not be in default hereunder or liable for any damages directly or
indirectly resulting from, the failure of Landlord to furnish, or delay in
furnishing, any maintenance or services under this Article 8 as a result of
repairs, alterations, improvements or any circumstances beyond Landlord's
reasonable control. Landlord shall use reasonable diligence to remedy any
failure or interruption in the furnishing of such maintenance or services and
Landlord shall use reasonable efforts to minimize interference with Tenant's
operation in connection with any repairs, alterations, or improvements
undertaken by Landlord.
8.4. Tenant's Use of Excess Electricity and Water. Tenant shall not
without Landlord's prior consent, which shall not be unreasonably withheld, (1)
install in the Premises (A) lighting, the aggregate average daily power usage of
which exceeds the Lighting Wattage Allowance, or lighting and equipment, the
aggregate average daily power usage of which exceeds the Wattage Allowance, or
which requires a voltage other than 110 volts single-phase, (B) heat generating
equipment or lighting other than lights deemed standard for the Building, or (C)
supplementary air conditioning facilities, or (ii) permit occupancy levels in
excess of one person per two hundred (200) feet of Rentable Area. If, pursuant
to this Section 8.4, heat-generating equipment or lighting other than Building
standard lights are installed or used in the Premises, or occupancy levels are
greater than set forth above, or if the Premises or fixtures therein are
reconfigured by Alterations, and such equipment, lighting, occupancy levels or
Premises reconfiguration affects the temperature otherwise maintained by the
Building air conditioning system, or if equipment is installed in the Premises
which requires a separate temperature-controlled room, Landlord may, at
Landlord's election after notice to Tenant or upon Tenant's request, install
supplementary air conditioning facilities in the Premises, or otherwise modify
the ventilating and air conditioning serving the Premises, in order to maintain
the temperature otherwise maintained by the Building air conditioning system or
to serve such separate temperature-controlled room. Tenant shall pay the cost of
any transformers, additional risers, panel boards and other facilities if, when
and to the extent required to furnish power for, and all maintenance and service
costs of, any supplementary air conditioning facilities or modified ventilating
and air conditioning, or for lighting and/or equipment the power usage of which
exceeds the standards set forth in this Section 8.4. The capital, maintenance
and service costs of such facilities and modifications shall be paid by Tenant
as Rent, Landlord, at its election and at Tenant's expense, may also install and
maintain an electric current meter or water meter (together with all necessary
wiring and related equipment) at the Premises to measure the power and/or water
usage of such lighting, equipment or ventilation and air conditioning equipment,
or may otherwise cause such usage to be measured by reasonable methods.
8.5. Provision of Additional Services. If Tenant desires services in
additional amounts or at different times than set forth in Section 8.2 above, or
any other services that are not provided for in this Lease, Tenant shall make a
request for such services to
<PAGE>
Landlord with such advance notice as Landlord may reasonably require. If
Landlord provides such services to Tenant, Tenant shall pay Landlord's charges
for such services within fifteen (15) days after Tenant's receipt of Landlord's
invoice.
9. Maintenance of Premises. Tenant shall, at all times during, the Term,
at Tenant's cost and expense, keep the Premises in good-condition and repair,
except for ordinary wear and tear and damage by casualty or condemnation. Except
as may be specifically set forth in this Lease, Landlord has no obligation to
alter, remodel, improve, reprint, decorate or paint the Premises, or any part
thereof, or any obligation respecting the condition, maintenance and repair of
the Premises or any other portion of the Marketplace. Tenant hereby waives all
rights, including those provided in California Civil Code Section 19.41 or any
successor statute, to make repairs which are Landlord's obligation under this
Lease at the expense of Landlord or to receive any setoff or abatement of Rent
or in lieu thereof to vacate the Premises or terminate this Lease.
10. Alterations to Premises.
10.1. Landlord Consent Procedure. Tenant shall not make or permit to
be made any Alterations without Landlord's prior consent, which consent shall
not be unreasonably withheld, and in this regard Landlord's consent shall not be
required for nonstructural interior alterations costing less than $10,000 per
work of improvement. Any alterations to which Landlord has consented shall be
made in accordance with procedures as then established by Landlord and the
provisions of this Article 10.
10.2. General Requirements. All alterations shall be made at Tenant's
cost and expense. Tenant shall be solely responsible for compliance with
applicable laws, ordinances, rules and regulations in connection with all
Alterations. Tenant shall be responsible for the cost of any additional
alterations required by applicable laws, ordinances, rules and regulations to be
made by Landlord to any portion of the Marketplace as a result of Alterations.
Tenant shall promptly commence or cause the commencement of construction of all
Alterations and complete or cause completion of the same with due diligence as
soon as possible after commencement in order to cause the least disruption to
Marketplace operations and occupants and to continue Tenant's business in the
Premises. In connection with installing or removing Alterations, Tenant shall
pay Landlord's then standard charges for review and approval of Tenant's plans,
specifications and working drawings, and administration by Landlord (or its
agent) of the construction, installation or removal of Alterations, and
restoration of the Premises to their previous condition.
10.3. Removal of Alterations. If required by Landlord at the time
Landlord provides consent to an Alteration, Tenant shall, prior to the
expiration of the Term or termination of this Lease, remove such Alteration at
Tenant's cost and expense and restore the Premises to the condition existing
prior to the installation of such Alteration. If Tenant fails so to do, then
Landlord may remove such alteration and perform such restoration and Tenant
shall reimburse Landlord for Landlord's cost and expense incurred to perform
such removal and restoration (which obligation of Tenant shall survive the
expiration or earlier termination of this Lease). Tenant shall repair at its
cost and expense all damage to the Premises or Marketplace caused by the removal
of such Alteration. Subject to the foregoing provisions regarding removal, all
Alterations (including any above Building standard improvements to the Premises)
shall be Landlord's property and from and after the expiration or earlier
termination of this Lease remain on the Premises without compensation to Tenant.
11. Liens. Tenant shall keep the Premises and the Marketplace free from
any liens arising out of any work performed or obligations incurred by or for,
or materials furnished to, Tenant pursuant to this Lease or otherwise. Landlord
shall have the right to post and keep posted on the Premises any notices
required by law or which Landlord may deem to be proper for the protection of
Landlord, the Premises and the Marketplace from such liens and to take any other
action at the expense of Tenant that Landlord deems necessary or appropriate to
prevent, remove or discharge such liens. Tenant shall protect, defend, indemnify
and hold Landlord harmless from and against any claim, demand, cause of action,
obligation, liability, loss, cost or expense (including reasonable attorney's
fees) which may be asserted against or incurred by Landlord as a result of
Tenant's failure to comply with the foregoing obligation (which indemnity
obligation shall survive the expiration or earlier termination of this Lease).
12. Damage of Destruction.
12.1. Obligation to Repair. Except as otherwise provided in this
Article 12 if the Premises, or any other portion of the Marketplace necessary
for Tenant's use and occupancy of the Premises, are damaged or destroyed by fire
or other casualty, Landlord shall, within thirty (30) days after such event,
notify Tenant of the estimated time, in Landlord's reasonable judgment, required
to repair such damage or destruction. If Landlord's estimate of time is less
than two hundred seventy (270) days after the date of damage or destruction,
then (i) Landlord shall proceed with all due diligence to repair the Premises,
and/or the portion of the Marketplace
<PAGE>
necessary for Tenant's use and occupancy of the premises, to substantially the
condition existing immediately before such damage or destruction, as permitted
by and subject to then applicable laws, ordinances, rules and regulations; (ii)
this Lease shall remain in full force and effect; and (iii) to the extent such
damage or destruction did not result from the negligence or willful act or
omission of Tenant or Tenant's subtenants or any of their respective employees,
agents, contractors, invitees or licensees, Base Rent shall share for such part
of the Premises rendered unusable by Tenant in the conduct of its business
during the time such part is so unusable, in the proportion that the Rentable
Area continued in the unusable part of the Premises bears to the total Rentable
Area of the Premises.
12.2. Landlord's Election. If Landlord determines that the necessary
repairs cannot be completed within two hundred seventy (270) days after the date
of damage or destruction, or if such damage or destruction arises from causes
not covered by Landlord's insurance policy then in force ("Uninsured Loss") and
the Uninsured Loss exceeds 2% of the replacement cost of the Building, Landlord
may elect, in its notice to Tenant pursuant to Section 12.1 to (i) terminate
this Lease or (ii) repair the Premises or the portion of the Marketplace
necessary for Tenant's use and occupancy of the Premises pursuant to the
applicable provisions of Section 12.1 above. In addition, if Landlord determines
that the necessary repairs cannot be completed within two hundred seventy (270)
days after the date of damage or destruction, then Tenant shall have the right
for a period of twenty (20) days after receipt of Landlord's notice, to elect to
terminate this Lease. If Landlord or Tenant terminates this Lease, then this
Lease shall terminate as of the date of occurrence of the damage or destruction.
12.3. Cost of Repairs. Landlord shall pay the cost for repair of the
Marketplace and all improvements in the Premises, other than any Alterations.
Tenant shall pay the costs to repair all Alterations. Tenant shall also replace
or repair, at Tenant's cost and expense. Tenant's movable furniture, equipment,
trade fixtures and other personal property in the Premises which Tenant shall be
responsible for insuring during the Term of this Lease.
12.4. Damages at End of Term. Notwithstanding anything to the contrary
contained in this Article 12, if the Premises, or any other portion thereof or
of the Marketplace, are damaged or destroyed by fire or other casualty within
the last eighteen (18) months of the Term, then Landlord shall have the right,
in its sole discretion, to terminate this Lease by notice to Tenant given within
ninety (90) days after the date of such event. Such termination shall be
effective on the date specified in Landlord's notice to Tenant, but in no event
later than the end of such 90-day period.
12.5. Waiver of Statutes. The respective rights and obligations of
Landlord and Tenant in the event of any damage to or destruction of the
Premises, or any other portion of the Marketplace, are governed exclusively by
this Lease. Accordingly, Tenant hereby waives the provisions of any law to the
contrary, including California Civil Code Sections 1932(2) and 1933(4) providing
for the termination of a lease upon destruction of the leased property.
13. Eminent Domain.
13.1. Effect of Taking. Except as otherwise provided in this Article
13, if all or any part of the Premises is taken as a result of the exercise of
the power of eminent domain or condemned for any public or quasi-public purpose,
or if any transfer is made in avoidance of such exercise of the power of eminent
domain (collectively, "taken" or a "taking"), this Lease shall terminate as to
the part of the Premises so taken as of the effective date of such taking. On a
taking of a portion of the Premises, Landlord and Tenant shall each have the
right to terminate this Lease by notice to the other given within thirty (30)
days after the effective date of such taking, if the portion of the Premises
taken is of such extent and nature so as to materially impair Tenant's business
use of the balance of the Premises, as reasonably determined by the party giving
such notice. On a taking of a portion of the Marketplace, Tenant shall have the
right to terminate this Lease by notice to Landlord given within thirty (30)
days after the effective date of such taking, if the portion of the Marketplace
(but not the Premises) taken is of such extent and nature so as to materially
impair Tenant's ability to use the Premises, as reasonably determined by Tenant.
Such termination shall be operative as of the effective date of the taking.
Landlord may also terminate this Lease on a taking of any other portion of the
Marketplace if Landlord reasonably determines that such taking is of such extent
and nature as to render the operation of the remaining Marketplace economically
infeasible or to require a substantial alteration or reconstruction of such
remaining portion. Landlord shall elect such termination by notice to Tenant
given within thirty (30) days after the effective date of such taking, and such
termination shall be operative as of the effective date of such taking. Upon a
taking of the Premises which does not result in a termination of this Lease, the
Base Rent shall thereafter be reduced as of the effective date of such taking in
the proportion that the Rentable Area of the Premises so taken bears to the
total Rentable Area of the Premises.
<PAGE>
13.2. Condemnation Proceeds. Except as hereinafter provided, in the
event of any taking, Landlord shall have the right to all compensation, damages,
income, rent or awards made with respect thereto (collectively an "award"),
including any award for the value of the leasehold estate created by this Lease.
No award to Landlord shall be apportioned and, subject to Tenant's rights
hereinafter specified, Tenant hereby assigns to Landlord any right of Tenant in
any award made for any taking. So long as such claim will not reduce any award
otherwise payable to Landlord under this Section 13.2. Tenants may seek to
recover, at its cost and expense, as a separate claim, any damages or awards
payable on a taking of the Premises to compensate for the unamortized cost paid
by Tenant for the alterations, additions or improvements, if any, made by or on
behalf of Tenant during the initial improvement of the Premises pursuant to the
Work Letter and for any Alterations, or for Tenant's personal property taken, or
for interference with or interruption of Tenant's business (including goodwill),
or for Tenant's removal and relocation expenses.
13.3. Restoration of Premises. On a taking of the Premises which does
not result in a termination of this Lease, Landlord and Tenant shall restore the
Premises as nearly as possible to the condition they were in prior to the taking
in accordance with the applicable provisions and allocation of responsibility
for repair and restoration of the Premises on damage or destruction pursuant to
Article 12 above, and both parties shall use any awards received by such party
attributable to the Premises for such purpose.
13.4. Taking at End of Term. Notwithstanding anything to the contrary
contained in this Article 13, if the Premises, or any other portion thereof or
of the Marketplace, are taken within the last three hundred sixty-five (365)
days of the Term, then Landlord shall have the right, in its sole discretion, to
terminate this Lease by notice to Tenant given within ninety (90) days after the
date of such taking. Such termination shall be effective on the date specified
in Landlord's notice to Tenant, but in no event later than the end of such 90-
day period.
13.5. Tenant Waiver. The rights and obligations of Landlord and Tenant
on any taking of the Premises or any other portion of the Marketplace are
governed exclusively by this Lease. Accordingly, Tenant hereby waives the
provisions of any law to the contrary, including California Code of Civil
Procedure Sections 1265.120 and 1265.130, or any similar successor statute.
14. Insurance.
14.1. Liability Insurance. Landlord, with respect to the Marketplace,
and Tenant, at its cost and expense with respect to the Premises, shall each
maintain or cause to be maintained, from the Lease Date and throughout the Term,
a policy or policies of Commercial General Liability insurance with limits of
liability not less than Two Million Dollars ($2,000,000.00) per occurrence and
in the aggregate. Each policy shall contain coverage for blanket contractual
liability, personal injury liability, and premises operations, coverage deleting
liquor liability exclusions and, as to Tenant's insurance, fire legal liability.
Landlord shall have the right to approve the deductible under each policy of
Tenant's liability insurance, such approval not to be unreasonably withheld. In
addition, Landlord shall, at its sole cost and expense, keep in force an
extended coverage property damage insurance policy (excluding earthquake
coverage) on the Building in an amount not less than 100% of the replacement
cost of the Building; provided, however, that if at any time during the Term
such insurance is not available at commercially reasonable rates, then Landlord
shall, to the extent such insurance is available at commercially reasonable
rates, obtain extended coverage property damage insurance with the maximum
amount of coverage that is available at commercially reasonable rates.
14.2. Form of Policies. All insurance required by this Article 14
shall be issued on an occurrence basis by solvent companies qualified to do
business in the State of California. Any insurance required under this Article
14 may be maintained under a "blanket policy", insuring other parties and other
locations, so long as the amount and coverage required to be provided hereunder
is not thereby diminished. Notwithstanding the foregoing, Landlord shall have
the right to self-insure against any of the risks required to be insured against
under this Article 14. Tenant shall provide Landlord a copy of each policy of
insurance or a certificate thereof certifying that the policies contain the
provisions required hereunder. Tenant shall deliver such policies or
certificates to Landlord within (30) days after the Lease Date, but in no event
less than ten (10) business days prior to the Commencement Date or such earlier
date as Tenant or Tenant's contractors, agents, licensees, invitees or employees
first enter the Premises and, upon renewal, not less than thirty (30) days prior
to the expiration of such coverage. All evidence of insurance provided to
Landlord shall provide (i) that Landlord, Landlord's managing agent and any
other person requested by Landlord who has an insurable interest is designated
as an additional insured without limitation as to coverage afforded under such
policy; (ii) for severability of interests or that the acts or omissions of one
of the insureds or additional insureds shall not reduce or affect coverage
available to any other insured or additional insured; (iii) that the insurer
agrees not to cancel or alter the policy without at least thirty (30) days prior
written notice to all additional insureds; (iv) that the aggregate liability
applies solely to the Premises and the remainder of the Marketplace; and (v)
that Tenant insurance is primary and noncontributing with any insurance carried
by Landlord.
<PAGE>
14.3. Workers' Compensation Insurance. Tenant, at its sole cost and
expense, shall maintain Workers' Compensation insurance as required by law and
employer's liability insurance in an amount of not less than Five Hundred
Thousand Dollars ($500,000).
14.4. Additional Tenant Insurance. Tenant, at its sole cost and
expense, shall maintain such other insurance as Landlord may reasonably require
from time to time, but in no event may Landlord require any other insurance
which is (i) not then being required of comparable tenants leasing comparable
amounts of space in comparable buildings in the vicinity of the Building or (ii)
not then available at commercially reasonable rates.
15. Waiver of Subrogation Rights. Notwithstanding anything to the contrary
contained in this Lease, Landlord and Tenant, for themselves and their
respective insurers, agree to and do hereby release each other of and from any
and all claims, demands, actions and causes of action that each may have or
claim to have against the other for loss or damage to property, both real and
personal, notwithstanding that any such loss or damage may be due to or result
from the negligence of either of the parties hereto or their respective
employees or agents. Each party shall, to the extent such insurance endorsement
is lawfully available at commercially reasonable rates, obtain or cause to be
obtained, for the benefit of the other party, a waiver of any right of
subrogation which the insurer of such party may acquire against the other party
by virtue of the payment of any such loss covered by such insurance.
16. Tenant's Waiver of Liabilities and Indemnification.
16.1. Waiver and Release. Except to the extent due to the gross
negligence or willful misconduct of Landlord, Landlord shall not be liable to
Tenant or Tenant's employees, agents, contractors, licensees or invitees for,
and Tenant waives and releases Landlord and Landlord's managing agent from, all
claims for loss or damage to any property or injury, illness or death of any
person in, upon or about the Premises and/or any other portion of the
Marketplace (including claims caused in whole or in part by the act, omission,
or neglect of other tenants, contractors, licensees, invitees or other occupants
of the Marketplace or their agents or employees). The waiver and release
contained in this Section 16.1 extends to the officers, directors, shareholders,
partners, employees, agents and representatives of Landlord.
16.2. Indemnification of Landlord. Tenant shall indemnify, defend,
protect and hold Landlord harmless of and from any and all loss, liens,
liability, claims, causes of action, damage, injury, cost or expense arising out
of or in connection with (i) the making of any alterations, additions or other
improvements made by or on behalf of Tenant during the initial improvement of
the Premises pursuant to the Work Letter or any Alterations, or (ii) injury to
or death of persons or damage to property occurring or resulting directly or
indirectly from: (A) the use or occupancy of, or the conduct of business in, the
Premises by Tenant or its subtenants or any of their respective officers,
directors, employees, agents, contractors, invitees or licensees; (B) any other
occurrence or condition in or on the Premises; and (C) acts, neglect or
omissions of Tenant, or its subtenants or any of their respective officers,
directors, employees, agents, contractors, invitees or licensees, in or about
any portion of the Marketplace. Tenant's indemnity obligation includes
reasonable attorneys' fees and costs, investigation costs and all other
reasonable costs and expenses incurred by Landlord. If Landlord disapproves the
legal counsel proposed by Tenant for the defense of any claim indemnified
against hereunder, Landlord shall have the right to appoint its own legal
counsel, the reasonable fees, costs and expenses of which shall be included as
part of Tenant's indemnity obligation hereunder. The indemnification contained
in this Section 16.2 shall extend to the officers, directors, shareholders,
partners, employees, agents and representatives of Landlord.
16.3. Indemnification of Tenant. Landlord shall indemnify, defend,
protect and hold Tenant harmless of and from any and all loss, liens, liability,
claims, causes of action, damage, injury, cost or expense arising out of or in
connection with (i) any breach or default by Landlord in the performance of any
of its obligations under this Lease, or (ii) any loss or damage to property or
injury to person occurring in the public entrances, stairways, corridors,
elevators and elevator lobbies, and other public areas in the Building or the
other public areas in the Marketplace (except for such loss, damage or injury
for which Tenant is obligated to indemnify Landlord under Section 16.2).
17. Assignment and Subletting.
17.1. Compliance Required. Tenant shall not, directly or indirectly,
voluntary or by operation of law, sell, assign or otherwise transfer this Lease,
or any interest herein (collectively, "assign" or "assignment"), or sublet the
Premises, or any part thereof, or permit the occupancy of the Premises by any
person other than Tenant (collectively, "sublease" or "subletting", the assignee
or sublessee under and assignment or sublease being referred to as a
"transferee"), without Landlord's prior consent given or withheld in
<PAGE>
accordance with the express standards and conditions of this Article 17 and
compliance with the other provisions of this Article 17. Any assignment or
subletting made in violation of this Article 17 shall be void. As used herein,
on "assignment" includes any sale or other transfer (such as by consolidation,
merger or reorganization) of a majority of the voting stock of Tenant, if Tenant
is a corporation, or any sale or other transfer of a majority of the beneficial
interest in Tenant, if Tenant is any other form of entity. Tenant acknowledges
and agrees that the limitations on Tenant's right to sublet or assign which are
set forth in this Article 17 are reasonable and, in particular, that the express
standards and conditions upon Tenant's right to assign or sublet which are set
forth in this Article 17 are reasonable as of the Lease Date. Notwithstanding
the foregoing, an assignment shall not include any of the following
(collectively, "Exempt Transfers"): (i) the sale of substantially all of the
assets of Tenant, so long as the purchaser of such assets assumes all of
Tenant's obligations under this Lease; (ii) the transfer of any stock at any
time that the shares of Tenant are publicly traded; and (iii) any merger;
consolidation or other nonbankruptcy reorganization so long as the net worth of
the survivor is the same or better as the Tenant immediately prior to the
consummation of the transaction and so longs as the survivor assumes all of the
Tenant's obligations under this Lease. In addition to the foregoing, Landlord
shall have no right to disapprove a sublease to any entity controlling,
controlled by, or under common control with Tenant (an "Exempt Sublease"). The
transferee under an Exempt Transfer or an Exempt Sublease shall be referred to
as an "Exempt Transferee".
17.2. Request by Tenant Landlord Response. If Tenant desires to effect
an assignment of sublease, Tenant shall submit to Landlord a request for consent
together with the identity of the parties to the transaction, the nature of the
transferee's proposed business use for the Premises, the proposed documentation
for and terms of the transaction, and all other information reasonably requested
by Landlord concerning the proposed transaction and the parties involved
therein, including certified financial information, credit reports, the business
background and references regarding the transferee, and an opportunity to meet
and interview the transferee. Within twenty (20) days after the later of such
interview or the receipt of all such information required by Landlord, or within
thirty (30) days after the date of Tenant's request to Landlord if Landlord does
not request additional information or an interview, Landlord shall have the
right, by notice to Tenant, to: (i) consent to the assignment or sublease,
subject to the terms of this Article 17; (ii) decline to consent to the
assignment or sublease; (iii) in the case of a subletting, to sublet from Tenant
the portion or the Premises proposed to be sublet on the terms and conditions
set forth in Tenant's request to Landlord, unless the rent terms exceed the
allocable Rent payable by Tenant hereunder, in which event only such Rent shall
be payable by Landlord under such subletting; or (iv) terminate this Lease as to
the affected portion of the Premises as of the date specified by Tenant as the
effective date of the proposed assignment or sublease, in which event Tenant
will be relieved of all unsecured obligations hereunder as to such portion as of
such date, other than those obligations which survive termination of this Lease.
If Landlord elects so to terminate, Tenant shall have the right, by notice to
Landlord within five (5) days after Landlord's exercise of such right, to resend
its request for the proposed assignment or subletting, in which event this Lease
shall not terminate and shall remain in full force and effect. Notwithstanding
the foregoing or the following, Landlord shall have no right to exercise the
Termination Option with respect to any Exempt Sublease.
17.3. Conditions for Landlord Approval. In the event Landlord elects
not to sublet from Tenant or terminate this Lease (in whole or in part) as
provided in clauses (iii) and (iv) of Section 17.2, Landlord shall not
unreasonably withhold its consent to a proposed subletting or assignment by
Tenant. Without limiting the grounds on which it may be reasonable for Landlord
to withhold its consent to an assignment or sublease, Tenant agrees that
Landlord would be acting reasonably in withholding its consent in the following
instances: (i) if Tenant is in default under this Lease; (ii) if the transferee
is a governmental or quasi-governmental agency, foreign or domestic; (iii) if
the transferee is an existing tenant in the Building (iv) if, in Landlord's sole
judgment, the transferee's business, use and/or occupancy of the Premises would
(A) violate any of the terms of this Lease or the lease of any other tenant in
the Marketplace, or (B) not be comparable to and compatible with the types of
use by other tenants in the Building, (C) fall within any category of use for
which Landlord would not then lease space in the Building under its leasing
guidelines and policies then in effect, (D) require any Alterations which would
reduce the value of the existing leasehold improvements in the Premises, or (E)
result in increased density per floor or require increased services by Landlord;
(v) in the case of a sublease, it would result in more than three (3)
occupancies in the Premises, including Tenant and subtenants; (vi) if the
financial condition of the transferee does not meet the requirements applied by
Landlord for other tenants in the Building under leases with comparable terms,
or in Landlord's sole judgment the business reputation of the transferee is not
consistent with that of other tenants of the Building; or (vii) in the case of a
sublease, the rent payable by the subtenant is less than the then prevailing
rate being charged by Landlord for the lease of comparable space in the
Building. If Landlord consents to an assignment or sublease, the terms of such
assignment or sublease transaction shall not be modified without Landlord's
prior written consent pursuant to this Article 17. Landlord's consent to an
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting.
17.4. Costs and Expenses. As a condition to the effectiveness of any
assignment or subletting under this Article 17, Tenant shall pay to Landlord a
processing fee of Five Hundred Dollars ($500.00) and all reasonable costs and
expenses, including attorneys'
<PAGE>
fees and disbursements, incurred by Landlord in evaluating Tenant's requests for
assignment or sublease, whether or not Landlord consents to an assignment or
sublease. Tenant shall pay the processing fee with Tenant's request for
Landlord's consent under Section 17.2. Tenant shall also pay to Landlord all
costs and expenses incurred by Landlord due to a transferee taking possession of
the Premises, including freight elevator operation, security service, janitorial
service and rubbish removal.
17.5. Payment of Excess Rent and Other Consideration. Tenant shall
also pay to Landlord, promptly upon Tenant's receipt thereof, fifty-percent
(50%) of any and all rent sums or other consideration, howsoever denominated,
realized by Tenant in connection with any assignment or sublease transaction in
excess of the Base Rent and Impositions, Operating Expenses and Real Estate
Taxes payable hereunder (prorated to reflect the Rent allocable to the portion
of the Premises if a sublease), after first deducting, (i) in the case of an
assignment, the unamortized reasonable cost of Alterations paid for by Tenant
and reasonable real estate commissions paid by Tenant in connection with such
assignment and, (ii) in the case of a sublease, the reasonable cost of
Alterations made to the Premises at Tenant's cost to effect the sublease, and
the reasonable amount of any real estate commissions paid by Tenant, both
amortized over the term of the sublease.
17.6. Assumption of Obligations; Further Restrictions on Subletting.
Each assignee shall, concurrently with any assignment, assume all obligations of
Tenant under this Lease. Each sublease shall be made subject to this Lease and
all of the terms, covenants and conditions contained herein; and the surrender
of this Lease by Tenant, or a mutual cancellation thereof, or the termination of
this Lease in accordance with its terms, shall not work a merger and shall, at
the option of Landlord, terminate all or any existing subleases or operate as an
assignment to Landlord of any or all such subleases. No sublessee (other than
Landlord) shall have the right further to sublet. Any assignment by a sublessee
of its sublease shall be subject to Landlord's prior consent in the same manner
as a sublease by Tenant. No sublease, once consented to by Landlord, shall be
modified without Landlord's prior consent. No assignment or sublease shall be
binding on Landlord unless the transferee delivers to Landlord a fully executed
counterpart of the assignment or sublease which contains the assumption by the
assignee, or recognition by the sublessee, of the provisions of this Section
17.6 in form and substance satisfactory to Landlord, but the failure or refusal
of a transferee to deliver such instrument shall not release or discharge such
transferee from the provisions and obligations of this Section 17.6 but such
failure shall constitute a default by Tenant under this Lease.
17.7. No Release. No assignment or sublease shall release Tenant from
its obligations under this Lease, whether arising before or after the assignment
or sublease. The acceptance of Rent by Landlord from any other person shall not
be deemed a waiver by Landlord of any provisions of this Article 17. On a
default by any assignee of Tenant in the performance of any of the terms,
covenants or conditions of this Lease, Landlord may proceed directly against
Tenant without the necessity of commencing or exhausting remedies against such
assignee. No consent by Landlord to any further assignments or sublettings of
this Lease, or any modification, amendment or termination of this Lease, or
extension, waiver or modification or payment or any other obligations under this
Lease, or any other action by Landlord with respect to any assignee or
sublessee, or the insolvency, or bankruptcy or default of any such assignee or
sublessee, shall affect the continuing liability of Tenant for its obligations
under this Lease and Tenant waives any defense arising out of or based thereon,
including any suretyship defense of exoneration. Landlord shall have no
obligation to notify Tenant or obtain Tenant's consent with respect to any of
the foregoing matters.
17.8. No Encumbrance. Notwithstanding anything to the contrary
contained in this Article 17, Tenant shall have no right to encumber, pledge,
hypothecate or otherwise transfer this Lease, or any of Tenant's interest or
rights hereunder, at security for any obligation or liability of Tenant.
18. Rules and Regulations. Tenant shall observe and comply, and shall
cause its sublessees, employees, agents, contractors, licensees and invitees to
observe and comply, with the Rules and Regulations of the Marketplace, a copy of
which are attached to this Lease as Exhibit D, and, after notice thereof, with
all modifications and additions thereto from time to time promulgated in writing
by Landlord, but only to the extent such modifications and additions are
reasonable, non-discriminatory, and not materially inconsistent with any of the
rights of Tenant granted by this Lease. Landlord shall not be responsible to
Tenant, or Tenant's sublessees, employees, agents, contractors, licensees or
invitees, for noncompliance with any Rules and Regulations of the Marketplace by
any other tenant, sublessee, employee, agent, contractor, licensee, invitee or
other occupant of the Marketplace.
19. Entry of Premises by Landlord.
19.1. Right to Enter. Upon reasonable advance notice to Tenant (except
in emergencies or in order to provide regularly scheduled or other routine
Building standard services or additional services requested by Tenant, or post
notices of non-responsibility
<PAGE>
or other notices permitted or required by law when no such notice shall be
required), Landlord and its authorized agents, employees, and contractors may
enter the Premises at reasonable hours to: (i) inspect the same; (ii) determine
Tenant's compliance with its obligations hereunder; (iii) exhibit the same to
prospective purchasers, lenders or tenants; (iv) supply any services to be
provided by Landlord hereunder;; (v) post notices of non-responsibility or other
notices permitted or required by law; (vi) make repairs, improvements or
alterations, or perform maintenance in or to, the Premises or any other portion
of the Marketplace, including Building systems; and (vii) perform such other
functions as Landlord deems reasonably necessary or desirable. Landlord may also
grant access to the Premises to government or utility representatives and bring
and use on or about the Premises such equipment as reasonably necessary to
accomplish the purposes of Landlord's entry. Landlord shall use reasonable good
faith efforts to effect all entries and perform all work hereunder in such
manner as to minimize interference with Tenant's use and occupancy of the
Premises. Landlord shall have and retain keys with which to unlock all of the
doors in or to the Premises (excluding Tenant's vaults, safes and similar secure
areas designated in writing by Tenant in advance), and Landlord shall have the
right to use any and all means which Landlord may deem proper in an emergency in
order to obtain entry to the Premises, including secure areas.
19.2. Tenant Waiver of Claims. Tenant waives any claim for damages for
any inconvenience to or interference with Tenant's business, or any loss of
occupancy or quiet enjoyment of the Premises, or any other loss, occasioned by
any entry effected or work performed under this Article 19, and Tenant shall not
be entitled to any abatement of Rent by reason of the exercise of any such right
of entry or performance of such work. No entry to the Premises by Landlord or
anyone acting under Landlord shall constitute a forcible or unlawful entry into,
or a detainer of, the Premises or an eviction, actual or constructive, of Tenant
from the Premises, or any portion thereof.
20. Default and Remedies.
20.1. Events of Default. The occurrence of any of the following events
shall constitute a default by Tenant under this Lease:
a. Nonpayment of Rent. Failure to pay any Rent when due.
b. Unpermitted Assignment. An assignment or sublease made in
contravention of any of the provisions of Article 17 above.
c. Abandonment. Abandonment of the Premises for a continuous
period in excess of five (5) business days. For purposes hereof, "abandonment"
means cessation by Tenant of the conduct of its business in the Premises or
removal from the Premises of the personal property, equipment and furnishings
used by Tenant in its business in the Premises.
d. Other Obligations. Failure to perform or fulfill any other
obligation, covenant, condition or agreement under this Lease.
e. Bankruptcy and Insolvency. A general assignment by Tenant for
the benefit of creditors, any action or proceeding commenced by Tenant under any
insolvency or bankruptcy act or under any other statute or regulation for
protection from creditors, or any such action commenced against Tenant and not
discharged within sixty (60) days after the date of commencement, the employment
or appointment of a receiver or trustee to take possession of all or
substantially all of Tenant's assets or the Premises where possession is not
returned to Tenant within thirty (30) days; the attachment, execution or other
judicial seizure of all or substantially all of Tenant's assets or the Premises,
if such attachment or other seizure remains undismissed or undischarged for a
period of fifteen (15) days after the levy thereof, the admission by Tenant in
writing of its inability to pay its debts as they become due; or the filing by
Tenant of a petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, the filing by Tenant of an answer admitting
or failing timely to contest a material allegation of a petition filed against
Tenant in any such proceeding or, if within thirty (30) days after the
commencement of any such proceeding against Tenant, such proceeding is not
dismissed. For purposes of this Section 20.1(e), "Tenant" means Tenant and any
partner of Tenant, if Tenant is a partnership, or any person or entity
comprising Tenant, if Tenant is comprised of more than one person or entity, or
any guarantor of Tenant's obligations, or any of them, under this Lease.
20.2. Notice to Tenant. Upon the occurrence of any default, Landlord
shall give Tenant notice thereof. Such notice shall replace rather than
supplement any equivalent or similar statutory notice, including any notices
required by California Code of Civil Procedure Section 1161 or any similar or
successor statute; and giving of such notice in the manner required by Article
28 shall replace and satisfy any service-of-notice procedures set forth in any
statute, including those required by California Code of Civil Procedure Section
1162 or any similar or successor statute. If a time period is specified below
for cure of such default, then Tenant
<PAGE>
may cure such default within such time period. To the fullest extent allowed by
law, Tenant hereby waives any right under law now or hereinafter enacted to any
other time period for cure of default.
a. Nonpayment of Rent. For failure to pay Rent, within five (5) days
after Landlord's notice, unless Tenant has failed more than two (2) times during
any calendar year timely to pay any Rent, in which event no cure period shall
apply for the balance of such calendar year.
b. Other Obligations. For failure to perform any obligation, covenant,
condition or agreement under this Lease (other than nonpayment of Rent, an
assignment or subletting in violation of Article 17 or Tenant's abandonment of
the Premises) within ten (10) days after Landlord's notice or, if the failure is
of a nature requiring more than ten (10) days to cure, then an additional thirty
(30) days after the expiration of such 10-day period, but only if Tenant
commences cure within such 10-day period and thereafter diligently pursues such
cure to completion within such additional 30-day period. If Tenant has failed to
perform any such obligation, covenant, condition or agreement more than two (2)
times during any calendar year and notice of such event of default has been
given by Landlord in each instance, then no cure period shall apply for the
balance of such calendar year.
c. No Cure Period. No cure period shall apply for any other event of
default specified in Section 20.1.
20.3. Remedies Upon Occurrence of Default. On the occurrence of a default
which Tenant fails to cure after notice and expiration of the time period for
cure, if any, specified in Section 20.2. above, Landlord shall have the right
either (i) to terminate this Lease and recover possession of the Premises, or
(ii) to continue this Lease in effect and enforce all Landlord's rights and
remedies under California Civil Code Section 1951.4 (by which Landlord may
recover Rent as it becomes due, subject to Tenant's right to assign pursuant to
Article 17). Landlord may store any property of Tenant located in the Premises
at Tenant's expense or otherwise dispose of such property in the manner provided
by law. If Landlord does not terminate this Lease, Tenant shall in addition to
continuing to pay all Rent when due, also pay Landlord's costs of attempting to
relet the Premises, any repairs and alterations necessary to prepare the
Premises for such reletting, and brokerage commissions and attorney's fees
incurred in connection therewith, less the rents, if any, actually received from
such reletting. Notwithstanding Landlord's election to continue this Lease in
effect, Landlord may at any time thereafter terminate this Lease pursuant to
this Section 20.3.
20.4. Damages Upon Termination. If and when Landlord terminates this Lease
pursuant to Section 20.3. Landlord may exercise all its rights and remedies
available under California Civil Code Section 1951.2, including the right to
recover from Tenant the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could have been reasonably
avoided. As used herein and in Civil Code Section 1951.2, "time of award" means
either the date upon which Tenant pays to Landlord the amount recoverable by
Landlord, or the date of entry of any determination, order or judgment of any
court or other legally constituted body determining the amount recoverable,
whichever occurs first.
20.5. Computation of Certain Rent for Purposes of Default. For purposes of
computing unpaid Rent pursuant to Section 20.4 above, Escalation Rent for the
balance of the Term shall be determined by averaging the amount paid by Tenant
as Escalation Rent for the calendar year prior to the year in which the default
occurred (or, if the prior year is the Base Year or such default occurs during
the Base Year, Escalation Rent shall be based on Landlord's operating budget for
the Building for the Base Year), increasing such average amount for each
calendar year (or portion thereof) remaining in the balance of the Term at a per
annum compounded rate equal to the mean average rate of increase for the
preceding five (5) calendar years in the United States Department of Labor,
Bureau of Labor Statistics, Consumer Price Index (All Urban Consumers, All
Items, 1982-1984 = 100) for the Metropolitan Area of which San Francisco,
California, is a part, and adding together the resulting amounts. If such Index
is discontinued or revised, such computation shall be made by reference to the
index designated as the successor or substitute index by the United States
Department of Labor, Bureau of Labor Statistics, or its successor agency, and if
none is designated, by a comparable index as determined by Landlord in its sole
discretion, which would likely achieve a comparable result to that achieved by
the use of the Consumer Price Index. If the base year of the Consumer Price
Index is changed, then the conversion factor specified by the Bureau, or
successor agency, shall be utilized to determine the Consumer Price Index.
20.6. Landlord's Right to Cure Defaults. If Tenant fails to pay Rent (other
than Base Rent and Escalation Rent) required to be paid by it hereunder, or
fails to perform any other obligation under this Lease, and Tenant fails to cure
such default within the applicable cure period, if any, specified in Section
20.2 above, then Landlord may, without waiving any of Landlord's rights in
connection therewith or releasing Tenant from any of its obligations or such
default, make any such payment or perform such other obligation on behalf of
Tenant. All payments so made by Landlord, and all costs and expenses
<PAGE>
incurred by Landlord to perform such obligations, shall be due and payable by
Tenant as Rent immediately upon receipt of Landlord's demand therefor.
20.7. Remedies Cumulative. The rights and remedies of Landlord under this
Lease are cumulative in addition to, and not in lieu of, any other rights and
remedies available to Landlord at law or in equity. Landlord's pursuit of any
such right or remedy shall not constitute a waiver or election of remedies with
respect to any other right or remedy.
21. Subordination, Attornment and Nondisturbance.
21.1. Subordination and Attornment. This Lease and all of Tenant's rights
hereunder shall be subordinate to any ground lease or underlying lease, and the
lien of any mortgage, deed of trust, or any other security instrument now or
hereafter affecting or encumbering the Marketplace, or any part thereof or
interest therein, and to any and all advances made on the security thereof or
Landlord's interest therein, and to all renewals, modifications, consolidations,
replacements and extensions thereof (an "encumbrance", the holder of the
beneficial interest thereunder being referred to as an "encumbrancer"). An
encumbrancer may, however, subordinate its encumbrance to this Lease, and if an
encumbrancer so elects by notice to Tenant, this Lease shall be deemed prior to
such encumbrance. If any encumbrance to which this Lease is subordinate is
foreclosed, or a deed in lieu of foreclosure is given to the encumbrancer
thereunder, Tenant shall attorn to the purchaser at the foreclosure sale or to
the grantee under the deed in lieu of foreclosure; and if any encumbrance
consisting of a ground lease or underlying lease to which this Lease is
subordinate is terminated, Tenant shall attorn to the lessor thereof. Tenant
shall execute, acknowledge and deliver in the form requested by Landlord or any
encumbrancer, any documents required to evidence or effectuate the subordination
hereunder, or to make this Lease prior to the lien of any encumbrance, or to
evidence such attornment.
21.2. Nondisturbance. If any encumbrance to which this Lease is subordinate
is foreclosed, or a deed in lieu of foreclosure is given to the encumbrancer
thereunder, or if any encumbrance consisting of a ground lease or underlying
lease to which this Lease is subordinate is terminated, this Lease shall not
terminate, and the rights and possession of Tenant under this Lease shall not be
disturbed if (i) no default by Tenant then exists under this Lease; (ii) Tenant
attorns to the purchaser, grantee, or successor lessor as provided in Section
21.1 above or, if requested, enters into a new lease for the balance of the Term
upon the same terms and provisions contained in this Lease; and (iii) Tenant
enters into a written agreement in a form reasonably acceptable to such
encumbrancer with respect to subordination, attornment and non-disturbance.
22. Sale or Transfer by Landlord; Lease Non-Recourse.
22.1. Release of Landlord on Transfer. Landlord may at any time transfer, in
whole or in part, its right, title and interest under this Lease and in the
Marketplace, or any portion thereof. If the original Landlord hereunder, or any
successor to such original Landlord, transfers (by sale, assignment or
otherwise) its right, title or interest in the Building, all liabilities and
obligations of the original Landlord or such successor under this Lease accruing
after such transfer shall terminate, the original Landlord or such successor
shall automatically be released therefrom, and thereupon all such liabilities
and obligations shall be binding upon the new owner. Tenant shall attorn to each
such new owner.
22.2. Lease. Nonrecourse to Landlord. Landlord shall in no event be
personally liable under this Lease, and Tenant shall look solely to Landlord's
interest in the Building, for recovery of any damages for breach of this Lease
by Landlord or on any judgment in connection therewith. None of the persons or
entities comprising or representing Landlord (whether partners, shareholders,
officers, directors, trustees, employees, beneficiaries, agents or otherwise)
shall ever be personally liable under this Lease or liable for any such damages
or judgment and Tenant shall have no right to effect any levy of execution
against any assets of such persons or entities on account of any such liability
or judgment. Any lien obtained by Tenant to enforce any such judgment, and any
levy of execution thereon, shall be subject and subordinate to all encumbrances
as specified in Article 21 above.
23. Estoppel Certificate.
23.1. Procedure and Content. From time to time, and within ten (10) days
after written notice by Landlord, Tenant shall execute, acknowledge, and deliver
to Landlord a certificate as specified by Landlord certifying: (i) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, as modified, and
identifying each
<PAGE>
modification); (ii) the Commencement Date and Expiration Date; (iii) that Tenant
has accepted the Premises (or the reasons Tenant has not accepted the Premises),
and if Landlord has agreed to make any alterations or improvements to the
Premises, that Landlord has properly completed such alterations or improvements
(or the reasons why Landlord has not done so); (iv) the amount of the Base Rent
and current Escalation Rent, if any, and the date to which such Rent has been
paid; (v) that Tenant has not committed any event of default, except as to any
events of default specified in the certificate, and whether there are any
existing defenses against the enforcement of Tenant's obligations under this
Lease; (vi) that no default of Landlord id claimed by Tenant, except as to any
defaults specified in the certificate; and (vii) such other matters as may be
requested by Landlord.
23.2. Effect of Certificate. Any such certificate may be relied upon by any
prospective purchaser of any part or interest in the Marketplace or encumbrancer
(as defined in Section 21.1) and, at Landlord's request, Tenant shall deliver
such certificate to Landlord and/or to any such entity and shall agree to such
notice and cure provisions and such other matters as such entity may reasonably
require. In addition, at Landlord's request, Tenant shall provide to Landlord
for delivery to any such entity such information, including financial
information, that may reasonably be requested by any such entity. Any such
certificate shall constitute a waiver by Tenant of any claims Tenant may have in
contravention to the information contained in such certificate and Tenant shall
be estopped from asserting any such claim. If Tenant fails or refuses to give a
certificate hereunder within the time period herein specified, then the
information contained in such certificate as submitted by Landlord shall be
deemed correct for all purposes, but Landlord shall have the right to treat such
failure or refusal as a default by Tenant. Any prospective purchaser or
encumbrancer shall sign a confidentiality agreement regarding the non-disclosure
of Tenant's financial information prior to delivery of such information to the
prospective purchaser or encumbrancer.
24. No Light, Air or View Easement. Nothing contained in this Lease shall be
deemed, either expressly or by implication, to create any easement for light and
air or access to any view. Any diminution or shutting off of light, air or view
to or from the Premises by any structure which now exists or which may hereafter
be erected, whether by Landlord or any other person, shall in no way affect this
Lease or Tenant's obligations hereunder, entitle Tenant to any reduction of
Rent, or impose any liability on Landlord.
25. Holding Over. No holding over by Tenant shall operate to extend the Term.
If Tenant remains in possession of the Premises after expiration or termination
of this Lease, unless otherwise agreed by Landlord in writing, then (i) Tenant
shall become a tenant at sufferance upon all the applicable terms and conditions
of this Lease, except that Base Rent shall be increased to equal 200% of the
Base Rent then in effect, (ii) Tenant shall indemnify, defend, protect and hold
harmless Landlord, and any tenant to whom Landlord has leased all or part of the
Premises, from any and all liability, loss, damages, costs or expense (including
loss of Rent to Landlord or additional rent payable by such tenant and
reasonable attorneys' fees) suffered or incurred by either Landlord or such
tenant resulting from Tenant's failure timely to vacate the Premises; and (iii)
such holding over by Tenant shall constitute a default by Tenant.
26. Security Deposit.
26.1 Deposit Required; Adjustment to Amount of Security Deposit. Tenant
shall deposit with Landlord the Initial Security Deposit upon the execution of
this Lease by Tenant. On or before July 1, 1999, Tenant shall either (i) provide
written evidence, certified to be true, correct and complete by an authorized
officer of Tenant and otherwise satisfactory to Landlord, that Tenant has raised
equity in addition to that shown on Tenant's financial statement dated December
31, 1998 in the amount of at least Four Million and 00/100 Dollars
($4,000,000.00) (the "Additional Capital") or (ii) deposit with Landlord Twenty
Two Thousand Five Hundred and 00/100 Dollars ($22,500.00) (the "Additional
Security Deposit") in addition to the Initial Security Deposit that Tenant
deposited with Landlord upon execution of the Lease. For purposes of this Lease,
the term "Security Deposit" as used herein shall refer only to the Initial
Security Deposit prior to July 1, 1999, and on and after July 1, 1999, the term
"Security Deposit" shall refer to both the Initial Security Deposit and the
Additional Security Deposit (to the extent Tenant is required to deposit with
Landlord the Additional Security Deposit as provided above). If Tenant fails to
provide to Landlord satisfactory evidence of the Additional Capital on or before
July 1, 1999 and fails to deposit the Additional Security Deposit with Landlord
on or before July 1, 1999, monthly Base Rent shall increase to Fifteen Thousand
Six Hundred Forty Seven and 00/100 ($15,647.00) commencing on July 1, 1999. If
Tenant raises the Additional Capital after July 1, 1999, Landlord shall return
the Additional Security Deposit provided that Tenant shall have provided written
evidence of the Additional Capital, certified to be true, correct and complete
by an authorized officer of Tenant and otherwise satisfactory to Landlord.
26.2 Consequence of Default. The Security Deposit shall be held by Landlord
as security for the performance by Tenant of all its obligations under this
Lease. If Tenant fails to pay any Rent due hereunder, or otherwise commits a
default with respect to any provision of this Lease, Landlord may use, apply or
retain all or any portion of the Security Deposit for the payment of any such
Rent or for the payment of any other amounts expended or incurred by Landlord by
reason of Tenant's default, or to compensate Landlord for any loss or damage
which Landlord may incur thereby (and in this regard Tenant hereby waives the
provisions of California Civil Code Section 1950.7(c) and any similar or
successor statute providing that Landlord may claim from a security deposit only
those sums reasonably necessary to remedy defaults in the payment of Rent, to
repair damage caused by Tenant, or to clean the Premises). Exercise by Landlord
of its rights hereunder shall not constitute a waiver of, or relieve Tenant from
any liability for, any default. If Tenant performs all of Tenant's obligations
hereunder, the Security Deposit, or so much thereof as has not theretofore been
applied by Landlord, shall be returned, without interest, to Tenant (or, at
Landlord's option, to the last assignee, if any, of Tenant's interest under this
Lease) within thirty (30) days after the later of (i) the date of expiration or
earlier termination of this Lease, or (ii) vacation of the Premises by Tenant if
the Premises has been left in the condition specified by this Lease. Landlord's
receipt and retention of the Security Deposit shall not create any trust or
fiduciary relationship between Landlord and Tenant and Landlord need not keep
the Security Deposit separate from its general accounts. Upon termination of the
original Landlord's (or any successor owner's) interest in the Premises, the
original Landlord (or such successor) shall be released from further liability
with respect to the Security Deposit upon the original Landlord's (or such
successor's) compliance with California Civil Code Section 1950.7(d), or
successor statute.
27. Waiver. Failure of Landlord to declare a default by Tenant upon occurrence
thereof, or delay in taking any action in connection therewith, shall not waive
such default, but Landlord shall have the right to declare such default at any
time after its occurrence. To be effective, a waiver of any provision of this
Lease, or any default, shall be in writing and signed by the waiving party. Any
waiver hereunder shall not be deemed a waiver of subsequent performance of any
such provision or subsequent defaults. The subsequent acceptance of Rent
hereunder, or endorsement of any check by Landlord, shall not be deemed to
constitute an accord and satisfaction or a waiver of any preceding default by
Tenant, except as to the particular Rent so accepted, regardless of Landlord's
knowledge of the preceding default at the time of acceptance of the Rent. No
course of conduct between Landlord and Tenant, and no acceptance of the keys to
or possession of the Premises by Landlord before the Expiration Date shall
constitute a waiver of any provision of this Lease or of any default, or operate
as a surrender of this Lease.
28. Notice and Consents; Tenant's Agent for Service. All notices, approvals,
consents, demands and other communications from one party to the other given
pursuant to this Lease shall be in writing and shall be made by personal
delivery, by use of a reputable overnight courier service or by deposit in the
United States mail, certified, registered or Express, postage prepaid and return
receipt requested. Notices shall be addressed if to Landlord, to Landlord's
Address, and if to Tenant, to Tenant's Address. Landlord and Tenant may each
change their respective Addresses from time to time by giving written notice to
the other of such change in accordance with the terms of this Article 28, at
least ten (10) days before such change is to be effected. Any notice given in
accordance with this Article 28 shall be deemed to have been given (i) on the
date of personal delivery or (ii) on the earlier of the date of delivery or
attempted delivery (as shown by the return receipt or other delivery record) if
sent by courier service or mailed.
29. Tenant's Authority. Tenant, and each of the persons executing this Lease
on behalf of Tenant, represent and warrant that (i) Tenant is a duly formed,
authorized and existing corporation, partnership or trust (as the case may be),
(ii) Tenant is qualified to do
<PAGE>
business in California, (iii) Tenant has the full right and authority to enter
into this Lease and to perform all of Tenant's obligations hereunder, and (iv)
each person signing on behalf of Tenant is authorized to do so. Tenant shall
deliver to Landlord, upon Landlord's request, such certificates, resolutions, or
other written assurances authorizing Tenant's execution and delivery of this
Lease, and such financial information regarding Tenant and its constituent
members, as requested by Landlord from time to time or at any time in order for
Landlord to assess Tenant's then authority and/or ability to meet its
obligations under this Lease.
30. Automobile Parking.
30.1. Tenant Appurtenant Parking Rights. Subject to the terms and conditions
contained in this Article 30, Landlord shall make available to Tenant parking
spaces in the parking areas designated by Landlord for parking in the
Marketplace (such areas being hereinafter collectively referred to as the
"Parking Facility"). For purposes of this Lease, the term "Minimum Spaces" shall
mean an amount equal to four (4) parking space for each 1,000 square feet of
Rentable Area leased by Tenant in the Building. Tenant shall at all times
provide to Landlord, upon Landlord's request, a list of all of the vehicle
makes, colors and license plate numbers of all vehicles of Tenant's employees.
Tenant's use of the parking spaces to be made available to Tenant shall be on a
non-exclusive basis in common with other tenants in the Marketplace; and parking
in such spaces shall be on a first-come-first-served, unassigned, non-reserved
basis. The parking spaces to be made available to Tenant shall be in locations
designated by Landlord; and Landlord reserves the right to designate different
locations from time to time without any liability to Tenant and Tenant agrees
that any such designation of a different location shall not give rise to any
claims or offset against Landlord hereunder. Without limiting the generality of
the foregoing, Landlord may restrict certain portions of the Parking Facility
for the exclusive use of one or more tenants of the Marketplace (and their
employees and agents) and may designate other areas in the Parking Facility to
be used at large only by licensees, customers and invitees of tenants of the
Marketplace; and Landlord may in its sole and absolute discretion restrict or
prohibit the use of the Parking Facility by any vehicles other than passenger
automobiles such as full-sized vans or trucks. Notwithstanding the foregoing,
Landlord shall not exercise any of the foregoing rights in a manner which would
permanently reduce the total number of parking spaces available to Tenant on a
non-exclusive basis to a number less than the Minimum Spaces. Tenant shall not
permit any vehicles belonging to Tenant or any of Tenant's subtenants or any of
their respective employees, agents, customers, contractors or invitees to be
loaded, unloaded or parked in areas other than those designated by Landlord for
such activities. In its use of the Parking Facilities Tenant shall comply (and
shall cause each of its subtenants and each of their respective employees,
agents, customers, contractors and invitees to comply) with any and all parking
regulations and rules established from time to time by Landlord or Landlord's
parking operator. Landlord or Landlord's parking operator shall have the right
to cause to be removed any vehicles of Tenant, its subtenants or any of their
respective employees, agents, licesees, customers or invitees, that are parked
in violation of any of the provisions of this Article 30 or of the regulations
and rules then established by Landlord, and to charge all of the costs incurred
by Landlord in connection with such removal to Tenant and Tenant shall pay the
amount of all such costs to Landlord as additional rent within five (5) days
after receipt of written demand from Landlord. Any such removal shall be without
liability of any kind to Landlord or Landlord's parking operator or their
respective employees or agents; and Tenant shall protect, defend, indemnify and
hold Landlord and Landlord's parking operator and their respective employees and
agents from and against any and all claims, losses, damages, demands, costs and
expenses (including reasonable attorneys' fees) which may be asserted against or
incurred by any of such indemnified parties arising out of or in connection with
such removal of any automobiles.
30.2. Parking Fee. During the initial Term, Landlord shall impose no charge
on Tenant for use of the Parking Facility. After the expiration of the initial
Term, Landlord shall have the right to impose on Tenant a charge for the use of
the Parking Facility. If Landlord imposes any such parking fee (the "Base
Parking Fee") after the expiration of the initial Term, then on the first day of
each and every calendar month thereafter, Tenant shall pay to Landlord the Base
Parking Fee for each parking space utilized by employees of Tenant or its
subtenants. If Tenant shall fail to pay the Base Parking Fee to Landlord as and
when required, Tenant shall have no further right to utilize the parking spaces
for which Tenant shall have failed to pay the Base Parking Fee. Landlord
reserves the right to separately charge Tenant's guests and visitors for
parking. Landlord or Landlord's parking operator shall have the right from time
to time to adjust the amount of the Base Parking Fee to the then-prevailing fair
market rate as reasonably determined by Landlord or its parking operator. Any
such adjustment shall be effective as of the first day of the first calendar
month following Tenant's receipt of such adjustment from Landlord. If any
governmental authority having jurisdiction charges Landlord a fee for parking
during the Term, Landlord shall have the right to include as Operating Expenses
such parking fees.
30.3. Allocation of Risk. Landlord shall have no obligation to monitor the
use of the Parking Facility. The use of the Parking Facility by the employees of
Tenant and its subtenants shall be at the sole risk of Tenant, its subtenants
and their respective employees. Unless caused by the sole active gross
negligence or willful misconduct of Landlord, Landlord shall have no
responsibility or liability for any injury or damage to any person or property
by or as a result of the use of the Parking Facility by Tenant and its
subtenants and their respective employees, whether by theft, collision, criminal
activity, or otherwise; and Tenant hereby assumes, for itself, its subtenants
and their respective employees, all risks associated with any such occurrences
in or about the Parking Facility.
31. Tenant to Furnish Financial Statements. In order to induce Landlord to
enter into this Lease, Tenant agrees that it shall promptly deliver to Landlord,
from time to time, upon Landlord's written request, financial statements
(including a balance sheet and statement of income and expenses on an annualized
basis) reflecting Tenant's then current financial condition. Such statements
shall be delivered to Landlord within fifteen (15) days after Tenant's receipt
of Landlord's request. Tenant represents and warrants that all financial
statements, records, and information furnished by Tenant to Landlord in
connection with this Lease are and shall be true, correct and complete in all
respects.
32. Tenant's Signs. Without Landlord's prior consent, which Landlord may
withhold in its sole discretion, Tenant shall not place on the Premises or on
the Building any exterior signs nor any interior signs that are visible from the
exterior of the Premises or Building. Tenant shall pay all costs and expenses
relating to any such sign approved by Landlord, including without limitation,
the cost of the installation and maintenance of the sign. On the date of
expiration or earlier termination of this Lease, Tenant, at its sole cost and
expense, shall remove all signs and repair any damage caused by such removal.
33. Miscellaneous.
<PAGE>
33.1. No Joint Venture. This Lease does not create any partnership or joint
venture or similar relationship between Landlord and Tenant.
33.2. Successors and Assigns. Subject to the provisions of Article 17
regarding assignment, all of the provisions, terms, covenants and conditions
contained in this Lease shall bind, and inure to the benefit of, the parties and
their respective successors and assigns.
33.3. Construction and Interpretation. The words "Landlord" and "Tenant"
include the plural as well as the singular. If there is more than one person
comprising Tenant, the obligations under this Lease imposed on Tenant are joint
and several. References to a party or parties refers to Landlord or Tenant, or
both, as the context may require. The captions preceding the Articles, Sections
and subsections of this Lease are inserted solely for convenience of reference
and shall have no effect upon, and shall be disregarded in connection with the
construction and interpretation of this Lease. Use in this Lease of the words
"including", "such as", or words of similar import when following a general
manner, shall not be construed to limit such matter to the enumerated items or
matters whether or not language of nonlimitation (such as "without limitation")
is used with reference thereto. All provisions of this Lease have been
negotiated at arm's length between the parties and after advice by counsel and
other representatives chosen by each party and the parties are fully informed
with respect thereto. Therefore, this Lease shall not be construed for or
against either party by reason of the authorship or alleged authorship of any
provision hereof, or by reason of the status of the parties as Landlord or
Tenant, and the provisions of this Lease and the Exhibits hereto shall be
construed as a whole according to their common meaning in order to effectuate
the intent of the parties under the terms of this Lease.
33.4. Severability. If any provision of this Lease, or the application
thereof to any person or circumstance, is determined to be illegal, invalid or
unenforceable, the remainder of this Lease, or its application to persons or
circumstances other than those as to which it is illegal, invalid or
unenforceable, shall not be affected thereby and shall remain in full force and
effect, unless enforcement of this Lease as so invalidated would be unreasonable
or grossly inequitable under the circumstances, or would frustrate the purposes
of this Lease.
33.5. Entire Agreement; Amendments. This Lease, together with the Exhibits
hereto and any Addenda identified on the Basic Lease Information, contains all
the representations and the entire agreement between the parties with respect to
the subject matter hereof and any prior negotiations, correspondence, memoranda,
agreements, representations or warranties are replaced in total by this Lease,
the Exhibits hereto and such Addenda. Neither Landlord nor Landlord's agents
have made any warranties or representations with respect to the Premises or any
other portion of the Marketplace, except as expressly set forth in this Lease.
This Lease may be modified or amended only by an agreement in writing signed by
both parties.
33.6. Governing Law. This Lease shall be governed by and construed pursuant
to the laws of the State of California.
33.7. Litigation Expenses. If either party brings any action or proceeding
against the other (including any cross-complaint, counterclaim or third party
claim) to enforce or interpret this Lease or otherwise arising out of this
Lease, the prevailing party in such action or proceeding shall be entitled to
its costs and expenses of suit, including reasonable attorneys' fees and
accountants' fees.
33.8. Standards of Performance and Approvals. Unless otherwise provided in
this Lease, (i) each party shall act in a reasonable manner in exercising or
undertaking its rights, duties and obligations under this Lease and (ii)
whenever approval, consent or satisfaction (collectively, an "approval") is
required of a party pursuant to this Lease or an Exhibit hereto, such approval
shall not be unreasonably withheld or delayed. Unless provision is made for a
specific time period, approval (or disapproval) shall be given within thirty
(30) days after receipt of the request for approval. Nothing contained in this
Lease shall, however, limit the right of a party to act or exercise its business
judgement in a subjective manner with respect to any matter as to which it has
been (A) specifically granted such right, (B) granted the right to act in its
sole discretion or sole judgment, or (C) granted the right to make a subjective
judgment hereunder, whether "objectively" reasonable under the circumstances and
any such exercise shall not be deemed inconsistent with any covenant of good
faith and fair dealing implied by law to be part of this Lease. The parties have
set forth in this Lease their entire understanding with respect to the terms,
covenants, conditions and standards pursuant to which their obligations are to
be judged and their performance measured, including the provisions of Article 17
with respect to assignments and sublettings.
33.9. Brokers. Landlord shall pay to Landlord's Broker and Tenant's Broker
as specified in the Basic Lease Information of this Lease, a commission in
connection with each Broker's negotiation of this Lease pursuant to a separate
agreement or agreements between Landlord and such Broker. Other than such
Brokers, Landlord and Tenant each represent and warrant to the other that no
broker, agent, or finder has procured or was involved in the negotiation of this
Lease and no such broker, agent or finder is or may be entitled to a commission
or compensation in connection with this Lease. Landlord and Tenant shall each
indemnify, defend, protect
<PAGE>
and hold the other harmless from and against any and all liability, loss,
damages, claims costs and expenses (including reasonable attorneys' fees)
resulting from claims that may be asserted against the indemnified party in
breach of the foregoing warranty and representation.
33.10. Memorandum of Lease. Tenant shall, upon request of Landlord, execute,
acknowledge and deliver a short form memorandum of this Lease (and any amendment
hereto) in form suitable for recording. In no event shall this Lease or any
memorandum thereof be recorded by Tenant.
33.11. Quiet Enjoyment. Upon paying the Rent and performing all its
obligations under this Lease, Tenant may peacefully and quietly enjoy the
Premises during the Term as against all persons or entities claiming by or
through Landlord, subject, however, to the provisions of this Lease any
encumbrances as specified in Article 21.
33.12. Surrender of Premises. Upon the Expiration Date or earlier
termination of this Lease, Tenant shall quietly and peacefully surrender the
Premises to Landlord in the condition specified in Article 9 above. On or before
the Expiration Date or earlier termination of this Lease, Tenant shall remove
all of its personal property from the Premises and repair at its cost and
expense all damage to the Premises or Marketplace caused by such removal. All
personal property of Tenant not removed hereunder shall be deemed, at Landlord's
option, to be abandoned by Tenant and Landlord may store such property in
Tenant's name at Tenant's expense and/or dispose of the same in any manner
permitted by law.
33.13. Name of Building Address. Tenant shall not use the name of the
Building or Marketplace for any purpose other than as the address of the
business conducted by Tenant in the Premises. Tenant shall, in connection with
all correspondence, mail or deliveries made to or from the Premises, use the
official Building address specified from time to time by Landlord.
33.14. Exhibits. The Exhibits specified in the Basic Lease Information are
by this reference made a part hereof.
33.15. Time of the Essence. Time is of the essence of this Lease and of the
performance of each of the provisions contained in this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the Lease Date.
LANDLORD
CHRISTIE AVENUE PARTNERS-JS,
a California limited partnership
By: 64th Street Partners,
a California limited partnership
Its: General Partner
By /s/
------------------------------
General Partner
TENANT:
HEALTHCENTRAL.COM
a California corporation
By: /s/ AL GREENE
-------------
Its: President and CEO
-----------------
By: ________________________
Its: _______________________
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
EXHIBIT B
The Premises referred to herein is all that certain real property situated
in the County of Alameda, State of California, described as follows:
PARCEL ONE:
PARCEL 2, 3 AND 4, OF PARCEL MAP 5303, FILED FEBRUARY 26, 1985, MAP BOOK 174,
PAGES 91 AND 92, ALAMEDA COUNTY RECORDS.
Excepting Therefrom
BEING A PORTION OF PARCEL 2 OF PARCEL MAP 5303 FILED IN THE OFFICE OF THE
RECORDER OF ALAMEDA COUNTY FEBRUARY 25, 1988 IN BOOK 174 OF MAPS AT PAGE 91.
SITUATE IN THE CITY OF EMERYVILLE, COUNTY OF ALAMEDA, STATE OF CALIFORNIA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEASTERLY CORNER OF SAID PARCEL 2 AS SHOWN ON SAID PARCEL
MAP; THENCE LEAVING SAID POINT OF BEGINNING ALONG THE GENERAL EASTERLY LINE OF
SAID PARCEL 2 SOUTH 13(DEGREES) 11' 4" EAST 471.54 FEET; ALONG A TANGENT CURVE
TO THE RIGHT WITH A RADIUS OF 5,593.25 FEET, THROUGH A CENTRAL ANGLE OF
00(DEGREES) 18' 49" FOR AN ARC LENGTH OF 30.62 FEET TO THE TRUE POINT OF
BEGINNING; THENCE CONTINUING ALONG SAID GENERAL EASTERLY LINE ALONG A TANGENT
CURVE TO THE RIGHT WITH A RADIUS OF 5,593.25 FEET, THROUGH A CENTRAL ANGLE OF
00(DEGREES) 45' 15" FOR AN ARC LENGTH OF 73.61 FEET; THENCE LEAVING SAID GENERAL
EASTERLY LINE OF THE FOLLOWING COURSES AND DISTANCES; FROM A TANGENT WHICH BEARS
SOUTH 40(DEGREES) 12' 19" WEST ALONG A CURVE TO THE RIGHT WITH A RADIUS OF
196.00 FEET, THROUGH A CENTRAL ANGLE OF 02(DEGREES) 35' 54" FOR AN ARC LENGTH OF
9.06 FEET TO A POINT OF REVERSE CURVATURE. FROM A TANGENT WHICH BEARS SOUTH
42(DEGREES) 51' 14" WEST, ALONG A CURVE TO THE LEFT WITH A RADIUS OF 500.00
FEET, THROUGH A CENTRAL ANGLE OF 06(DEGREES) 06' 45" FOR AN ARC LENGTH OF 53.63
FEET; SOUTH 36(DEGREES) 42' 29" WEST 3.00 FEET; ALONG A TANGENT CURVE TO THE
LEFT WITH A RADIUS OF 149.00 FEET THROUGH A CENTRAL ANGLE OF 24(DEGREES) 34' 21"
FOR AN ARC LENGTH OF 63.90 FEET; SOUTH 12(DEGREES) 06' 06" WEST 323.20 FEET;
ALONG A TANGENT CURVE TO THE LEFT WITH A RADIUS OF 198.00 FEET, THROUGH A
CENTRAL ANGLE OF 10(DEGREES) 30' 50" FOR AN ARC LENGTH OF 36.33 FEET TO A POINT
ON THE COMMON DIVIDING LINE BETWEEN SAID PARCEL 2 AND PARCEL 1 AS SHOWN ON SAID
PARCEL MAP; THENCE ALONG SAID COMMON DIVIDING LINE BETWEEN PARCEL 1 AND PARCEL 2
SOUTH 77(DEGREES) 15' 18" WEST 6.37 FEET AND SOUTH 42(DEGREES) 46' 36" EAST
245.93 FEET TO A POINT ON THE GENERAL SOUTHERLY LINE OF SAID PARCEL 2, SAID LINE
BEING ALSO THE GENERAL NORTHERLY LINE OF SHELL MOUND STREET AS SHOWN IN SAID
PARCEL MAP; THENCE ALONG SAID GENERAL SOUTHERLY LINE OF PARCEL 2 FROM A TANGENT
BEARING OF NORTH 12(DEGREES) 50' 11" WEST, ALONG A CURVE TO THE LEFT WITH A
RADIUS OF 112.95 FEET, THROUGH A CENTRAL ANGLE OF 82(DEGREES) 51' 13" FOR AN ARC
LENGTH OF 163.39 FEET; THENCE SOUTH 62(DEGREES) 28' 02" WEST, 7.76 FEET TO A
POINT OF CUSP; THENCE LEAVING SAID GENERAL SOUTHERLY LINE OF PARCEL 2 THE
FOLLOWING COURSES AND DISTANCES: FROM TANGENT BEARING OF NORTH 82(DEGREES) 28'
19" EAST ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 44.00 FEET, THROUGH A
CENTRAL ANGLE OF 94(DEGREES) 01' 29" FOR AN ARC LENGTH OF 72.21 FEET NORTH
11(DEGREES) 33' 10" WEST 22.91 FEET; ALONG A TANGENT CURVE TO THE RIGHT WITH A
RADIUS OF 250.00 FEET, THROUGH A CENTRAL ANGLE OF 23(DEGREES) 41' 18", FOR AN
ARC LENGTH OF 103.36 FEET; NORTH 12(DEGREES) 08' 06" EAST 347.49 FEET, ALONG A
TANGENT CURVE TO THE RIGHT WITH A RADIUS OF 196.00 FEET, THROUGH A CENTRAL ANGLE
OF 24(DEGREES) 34' 21" FOR AN ARC LENGTH OF 84.06 FEET; NORTH 36(DEGREES) 42'
29" EAST 79.50 FEET, ALONG A TANGENT CURVE TO THE LEFT WITH A RADIUS OF 146.00
FEET, THROUGH A CENTRAL ANGLE OF 13(DEGREES) 36' 42" FOR AN ARC LENGTH OF 34.69
FEET TO THE TRUE POINT OF BEGINNING.
CONTAINING 36,522 SQUARE FEET OF LAND, MORE OR LESS.
<PAGE>
Also Excepting Therefrom
BEING A PORTION OF PARCEL 4 OF PARCEL MAP 5303 FILED IN THE OFFICE OF THE
RECORDER OF ALAMEDA COUNTY FEBRUARY 26, 1988 IN BOOK 174 OF MAPS AT PAGE 91,
SITUATE IN THE CITY OF EMERYVILLE, COUNTY OF ALAMEDA, STATE OF CALIFORNIA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE EASTERLY CORNER OF PARCEL 3 AS SHOWN ON SAID PARCEL MAP; SAID
CORNER LIES ON THE GENERAL WESTERLY LINE OF PARCEL 4 AS SHOWN ON SAID PARCEL MAP
5303; THENCE LEAVING SAID POINT OF COMMENCING ALONG SAID GENERAL WESTERLY LINE
OF PARCEL 4, SOUTH 13(DEGREES) 11' 44" EAST 471.54 FEET; THENCE ALONG A TANGENT
CURVE TO THE RIGHT WITH A RADIUS OF 5,593.25 FEET, THROUGH A CENTRAL ANGLE OF
00(DEGREES) 18' 49" FOR AN ARC LENGTH OF 30.62 FEET TO THE TRUE POINT OF
BEGINNING; THENCE LEAVING SAID GENERAL WESTERLY LINE THE FOLLOWING COURSES AND
DISTANCES: FROM A TANGENT BEARING OF NORTH 23(DEGREES) 05' 47" EAST, ALONG A
CURVE TO THE LEFT WITH A RADIUS OF 145.00 FEET, THROUGH A CENTRAL ANGLE OF
20(DEGREES) 28' 19", FOR AN ARC LENGTH OF 52.17 FEET TO A POINT OF COMPOUND
CURVATURE; ALONG A COMPOUND CURVE TO THE LEFT WITH A RADIUS OF 148.72 FEET,
THROUGH A CENTRAL ANGLE OF 14(DEGREES) 31' 44" FOR AN ARC LENGTH OF 37.71 FEET;
NORTH 11(DEGREES) 54' 15" WEST 228.33 FEET; ALONG A TANGENT CURVE TO THE LEFT
WITH A RADIUS OF 2,450.00 FEET, THROUGH A CENTRAL ANGLE OF 01(DEGREES) 17' 29",
FOR AN ARC LENGTH OF 55.22 FEET; NORTH 13(DEGREES) 11' 44" WEST 588.27 FEET TO A
POINT ON A CURVE FROM A TANGENT BEARING OF SOUTH 55(DEGREES) 49' 34" EAST, ALONG
A CURVE TO THE RIGHT WITH A RADIUS OF 30.00 FEET, THROUGH A CENTRAL ANGLE OF
42(DEGREES) 37' 50" FOR AN ARC LENGTH OF 22.32 FEET; SOUTH 13(DEGREES) 11' 44"
EAST, 904.50 FEET; ALONG A TANGENT CURVE TO THE RIGHT WITH A RADIUS OF 5,635.24
FEET, THROUGH A CENTRAL ANGLE OF 00(DEGREES) 37' 06", FOR AN ARC LENGTH OF 60.82
FEET; THENCE FROM A TANGENT BEARING OF SOUTH 22(DEGREES) 20' 16" WEST, ALONG A
CURVE TO THE RIGHT WITH A RADIUS OF 196.00 FEET, THROUGH A CENTRAL ANGLE OF
17(DEGREES) 52' 04" FOR AN ARC LENGTH OF 51.12 FEET, TO A POINT ON A CURVE ON
SAID GENERAL WESTERLY LINE OF PARCEL 4; THENCE FROM A TANGENT BEARING OF NORTH
12(DEGREES) 07' 40" WEST, ALONG A CURVE TO THE LEFT WITH A RADIUS OF 5,593.25
FEET, THROUGH A CENTRAL ANGLE OF 00(DEGREES) 45' 15" FOR AN ARC LENGTH OF 73.61
FEET TO THE TRUE POINT OF BEGINNING.
CONTAINING 11,809 SQUARE FEET OF LAND, MORE OR LESS.
<PAGE>
Adding Thereto
BEING A PORTION OF "BAY STREET" AS SHOWN ON PARCEL MAP 5303 FILED IN THE OFFICE
OF THE RECORDER OF ALAMEDA COUNTY, FEBRUARY 25, 1988 IN BOOK 174 OF MAPS AT PAGE
91, SITUATE IN THE CITY OF EMERYVILLE, COUNTY OF ALAMEDA, STATE OF CALIFORNIA,
MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWESTERLY CORNER OF LAND DESIGNATED AS "BAY STREET" ON
SAID PARCEL MAP 5303: THENCE ALONG THE WESTERLY LINE OF SAID "BAY STREET" FROM A
TANGENT BEARING OF NORTH 10(DEGREES) 02' 22" WEST, ALONG A CURVE TO THE LEFT
WITH A RADIUS OF 14,228.94 FEET, THROUGH A CENTRAL ANGLE OF 00(DEGREES) 48' 22"
FOR AN ARCH LENGTH OF 200.18 FEET: THENCE NORTH 10(DEGREES) 50' 44" WEST 193.08
FEET TO THE TRUE POINT OF BEGINNING: THENCE CONTINUING ALONG SAID WESTERLY LINE
NORTH 10(DEGREES) 50' 44" WEST 191.64 FEET; THENCE LEAVING SAID WESTERLY LINE OF
"BAY STREET" AND THROUGH SAID "BAY STREET" THE FOLLOWING THREE (3) COURSES AND
DISTANCES: NORTH 76(DEGREES) 53' 00" EAST 34.15 FEET, SOUTH 12(DEGREES) 00' 05"
EAST 191.98 FEET AND SOUTH 77(DEGREES) 16' 18" WEST 38.02 FEET TO THE POINT OF
BEGINNING.
CONTAINING 6,922 SQUARE FEET OF LAND, MORE OR LESS.
Also Adding Thereto
BEING A PORTION OF "BAY STREET" AS SHOWN ON PARCEL MAP 5303 FILED IN THE OFFICE
OF THE RECORDER OF ALAMEDA COUNTY FEBRUARY 26, 1986 IN BOOK 174 OF MAPS AT PAGE
91, SITUATE IN THE CITY OF EMERYVILLE, COUNTY OF ALAMEDA, STATE OF CALIFORNIA,
MORE PARTICULARLY DESCRIBED IS FOLLOWS:
COMMENCING AT THE SOUTHWESTERLY CORNER OF LAND DESIGNATED AS "BAY STREET" ON
SAID PARCEL MAP 5303; THENCE ALONG THE WESTERLY LINE OF SAID "BAY STREET" FROM A
TANGENT BEARING OF NORTH 10(DEGREES) 02' 22" WEST, ALONG A CURVE TO THE LEFT
WITH A RADIUS OF 14,228.94 FEET, THROUGH A CENTRAL ANGLE OF 00(DEGREES) 46' 22"
FOR AN ARC LENGTH OF 200.18 FEET; THENCE NORTH 10(DEGREES) 50' 44" WEST 450.97
FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID WESTERLY LINE
NORTH 10(DEGREES) 50' 44" WEST 33.50 FEET; ALONG A TANGENT CURVE TO THE LEFT
HAVING A RADIUS OF 5,635.24, THROUGH A CENTRAL ANGLE OF 01(DEGREES) 38' 24" AN
ARC LENGTH OF 151.30 FEET; THENCE LEAVING SAID WESTERLY LINE OF "BAY STREET" AND
THROUGH SAID "BAY STREET" THE FOLLOWING FOUR (4) COURSES AND DISTANCES: SOUTH
58(DEGREES) 58' 34" EAST 42.75 FEET; FROM A TANGENT BEARING SOUTH 11(DEGREES)
13' 49" EAST, ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 1,000.00 FEET,
THROUGH A CENTRAL ANGLE OF 00(DEGREES) 46' 16" AN ARC LENGTH OF 13.46 FEET,
SOUTH 12(DEGREES) 00' 05" EAST 151.63 FEET, AND SOUTH 76(DEGREES) 53' 00" WEST
32.82 FEET TO THE POINT OF BEGINNING.
CONTAINING 5,672 SQUARE FEET OF LAND, MORE OR LESS.
PARCEL TWO:
NON-EXCLUSIVE EASEMENTS, APPURTENANT TO PARCEL ONE, ABOVE, FOR THE USE OF ALL
SERVICE DEIVES AND WALKWAYS FOR INGRESS AND EGRESS, PARKING AREAS FOR PARKING OF
MOTOR VEHICLES AND FACILITIES INSTALLED FOR THE COMFORT AND CONVENIENCE OF
CUSTOMERS, INVITEES, CONTRACTORS AND EMPLOYEES WITHIN THOSE COMMON AREA PORTIONS
OF PARCEL ONE SHOWN ON SAID PARCEL MAP NO. 5303, AS SAID COMMON AREA IS DEFINED
IN, AND AS SAID EASEMENTS WERE GRANTED PURSUANT TO, THAT CERTAIN "DECLARATION OF
EASEMENTS AND RESTRICTIONS", EXECUTED BY CHRISTIE AVENUE PARTNERS, A CALIFORNIA
PARTNERSHIP, DATED FEBRUARY 25, 1988, AND RECORDED FEBRUARY 28, 1988 AS SERIES
NO. 85-051904, OFFICIAL RECORDS OF ALAMEDA COUNTY, STATE OF CALIFORNIA.
<PAGE>
EXHIBIT C
Intentionally Omitted
<PAGE>
Exhibit D
RULES AND REGULATIONS
1. The sidewalks, entrances, lobby, elevators, stairways and public
corridors shall be used only as a means of ingress and egress and shall remain
unobstructed at all times. Loitering in any part of the Building or obstruction
of any means of ingress or egress shall not be permitted.
2. Plumbing fixtures shall not be used for any purposes other than those for
which they were constructed, and no rubbish, newspapers, trash or other
substances of any kind shall be thrown into them. Walls, floors and ceilings
shall not be defaced in any way and no one shall be permitted to mark, drive
nails, screws or drill into, paint, or in any way mar any Building surface,
except that pictures, certificates, licences and similar items normally used in
Tenant's business may be carefully attached to the walls by Tenant in a manner
to be prescribed by Landlord. Upon removal of such items by Tenant any damage to
the walls or other surfaces, except minor nail holes, shall be repaired by
Tenant.
3. No awning, shade, advertisement or notice shall be inscribed, painted,
displayed or affixed on, in or to any window, door or balcony or any other part
of the outside or inside of the Building or the demised premises. No window
displays or other public displays shall be permitted without the prior written
consent of Landlord. All tenant identification on public corridor doors beyond
building standard will be installed by Landlord. The directory of the Building
will be provided exclusively for the display and location of the building tenant
only and Landlord reserves the right to exclude all other names therefrom. All
requests for listing on the Building directory shall be submitted to the office
of Landlord in writing. Landlord reserves the right to approve all listings on
the Building directory. Any change requested by Tenant of Landlord of the name
or names posted on directory, after initial posting, will be charged to Tenant.
4. Subsequent to the initial build out of the Premises, the cost of any
special electrical circuits for items such as copying machines, computers,
microwaves, etc., shall be borne by Tenant. Prior to installation of equipment,
Tenant must receive written approval from Landlord.
5. The weight, size and position of all safes and other unusually heavy
objects used or placed in the Building shall be prescribed by Landlord and
shall, in all cases, stand on metal plates of such size as shall be prescribed
by Landlord. Tenant shall reimburse Landlord for the cost of Landlord's
architect or structural engineer in reviewing the weight and locations of
unusually heavy equipment. The repair of any damage done to the Building or
property therein by putting in or taking out or maintaining such safes or other
unusually heavy objects shall be paid for by Tenant.
6. All freight, furniture, fixtures and other personal property shall be
moved into, within and out of the Building at times designated by and under the
supervision of Landlord and in accordance with such regulations as may be posted
in the office of the Building manager. In no event will Landlord be responsible
for any loss or damage to such freight, furniture, fixtures or personal property
from any cause except for the willful misconduct of Landlord, its agents,
employees or contractors or a breach of Landlord's obligations under this Lease.
7. No improper noises, vibrations or odors will be permitted in the
Building, nor shall any person be permitted to interfere in any way with tenants
or those having business with them. No person will be permitted to bring or keep
within the Building any animal, bird or bicycle or any toxic or flammable
substances without Landlord's prior permission, except for any seeing eye dog or
other animal at the Premises to assist the physically impaired. No person shall
throw trash, refuse, cigarettes or other substances of any kind any place within
or out of the Building except in the refuse containers provided therefor.
Landlord reserves the right to exclude or expel from the Building any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs or who shall in any manner do any act in violation of the rules
and regulations of the Building.
8. All re-keying of office doors or changes to the card access system, after
occupancy, will be at the expense of Tenant. Tenant shall not re-key any doors,
add additional locks to doors or change the card access system in any way
without making prior arrangements with Landlord.
9. Tenant will not install or use any window coverings except those provided
by Landlord.
<PAGE>
10. If Tenant uses the Premises after regular business hours or on non-
business days, Tenant shall lock any entrance doors to the Building used by
Tenant or take such other steps as are necessary to secure the Building's doors
immediately after entering or leaving the Building.
11. If Tenant requires telegraphic, telephonic, burglar or of similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
12. Tenant shall not waste electricity, water or air-conditioning and agrees
to cooperate fully with Landlord to assure the most efficient operation of the
Building's heating and air-conditioning system.
13. Landlord reserves the right, exercisable with thirty (30) days notice and
without liability to Tenant, to change the name and street address of the
Building.
14. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel, or other similar services or accept barbering or
bootblacking services upon the Premises, except at such hours and under such
regulations as may be fixed by Landlord, and except for a kitchen, microwave
oven, water coolers and vending machines for the use of Tenant and its employees
and invitees.
15. Tenant shall not install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building elsewhere. Tenant shall not install, maintain or operate upon the
Premises any vending machine without the written consent of Landlord.
Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building, are prohibited, and each tenant shall
cooperate to prevent same.
16. Tenant shall not use in any space or in the public halls of the Building
any hand trucks except those equipped with rubber tires and side guards, or such
other material-handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles of any kind into the Building.
17. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the building. Tenant shall not
leave vehicles in the Building parking area overnight nor park any vehicles in
the Building parking areas other than automobiles, motorcycles, motor driven or
non-motor driven bicycles or four-wheeled trucks. Landlord may, in its sole
discretion, designate separate areas for bicycles and motorcycles. Further,
Landlord may designate reserved parking areas for car pools, vanpools or
reserved parking.
18. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
19. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition to his occupancy of the Premises.
<PAGE>
EXHIBIT E
CONFIRMATION OF LEASE TERM
LANDLORD: Christie Avenue Partners-JS
TENANT: Burnham Pacific Properties, Inc.
LEASE DATE: ___________________________________
___________________________________
PREMISES: ___________________________________
Pursuant to Section 3 of the above referenced Lease, the Commencement Date as
defined in Section 3 shall be __________________________
TENANT:
Dated: BURNHAM PACIFIC PROPERTIES, INC.
a Maryland corporation
By: ________________________________
Its:________________________________
LANDLORD
Dated: CHRISTIE AVENUE PARTNERS-JS,
a California limited partnership
By: 64th Street Partners,
a California limited partnership
Its: General Partner
By:______________________________
General Partner
<PAGE>
EXHIBIT 10.18
JOINT DEVELOPMENT AGREEMENT
BASE AGREEMENT
THIS BASE AGREEMENT, dated as of August 12, 1999, is made by and
among Global Health Initiatives, a _________ corporation having offices in
Potomac, Maryland ("GHI"), Windom Health Enterprises, a California corporation
having offices in Berkeley, California ("Windom"), and HealthCentral.com, a
California corporation having offices in Emeryville, California
("HealthCentral.com").
WHEREAS, the parties wish from time to time to enter into agreements
covering various projects that may be undertaken from time to time by the
parties involving:
1) services provided by GHI to Windom, HealthCentral.com
or their customers;
2) services provided by Windom or HealthCentral.com to GHI
or GHI's customers;
3) products provided by GHI to Windom or HealthCentral.com
that are used to create jointly owned products; and
4) products provided by Windom or HealthCentral.com to GHI
that are used to create jointly owned products.
WHEREAS, the parties wish to specify the general terms and conditions
of such agreements by establishing this Base Agreement which may be incorporated
by reference into specific Project Agreements to be entered into from time to
time by the parties.
NOW, THEREFORE, and in consideration of the mutual covenants herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. A specific project will be defined in its own Project Agreement. The basic
format for a Project Agreement is attached hereto as Annex A. Each Project
-------
Agreement together with this Base Agreement forms a separate agreement,
although the parties may refer to this Base Agreement together with all of
its Project Agreements collectively as the Joint Development Agreement (the
"JDA"). Only projects specified in a Project Agreement shall be subject to
the JDA. The projects specified on Annex B shall not be subject to the JDA,
-------
rather they may be pursued individually (and not jointly) by the party as
indicated on such Annex.
2. The parties shall use their best efforts to perform the services, deliver
the products or otherwise perform the obligations as specified in the
Project Agreement.
3. Unless otherwise specified in the Project Agreement for a particular
project, (a) whenever a project principally involves one party acting as a
sales agent for another party, the sales agent is entitled to a commission
payable out of the project revenue in an amount equal to 10% of
<PAGE>
the total project revenue and (b) whenever one party acts as a project
manager for another party, the project manager is entitled to a fee payable
out of the project revenue of 25% of the total project revenue.
4. The JDA is a non-exclusive worldwide product and service agreement.
5. The parties are acting as independent contractors and not as partners under
the JDA.
6. GHI's areas of service expertise will include (a) high level solution
consulting; (b) integration and sales of integrated health care-specific
enterprise engineering sales; (c) integration, sales and project management
of next generation health information systems; and (d) development, sales
and support of virtual health management services (e.g., demand management,
disease management and population health services).
7. GHI's products will include large scale domestic and international health
information systems spanning clinical, administrative, telemedicine,
educational, personal health, community network and population database
systems.
8. Windom's and HealthCentral.com's products will include personal and
community health information systems.
9. In the provision of services or products specified in each Project
Agreement, (a) GHI may partner with other firms, as it deems appropriate,
including in the areas of providing personal and community health
information systems, and (b) Windom or HealthCentral.com may partner with
other firms, as it deems appropriate, including in the areas of providing
clinical, administrative, telemedicine, educational and population database
information systems.
10. The parties will continue to individually own any of their respective
assets that they may make available to each other pursuant to the JDA. The
parties will jointly own any products jointly produced as specified in the
Project Agreement.
11. Each party is entitled to a reasonable accounting of all revenue generated
by a project that is the subject of a Project Agreement. Such revenue may
only be used (a) to maintain operations and marketing for such project, (b)
as specified in the applicable Project Budget, or (c) in a manner that is
mutually agreed by the parties hereto.
12. Each party will use its best efforts to develop a reasonable formula for
sharing revenue from any co-branded assets and related services that may be
developed or provided by the parties pursuant to the JDA.
13. A Project Agreement must be executed by GHI, Windom and HealthCentral.com
and may be executed by other persons or entities mutually acceptable to
GHI, Windom and HealthCentral.com that wish to participate in the provision
of products, licenses or services pursuant to the JDA, including
distribution companies (e.g., international Internet providers) and content
companies (e.g., Healthwise). Any party signing a Project Agreement agrees
to
-2-
<PAGE>
be bound by all of the terms and conditions of this Base Agreement as
if, and to the same extent that, such party were a party to this Base
Agreement.
14. Each party acknowledges that by reason of its relationship to the other
hereunder it will have access to certain information and materials
concerning the other parties' operations, business, plans, customers,
technology and products that are confidential and of substantial value to
such party, which value would be impaired if such information were
disclosed to third parties. Each party agrees that it will not use in any
way for its own account or the account of any third party, nor disclose to
any third party, any information received by it which is marked
confidential or which is disclosed orally and the confidential nature of
which is confirmed in writing within 30 days after disclosure by the other
party, and a written summary is provided by the disclosing party to the
receiving party ("Confidential Information"). Each party shall protect the
confidential nature of such Confidential Information with at least the
level of care it takes to protect its own confidential information of
similar value, but in no event with less than reasonable care. No party
shall publish any Confidential Information of another party without that
other party's written permission. In the event of termination of the JDA
(or any part thereof), there shall be no use or disclosure by any party of
any Confidential Information of another party.
15. No party may assign its rights, duties or obligations under the JDA
(whether by operation of law or otherwise) without the prior written
consent of the other parties hereto, except that Windom's rights, duties
and obligations may be assigned by operation of law to a wholly-owned
subsidiary of HealthCentral.com pursuant to the currently contemplated
merger.
16. GHI shall not compete with Windom or HealthCentral.com in the area of
public or institutional Consumer Heath Informatics product and service
development. GHI will as a result receive "most favored customer" pricing
at least as favorable as the pricing given to any other customer of Windom
or HealthCentral.com purchasing similar or lesser quantities over similar
or greater periods under substantially similar terms and conditions from
Windom or HealthCentral.com on projects in which it is seeking to include
consumer health informatics into its projects. To reciprocate GHI will
grant Windom and HealthCentral.com first right of refusal on equal or
better quality and with most favored customer pricing proposals on consumer
health informatics development and service within GHI projects.
17. Windom and HealthCentral.com shall not compete with GHI in the areas of (1)
health care systems consulting, (2) enterprise engineering, (3) health
information systems or (4) virtual health management, except, in the case
of each of clauses (1) through (4) in this paragraph above, with respect to
consumer health informatics. HealthCentral.com will as a result receive
most favored customer pricing from GHI on projects in which it is seeking
to include system consulting, enterprise engineering, broad health
information systems development or virtual health management into its
projects. To reciprocate HealthCentral.com and Windom will grant GHI first
right of refusal on equal or better quality and most favored customer
pricing proposals on consumer health informatics development and service
within HealthCentral.com and Windom projects.
-3-
<PAGE>
18. Notwithstanding Section 17 above, the JDA shall not restrict
HealthCentral.com's ability to (1) provide personal health record products
and services (including disease and demand management products and
services) within virtual health management systems, or (2) enter into
contracts or other arrangements (including investments and joint business
development) with health information systems vendors. HealthCentral.com may
also engage in providing linkages between personal health records held by
the consumer, on the one hand, and clinical records, lab reports, radiology
reports, and other types of reports generated or used by health
professionals (including doctors and health care institutions), on the
other hand.
19. As used herein, "virtual health management" means the provision of health
services through an information intense health network. Virtual health
management systems may include traditional health and medical services, but
they tend to focus on demand management, disease management and population
health services in an integrated model of service delivery. The informed
and empowered consumer is key to virtual health management. Effective
interactive media and health information infrastructure are essential pre-
requisites to virtual health management.
20. The JDA shall terminate on the later of (a) the 5th anniversary of the date
of the last Project Agreement, (b) the 2nd anniversary of completion or
mutual abandonment of the last project undertaken hereunder, or (c) if no
Project Agreement is ever executed and delivered by the parties, on or
before the 5th anniversary of the date of this Base Agreement.
21. The JDA shall be governed by and construed in accordance with the laws of
the State of California (without regard to its choice of law principles).
22. The JDA may be executed in counterparts, each of which constitute an
original and all of which together constitute one and the same instrument.
23. This Base Agreement, together with its Annexes including any Project
Agreements attached hereto, constitute the entire agreement between the
parties hereto concerning the subject matter hereof and supercede all prior
oral or written agreements, arrangements and discussions with respect to
such subject matter.
24. If any provision in the JDA is determined to be invalid, void or
unenforceable, in any respect, the remaining provisions of the JDA other
than those held to be invalid, void or unenforceable, shall remain in full
force and effect and in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated by the JDA is not affected in any manner adverse to any party.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Base Agreement as of
the date first written above.
WINDOM HEALTH ENTERPRISES GLOBAL HEALTH INITIATIVES
By: /s/ Michael D. McDonald By: /s/ Michael D. McDonald
------------------------------- -------------------------------
Name: Michael D. McDonald Name: Michael D. McDonald
Title: President/CEO Title: President/CEO
HEALTHCENTRAL.COM
By: /s/ Albert L. Greene
-------------------------------
Name: Albert L. Greene
Title: President/CEO
-5-
<PAGE>
ANNEX A
FORM OF PROJECT AGREEMENT
Project Name:__________
Definition of Project:
- ---------------------
Project Budget and Source of Project Expense Funding:
- ----------------------------------------------------
Services or Products to be Provided:
- -----------------------------------
Products to be Produced and Jointly Owned (50% ownership by GHI unless
- ----------------------------------------------------------------------
specified):
- ----------
Formula for Revenue Sharing:
- ---------------------------
Sales and Marketing Territory:
- -----------------------------
Method of Distributing Product or Information:
- ---------------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Project Agreement as
of [Date], to be attached to the base Agreement, dated as of March 23, 1999, by
and among the parties, the terms and conditions of which are incorporated herein
by reference, except to the extent of any inconsistency with the terms of this
Project Agreement which shall govern.
WINDOM HEALTH ENTERPRISES GLOBAL HEALTH INITIATIVES
By:__________________________________ By:______________________________
Name: Name:
Title: Title:
HEALTHCENTRAL.COM
By:__________________________________
Name:
Title:
<PAGE>
ANNEX B
PROJECTS NOT SUBJECT TO JDA
(as of August 2, 1999)
The following projects are not subject to the Joint Development Agreement and
may be undertaken individually by the party or parties named opposite such
project below:
Project Developing Party
- ------- ----------------
1. U.C. Berkeley Health Informatics Program GHI
2. WebTV Alliance Program GHI
3. Health Query GHI
IN WITNESS WHEREOF, the parties hereto have executed this Annex B to Base
Agreement as of the date first written above.
WINDOM HEALTH ENTERPRISES GLOBAL HEALTH INITIATIVES
By:___________________________________ By:___________________________
Name: Name:
Title: Title:
HEALTHCENTRAL.COM
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.19
HEALTHCENTRAL.COM
CO-BRANDED SITE AGREEMENT
This Co-Branded Site Agreement (the "Agreement") is made as of September 9,
---------
1999 (the "Effective Date") by and between HealthCentral.com, a California
--------------
corporation with offices at Marketplace Tower, 6001 Shellmound Street, Suite
800, Emeryville, CA 94608 ("HealthCentral"), Graedon Enterprises, Inc., a North
-------------
Carolina corporation with offices at 5900 Beech Bluff Lane, Durham, NC 27705
("GEI"), and Joe Graedon and Teresa Graedon ("Graedon" and collectively with GEI
--- -------
the "Graedon Parties").
---------------
BACKGROUND
----------
A. HealthCentral owns and operates an Internet network currently
consisting of a website known as "HealthCentral.com" and a website known as
"Healthy Way" (the "HealthCentral Network").
---------------------
B. GEI owns exclusive rights to the registered trademark "The People's
Pharmacy" and has developed and/or produced and expects to continue to develop
and/or produce works on pharmacological pharmacy topics consisting of books
(some of which include sections known as "drug monographs"), newspaper columns,
and radio shows written and/or performed by Graedon, and may in the future
develop and/or produce televisions shows written and/or performed by Graedon.
C. The Graedon Parties wish to license certain content to HealthCentral
and to make such content available to End-Users via the HealthCentral Network.
In consideration of the foregoing, and the mutual promises contained
herein, the parties hereby agree as follows:
A G R E E M E N T
-----------------
1. Definitions. Capitalized terms shall have the meaning ascribed to them
-----------
in this Section 1, or elsewhere in this Agreement.
"Advertising Rights" means the advertising, promotional, sponsorship and
------------------
similar rights sold or licensed with respect to the Co-Branded Site.
"Brand Features" of a party means such party's trademarks, trade names,
--------------
service marks, service names, logos and other distinct brand elements that
appear from time to time in such party's properties, ventures and services
worldwide, and for which such party has established trademarks or trade dress
rights, or which are protected by U.S. copyright laws, together with any
modifications to the foregoing made by such party during the term of this
Agreement, including without limitation GEI's PP Mark.
"Brand Guidelines" means the guidelines for use of a party's Brand
----------------
Features, as prescribed by such party from time to time.
"Co-Branded Site" means the site and pages on the Internet developed
---------------
pursuant to this Agreement, which includes the collection of HTML files,
database, and related scripts, and all trademarks, service marks, logos and
other Brand Features that relate to the Co-Branded Site.
CERTAIN INFORMATION ON THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
"End-User" means an end-user who accesses the Co-Branded Pages.
--------
"GEI Content" means works on pharmacological and pharmacy topics which the
-----------
Graedon Parties develop, license, or work on, consisting of books (some of which
include sections known as "drug monographs"), newspaper columns, informational
leaflets and radio shows produced and performed in by Graedon, and any
television shows produced and performed in by Graedon in the future.
"Intellectual Property Rights" means all rights in and to trade secrets,
----------------------------
patents, copyrights, trademarks, know-how, as well as moral rights and similar
rights of any type under the laws of any governmental authority, domestic or
foreign, including rights in and to all applications and registrations relating
to any of the foregoing.
"Launch Date" means the date on which the GEI Content is made publicly
-----------
available to End-Users via the Co-Branded Site.
"Link" means a URL hidden behind a formatting option that may take the form
----
of a colored item of text (such as a URL description), logo or image, "button"
or graphic box, and which allows an end-user to move automatically to or between
web pages, web sites or within a web page.
"Qualified Third Party Sites" means one or more web-sites on the Internet
---------------------------
developed by HealthCentral for third parties which have been approved in advance
by the Graedon Parties. Such approval by the Graedon Parties shall not be
unreasonably withheld or delayed.
"Other Internet Entities" means any entity other than HealthCentral whose
-----------------------
business primarily involves the Internet or any entity providing portals,
content, Internet service, search engines or broadband content or services.
"PP Mark" means the registered trademark "The People's Pharmacy", a copy of
-------
which registration is attached hereto as Exhibit ___.
"URL" means Universal Resource Locator, which provides a unique Internet
---
protocol address for accessing an Internet page.
2. Co-Branded Site Development & Maintenance.
2.1 GEI Content. The Graedon Parties will, at their own expense:(a)
-----------
provide HealthCentral with the GEI Content and/or access to the GEI Content via
a mutually agreeable method. The Graedon Parties will use reasonable commercial
efforts and will cooperate with HealthCentral, to ensure the GEI Content is
current and accurate, and will provide HealthCentral with all GEI Content and/or
access to all GEI Content promptly following its creation or production.
2.2 Co-Branded Site.
---------------
(a) Production. HealthCentral and the Graedon Parties will cooperate
to develop and market the Co-Branded Site. HealthCentral will use reasonable
commercial efforts to produce and maintain the Co-Branded Site. GEI will deliver
GEI Content in electronic format, including without limitation in digital audio
tape or cassette format. HealthCentral agrees that newspaper articles will not
be displayed in the Co-Branded Site for a period of six (6) weeks after their
first public release. HealthCentral will include the GEI Brand Features,
HealthCentral Brand Features and GEI Content in the
-2-
<PAGE>
Co-Branded Site. The Graedon Parties acknowledge and agree that the GEI Content
may be displayed within a frame on the Co-Branded Site. The Co-Branded Site
shall be designated as "PeoplesPharmacy.HealthCentral.com" or such other name as
may be agreed to by the parties.
(b) Editorial Control. HealthCentral may include non-GEI content in
the Co-Branded Site subject to approval in advance by GEI and/or Graedon.
HealthCentral shall advise the Graedon Parties of the nature of such non-GEI
content in writing; the Graedon Parties shall have three (3) business days to
approve or disapprove such non-GEI content, which approval shall not be
unreasonably withheld. Failure by the Graedon Parties to disapprove such non-GEI
content within such three (3) day period shall be deemed approval thereof.
HealthCentral reserves the right to refuse to display, or remove, any GEI
Content from the Co-Branded Site (i) that would violate any applicable law,
regulation or third party right, or (ii) that HealthCentral in good faith
reasonably determines: (x) is inappropriate, (y) may result in liability or
adverse publicity to HealthCentral, or (z) may otherwise damage the reputation
or goodwill associated with HealthCentral and the HealthCentral Brand Features,
provided that no such refusal to display or removal shall be exercised by
HealthCentral under this section (ii) of this subparagraph (b) unless
HealthCentral has given prior notice thereof to the Graedon Parties.
(c) Hosting. HealthCentral will, at its own expense, provide and
manage all servers, telecommunications, facilities maintenance, and operations
related to the delivery of the Co-Branded Sites to End-Users. HealthCentral will
be solely responsible for providing technical and customer support to End-Users.
(d) Automatic Link to Co-Branded Site. Promptly after the Effective
Date, the Graedon Parties will take all steps necessary and appropriate to cause
the preexisting "People's Pharmacy" website to be automatically linked to the
Co-Branded Site, so that users searching the Internet for the "People's
Pharmacy" will automatically be linked to the Co-Branded Site and not the
preexisting "People's Pharmacy" website.
2.3 Costs and Expenses. Except as otherwise expressly provided for
------------------
herein, each party shall be responsible for and bear all costs and expense it
incurs in connection with its execution of the Agreement, and in connection with
its performance of its obligations and its exercise of its rights provided for
in this Agreement.
3. Advertising.
3.1 Advertising Rights. The Graedon Parties acknowledge and agree
------------------
that HealthCentral will exclusively own all Advertising Rights for the Co-
Branded Site, and HealthCentral shall be entitled to retain all revenue arising
from the license or sale of such Advertising Rights. Subject to Section 3.2,
HealthCentral will have sole control over the content of any advertising on the
Co-Branded Site. HealthCentral agrees to accept and display advertising in the
Co-Branded Site by underwriters of Graedon's radio show at the rates (for
advertisers similarly situated and who purchase similar quantities) in effect at
the time such advertising is requested or offered by such underwriters.
3.2 Graedon Party Approval. The Graedon Parties will have the right
----------------------
to reasonably reject advertising on any pages within the Co-Branded Site which
contain GEI Content. HealthCentral will advise the Graedon Parties of the nature
of advertising to be included on such pages in writing; the Graedon Parties
shall have five (5) business days to approve or disapprove such advertising,
which approval shall not be unreasonably withheld. Failure by the Graedon
Parties to disapprove such advertising within such five (5) day period shall be
deemed approval thereof.
-3-
<PAGE>
4. Licenses.
--------
4.1 Grant of License by GEI. Subject to the terms and conditions of
-----------------------
this Agreement, and subject to the existing contracts and/or licenses with third
parties as provided for in Section 4.2, GEI hereby grants to HealthCentral for
the Term of this Agreement, an exclusive, royalty-free, worldwide license under
all of GEI's Intellectual Property Rights (a) to use, reproduce, publicly
display, publicly perform, distribute and transmit the GEI Content in the Co-
Branded Site; (b) to sublicense the use, reproduction, public display, public
performance, distribution and transmittal of the GEI Content in Qualified Third
Party Sites; and (c) to use, reproduce, publicly display, distribute and
transmit the PP Mark on and in connection with the Co-Branded Site and the
Qualified Third Party Sites in conjunction with the proper use hereunder of GEI
Content in such Qualified Third Party Sites.
4.2 Third Party Relationships. Either or both of the Graedon Parties
-------------------------
are subject to obligations under the contracts and agreements listed in Exhibit
4.2. The Graedon Parties will use reasonable commercial efforts to terminate
such contracts as promptly as possible following the Effective Date. The Graedon
Parties will not enter into any other contracts or relationships after the
Effective Date which would conflict with the obligations of the Graedon Parties
under this Agreement, including without limitation the exclusivity obligations
of Section 5, without the express prior written approval of HealthCentral.
4.3 Reserved Rights. Without limitation of the foregoing, each party
---------------
reserves all rights other than those expressly granted in this Agreement, and no
licenses are granted except as expressly set forth herein.
5. Exclusivity.
-----------
5.1 By GEI. During the Term of this Agreement, without prior written
------
approval of HealthCentral, none of the Graedon Parties shall provide any GEI
Content, or other content substantially similar to the GEI Content, to any Other
Internet Entity for use on the Internet.
5.2 By Graedon. During the Term of this Agreement, none of the
----------
Graedon Parties shall provide services to or for use on the Internet by any
Other Internet Entity, including without limitation, services as a host, author,
or contributor.
6. Services.
--------
6.1 Chat Room. Graedon will participate in an interactive
---------
pharmacy/pharmacological "chat room", or similar public discussion and
communication forum, on the Co-Branded Site at a frequency to be mutually
determined, not to exceed six (6) hours in any calendar month. HealthCentral
will compensate Graedon any additional hours requested by HealthCentral and
spent by Graedon in response to such request at an hourly rate equal to [*]
of Graedon's hourly lecture fee rate then in effect.
6.2 References. Graedon shall use all reasonable efforts to make
----------
reference to the Co-Branded Site as appropriate in connection with their
appearances on radio and television and their publications including newspapers,
other periodicals, and books; and to ensure that all references to a website
involving the GEI Content or the PP Mark made by Graedon orally on radio or
television or in writing in newspapers or other periodicals, are to the Co-
Branded Site. Such efforts to make such
-4-
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
website references are agreed by the parties to be a part of the exclusivity
obligations of Graedon hereunder.
7. Proprietary Information.
-----------------------
7.1 Confidentiality. HealthCentral and the Graedon Parties hereby
---------------
acknowledge that in the course of activities under this Agreement each of them
may have access to confidential and proprietary information which relates to the
other party's marketing, business, and technology (the "Confidential
------------
Information"). Each party agrees to, during the Term and for a five (5) year
- -----------
period following any expiration or termination of this Agreement: (a) preserve
and protect the confidentiality of the other party's Confidential Information:
(b) refrain from using the other party's Confidential Information except as
contemplated herein; and (c) not disclose such Confidential Information to any
third party except to employees as is reasonably required in connection with the
exercise of its rights and obligations under this Agreement (and only subject to
binding use and disclosure restrictions at least as protective as those set
forth herein executed in writing by such employees). Notwithstanding the
foregoing, either party may disclose Confidential Information of the other party
which is: (i) already publicly known; (ii) discovered or created by the
receiving party without reference to the Confidential Information of the
disclosing party, as shown in records of receiving party; (iii) otherwise known
to the receiving party through no wrongful conduct of the receiving party, or
(iv) required to be disclosed by law or court order. Moreover, any party hereto
may disclose any Confidential Information hereunder to such party's agents,
attorneys and other representatives or any court of competent jurisdiction or
any other party empowered hereunder as reasonably required to resolve any
dispute between the parties hereto. Each party shall treat the terms of this
Agreement as "Confidential Information", provided, however, that after the
initial press release issued pursuant to the condition of paragraph 13.1 of this
Agreement, either party may disclose the existence of this Agreement and, in
general, the relationship between the Graedon Parties and HealthCentral.
7.2 Ownership.
(a) By The Graedon Parties. As between the Graedon Parties and
HealthCentral, the Graedon Parties will have and retain full and exclusive
right, title and ownership interest in and to the GEI Content and GEI's Brand
Features, together with any Intellectual Property Rights thereto.
(b) By HealthCentral. As between the Graedon Parties and
HealthCentral, HealthCentral will have and retain full and exclusive right,
title and ownership interest in and to: (i) the HealthCentral Brand Features,
(ii) the Co-Branded Site (except as set forth in subsection (a) above), and
(iii) any Intellectual Property Rights to both of the foregoing.
8. Termination.
-----------
8.1 Term.
----
(a) Initial Term. This Agreement will become effective as of the
Effective Date and, unless sooner terminated as provided below, or as otherwise
mutually agreed, shall remain effective for a period of four (4) year following
the Launch Date (the "Initial Term").
------------
(b) Renewal. Six (6) months prior to the expiration of the Initial
Term, the parties shall meet to negotiate the terms under which the parties
would renew the Agreement. For the initial three (3) months of such six (6)
month period, neither the Graedon Parties nor HealthCentral shall discuss with
any
-5-
<PAGE>
third party the possibility of entering into any relationship providing content
or services similar to that included in this Agreement. If the parties have not
reached an agreement to renew the Agreement at the end of such three (3) month
period, each of the Graedon Parties and HealthCentral shall be entitled to
discuss with a third party entering into a relationship similar to that included
in this Agreement. Prior to concluding an agreement with any such third party,
the Graedon Parties shall offer in writing to HealthCentral or HealthCentral
shall offer in writing to the Graedon Parties, as the case may be, an agreement
containing the terms to which such third party will agree, and the respective
offeree shall have a period of fifteen (15) days to accept such terms in
writing. If the offeree rejects such terms, the offering party may enter into an
agreement with a third party under terms and conditions no less favorable to the
offering party than those offered to the offeree. The foregoing obligation of
each of the Graedon Parties and HealthCentral shall survive termination or
expiration of the Agreement for a period of six (6) months.
8.2 Termination. This Agreement may be terminated at any time by a
-----------
party, effective immediately upon notice, if the other party: (a) becomes
insolvent; (b) files a petition in bankruptcy, (c) makes an assignment for the
benefit of its creditors, or (d) breaches any of its material responsibilities
or obligations under the Agreement which breach is not remedied within thirty
(30) days from receipt of written notice of such breach.
8.3 Effect of Termination. Upon expiration or termination of this
---------------------
Agreement: (a) each party shall return or, at the disclosing party's request
destroy, the Confidential Information of the other party, (b) all licenses
granted herein shall terminate, (c) the Co-Branded Site shall be immediately
discontinued and removed from the Internet, (d) HealthCentral shall have no
further right to use, and shall not use, GEI Content in any way whatsoever and
agrees to purge GEI Content from all electronic memories owned by it or in its
possession or under its control and (e) Sections 1, 7, 8.3, 9, 10, 11, and 13
will survive any termination or expiration of the Agreement.
9. Representation and Warranties.
-----------------------------
9.1 By Each Party. Each party represents and warrants to the other
-------------
that: (a) (except for Graedon), such party has the full corporate right, power
and authority to enter into this Agreement and to perform the acts required of
it hereunder; (b) the execution of this Agreement by such party, and the
performance by such party of its obligations and duties hereunder, do not and
will not violate any agreement to which such party is a party or by which it is
otherwise bound; and (c) when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms.
9.2 By Graedon. Graedon hereby represents and warrants that Graedon
----------
has assigned or otherwise transferred, and, throughout the Term, will assign or
otherwise transfer to GEI sufficient rights to the PP Marks, the GEI Content,
and such other Graedon property as are necessary for GEI to grant to
HealthCentral the licenses granted hereunder. Graedon hereby consents to the
licenses and sublicenses, as applicable, of such rights to HealthCentral as
provided for in this Agreement. The parties understand and agree that the
Graedon Parties do not develop or provide and are not obligated hereunder to
develop or provide software of any kind and nothing in this Agreement shall be
construed to require the provision, development or licensing of software by the
Graedon Parties.
9.3 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
SECTION, NO PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE CO-BRANDED
SITES, THE PP MARKS, THE GEI CONTENT AND ANY OTHER CONTENT
-6-
<PAGE>
PROVIDED HEREUNDER, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM
COURSE OF DEALING OR COURSE OF PERFORMANCE.
10. Indemnification.
---------------
10.1 Indemnification by GEI. GEI agrees, at its own expense, to
----------------------
defend or at its option to settle any claim or action brought against
HealthCentral arising out of or relating to a claim that: (a) use of GEI's Brand
Features in accordance with the terms of this Agreement infringes a third party
copyright or trademark, (b) the GEI Content infringes the Intellectual Property
Rights of a third party or contains any material or information that is obscene,
defamatory, violates any law or regulation, or breaches the rights of any person
or entity, including, without limitation, rights of publicity, privacy or
personality, and/or (c) results from a breach by GEI of any representation or
warranty contained in Section 9; and GEI will indemnify HealthCentral against
any and all losses, damages, suits, judgments, costs and expenses (including
litigation costs and reasonable attorneys' fees) arising under any such claim or
action; provided that HealthCentral provides GEI with: (x) prompt written notice
of such claim or action, (y) sole control and authority over the defense or
settlement of such claim or action (provided that GEI shall not enter into any
settlement which materially affects HealthCentral's rights without
HealthCentral's prior written consent), and (z) proper and full information and
reasonable assistance to defend and/or settle any such claim or action.
10.2 Indemnification by HealthCentral. HealthCentral agrees, at its
--------------------------------
own expense, to defend or at its option to settle any claim or action brought
against GEI arising out of or relating to a claim that: (a) use of
HealthCentral's Brand Features in accordance with the terms of this Agreement
infringes a third party copyright or trademark, (b) the Co-Branded Site,
excluding any GEI Content contained therein, or the operation of the Co-Branded
Site infringes the Intellectual Property Rights of a third party or contains any
material or information that is obscene, defamatory, violates any law or
regulation, or breaches the rights of any person or entity, including, without
limitation, rights of publicity, privacy or personality, and/or (c) results from
a breach by HealthCentral of any representation or warranty contained in Section
9.1; and HealthCentral will indemnify GEI against any and all losses, damages,
suits, judgments, costs and expenses (including litigation costs and reasonable
attorneys' fees) arising under any such claim or action; provided that the
Graedon Party provides HealthCentral with: (x) prompt written notice of such
claim or action, (y) sole control and authority over the defense or settlement
of such claim or action (provided that HealthCentral shall not enter into any
settlement which materially affects GEI's rights without GEI's prior written
consent) and (z) proper and full information and reasonable assistance to defend
and/or settle any such claim or action.
10.3 Indemnification by Graedon. Graedon shall have no obligation to
--------------------------
indemnify either or both GEI and HealthCentral in connection with any claims or
actions arising under or related to this Agreement, including, without
limitation, any claims or actions relating to the GEI Content.
11. Limitation of Liability. EXCEPT FOR LIABILITY ARISING UNDER SECTIONS
-----------------------
7.1 AND 10, UNDER NO CIRCUMSTANCES WILL ANY PARTY BE LIABLE TO ANOTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM ANY
PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE.
-7-
<PAGE>
12. Compensation.
------------
(a) Dollar Sum and Options. In consideration of GEI's and Graedon's
----------------------
respective undertaking of responsibilities under this Agreement, HealthCentral
will (a) pay GEI the sum of [*]per year in equal monthly installments during the
Term of this Agreement; and (b) as of the Effective Date, issue Graedon a
nonstatutory option to purchase for cash [*] shares of the common stock of
HealthCentral (the "Option Shares") at a strike price of [*]per share, which
Option Shares shall vest as follows: (1) [*] Option Shares shall vest upon the
signing by both parties of this Agreement, (2) [*] shall vest, if at all, on the
signing of the [*] Pharmacy Agreement (as defined below), and (3) [*] Option
Shares (the "Remaining Option Shares") shall vest (i) at the rate of 1/48/th/
of such shares ([*] shares) on each monthly anniversary of the Effective Date,
or (ii) if HealthCentral closes an initial public offering of its stock, then
(a) [*] of such Remaining Option Shares shall vest immediately upon the
closing of HealthCentral's initial public offering and (b) the Remaining
Option Shares that are unvested as of the closing of the initial public
offering (the "Unvested Remaining Option Shares") shall have their vesting
--------------------------------
reset so that such Unvested Remaining Option Shares shall vest in equal
monthly installments such that the Unvested Remaining Option Shares shall be
fully vested on the fourth year anniversary of the Effective Date, or (iii) if
HealthCentral is acquired, on the closing of such acquisition of
HealthCentral, any Remaining Option Shares that are unvested as of the closing
date of such acquisition shall immediately vest. For purposes of this Section
12.(a) such acquisition of HealthCentral shall be deemed to have taken place
in the event of a merger or other transaction or series of related
transactions (other than a public offering or a merger conducted solely for
the purpose of a change in domicile) in which the shareholders of
HealthCentral immediately prior thereto own less than a majority of the voting
stock of HealthCentral (or its successor or parent) immediately thereafter. In
the event of an initial public offering as referenced in sub-section (ii)
above, the Option Shares will be registered by HealthCentral on a Registration
Statement on Form S-8 (or successor form) without cost to Graedon, subject to
any lockup period imposed on HealthCentral stock by HealthCentral or its
bankers and/or underwriters.
(b) Book Promotion. In further consideration of Graedon's
--------------
undertaking of responsibilities under this Agreement commencing within thirty
(30) days of publication of Graedon's book "The Peoples Pharmacy Guide to Home
and Herbal Remedies" (hereinafter the "Graedon Book") HealthCentral agrees to
display the Graedon Book on HealthCentral's "HealthCentral.com" website along
with (i) a brief description (fifteen (15) words or less) supplied by Graedon
and (ii) a hyperlink to a web-site designated by the publisher of the Graedon
Book for a period of six (6) weeks without cost or charge to any of the Graedon
Parties or the publisher of the Graedon Book. HealthCentral will give the
Graedon Book a "presence" and effort on the "HealthCentral.com" website similar
to the "presence" and effort given by HealthCentral to the promotion of Dean
Edell's book, "Eat, Drink And Be Merry", such that, at a minimum, visitors to
the "HealthCentral.com" website will readily see the display relating to the
Graedon Book on the "HealthCentral.com" website's home page.
(c) [*] Pharmacy Agreement. The parties acknowledge and
------------------------------
agree that it may be advantageous for HealthCentral to enter into an agreement
(the "[*] Pharmacy Agreement") with the [*] and/or a majority-owned subsidiary
of the [*] including but not limited to [*] (collectively, "[*]") to
operate [*] "[*] Pharmacy Service" or a similar [*] pharmacy service online
in the Cobranded Site and/or on the HealthCentral.com website, and that Graedon
is in a position to introduce
-8-
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
HealthCentral to the senior management of [*] and to act as a liaison and
otherwise to facilitate the conclusion between HealthCentral and [*] of the
[*] Pharmacy Agreement. Graedon hereby agrees to make such an introduction and
to render such liaison and facilitation services as HealthCentral may reasonably
request, and in consideration thereof, if HealthCentral enters into the [*]
Pharmacy Agreement, HealthCentral agrees to pay Graedon [*] of the Gross
Margin received by HealthCentral from sales of online pharmacy products
pursuant to the [*] Pharmacy Agreement. As used in this section, the term
"Gross Margin" means (x) in the event sales of such online pharmacy products
are recognized by HealthCentral, gross product sales minus the sum of gross
cost of goods sold plus other mutually agreed upon direct sales costs and (y)
in the event sales of such online pharmacy products are recognized by [*], the
fees, commissions or other compensation received by HealthCentral in respect
of such sales of products, provided that if the [*] Pharmacy Agreement
--------
provides for some other compensation arrangement (other than described in
subsection (x) or (y)) between [*] and HealthCentral, then Graedon shall
receive [*] of such other compensation receivable by HealthCentral.
Notwithstanding anything to the contrary in this section, HealthCentral is
under no obligation to enter into the [*] Pharmacy Agreement, and may decline
to enter into the [*] Pharmacy Agreement at any stage of negotiations for any
reason or no reason.
13. Miscellaneous.
-------------
13.1 Press Release. Notwithstanding Section 7.1, the parties will
-------------
cooperate to create appropriate, mutually agreeable, public announcements of the
relationship set forth in this Agreement. No party will make any separate public
announcement without first delivering the announcement to the other party and
obtaining the other party's prior consent, which will not be unreasonably
withheld or delayed.
13.2 Notices. Any notice or other communication to be given hereunder
-------
will be in writing and given by facsimile, postpaid registered or certified mail
return receipt requested, or electronic mail (with a copy concurrently mailed as
set forth above). The date of receipt shall be deemed the date on which such
notice is given. Notice hereunder will be directed to a party at the address for
such party set forth in the first paragraph of this Agreement. A party may
change its address for notice purposes hereof on written notice to the other
party in accordance with this Section 13.2.
13.3 No Joint Venture or Agency. Nothing in this Agreement shall
--------------------------
constitute or create a joint venture, partnership, or any other similar
arrangement between the Graedon Parties and HealthCentral. Neither party is
authorized to act as agent or bind the other party except as expressly stated in
this Agreement.
13.4 No Assignment. Neither party will transfer or assign any of its
-------------
rights or assign or delegate any of its obligations under this Agreement, in
whole or in part, whether voluntarily or by operation of law, without the prior
written consent of the other party. Any purported transfer, assignment or
delegation by either party without the appropriate prior written approval will
be null and void and of no force or effect. Notwithstanding the foregoing, (a)
GEI and HealthCentral (but not Graedon) will have the right to assign its rights
and obligations under this Agreement to any successor of such party by way of
merger or consolidation or the acquisition of all or substantially all of the
business and assets of the assigning party relating to the Agreement
13.5 Headings. Sections, titles or captions in no way define, limit,
--------
extend or describe the scope of this Agreement nor the intent of any of its
provisions.
-9-
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
13.6 Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
13.7 Entire Agreement. This Agreement together with its Exhibits
----------------
contains the entire agreement of the parties with respect to the subject matter
hereof, and supersedes all prior and/or contemporaneous agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
13.8 Governing Law. This Agreement will be governed by and
-------------
interpreted under the laws of the State of California, without giving effect to
applicable conflicts of law principles.
13.9 Amendment. This Agreement may not be amended or modified by the
---------
parties in any manner, except by an instrument in writing signed on behalf of
each of the parties to which such amendment or modification applies by a duly
authorized officer or representative, or, in the case of Graedon by each of Joe
Graedon and Teresa Graedon.
13.10 Waiver. Any of the provisions of this Agreement may be waived by
------
the party entitled to the benefit thereof. Neither party will be deemed, by any
act or omission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by the waiving party, and then only to the
extent specifically set forth in such writing. A waiver with reference to one
event will not be construed as continuing or as a bar to or waiver of any right
or remedy as to a subsequent event.
13.11 Gender. Throughout this Agreement, the masculine gender shall
------
be construed to include the feminine gender, the feminine gender to include the
masculine gender, and the neuter gender to include the masculine and/or feminine
gender as the context may require.
13.12 Dispute Resolution. Representatives from each party will meet
------------------
within ten (10) business days after receipt of a request from either party to
review in good faith any dispute with respect to the interpretation of any
provision of this Agreement or with respect to the performance of either party
under this Agreement. In the event a disagreement or dispute under this
Agreement is not resolved by the designated representatives of each party by
mutual agreement within ten (10) business days after a meeting to discuss the
disagreement, either party may present the dispute to a mutually agreeable
mediator for resolution. If such mediation does not resolve the dispute, such
dispute or claim arising out of or in connection with this Agreement will be
finally settled by binding arbitration in accordance with the then-current
Commercial Arbitration Rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules who is knowledgeable in the
Internet industry. In arriving at his award the arbitrator shall make every
effort to find a solution to the dispute in the provisions of this Agreement and
shall give full effect to all parts hereof The arbitrator shall apply California
law, without reference to rules of conflicts of law or rules of statutory
arbitration, to the resolution of any dispute. If a claim is brought by
HealthCentral, the location of the arbitration shall be Durham, North Carolina
If a claim is brought by GEI or Graedon, the location of the arbitration shall
be Emeryville, California. The arbitrator shall designate in his award the party
which is the prevailing party and the prevailing party will be entitled to
recover its costs and expenses, including, without limitation, attorneys' fees
and costs, incurred in connection with such arbitration. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable relief, or to compel
arbitration in accordance with this paragraph, without breach of this
arbitration provision.
-10-
<PAGE>
13.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if both parties hereto had signed the same
document. All counterparts will be construed together and will constitute one
agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the Effective Date and, in the case of Graedon, by each of Joe Graedon and
Teresa Graedon.
By: /s/ Joe Graedon
--------------------------
Joe Graedon, M.S.
By: /s/ Teresa Graedon
--------------------------
Teresa Graedon, Ph.D..
GRAEDON ENTERPRISES, INC.
By: /s/ Joe Graedon
--------------------------
Title: PRESIDENT
-----------------------
HEALTHCENTRAL.COM
By: /s/ Deryk Van Brunt
--------------------------
Title: SVP Operations
-----------------------
-12-
<PAGE>
EXHIBIT 4.2
CONTRACTS TO BE TERMINATED UNDER SECTION 4.2
-----------------
1. Agreement between the Soma Corporation and Graedon Enterprises, pursuant to
which Graedon has granted Soma a nonexclusive license to reproduce certain
People's Pharmacy columns. This agreement may be terminated by either party with
two months written notice.
2. Agreement between Empower Health Corporation and Graedon Enterprises, as
amended by an Addendum dated February 15, 1999, pursuant to which Graedon has
granted Empower a non-exclusive license (with the right to sublicense) to the
People's Pharmacy column and brochures, The People's Pharmacy Book (newest
revised edition) and Deadly Drug Interactions Book, and pursuant to which
Graedon has agreed to provide consulting services to help in the design of
Empower Health's virtual pharmacy. This agreement may be terminated by either
party with three months written notice.
3. Website development and hosting agreement between CitySearch and the People's
Pharmacy. Either party may terminate the agreement on 60 days written notice
after the one year anniversary of the date of launch (estimated in the agreement
to be April 15, 1998).
-13-
<PAGE>
Exhibit 10.21
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HEALTHCENTRAL.COM,
HC2 ACQUISITION CORPORATION
AND
EPILLS INC.
September 28, 1999
* * * CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO A PORTION OF
THIS EXHIBIT
<PAGE>
TABLE OF CONTENTS
Page
----
SCHEDULES
Company Disclosure Schedule
Buyer Disclosure Schedule
-i-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into as of September 28, 1999, by and among HealthCentral.com, a
California corporation ("Buyer"), HC2 Acquisition Corporation, a Delaware
-----
corporation ("Merger Sub") and wholly owned subsidiary of Buyer, and Epills
----------
Inc., a Delaware corporation ("Company").
-------
RECITALS
--------
A. The Boards of Directors of Company, Buyer and Merger Sub believe it
is in the best interests of their respective companies and the shareholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
------
B. Pursuant to the Merger, among other things, all outstanding shares
of common stock of the Company shall be converted into shares of common stock
of the Buyer (the "Buyer Common Stock") at the rate specified herein.
------------------
C. Company, Buyer and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. As a condition and inducement to Buyer's willingness to enter into
this Agreement, certain Company stockholders holding at least 80% of the
issued and outstanding capital stock of the Company have, concurrently with
the execution of this Agreement, executed and delivered a Written Consent of
Stockholders in the form attached as Exhibit A (the "Stockholder Consent"),
--------- -------------------
pursuant to which such stockholders have, among other things, approved this
Agreement, the Merger and the transactions contemplated hereby.
E. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen Brunswig Drug Company ("Bergen Brunswig") and the
---------------
Company have, on or before the execution of this Agreement, executed and
delivered an agreement regarding OTC/HBA fulfillment in the form attached as
Exhibit B, and as amended by the Bergen Letter Agreement (the "Bergen
- --------- ------
Fullfillment Agreement").
- ----------------------
F. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen Brunswig and the Company have, on or before the
execution of this Agreement, executed and delivered a Service Mark License and
Access Agreement in the form attached as Exhibit F (the "Service Mark License
--------------------
and Access Agreement").
- --------------------
G. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen Brunswig or one of its subsidiaries or affiliates shall
have on or before the execution of this Agreement completed its purchase of
shares of Company Common Stock for an aggregate cash purchase price of $1.76
million, and Medi-Mail, Inc. ("Medi-Mail") shall have on or before the
execution of this Agreement completed its purchase of shares of Company
<PAGE>
Common Stock in accordance with the terms of the warrant held by Medi-Mail
Inc. dated August 4, 1999 (the "Medi-Mail Warrant").
-----------------
H. As a condition and inducement to Buyer's willingness to enter into
this Agreement, Bergen Brunswig, Medi-Mail, the Company and the Buyer shall
have executed and delivered the letter agreement in the form attached as
Exhibit H.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
----------
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as Exhibit 1.1 (the "Certificate of
----------- --------------
Merger") and the applicable provisions of the Delaware General Corporation Law
- ------
("Delaware Law"), Merger Sub shall be merged with and into Company, the
------------
separate corporate existence of Merger Sub shall cease and Company shall
continue as the surviving corporation. Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
---------
Corporation."
- -----------
1.2 Closing; Effective Time. The closing of the transactions
-----------------------
contemplated hereby (the "Closing") shall take place as soon as practicable
-------
after the satisfaction or waiver of each of the conditions set forth in
Article VI hereof or at such other time as the parties hereto agree (the
"Closing Date"). The Closing shall take place at the offices of Venture Law
------------
Group, 2775 Sand Hill Road, Menlo Park, California, or at such other location
as the parties hereto agree. In connection with the Closing, the parties
hereto shall cause the Merger to be consummated by filing the Certificate of
Merger, together with the required officers' certificates, with the Secretary
of State of the State of Delaware, in accordance with the relevant provisions
of Delaware Law (the time of such filing being the "Effective Time").
--------------
1.3 Effect of the Merger. At the Effective Time, the effect of the
--------------------
Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Company and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Charter Documents; Bylaws.
-------------------------
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall become
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation
-2-
<PAGE>
of the Surviving Corporation shall be amended to read as follows: "The name of
the corporation is e-Pills Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall become the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
----------------------
Merger Sub, as in effect immediately prior to the Effective Time, shall become
the directors of the Surviving Corporation, until their respective successors
are duly elected or appointed and qualified. The officers of the Merger Sub,
as in effect immediately prior to the Effective Time, shall become the
officers of the Surviving Corporation until their respective successors are
duly elected or appointed and qualified.
1.6 Effect on Capital Stock.
-----------------------
(a) Merger Share Number. The aggregate number of shares of Buyer
-------------------
Common Stock (i) to be issued in exchange for all outstanding shares of common
stock of the Company ("Company Common Stock") and (ii) reserved for issuance
--------------------
pursuant to options to acquire Company Common Stock ("Company Stock Options")
---------------------
assumed in the Merger shall be 1,269,231 shares, as appropriately adjusted to
reflect the effect of any stock split, reverse stock split, stock dividend or
the like with respect to the Buyer Common Stock occurring after the date
hereof and prior to the Effective Time (the "Merger Share Number").
-------------------
(b) Conversion of Company Common Stock. Subject to the terms and
----------------------------------
conditions of this Agreement and the Certificate of Merger as of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of Company Common Stock, at the Effective Time, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be canceled pursuant to Section 1.6(d)) shall be
converted into the right to receive, subject to the provisions of Section
1.6(e) and Section 1.11 that number of shares of Buyer Common Stock determined
by dividing (i) the Merger Share Number less the Excess Expense Shares (as
defined in Section 5.7), if any (ii) by the Aggregate Company Shares (the
"Common Exchange Ratio"). The "Aggregate Company Shares" means the aggregate
--------------------- ------------------------
number of shares of Company Common Stock outstanding or issuable upon exercise
of outstanding Company Stock Options, whether or not exercisable, immediately
prior to the Effective Time. The aggregate number of shares of Buyer Common
Stock issued to the holders of Company Common Stock in the Merger are the
"Merger Shares."
-------------
(c) No Conversion of Warrants or Other Rights to Purchase Company
-------------------------------------------------------------
Common Stock. Subject to Section 1.6(f), at the Effective Time, each warrant
- ------------
and other right to purchase Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be exercised (to the extent such
warrant or right is exercisable at such time) or terminated.
(d) Cancellation of Company Common Stock Owned by Company. At the
-----------------------------------------------------
Effective Time, all shares of Company Common Stock that are owned by Company
as treasury
-3-
<PAGE>
stock immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(e) Fractional Shares. No fraction of a share of Buyer Common
-----------------
Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Buyer
Common Stock (after aggregating all fractional shares of Buyer Common Stock to
be received by such holder) shall receive from Buyer such whole number of
shares of Buyer Common Stock as is equal to the precise number of shares of
Buyer Common Stock to which such person would be entitled, rounded up or down
to the nearest whole number (with a fractional interest equal to .5 rounded to
the next greater number).
(f) Company Stock Options.
---------------------
(1) At the Effective Time, all Company Stock Options then
outstanding under the ePills Inc. 1999 Stock Option Plan (the "Option Plan"),
-----------
whether vested or unvested, shall be assumed by Buyer in accordance with this
Section 1.6(f). Each Company Stock Option so assumed by Buyer at the Effective
Time will continue to have, and be subject to, the same terms and conditions
set forth in the Option Plan immediately prior to the Effective Time
(including, without limitation, any repurchase rights), except that (i) each
Company Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Buyer Common
Stock equal to the product of the number of shares of Company Common Stock
that were underlying such Company Stock Option immediately prior to the
Effective Time multiplied by the Common Exchange Ratio, rounded up or down to
the nearest whole number of shares of Buyer Common Stock (in accordance with
Section 1.6(e)), and (ii) the per share exercise price for the shares of Buyer
Common Stock issuable upon exercise of such assumed Company Stock Option will
be equal to the quotient determined by dividing the exercise price per share
of Company Common Stock at which such Company Stock Option was exercisable
immediately prior to the Effective Time by the Common Exchange Ratio, rounded
up or down to the nearest whole cent (in accordance with Section 1.6(e),
provided however that in the case of any Company Stock Option to which Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") applies, the
----
option price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order
to comply with Section 424(a) of the Code. In connection with the assumption
by Buyer of the Company Stock Options pursuant to this Section 1.6(f), Company
shall be deemed to have assigned to Buyer, effective at the Effective Time,
Company's right, if any, to repurchase unvested shares of Company Common Stock
issuable upon the exercise of the Company Stock Options or previously issued
upon the exercise of options granted under the Option Plan, in accordance with
the terms of the Option Plan and the related stock option agreements and stock
purchase agreements entered into under the Option Plan.
(2) As soon as practicable after the Effective Time, Company
and Buyer shall deliver to the participants in the Option Plan appropriate
notice setting forth such participants' rights pursuant thereto, that Buyer
has assumed all obligations of the Company under the Option Plan and that the
grants pursuant to the Option Plan shall continue in effect on
-4-
<PAGE>
the same terms and conditions (subject to the adjustments required by this
Section 1.6 after giving effect to the Merger). Buyer shall comply with the
terms of the Option Plan and the parties intend that, to the extent required
by, and subject to the provisions of, such Option Plan and Sections 422 and
424(a) of the Code, that Options which qualified as incentive stock options
prior the Effective Time continue to qualify as incentive stock options after
the Effective Time, and this provision shall be interpreted consistent with
that intent. At or prior to the Effective Time, Buyer shall provide the
Company with evidence that it has taken all corporate action necessary to
reserve for issuance sufficient shares of Buyer Common Stock for delivery upon
exercise of Company Stock Options assumed by it in accordance with this
Section 1.6. As soon as practicable following the closing of an initial public
offering of the Company's Common Stock, Buyer shall file a registration
statement on Form S-8 (or any successor form) with respect to the assumed
Company Stock Options.
1.7 Surrender of Certificates.
-------------------------
(a) Buyer to Provide Merger Shares. Promptly after the Effective
------------------------------
Time, Buyer shall make available for exchange in accordance with this Article I,
through such reasonable procedures as Buyer may adopt, the shares of Buyer
Common Stock issuable pursuant to Section 1.6(b) in exchange for shares of
Company Common Stock outstanding immediately prior to the Effective Time, less
such number of shares of Buyer Common Stock as are to be deposited into an
escrow fund (the "Escrow Fund") pursuant to Section 1.11. The portion of the
-----------
Escrow Fund contributed on behalf of each holder of Company Common Stock
immediately prior to the Effective Time (a "Company Stockholder") shall be in
-------------------
proportion to the aggregate number of Merger Shares which such Company
Stockholder would otherwise be entitled to receive in the Merger by virtue of
such Company Stockholder's percentage ownership of outstanding shares of Company
Common Stock immediately prior to the Effective Time (the "Pro Rata Portion").
----------------
(b) Exchange Procedures. The Company will deliver to Buyer at
-------------------
closing all certificates (the "Certificates") which immediately prior to the
------------
Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive Merger Shares pursuant to
Section 1.6, with duly and validly executed stock powers transferring such
Certificates to Merger Sub. Upon surrender of a Certificate for cancellation
to Buyer, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Buyer Common Stock which such holder has the right to receive pursuant to
Section 1.6 (less the number of shares of Buyer Common Stock to be deposited
in the Escrow Fund on such holder's behalf pursuant to Section 1.11 hereof)
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Buyer
Common Stock into which such shares of Company Capital Stock shall have been
so converted in accordance with Section 1.6. Buyer shall be responsible for
the payment of all transfer or other taxes required by reason of the issuance
of certificates for shares of Buyer Common Stock to Company Stockholders who
are United States residents.
-5-
<PAGE>
(c) Transfers of Ownership. If any certificate for shares of Buyer
----------------------
Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Buyer any transfer or other
taxes required by reason of the issuance of a certificate for shares of Buyer
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Buyer or any
agent designated by it that such tax has been paid or is not payable.
(d) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.7, none of the Buyer, the Surviving Corporation or any party hereto
shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 No Further Ownership Rights in Company Common Stock. The shares of
---------------------------------------------------
Buyer Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (together with the Escrow
Shares) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation
of shares of Company Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
1.9 No Change in Rights as a Result of Merger. The Company has no
-----------------------------------------
repurchase rights with regard to any shares of its capital stock outstanding.
1.10 Tax Consequences. It is intended by the parties hereto that the
----------------
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code and will be reported as such by the Company, the Buyer, the Surviving
Corporation and the Company Stockholders for all purposes.
1.11 Escrow Agreement. At the Effective Time or such later time as
----------------
determined in accordance with Section 1.12, Buyer will, on behalf of the Company
Stockholders deposit in escrow certificates representing ten percent (10%) of
the Merger Shares. Such shares shall be held in escrow on behalf of the Company
Stockholders in accordance with each holder's Pro Rata Portion. Such shares
(collectively, the "Escrow Shares") shall be held and applied pursuant to the
-------------
provisions of an escrow agreement (the "Escrow Agreement") to be executed
----------------
pursuant to Sections 6.2 and 6.3. The Escrow Agreement shall terminate six
months after the Closing, provided that if a notice of claim is given in
accordance with the Escrow Agreement before the expiration of such six month
period, an amount equal to any claimed amount which has not been resolved at
such termination date shall be retained in escrow until the resolution of such
claim. All calculations to determine the number of Escrow Shares to be
delivered by each Company Stockholder into escrow as aforesaid shall be rounded
down to the nearest whole share.
1.12 Dissenting Shares.
-----------------
-6-
<PAGE>
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock held by a holder who has
exercised such holder's appraisal rights in accordance with Section 262 of
Delaware Law, and who, as of the Effective Time, has not effectively withdrawn
or lost such appraisal rights ("Dissenting Shares"), shall not be converted
-----------------
into or represent a right to receive Buyer Common Stock pursuant to Section
1.6, but the holder of the Dissenting Shares shall only be entitled to such
rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of Section 1.12(a), if any
Company Stockholder who demands his appraisal rights with respect to such
shares under Section 1.12(a) shall effectively withdraw or lose (through
failure to perfect or otherwise) his rights to receive payment for such shares
under Delaware Law, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Buyer Common Stock upon
surrender of the Certificate or Certificates representing such shares;
provided that if such holder effectively withdraws or loses his right to
- --------
receive payment for such shares after the Effective Time, then, at such time
Buyer will deposit in the escrow created pursuant to the Escrow Agreement
additional Certificates representing such holder's Pro Rata Portion of the
Escrow Shares.
(c) The Company shall give Buyer (i) prompt notice of any written
demands for payment with respect to any shares of capital stock of the Company
pursuant to the appraisal rights under Delaware Law, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate at its own
expense in all negotiations and proceedings with respect to demands for
appraisal rights under Delaware Law. The Company shall not, except with the
prior written consent of Buyer, voluntarily make any payment with respect to
any demands for appraisal rights with respect to Company Common Stock or offer
to settle or compromise any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Company Disclosure Schedule"). The
---------------------------
Company Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article II, and the
disclosures in any paragraph of the Company Disclosure Schedule shall qualify
any other paragraph in this Article II where such disclosure would be
appropriate to the extent that it is clear from such disclosure that it
relates to such other paragraph.
2.1 Organization, Qualification and Corporate Power. The Company is a
-----------------------------------------------
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect. The Company has all requisite corporate power
and
-7-
<PAGE>
authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has furnished to the
Buyer true and complete copies of its Certificate of Incorporation and By-
laws, each as amended and as in effect on the date hereof. The Company is not
in default under or in violation of any provision of its Certificate of
Incorporation or By-laws.
2.2 Capitalization. The authorized capital stock of the Company
--------------
consists of 1,250,000 shares of Company Common Stock, of which 893,868 shares
are issued and outstanding and no shares are held in the treasury of the
Company. The Company has reserved an aggregate of 240,000 shares of Company
Common Stock for issuance pursuant to the Option Plan, of which no shares have
been exercised, 131,000 shares are subject to outstanding options, and 109,000
shares are available for issuance. Section 2.2 of the Company Disclosure
Schedule sets forth a complete and accurate list of (i) all shareholders of
the Company, indicating the number of shares of Company Common Stock held by
each shareholder, and (ii) all holders of options and warrants, indicating the
number of shares of Company Common Stock subject to each option and warrant
and the vesting schedule and vesting commencement date for such option. All of
the issued and outstanding shares of Company Common Stock are, and all shares
of Company Common Stock that may be issued upon exercise of options and
warrants will be, when issued in accordance with their terms, duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
There are no outstanding or authorized options, warrants, rights, agreements
or commitments to which the Company is a party or which are binding upon the
Company providing for the issuance, disposition or acquisition of any of its
capital stock, other than the options and warrants listed in Section 2.2 of
the Company Disclosure Schedule. Except as set forth in Section 2.2 of the
Company Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company.
There are no agreements, voting trusts, proxies, or understandings with
respect to the voting, or registration under the Securities Act of 1933, as
amended (the "Securities Act"), of any shares of Company Common Stock. All of
the issued and outstanding shares of Company Common Stock were issued in
compliance with applicable federal and state securities laws.
2.3 Authorization of Transaction. The Company has all requisite
----------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and under each of the other agreements and
instruments to be executed and delivered by some or all of the parties hereto
in connection with the consummation of the transactions contemplated hereby
(the "Transaction Documents") to which Company is a party. All corporate
---------------------
action on the part of the Company, its officers, directors and stockholders
necessary for the authorization, execution and delivery of this Agreement ,
the Transaction Documents and the performance of all obligations of the
Company hereunder and thereunder has been taken or will be taken prior to the
Closing, and this Agreement constitutes, and each of the Transaction Documents
to which Company will be a party, will constitute, a valid and legally binding
obligation of the Company, enforceable in accordance with its respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
-8-
<PAGE>
2.4 Compliance with Laws and Other Instruments. The Company is not in
------------------------------------------
violation or default of any provision of its Certificate of Incorporation or
Bylaws, or, to the best of its knowledge, of any instrument, judgment, order,
writ, decree, lease, license, permit, contract or other arrangement to which
it is a party or by which it is bound except as set forth in Section 2.4 of
the Company Disclosure Schedule,, or, to the best of its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
the Company. The execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby, will not result in
any such violation or default, or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree, lease, license,
permit, contract or other arrangement or an event that results in the creation
of any lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties, or result in the acceleration
of, or create in any party the right to accelerate, terminate, modify or
cancel, or require any notice, consent or waiver under, any contract, lease,
license, permit or other arrangement to which the Company is a party or by
which the Company is bound or to which its assets are subject. For purposes of
this Agreement, a "Material Adverse Effect" means, with respect to a party,
-----------------------
any material adverse effect on the assets, business, financial condition or
the results of operations of such party and its subsidiaries, if any, taken as
a whole.
2.5 Subsidiaries. The Company does not have and has never had any
------------
subsidiaries or entities which it controls (as defined under federal
securities laws) and does not otherwise own and has never otherwise owned any
shares of stock or any interest in, or control of, directly or indirectly, any
other corporation, partnership, association, joint venture or entity.
2.6 Company Financial Statements. The Company has attached hereto as
----------------------------
Section 2.6 to the Company Disclosure Schedule the unaudited balance sheet and
statements of income, changes in shareholders' equity and cash flows for the
period from the Company's incorporation through September 15, 1999 for the
Company (the "Company's Most Recent Balance Sheet Date"). Such financial
----------------------------------------
statements (collectively, the "Company Financial Statements") have been
----------------------------
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
----
covered thereby, fairly present the financial condition, results of operations
and cash flows of the Company as of the respective dates thereof and for the
periods referred to therein and are consistent with the books and records of
the Company; provided, however, that the Company Financial Statements are
subject to normal recurring year-end adjustments (which will not be material)
and do not include footnotes.
2.7 Absence of Certain Changes. Since the Company's Most Recent Balance
--------------------------
Sheet Date and except as set forth in Section 2.7 of the Company Disclosure
Schedule, there has not been any material adverse change in the assets,
business, financial condition or results of operations of the Company, nor has
there occurred any event or development which could reasonably be foreseen to
result in such a material adverse change in the future.
2.8 Undisclosed Liabilities. The Company has no liability (whether
-----------------------
known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or
-9-
<PAGE>
to become due), and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a
liability, except for (a) liabilities shown on the September 15, 1999 (the
"Company's Most Recent Balance Sheet Date") balance sheet (the "Company's Most
---------------------------------------- --------------
Recent Balance Sheet"), (b) liabilities which have arisen since the Company's
- --------------------
Most Recent Balance Sheet Date in the ordinary course of business consistent
with past custom and practice (including with respect to frequency and amount)
("Ordinary Course of Business") (c) contractual liabilities incurred in the
---------------------------
Ordinary Course of Business which are not required by GAAP to be reflected on
a balance sheet, (d) legal and investment banking fees and expenses incurred
by the Company since the Company's Most Recent Balance Sheet Date of
approximately $205,000 and (e) liabilities which arose prior to the Company's
Most Recent Balance Sheet Date in the Ordinary Course of Business, which have
not yet been invoiced or billed to the Company, which relate to engineering
contractors and which do not exceed $70,000 in the aggregate.
2.9 Tax Matters.
-----------
(a) Except as set forth in Section 2.9 of the Company Disclosure
Schedule, the Company has filed all Tax Returns (as defined below) that it was
required to file and all such Tax Returns were correct and complete in all
material respects. The Company has paid all Taxes (as defined below) owed in
respect of the periods covered by such Tax Returns. The unpaid Taxes of the
Company for tax periods through the date of the Company's Most Recent Balance
Sheet do not exceed the accruals and reserves for Taxes set forth on the
Company's Most Recent Balance Sheet. The Company has no actual or potential
liability for any Tax obligation of any taxpayer (including without limitation
any affiliated group of corporations or other entities that included the
Company during a prior period) other than the Company and its subsidiaries.
Except as set forth in Section 2.9 of the Company Disclosure Schedule, all
Taxes that the Company is or was required by law to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Entity (as defined below). For purposes of this
Agreement, "Taxes" means all taxes, charges, fees, levies or other similar
-----
assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the
United States or any such government, and any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof. For purposes of
this Agreement, "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority
in connection with Taxes. For purposes of this Agreement, "Governmental
Entity" means any government, municipality or political subdivision thereof,
whether federal, state, local or foreign, or any governmental or quasi-
governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, or any court, arbitrator, administrative
tribunal or public utility.
(b) The Company has delivered to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports and statements
of deficiencies assessed against or agreed to by the Company since the
Company's inception. No Tax Returns of the Company have been audited by any
Governmental Entity. No examination or audit of any Tax
-10-
<PAGE>
Returns of the Company by any Governmental Entity is currently in progress or,
to the knowledge of the Company, threatened or contemplated. The Company has
not waived any statute of limitations with respect to taxes or agreed to an
extension of time with respect to a tax assessment or deficiency.
(c) The Company is not a "consenting corporation" within the
meaning of Section 341(f) of the Code and none of the assets of the Company
are subject to an election under Section 341(f) of the Code. The Company has
not been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(l)(A)(ii) of the Code. The Company is not a party to any Tax
allocation or sharing agreement.
(d) The Company is not and has never been a member of an
"affiliated group" of corporations (within the meaning of Section 1504 of the
Code). The Company has not made an election under Treasury Reg. Section 1.1502-
20(g). The Company is not and has not been required to make a basis reduction
pursuant to Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section
1.337(d)-2T(b).
(e) As of the date of this Agreement, the Company has not taken any
action that could reasonably be expected to cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
2.10 Assets. Company has good and valid title to all properties,
------
interests in properties and assets, real and personal, necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted, all of which are reflected in the Company's Most Recent Balance
Sheet (except properties, interests in properties and assets sold or otherwise
disposed of since the Company's Most Recent Balance Sheet Date in the ordinary
course of business) or acquired after the Most Recent Balance Sheet Date, or
with respect to leased properties and assets, valid leasehold interests in,
free and clear of all mortgages, liens, pledges, charges or encumbrances of
any kind or character, except (i) as set forth in Section 2.10 of Company
Disclosure Schedule and (ii) the lien of current taxes not yet due and
payable. The plants, property and equipment of Company that are used in the
operations of its business are in good operating condition and repair subject
to ordinary wear and tear and to requirements for periodic maintenance. All
properties used in the operations of Company, except for those acquired after
the Most Recent Balance Sheet Date, are reflected in the Company's Most Recent
Balance Sheet to the extent required by GAAP. Section 2.10 of the Company
Disclosure Schedule identifies each parcel of real property leased by Company,
and lists each real property lease, and all personal property leases. Except
as set forth in Section 2.10 of the Company Disclosure Schedule, no asset of
the Company (tangible or intangible) is subject to any Security Interest. For
purposes of this Agreement, "Security Interest" means any mortgage, pledge,
-----------------
security interest, encumbrance, charge, or other lien (whether arising by
contract or by operation of law), other than (i) mechanic's, materialmen's,
and similar liens, (ii) liens arising under worker's compensation,
unemployment insurance, social security, retirement, and similar legislation,
(iii) liens on goods in transit incurred pursuant to documentary letters of
credit, and (iv) liens for Taxes not yet due and payable, in each case arising
in the Ordinary Course of Business of the Company and not material to the
Company. The Company does not own any real property.
-11-
<PAGE>
2.11 Intellectual Property.
---------------------
(a) Except as set forth in Section 2.11(a) of the Company
Disclosure Schedule, the Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, Internet domain names, copyrights, and any applications for
such patents, trademarks, trade names, service marks, Internet domain names
and copyrights, schematics, technology, trade secrets, know-how, computer
software programs or applications, processes and other tangible or intangible
proprietary information or material that are used to conduct its business as
currently conducted, or currently planned to be conducted, including without
limitation the technology, information, databases, data lists, data
compilations, and all proprietary rights developed or discovered or used in
connection with or contained in all versions and implementations of any World
Wide Web sites, free and clear of all liens, claims and encumbrances
(including without limitation licensing and distribution rights) all of which
are "Intellectual Property." Section 2.11 of the Company Disclosure Schedule
---------------------
contains an accurate and complete (i) description of all patents and patent
applications and all trademarks (indicating registered and unregistered
trademarks) and applications therefor, registered copyrights, trade names,
service marks and Internet domain names owned or licensed by the Company,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any such application for such issuance
or registration has been filed, (ii) list of all written licenses, sublicenses
and other agreements to which the Company is a party and pursuant to which any
person is authorized to use any Intellectual Property rights of the Company,
and (iii) list of all written licenses, sublicenses and other agreements as to
which the Company is a party and pursuant to which the Company is authorized
to use any third party Intellectual Property ("Company Third Party
-------------------
Intellectual Property Rights"). The Company is not a party to any oral
- ----------------------------
license, sublicense or agreement which, if reduced to written form, would be
required to be listed in Section 2.11 of the Company Disclosure Schedule under
the terms of this Section 2.11(a).
(b) All of the Company's patents, copyrights, trademarks, trade
names or Internet domain name registrations related to its current or
currently proposed business are valid and in full force and effect and will
not be altered or impaired by the consummation of the transactions
contemplated hereby. The Company is not, and will not be as a result of the
execution and delivery of this Agreement or the performance of the Company's
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Company's Intellectual Property or Company
Third Party Intellectual Property Rights.
(c) Except as set forth in Section 2.11(c) of the Company
Disclosure Schedule, neither the Company nor, to the Company's knowledge, any
of the Company's employees has received a claim, or is aware of a reasonable
basis for a claim, of infringement or violation of any Intellectual Property
right of any third party. The manufacturing, marketing, licensing or sale of
the products or performance of the service offerings of the Company do not
infringe or violate any Intellectual Property right of any third party; and,
to the knowledge of the Company, the Intellectual Property rights of the
Company are not being infringed or violated by activities, products or
services of any third party.
-12-
<PAGE>
2.12 Contracts. Section 2.12 of the Company Disclosure Schedule lists
---------
all material written agreements to which the Company is a party (other than
those referred to in Sections 2.11, 2.14 and 2.20 and other than those
referred to in Section 6.3 or otherwise executed in connection with this
Agreement), including but not limited to:
(a) any written arrangement for the provision of products or
services to customers or other third parties;
(b) any written arrangement for the purchase of raw materials,
commodities, supplies, products or other personal property or for the receipt
of consulting or other services;
(c) any written arrangement establishing a partnership, joint
venture development, marketing or distribution arrangement;
(d) any written arrangement under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations) or under which it has
imposed (or may impose) a Security Interest on any of its assets, tangible or
intangible;
(e) any written arrangement concerning confidentiality or
noncompetition (other than standard confidentiality agreements between the
Company and any of its employees in the Ordinary Course of Business);
(f) any agreement, contract or commitment that calls for fixed
and/or contingent payments or expenditures by or to the Company (including
without limitation any advertising or revenue sharing arrangement).
(g) any outstanding sales or advertising contract, commitment or
proposal (including, without limitation, insertion orders, slotting agreements
or other agreements under which Company has allowed third parties to advertise
on or otherwise be included in Company's World Wide Web sites)
(h) any agreements, contracts or commitments with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by Company "at will" and
without liability, penalty or premium.
(i) any employment, independent contractor or similar agreement,
contract or commitment that is not terminable on thirty (30) days' notice or
less without penalty, liability or premium of any type, including, without
limitation, severance or termination pay.
(j) any written arrangement involving any of the Company
Stockholders or their affiliates ("Affiliates"), as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is not a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be listed
in Section 2.12 of the Company
-13-
<PAGE>
Disclosure Schedule. All of the agreements referenced in the Company
Disclosure Schedule to which the Company is a party are valid, binding, in
full force and effect and enforceable by the Company in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy and other similar laws affecting the enforcement of creditors'
rights generally and except that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefor
may be brought (whether at law or in equity). Except as disclosed in Schedule
2.12 or 2.11 of the Company Disclosure Schedule, no such contract contains any
liquidated damages, penalty or similar provision, To the Company's knowledge,
no party to any such contract intends to cancel, withdraw, modify or amend
such contract, agreement or arrangement. The Company is not in default under
or in breach or violation of, nor, to the Company's knowledge, is there any
valid basis for any claim of default by the Company under, or breach or
violation by the Company of, any material provision of any contract listed on
the Company Disclosure Schedule. To Company's knowledge, no other party is in
default under or in breach or violation of, nor is there any valid basis for
any claim of default by any other party under or any breach or violation by
any other party of, any such contract.
2.13 Accounts Receivable. As of the Company's Most Recent Balance Sheet
-------------------
Date, the Company had no accounts receivable. Since the Company's Most Recent
Balance Sheet Date, the Company has accounts receivable in the amount of not
more than $500.
2.14 Insurance. Section 2.14 of the Company Disclosure Schedule sets
---------
forth a true, correct and complete list of all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
software errors and omissions, employees, officers and directors of the
Company and all claims made under any insurance policy since the date of the
Company's inception. There is no claim by the Company pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the Company is
otherwise in compliance in all material respects with the terms of such
policies and bonds. Such policies of insurance and bonds are of the type and
in amounts customarily carried by persons conducting businesses similar to
those of the Company. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.15 Litigation. Section 2.15 of the Company Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction, (b) any written claim, demand,
complaint, action, suit, proceeding, or hearing or, to the Company's knowledge
any investigation of or in, any Governmental Entity or before any arbitrator
to which the Company or is a party or, to the knowledge of the Company, is
threatened to be made a party, and (c) any written or oral claims by third
persons of which the Company is aware and any reasonable basis for any third
party claims. Except as set forth in Section 2.15 of the Company Disclosure
Schedule, none of the demands, claims, complaints, actions, suits,
proceedings, hearings, and investigations set forth in Section 2.15 of the
Company Disclosure Schedule could reasonably be expected to have a Material
Adverse Effect.
2.16 Employees and Consultants. Section 2.16 of the Company Disclosure
-------------------------
Schedule contains a list of all current and former employees and consultants
of the Company, along with
-14-
<PAGE>
the position and the annual rate or other rate as specified of compensation of
each such person. Except as set forth on Section 2.16 of the Company
Disclosure Schedule, each current and former employee and consultant to the
Company has entered into a confidentiality and assignment of inventions
agreement with the Company, a copy of each of which has previously been
delivered to the Buyer. Except as set forth in Section 2.16 of the Company
Disclosure Schedule, and to the knowledge of the Company, no key employee or
consultant or group of employees or consultants has any plans to terminate
employment or the provision of consulting services with the Company. The
Company is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims of unfair labor practices
or other collective bargaining disputes. The Company has no knowledge of any
organizational effort made or threatened, either currently or since its
inception, by or on behalf of any labor union with respect to employees of the
Company. The Company has no oral agreements with any employees or consultants
other than as described in Section 2.16 of the Company Disclosure Schedule.
2.17 Employee Benefits.
-----------------
(a) Section 2.17 of the Company Disclosure Schedule contains a
complete and accurate list of all Company Employee Benefit Plans (as defined
below) maintained, or contributed to, by the Company, or any Company ERISA
Affiliate (as defined below). For purposes of this Agreement, "Company
Employee Benefit Plan" means any "employee pension benefit plan" (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), any "employee welfare benefit plan" (as defined in Section
-----
3(1) of ERISA), and any other written or oral plan, agreement or arrangement
involving direct or indirect compensation, including without limitation
insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation maintained, or contributed to, by the Company or any Company
ERISA Affiliate. For purposes of this Agreement, "Company ERISA Affiliate"
means any entity which is a member of (i) a controlled group of corporations
(as defined in Section 414(b) of the Code), (ii) a group of trades or
businesses under common control (as defined in Section 414(c) of the Code), or
(iii) an affiliated service group (as defined under Section 414(m) of the Code
or the regulations under Section 414(o) of the Code), any of which includes
the Company. Complete and accurate copies of (i) all Company Employee Benefit
Plans which have been reduced to writing, (ii) written summaries, if any, of
all unwritten Company Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, if any, and
(iv) all annual reports filed, if any, on IRS Form 5500, 5500C or 5500R since
the Company's inception for each Company Employee Benefit Plan, have been
delivered to the Buyer. Each Company Employee Benefit Plan has been
administered in all material respects in accordance with its terms, and each
of the Company, and the Company ERISA Affiliates has in all material respects
met its obligations with respect to such Company Employee Benefit Plan and has
made all contributions thereto which are required to be made prior to the date
hereof. To the knowledge of the Company, the Company and all Company Employee
Benefit Plans are in compliance in all material respects with the currently
applicable provisions of ERISA and the Code and the regulations thereunder.
-15-
<PAGE>
(b) There are no termination proceedings or other claims (except
claims for benefits payable in the normal operation of the Company Employee
Benefit Plans and proceedings with respect to qualified domestic relations
orders) suits or proceedings and, to the Company's knowledge, there are no
investigations by any Governmental Entity, against or involving any Company
Employee Benefit Plan or asserting any rights or claims to benefits under any
Company Employee Benefit Plan that could give rise to any material liability.
(c) All the Company Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Company Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination letter has been revoked and,
revocation has not been threatened, and no such Company Employee Benefit Plan
has been amended since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost.
(d) Neither the Company nor any Company ERISA Affiliate has ever
maintained an Company Employee Benefit Plan subject to Section 412 of the Code
or Title IV of ERISA.
(e) At no time has the Company nor any Company ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
(f) Except as set forth in Section 2.17 of the Company Disclosure
Schedule, there are no unfunded obligations under any Company Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Company or any Company ERISA Affiliate (or to any beneficiary of any such
employee), including but not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code and insurance conversion privileges
under state law.
(g) To the knowledge of the Company, no act or omission has
occurred and no condition exists with respect to any Company Employee Benefit
Plan that would subject the Company, or any Company ERISA Affiliate to any
material fine, pena lty, tax or fiduciary liability imposed under ERISA or the
Code.
(h) No Company Employee Benefit Plan is funded by, associated with,
or related to a "voluntary employee's beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(i) Except as set forth in Section 2.17 of the Company Disclosure
Schedule, no Company Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally
to employees by its terms prohibits the Company or any Company ERISA Affiliate
from amending or terminating any such Company Employee Benefit Plan.
-16-
<PAGE>
(j) Sections 2.17 or 2.12 of the Company Disclosure Schedule
discloses each: (i) written, and, to the Company's knowledge, oral, agreement
with any director, officer or other employee of the Company and affiliates (A)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company or its
affiliates of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee or
(C) providing severance benefits or other benefits after the termination of
employment of such director, officer or employee; (ii) agreement, plan or
arrangement under which any person may receive payments from the Company or
its affiliates that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment"
under Section 280G of the Code; and (iii) agreement or plan binding the
Company or its affiliates, including without limitation any stock option plan,
stock appreciation right plan, restricted stock plan, stock purchase plan,
severance benefit plan, or any Company Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
2.18 Environmental and OSHA.
----------------------
(a) Hazardous Material. No material amount of any substance that
------------------
is regulated by any Governmental Entity or that has been designated by any
Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
urea-formaldehyde and all substances listed pursuant to the United States
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended from time to time, and the United States Resource Recovery and
Conservation Act of 1976, as amended from time to time, and the regulations
and publications promulgated pursuant to said laws (a "Hazardous Material"),
------------------
is, to the knowledge of the Company, present as a result of the actions of the
Company (or, to the knowledge of the Company, as a result of any actions of
any third party or otherwise) in violation of any law in effect on or before
the Closing Date, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased (collectively, "Company
-------
Property").
- --------
(b) Hazardous Materials Activities. The Company has not
------------------------------
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has the Company disposed of, transferred,
sold or manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of the Comprehensive
------------------------------
Environmental Response, Compensation and Liability Act of 1980, as amended,
the Resource Recovery and Conservation Act of 1976, the Toxic Substances
Control Act of 1976, and other applicable state or federal acts (including the
rules and regulations thereunder) (collectively, "Environmental Laws") as in
effect on or before the Closing Date.
(c) Permits. The Company currently holds no environmental
-------
approvals, permits, licenses, clearances and consents and none are necessary
for the conduct of the
-17-
<PAGE>
Company's Hazardous Material Activities, if any, and other business activities
of the Company as such activities are currently being conducted.
2.19 Permits. Section 2.19 of the Company Disclosure Schedule sets forth
-------
a list of all permits, licenses, registrations, certificates, orders or
approvals from any Governmental Entity (including without limitation those
issued or required under Environmental Laws and those relating to the
occupancy or use of owned or leased real property) ("Permits") issued to or
held by the Company that are material to the operation of its business. Such
listed Permits are the only Permits that are required for the Company to
conduct its business as presently conducted or as currently proposed to be
conducted, except for those the absence of which could not reasonably be
expected to have any Material Adverse Effect. Each such Permit is in full
force and effect.
2.20 Certain Business Relationships With Affiliates. Except as set forth
----------------------------------------------
in Section 2.20 of the Company Disclosure Schedule, no Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used
in the business of the Company, (b) has any claim or cause of action against
the Company, (c) owes any money to the Company, or (d) has loaned any money to
the Company. Section 2.20 of the Company Disclosure Schedule describes any
transactions or relationships between the Company and any Affiliate thereof.
2.21 Brokers' Fees. The Company has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement other than Cruttenden Roth
Incorporated.
2.22 Minute Books. The minute books and other similar records of the
------------
Company contain true and complete records of all actions taken at any meetings
of the Company's shareholders, Board of Directors or any committee thereof and
of all written consents executed in lieu of the holding of any such meeting,
and all charter and bylaw documents and amendments thereto. All of these
documents have been delivered to counsel for the Buyer.
2.23 Customers and Suppliers. No material licensor to or supplier of the
-----------------------
Company has indicated to an officer of the Company since the Company's
inception that it will stop, or decrease the rate of, licensing intellectual
property or supplying materials, products or services to the Company (and no
officer of the Company is aware of any such indication) and no material
customer of the Company has indicated to an officer of the Company since the
Company's inception that it will stop, or decrease the rate of, buying,
leasing or licensing materials, products or services from the Company (and no
officer of the Company is aware of any such indication). Section 2.23 of the
Company Disclosure Schedule sets forth a list of each supplier that is the
sole supplier of any significant product, component or service to the Company.
2.24 Corporate Approvals. The Board of Directors of Company has (i)
-------------------
approved this Agreement and the Merger and (ii) determined that the Merger is
in the best interests of the shareholders of the Company and is on terms that
are fair to such stockholders. The written consent of the Company Stockholders
listed on Section 2.2 of the Company Disclosure Schedule, which is being
delivered to the Buyer concurrently with signing this Agreement, is the only
vote of the holders of any of the shares of Company Common Stock necessary to
approve this
-18-
<PAGE>
Agreement and the transactions contemplated hereby. Except as set forth in
Section 2.24 of the Company Disclosure Schedule, there will be no stockholders
or persons entitled to receive appraisal rights (as such term is defined in
the Delaware Law) related to the transactions contemplated hereby.
2.25 Third Party Consents. Except as set forth in Section 2.25 of the
--------------------
Company Disclosure Schedule, no consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
2.26 Disclosure. No representation or warranty by the Company contained
----------
in this Agreement, and no statement contained in the final Company Disclosure
Schedule or in the final form of any other Transaction Document delivered to
or to be delivered by the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
or will be made, in order to make the statements herein or therein not
misleading.
2.27 Disclosure With Respect to the ePills Description in the IPO Form S-1.
---------------------------------------------------------------------
The description of the business of the Company and the online pharmacy business
and the risks related thereto (the "ePills Description") contained under the
------------------
headings listed on Exhibit 2.27A hereto and contained in the S-1 Registration
-------------
Statement that is currently being drafted by Buyer (the "IPO Form S-1"), a
form of which is attached as Exhibit 2.27B, on the date it will be filed with
-------------
the Securities and Exchange Commission, will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.28 Year 2000 Compliance. Section 2.28 of the Company Disclosure Schedule
--------------------
summarizes the Company's reasonable judgment as to its exposure, if any, to
the Year 2000 problem, including (1) the Company's assessment of its exposure
to the Year 2000 problem and the steps heretofore conducted by the Company in
assessing such exposure; (2) the Company's state of readiness for the Year
2000 (including with respect to its information technology and non-information
technology systems); (3) a description of the Company's Year 2000 issues
relating to third parties with whom the Company has a material relationship;
(4) the Company's reasonable judgment as to the costs of fixing the Year 2000
issues faced by it (whether by modification or replacement); (5) the risks of
the Company's Year 2000 Issues, including a reasonable description of the
Company's most reasonably likely worst case Year 2000 scenarios; and (6) a
description of how the Company is preparing to handle the most reasonably
likely worst case scenarios.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND MERGER SUB
----------------------------------------------------------
The Buyer and Merger Sub, jointly and severally, represent and warrant to
the Company that the statements contained in this Article III are true and
correct, except as set forth in the disclosure schedule attached hereto (the
"Buyer Disclosure Schedule"). The Buyer Disclosure Schedule shall be arranged
-------------------------
in paragraphs corresponding to the numbered and lettered paragraphs contained
in this Article III, and the disclosures in any paragraph of the Buyer
Disclosure
-19-
<PAGE>
Schedule shall qualify any other paragraph in this Article III where such
disclosure would be appropriate to the extent that it is clear from such
disclosure that it relates to such other paragraph.
3.1 Organization, Qualification and Corporate Power. Each of Buyer and
-----------------------------------------------
Merger Sub is a corporation duly organized, validly existing and in corporate
and tax good standing under the laws of the state of its incorporation. Each
of Buyer and Merger Sub is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Each of
Buyer and Merger Sub has all requisite corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties
owned and used by it. The Buyer has furnished to the Company true and complete
copies of the charter documents and By-laws of Buyer and Merger Sub, each as
amended and as in effect on the date hereof. Each of Buyer and Merger Sub is
not in default under or in violation of any provision of its charter documents
or By-laws.
3.2 Capitalization. The authorized capital stock of the Buyer consists
--------------
of : (i) 22,200,000 shares of Buyer Common Stock, of which 5,685,744 shares of
Buyer Common Stock are issued and outstanding and (ii) 4,700,000 shares of
Preferred Stock, of which (A) 1,208,600 shares have been designated Series A
Preferred Stock, of which 810,000 shares are issued and outstanding and
398,600 shares are issuable on exercise of warrants to purchase Series A
Preferred Stock outstanding, and (B) 3,400,000 shares have been designated
Series B Preferred Stock, of which 3,230,769 shares are issued and outstanding
and 62,051 shares are issuable on exercise of warrants to purchase Series B
Preferred Stock outstanding. Buyer has reserved an aggregate of 2,400,000
shares of Buyer Common Stock for issuance pursuant to the 1998 Stock Plan, of
which 269,113 shares have been issued directly or pursuant to option exercise
(and are included in the Common Stock outstanding number above), 1,522,127
shares are subject to outstanding options or reserved for issuance for
incoming employees (other than Company employees) and 608,760 shares are
available for issuance. Subject to the receipt of shareholder approval, the
Buyer has reserved for issuance an aggregate of 3,700,000 shares of Buyer
Common Stock for issuance pursuant to the 1999 Stock Plan, of which 200,000
shares are subject to outstanding options and 3,500,000 shares are available
for issuance. In addition, the Company has issued warrants to purchase 71,035
shares of Buyer Common Stock and commitments to issue warrants as described in
the Buyer Disclosure Schedule. Section 3.2 of the Buyer Disclosure Schedule
sets forth a complete and accurate list of (i) all shareholders of the Buyer,
indicating the number of shares of Buyer Common Stock, Series A Preferred
Stock and Series B Preferred Stock held by each shareholder, and (ii) all
holders of options and warrants, indicating the number of shares of Buyer
Common Stock or shares of Preferred Stock subject to each option and warrant
and the vesting schedule and vesting commencement date for such option. The
authorized capital stock of the Merger Sub consists of 1,000 shares of Common
Stock, of which 1,000 shares are issued and outstanding and held by Buyer as
of the date hereof. All of the issued and outstanding shares of Buyer Common
Stock and Preferred Stock and Merger Sub Common Stock are, and all shares of
Buyer Common Stock or Preferred Stock and Merger Sub Common Stock that may be
issued upon exercise of options and warrants will be, duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights. There are
no outstanding or authorized options, warrants, rights, agreements or
commitments to which either the Buyer or Merger Sub is a party or which are
binding upon either the Buyer or Merger
-20-
<PAGE>
Sub providing for the issuance, disposition or acquisition of any of its
capital stock, other than the options and warrants listed in Section 3.2 of
the Disclosure Schedule. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Buyer or
Merger Sub. There are no agreements, voting trusts, proxies, or understandings
with respect to the voting, or registration under the Securities Act, of any
shares of Buyer Common Stock or Preferred Stock or Merger Sub Common Stock.
All of the issued and outstanding shares of Buyer Common Stock and Merger Sub
Common Stock were issued in compliance with applicable federal and state
securities laws.
3.3 Authorization of Transaction. Each of Buyer and Merger Sub has all
----------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and under each of the Transaction
Documents to which either of Buyer or Merger Sub is a party. All corporate
action on the part of the Buyer and Merger Sub, or either of their respective
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Transaction Documents and the
performance of all obligations of the Buyer and Merger Sub hereunder and
thereunder has been taken or will be taken prior to the Closing, and this
Agreement constitutes, and each of the Transaction Documents to which either
Buyer or Merger Sub will be a party, will constitute, a valid and legally
binding obligation of the Buyer and Merger Sub, enforceable in accordance with
its respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies.
3.4 Compliance with Laws and Other Instruments. Each of Buyer and
------------------------------------------
Merger Sub is not in violation or default of any provision of its charter
documents or Bylaws, or, to the best of its knowledge, of any instrument,
judgment, order, writ, decree, lease, license, permit, contract or other
arrangement to which it is a party or by which it is bound, or, to the best of
its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Buyer or Merger Sub. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in any such violation or default, or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, lease, license, permit, contract or other arrangement or
an event that results in the creation of any lien, charge or encumbrance upon
any assets of the Buyer or Merger Sub or its subsidiaries or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any permit, license,
authorization, or approval applicable to the Buyer or Merger Sub or its
subsidiaries, its business or operations or any of its assets or properties,
or result in the acceleration of, or create in any party the right to
accelerate, terminate modify or cancel, or require any notice, consent or
waiver under, any contract, lease, license, permit or other arrangement to
which the Buyer or Merger Sub is a party or by which the Buyer or Merger Sub
is bound or to which its assets are subject.
3.5 Subsidiaries. Except as set forth in Section 3.5 of the Buyer
------------
Disclosure Schedule, the Buyer does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control of,
directly or indirectly, any other corporation, partnership, association, joint
venture or entity. Merger Sub was organized solely in contemplation of the
transactions set forth in this
-21-
<PAGE>
Agreement. Merger Sub is not currently, and has never been, engaged in any
business other than the transactions contemplated herein.
3.6 Buyer Financial Statements. The Buyer has attached hereto as
--------------------------
Section 3.6 to the Buyer Disclosure Schedule (a) the audited consolidated
balance sheets and statements of income, changes in shareholders' equity and
cash flows for each of 1997 and 1998 for the Buyer and its subsidiaries; and
(b) the unaudited consolidated balance sheet as of August 31, 1999 (the
"Buyer's Most Recent Balance Sheet") and statements of income, changes in
---------------------------------
shareholders' equity and cash flows for the eight month period ending August
31, 1999 (the "Buyer's Most Recent Balance Sheet Date") Such financial
--------------------------------------
statements (the "Buyer Financial Statements") have been prepared in accordance
--------------------------
with GAAP applied on a consistent basis throughout the periods covered
thereby, fairly present the financial condition, results of operations and
cash flows of the Buyer and its subsidiaries as of the respective dates
thereof and for the periods referred to therein and are consistent with the
books and records of the Buyer and its subsidiaries; provided, however, that
--------
the Buyer Financial Statements referred to in clause (b) above are subject to
normal recurring year-end adjustments (which will not be material) and do not
include footnotes.
3.7 Absence of Certain Changes. Since the Most Recent Balance Sheet,
--------------------------
there has not been any material adverse change in the assets, business,
financial condition or results of operations of the Buyer or any subsidiary,
nor has there occurred any event or development which could reasonably be
foreseen to result in such a material adverse change in the future.
3.8 Undisclosed Liabilities. None of the Buyer and its subsidiaries has
-----------------------
any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), and
there is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, except for (a)
liabilities shown on the Buyer's Most Recent Balance Sheet, (b) liabilities
which have arisen since the Buyer's Most Recent Balance Sheet Date in the
Ordinary Course of Business, (c) contractual liabilities incurred in the
Ordinary Course of Business which are not required by GAAP to be reflected on
a balance sheet and (d) liabilities for accounting, investment banking and
legal fees incurred in connection with the Merger and the transactions
contemplated thereby and the IPO Form S-1 and transaction contemplated
thereby.
3.9 Tax Matters.
-----------
(a) Each of the Buyer and its subsidiaries has filed all Tax
Returns that it was required to file and all such Tax Returns were correct and
complete in all material respects. Each of the Buyer and its subsidiaries has
paid all Taxes owed in respect of the periods covered by such Tax Returns. The
unpaid Taxes of the Buyer and its subsidiaries for tax periods through the
date of the Buyer's Most Recent Balance Sheet do not exceed the accruals and
reserves for Taxes set forth on the Buyer's Most Recent Balance Sheet. Neither
the Buyer nor any subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group
of corporations or other entities that included the Buyer or any subsidiary
during a prior period) other than the Buyer and its subsidiaries. All Taxes
that the Buyer or any subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
-22-
<PAGE>
(b) No Tax Returns of the Buyer nor any subsidiary has been audited
by the Internal Revenue Service. No examination or audit of any Tax Returns of
the Buyer or any subsidiary by any Governmental Entity is currently in
progress or, to the knowledge of the Buyer and its subsidiaries, threatened or
contemplated. Neither the Buyer nor any subsidiary has waived any statute of
limitations with respect to taxes or agreed to an extension of time with
respect to a tax assessment or deficiency.
(c) Neither the Buyer nor any subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the Code and none of the
assets of the Buyer or its subsidiaries are subject to an election under
Section 341(f) of the Code. Neither the Buyer nor any subsidiary has been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code. Neither the Buyer nor any subsidiary is a party
to any Tax allocation or sharing agreement.
(d) Neither the Buyer nor any subsidiary is or has ever been a
member of an "affiliated group" of corporations (within the meaning of Section
1504 of the Code), other than a group of which only the Buyer and the
subsidiaries are members. Neither the Buyer nor any subsidiary has made an
election under Treasury Reg. Section 1.1502-20(g). Neither the Buyer nor any
subsidiary is or has been required to make a basis reduction pursuant to
Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
(e) As of the date of this Agreement, neither Buyer or Merger Sub
has taken any action that could reasonably be expected to cause the Merger to
fail to qualify as a reorganization within the meaning of Section 368(a) of
the Code.
3.10 Title to Property. Each of Buyer and its subsidiaries has good and
-----------------
valid title to all properties, interests in properties and assets, real and
personal, necessary for the conduct of its business as presently conducted and
as presently proposed to be conducted, all of which are reflected in the
Buyer's Most Recent Balance Sheet (except properties, interests in properties
and assets sold or otherwise disposed of since the Buyer's Most Recent Balance
Sheet Date in the ordinary course of business) or acquired after the Buyer's
Most Recent Balance Sheet Date, or with respect to leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except the lien of
current taxes not yet due and payable. The plants, property and equipment of
Buyer and its subsidiaries that are used in the operations of their businesses
are in good operating condition and repair subject to ordinary wear and tear
and to requirements for periodic maintenance. All properties used in the
operations of Buyer, except for those acquired after the Most Recent Balance
Sheet Date, are reflected in the Buyer's Most Recent Balance Sheet to the
extent required by GAAP. No asset of the Buyer (tangible or intangible) is
subject to any Security Interest. Neither the Buyer nor any of its
subsidiaries owns any real property.
-23-
<PAGE>
3.11 Intellectual Property.
---------------------
(a) Each of the Buyer and its subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all Intellectual
Property that is used to conduct its business as currently conducted or
currently planned to be conducted.
(b) All of the Buyer's patents, copyrights, trademarks, trade names
or Internet domain name registrations related to its current or currently
proposed business are valid and in full force and effect and will not be
altered or impaired by the consummation of the transactions contemplated
hereby. Neither the Buyer nor any of its subsidiaries is, nor will any of them
be as a result of the execution and delivery of this Agreement or the
performance of the Buyer's obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the Buyer's Intellectual
Property or any written licenses, sublicenses and other agreements to which
either Buyer or its subsidiary is a party and pursuant to which Buyer or its
subsidiary is authorized to use any third party Intellectual Property (the
"Buyer Third Party Intellectual Property Rights").
----------------------------------------------
(c) Neither the Buyer nor any of its subsidiaries (nor, to the
Buyer's knowledge, any of the Buyer's employees) has received a claim, or is
aware of a reasonable basis for a claim, of infringement or violation of any
Intellectual Property right of any third party. The manufacturing, marketing,
licensing or sale of the products or performance of the service offerings of
the Buyer and its subsidiaries do not infringe or violate any Intellectual
Property right of any third party; and, to the knowledge of the Buyer and its
subsidiaries, the Intellectual Property rights of the Buyer and its
subsidiaries are not being infringed or violated by activities, products or
services of any third party.
3.12 Contracts. All of the agreements that are material agreements to
---------
the Buyer and its subsidiaries, when taken as a whole, will be referenced in
the IPO Form S-1, as filed with the SEC approximately concurrently with the
signing of this Agreement, or have been provided to the Company or its
counsel. All such material agreements to which the Buyer or a subsidiary is a
party are valid, binding, in full force and effect and enforceable by either
Buyer or its subsidiaries in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy and other similar
laws affecting the enforcement of creditor's rights generally and except that
the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefor may be brought (whether at law or
in equity). To the knowledge of the Buyer and Merger Sub, no party to any such
contract intends to cancel, withdraw, modify or amend such contract, agreement
or arrangement. Neither Buyer nor any of its subsidiaries is in default under
or in breach or violation of, nor, to the knowledge of the Buyer and Merger
Sub, is there any valid basis for any claim of default by Buyer or any of its
subsidiaries under, or breach or violation by Buyer or any of its subsidiaries
of, any material provision of any contract referenced in the IPO Form S-1. To
the knowledge of the Buyer and Merger Sub, no other party is in default under
or in breach or violation of, nor is there any valid basis for any claim of
default by any other party under or any breach or violation by any other party
of, any such contract.
-24-
<PAGE>
3.13 Accounts Receivable. All accounts receivable of the Buyer and the
-------------------
subsidiaries reflected on the Buyer's Most Recent Balance Sheet are valid
receivables, and to the Buyer's knowledge are subject to no setoffs or
counterclaims and are current and collectible (within 90 days after the date
on which it first became due and payable), net of the applicable reserve for
bad debts on the Buyer's Most Recent Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Buyer that have arisen
since the Buyer's Most Recent Balance Sheet Date are valid receivables, and to
the Buyer's knowledge, subject to no setoffs or counterclaims and are
collectible, net of a reserve for bad debts in an amount proportionate to the
reserve shown on the Buyer's Most Recent Balance Sheet.
3.14 Insurance. Each of Buyer and its subsidiaries has in full force and
---------
effect all policies of insurance and bonds of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Buyer, including, but not limited to, fire and casualty insurance policies,
sufficient in amount (subject to reasonable deductibles) to allow it to
replace any of its or its subsidiaries properties that might be damaged or
destroyed. There is no claim by the Buyer or its subsidiaries pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and the Buyer and its
subsidiaries are otherwise in compliance with the terms of such policies and
bonds. The Buyer and its subsidiaries have no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
3.15 Litigation. Section 3.15 of the Buyer Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction, (b) any claim, demand, complaint,
action, suit, proceeding, hearing, or to the Buyer's knowledge any
investigation, of or in any Governmental Entity or before any arbitrator to
which the Buyer or any subsidiary is a party or, to the knowledge of the Buyer
and the subsidiaries, is threatened to be made a party, and (c) any written or
oral claims by third persons of which the Buyer is aware and any reasonable
basis for any third party claims. None of the demands, claims, complaints,
actions, suits, proceedings, hearings, and investigations set forth in Section
3.15 of the Buyer Disclosure Schedule could reasonably be expected to have a
Material Adverse Effect.
3.16 Employees. Each officer, current and former employee and consultant
---------
of the Buyer and its subsidiaries has entered into a confidentiality/assignment
of inventions agreement with the Buyer or a subsidiary of the Buyer, without
material amendment to the Buyer's standard form, a copy of which has been
provided to the Company. To the knowledge of the Buyer and its subsidiaries,
no key employee or consultant or group of employees or consultants has any
plans to terminate employment or the provision of consulting services with the
Buyer or any subsidiary of the Buyer. Neither the Buyer nor any subsidiary of
the Buyer is a party to or bound by any collective bargaining agreement, nor
has any of them experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. The Buyer and the
subsidiaries of the Buyer have no knowledge of any organizational effort made
or threatened, either currently or within the past two years, by or on behalf
of any labor union with respect to employees of the Buyer or any subsidiary of
the Buyer.
-25-
<PAGE>
3.17 Employee Benefits. Section 3.17 of the Buyer Disclosure Schedule
-----------------
contains a complete and accurate list of all Buyer Employee Benefit Plans (as
defined below) maintained, or contributed to, by the Buyer, or any Buyer ERISA
Affiliate (as defined below). For purposes of this Agreement, "Buyer Employee
Benefit Plan" means any "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including without limitation insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation
maintained or contributed to, by the Buyer or any Buyer ERISA Affiliate. For
purposes of this Agreement, "Buyer ERISA Affiliate" means any entity which is
a member of (i) a controlled group of corporations (as defined in Section
414(b) of the Code), (ii) a group of trades or businesses under common control
(as defined in Section 414(c) of the Code), or (iii) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes Buyer. Complete and
accurate copies of (i) all Buyer Employee Benefit Plans which have been
reduced to writing, (ii) written summaries, if any, of all unwritten Buyer
Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, if any, and (iv) all annual reports
filed, if any, on IRS Form 5500, 5500C or 5500R since the Buyer's inception
and the inception of any of its subsidiaries for each Buyer Employee Benefit
Plan, have been delivered to the Company. Each Buyer Employee Benefit Plan has
been administered in all material respects in accordance with its terms, and
each of the Buyer and the Buyer ERISA Affiliates has in all material respects
met its obligations with respect to such Buyer Employee Benefit Plan and has
made all contributions thereto which are required to be made prior to the date
hereof. To the knowledge of the Buyer and Merger Sub, Buyer and all Buyer
Employee Benefit Plans are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code and the regulations
thereunder.
(a) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Buyer Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders) suits or proceedings against
or involving any Buyer Employee Benefit Plan or asserting any rights or claims
to benefits under any Buyer Employee Benefit Plan that could give rise to any
material liability.
(b) All the Buyer Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Buyer Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination letter has been revoked, and
revocation has not been threatened, and no such Buyer Employee Benefit Plan
has been amended since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost.
(c) Neither Buyer nor any Buyer ERISA Affiliate has ever maintained
a Buyer Employee Benefit Plan subject to Section 412 of the Code or Title IV
of ERISA.
-26-
<PAGE>
(d) At no time has Buyer or any Buyer ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
(e) Except as set forth in Section 3.17 of the Buyer Disclosure
Schedule, there are no unfunded obligations under any Buyer Employee Benefit
Plan providing benefits after termination of employment to any employee of
Buyer or any Buyer ERISA Affiliate (or to any beneficiary of any such
employee), including but not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code and insurance conversion privileges
under state law.
(f) To the knowledge of the Buyer and Merger Sub, no act or
omission has occurred and no condition exists with respect to any Buyer
Employee Benefit Plan that would subject Buyer or any Buyer ERISA Affiliate to
any material fine, penalty, tax or fiduciary liability imposed under ERISA or
the Code.
(g) No Buyer Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(h) No Buyer Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits Buyer or any Buyer ERISA
Affiliate from amending or terminating any such Buyer Employee Benefit Plan.
(i) Section 3.17 of the Buyer Disclosure Schedule discloses each:
(i) written and, to the Buyer's knowledge, oral agreement with any director,
officer or other employee of Buyer or any of its subsidiaries and affiliates
(A) the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Buyer or any of
its subsidiaries or its affiliates of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, officer or employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Buyer or any of its subsidiaries or its affiliates that may
be subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Buyer or any of its subsidiaries
or its affiliates, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Buyer Employee Benefit Plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement.
3.18 Environmental and OSHA.
----------------------
(a) Hazardous Material. No Hazardous Material is, to the knowledge
------------------
of the Buyer and Merger Sub, present as a result of the actions of the Buyer
or any of its subsidiaries
-27-
<PAGE>
(or, to the knowledge of the Buyer and Merger Sub, as a result of any actions
of any third party or otherwise) in violation of any law in effect on or
before the Closing Date, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that the Buyer or
any of its subsidiaries has at any time owned, operated, occupied or leased
(collectively, "Buyer Property").
--------------
(b) Hazardous Materials Activities. Neither the Buyer nor any of its
------------------------------
subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has the
Buyer nor any of its subsidiaries conducted any Hazardous Materials Activities
in violation of any Environmental Law as in effect on or before the Closing
Date.
(c) Permits. Neither the Buyer nor any of its subsidiaries
-------
currently holds any environmental approvals, permits, licenses, clearances and
consents and none are necessary for the conduct of the Buyer's or any of its
subsidiary's Hazardous Material Activities, if any, and other business
activities of the Buyer or any of its subsidiaries as such activities are
currently being conducted.
3.19 Permits. The Buyer or its subsidiaries hold all Permits that are
-------
required for the operation of its business as presently conducted or as
proposed to be conducted, except for those the absence of which could not
reasonably be expected to have any Material Adverse Effect. Each such Permit
is in full force and effect.
3.20 Certain Business Relationships With Affiliates. No Affiliate of the
----------------------------------------------
Buyer or of any subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Buyer or any subsidiary, (b)
has any claim or cause of action against the Buyer or any subsidiary, (c) owes
any money to the Buyer or any subsidiary, or (d) has loaned any money to the
Buyer or Merger Sub.
3.21 Brokers' Fees. Neither the Buyer nor any subsidiary has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement.
3.22 Minute Books. The minute books and other similar records of the
------------
Buyer and each subsidiary contain true and complete records of all actions
taken at any meetings of the Buyer's or such subsidiary's shareholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting.
3.23 Customers and Suppliers. No material licensor to or supplier of
-----------------------
the Buyer or any subsidiary has indicated to an officer of the Buyer within
the past year that it will stop, or decrease the rate of, licensing
intellectual property or supplying materials, products or services to them
(and no officer of the Buyer is aware of any such indication) and no material
customer of the Buyer or any Subsidiary has indicated to an officer of the
Buyer within the past year that it will stop, or decrease the rate of, buying,
leasing or licensing materials, products or services from them (and no officer
of the Buyer is aware of any such indication).
-28-
<PAGE>
3.24 Corporate Approvals. The Board of Directors of each of Buyer and
-------------------
Merger Sub (and the sole shareholder of Merger Sub) have (i) approved this
Agreement and the Merger, and (ii) determined that the Merger is in the best
interests of the shareholders of Buyer and Merger Sub and is on terms that are
fair to such shareholders.
3.25 Third Party Consents. No consent or approval is needed from any
--------------------
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
3.26 Disclosure. No representation or warranty by the Buyer or Merger
----------
Sub contained in this Agreement, and no statement contained in the final Buyer
Disclosure Schedule or in the final form of any other Transaction Document
delivered to or to be delivered by the Buyer or Merger Sub pursuant to this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
3.27 Disclosure With Respect to IPO Form S-1. The IPO Form S-1 (except
---------------------------------------
for the ePills Description), on the date it will be filed with the Securities
and Exchange Commission, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.28 Year 2000 Compliance. The IPO Form S-1 summarizes the Buyer's
--------------------
reasonable judgment as to its exposure to the Year 2000 problem, including (1)
the Buyer's assessment of its exposure to the Year 2000 problem and the steps
heretofore conducted by the Buyer in assessing such exposure; (2) the Buyer's
state of readiness for the Year 2000 (including with respect to its information
technology and non-information technology systems); (3) a description of the
Buyer's Year 2000 issues relating to third parties with whom the Buyer has a
material relationship; (4) the Buyer's reasonable judgment as to the costs of
fixing the Year 2000 issues faced by it (whether by modification or
replacement); (5) the risks of the Buyer's Year 2000 Issues, including a
reasonable description of the Buyer's most reasonably likely worst case Year
2000 scenarios; and (6) a description of how the Buyer is preparing to handle
the most reasonably likely worst case scenarios.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Company and Buyer. During the period from
----------------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, each of Company and Buyer agrees
(except to the extent expressly contemplated by this Agreement or as otherwise
consented to in writing by the other) to carry on its and its subsidiaries'
business in the usual, regular and ordinary course, to pay debts and perform
obligations when due, and to use all reasonable efforts consistent with past
practice and policies to preserve intact its and its subsidiaries' present
business organization, keep available the
-29-
<PAGE>
services of its and its subsidiaries' key employees and preserve its and its
subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Each of Company and
Buyer agrees not to take, and not to agree in writing or otherwise to take,
any action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or cause
it not to perform its covenants hereunder.
4.2 No Solicitation.
----------------
(a) Company and the officers, directors, employees, affiliates or
other agents of Company will not, directly or indirectly, (i) take any action
to solicit, initiate, entertain or encourage any Takeover Proposal (defined
below) or (ii) participate in any negotiations regarding, or furnish to any
person any nonpublic information relating to Company to further, or afford
access to the properties, books or records of Company to further, or otherwise
cooperate with, facilitate or encourage any person that has advised Company
that it may be considering making, or that has made, a Takeover Proposal.
Company will promptly notify Buyer after receipt of any Takeover Proposal or
any notice that any person is considering making a Takeover Proposal or any
request for nonpublic information relating to Company or for access to the
properties, books or records of Company by any person that has advised Company
that it may be considering making, or that has made, a Takeover Proposal. For
purposes of this Agreement, "Takeover Proposal" means any offer or proposal
-----------------
for, or any indication of interest in, a merger, consolidation, or other
business combination involving Company or the acquisition of any significant
equity interest in, or a significant portion of the assets of, Company other
than the transactions contemplated by this Agreement.
(b) Neither Buyer nor any of its subsidiaries, nor any of their
respective officers, directors, employees, affiliates or other agents will,
directly or indirectly, (i) take any action to solicit, initiate, entertain or
encourage any proposal regarding Buyer's or any of its subsidiary's possible
acquisition of a significant portion of the equity or assets of an online
drugstore/pharmacy company other than the Company or (ii) participate in any
negotiations regarding, or furnish to any person any non public information
relating to Buyer or any of its subsidiaries to further, or afford access to
the properties, books or recodrs of Buyer or any of its subsidiaries to
further, or otherwise cooperate with, facilitate or encourage any person that
has advised Buyer or any of its subsidiaries that it may be considering such a
transaction.
4.3 Reorganization Treatment. Neither party will take any action that
------------------------
could reasonably be expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a).
4.4 Restrictions on Company's Actions. Without limiting the generality of
---------------------------------
Section 4.1, prior to the Closing, the Company shall not, without the written
consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance, sale
or delivery of (except issuances pursuant to
-30-
<PAGE>
the exercise of outstanding options), or redeem or repurchase (except
repurchases of Common Stock on the termination of services of employees or
consultants pursuant to Common Stock Purchase Agreements), any stock of any
class or any other securities or any rights, warrants or options to acquire
any such stock or other securities (except pursuant to the conversion or
exercise of convertible securities or options outstanding on the date hereof),
or amend any of the terms of any such convertible securities or options or
exercise any discretionary right in respect thereof;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) (except repurchases of Common
Stock on the termination of services of employees or consultants pursuant to
Common Stock Purchase Agreements) in respect of its capital stock;
(c) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity;
or make any loans, advances or capital contributions to, or investments in,
any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan (except as
required under ERISA or the Code with respect to any Employee Benefit Plan
qualified under Code section 401(a)) or any employment or severance agreement
or arrangement of the type described in Section 2.17(j) or increase in any
manner the compensation or fringe benefits of, or materially modify the
employment terms of, its directors, officers or employees, generally or
individually, or pay any benefit not required by the terms in effect on the
date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, license, encumber or dispose of any
assets or property in excess of $15,000 for any single such transaction or
series of related transactions or in excess of $50,000 in the aggregate
(including without limitation any shares or other equity interests in or
securities of any subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases, sales
and licenses of assets in the Ordinary Course of Business;
(f) amend its charter or By-laws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any
such assets to any Security Interest;
-31-
<PAGE>
(j) sell, assign, transfer or license any Intellectual Property,
other than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action
that would constitute a material violation of or default under, or waive any
material rights under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of
$15,000 per item or $50,000 in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming materially untrue or (ii) any of the
conditions to the Closing not being satisfied; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Access to Information.
---------------------
(a) Each party shall afford the other party and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of such party's
and its subsidiaries properties, books, contracts, commitments and records,
and (ii) all other information concerning the business, properties and
personnel of such party and its subsidiaries as the requesting party may
reasonably request. Each party agrees to provide to the other party and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) No information or knowledge obtained in any investigation
pursuant to this Section 5.1 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.2 Confidentiality. The parties acknowledge that Buyer and Company
---------------
have executed a non-disclosure agreement dated August 12, 1999 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue
-------------------------
in full force and effect in accordance with its terms.
5.3 Public Disclosure. Unless otherwise permitted by this Agreement,
Buyer and Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public
(or non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which
approval shall not be unreasonably withheld),
-32-
<PAGE>
except as may be required by law. The parties acknowledge and agree that this
agreement shall be filed as a material agreement to the IPO Form S-1 in
connection with Buyer's initial public offering, and the relationship between
the parties shall be described in the IPO Form S-1.
5.4 Consents; Cooperation.
---------------------
(a) Consents. Each of Buyer and Company shall promptly apply for
--------
or otherwise seek, and use its commercially reasonable efforts to obtain, all
consents, approvals, authorizations, and filings required to be obtained by it
from any Governmental Entity or other third person or entity for the
consummation of the Merger, and each party shall use its commercially
reasonable efforts and shall cooperate with the other party to obtain all
necessary consents, approvals, authorizations, and filings in connection with
the Merger, including as needed in connection with any material contracts of
Company or Buyer or otherwise.
(b) The IPO Form S-1. The Company and its officers, employees and
----------------
counsel shall use all reasonable, best efforts to cooperate with Buyer in the
drafting, reviewing and filing of the IPO Form S-1 and the exhibits thereto,
and the preparation of any amendments to the IPO Form S-1, with the intent
that the ePills Description contained in the IPO Form S-1 on and as of the
effective date of such initial public offering, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.5 FIRPTA. Company shall, prior to the Closing Date, provide Buyer
------
with a properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, substantially in the form of Exhibit 5.5A
------ ------------
attached hereto, which states that shares of capital stock of Company do not
constitute "United States real property interests" under Section 897(c) of the
Code, for purposes of satisfying Buyer's obligations under Treasury Regulation
Section 1.1445 2(c)(3).). In addition, simultaneously with delivery of such
Notification Letter, Company shall have provided to Buyer, as agent for
Company, a form of notice to the Internal Revenue Service in accordance with
the requirements of Treasury Regulation Section 1.897-2(h)(2) and
substantially in the form of Exhibit 5.5B attached hereto along with written
authorization for Buyer to deliver such notice form to the Internal Revenue
Service on behalf of Company upon the Closing of the Merger.
5.6 Securities Laws. Buyer shall take such steps as may be necessary to
---------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Buyer Common Stock in connection with the
Merger. Company shall use its commercially reasonable efforts to assist Buyer
as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Buyer
Common Stock in connection with the Merger. The Merger Shares will be issued
under a Section 4(2) "private placement" exemption from the registration
requirements of federal securities laws.
5.7 Expenses. Whether or not the Merger is consummated, all costs and
--------
expenses incurred in connection with this Agreement, the Certificate of Merger
and the transactions contemplated hereby and thereby shall be paid by the
party incurring such expense; provided,
--------
-33-
<PAGE>
however, that any transaction fees, including but not limited to legal,
- -------
accounting, banking and other advisory fees (the "Transaction Fees") in excess
----------------
of $100,000 in investment banking fees and $35,000 in legal fees (including
but not limited to all filing fees and other non-fee disbursements and
expenses (such as copy, fax and word processing charges) incurred in
connection with the consummation in this Agreement) on behalf of the Company
(other than those that are paid directly by the Company Stockholders or any of
their affiliates or are reimbursed to the Company by the Company Stockholders
or any of their affiliates) shall be reimbursed to the Buyer at the Closing
through a closing adjustment in the number of shares to be issued to the
Company Stockholders. The aggregate number of shares of Buyer Common Stock to
be issued to the Company Stockholders shall be reduced by the Excess Expense
Shares. The "Excess Expense Shares" means the quotient of: (i) the dollar
---------------------
amount of Transaction Fees incurred by the Company in connection with the
transactions contemplated hereby in excess of the stated maximums above,
divided by (ii) $19.50.
5.8 Good Faith Efforts and Further Assurances. Each of the parties to
-----------------------------------------
this Agreement shall use its good faith efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.9 Registration of Merger Shares issued to Company Shareholders.
------------------------------------------------------------
(a) Filing and Effectiveness. If, at any time after the date that
------------------------
is 180 days after the closing of an initial public offering of Buyer, Buyer
shall receive from any Company Stockholder or Company Stockholders (including
any additional shareholder who may receive shares of Buyer Common Stock as a
result of the release of shares from the Escrow Fund) (for the purpose of this
Section 5.9 a "Holder") owning in the aggregate at least twenty five percent
------
(25%) of the Merger Shares less the Escrow Shares a written request or
requests (the "Demand Notice") that the Buyer effect a registration on Form S-
-------------
1 (the "Resale S1 Registration Statement") and any related qualification or
--------------------------------
compliance for the purpose of offering for resale the Merger Shares less the
Escrow Shares issued to the Company Shareholders in the Merger, the Buyer
will:
(1) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holder(s) and any
other Buyer stockholders who would have the right to sell shares in such an
offering; and
(2) as promptly as practicable, but in any event within thirty
(30) business days after the date that Buyer receives the Demand Notice, file
with the Securities and Exchange Commission (the "SEC") under the Securities
---
Act a Registration Statement on Form S-1 (the "Resale S-1 Registration
-----------------------
Statement") for the purpose of offering for resale (i) the Merger Shares less
- ---------
the Escrow Shares and (ii) any other shares of Buyer Common Stock held by
Buyer stockholders who have the right to and elect to sell shares in such an
offering (the "Registrable Securities"), provided, however, that the Buyer
---------------------- -------- -------
shall not be obligated to file any such
-34-
<PAGE>
registration statement if Buyer shall furnish to the Stockholders' Agent a
certificate signed by the Chief Executive Officer of Buyer stating that, in
the good faith judgment of the Board of Directors or Chief Executive Officer
of Buyer, it would be seriously detrimental to Buyer and its stockholders for
the Resale S-1 Registration Statement to be filed on or before the date filing
would otherwise be required, and it is therefore in the best interests of
Buyer to defer the filing of the Resale S-1 Registration Statement, in which
case Buyer may delay the filing of the Resale S-1 Registration Statement not
in excess of forty-five (45) days after the original filing deadline.
(3) as soon as practicable, effect such registration and all
such qualifications and compliances as may be reasonably so requested and as
would permit and facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder(s) and other Buyer stockholders joining in such request as
are specified in a written request given within ten (10) days after receipt of
such written notice from the Company; provided, however, that the Company
-------- -------
shall not be obligated to cause any such registration, qualification or
compliance, pursuant to this Section 5.9 to become effective:
(i) prior to the date six (6) months following the
effective date of the Buyer's initial public offering or later than the date
eleven (11) months after the Closing of the Merger.
(ii) if the Holder(s), together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities at an aggregate price to the public of
less than $1,500,000; or
(iii) if the Company has already effected one (1)
registration for the Holder(s) pursuant to this Section 5.9.
(b) Requirement to Keep Effective. The Buyer shall use its
-----------------------------
reasonable best efforts to cause the Resale S-1 Registration Statement to
remain effective until the first to occur of (i) the one year anniversary of
the Closing Date of the Merger or (ii) the date by which all Registrable
Securities are sold.
(c) Expenses of Registration. Buyer shall pay all Registration
------------------------
Expenses (as hereafter defined) in connection with any registration,
qualification or compliance pursuant to this Section 5.9, and each Holder
shall pay all Selling Expenses (as hereafter defined) and other expenses that
are not Registration Expenses relating to the Registrable Securities resold by
him or her. For purposes of this Section 5.9 "Registration Expenses" shall
---------------------
mean all expenses, except as otherwise stated below, incurred by Buyer in
complying with Sections 5.9(a), 5.9(b) and 5.9(d), including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for Buyer, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration and the reasonable fees and expenses of one
counsel for all of the selling Holders up to a maximum of $25,000. For
purposes of this Section 5.9(c), "Selling Expenses" shall mean all selling
----------------
-35-
<PAGE>
discounts, commissions and stock transfer or other Taxes applicable to the
Registrable Securities and all fees and disbursements of counsel for any
Holder.
(d) Registration Procedures. In the case of any registration
-----------------------
effected by Buyer pursuant to this Section 5.9, Buyer will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Buyer will:
(1) Promptly prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(2) Furnish such number of prospectuses (including preliminary
prospectuses) and other documents incident thereto, including any amendment of
or supplement to the prospectus, as a Holder from time to time may reasonably
request;
(3) Subject to Section 5.9(h) hereof, notify each Holder of
Registrable Securities covered by the Registration Statement at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such
Holder, prepare and furnish to such Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(4) Cause all such Registrable Securities registered pursuant
to the Registration Statement to be listed on each securities exchange or
quotation system on which similar securities issued by Buyer are then listed
or quoted, and in connection therewith, file with the Nasdaq National Market
an application for listing of additional shares with respect to the
Registrable Securities;
(5) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of the Registration Statement;
(6) Use its reasonable best efforts to register or qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdiction within the United States and
Puerto Rico as shall be reasonably appropriate for the distribution of the
Registrable Securities covered by the Registration Statement; provided,
--------
however, that Buyer shall not be required in connection therewith or as a
- -------
condition thereto to qualify to do business in or file a general consent to
service of process in any jurisdiction wherein it would not but for the
requirements of this paragraph be obligated to do so; and
-36-
<PAGE>
(7) Otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act.
(e) Information by Holder. Each Holder of Registrable Securities
---------------------
shall furnish to Buyer such information regarding such Holder and the
distribution proposed by such Holder as Buyer may reasonably request in
connection with any registration, qualification or compliance referred to in
this Section 5.9, but only to the extent that such information is required in
order for Buyer to comply with its obligations under all applicable securities
and other laws and to ensure that the Registration Statement relating to such
Registrable Securities conforms to the applicable requirements of the
Securities Act and the rules and regulations thereunder. Each Holder covenants
that it will promptly notify Buyer of any changes in the information set forth
in the Registration Statement or otherwise provided by such Holder to Buyer
regarding such Holder or such Holder's plan of distribution as a result of
which the Registration Statement or any prospectus relating to the Registrable
Securities contains or would contain an untrue statement of a material fact
regarding such Holder or its intended method of distribution of such
Registrable Securities or omits to state any material fact regarding such
Holder or its intended method of distribution of such Registrable Securities
required to be stated therein or necessary to make the statements therein, not
misleading.
(f) Indemnification and Contribution.
--------------------------------
(1) Buyer agrees to indemnify and hold harmless each Holder
from and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which such Holder may become subject (under
the Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, any untrue statement, alleged untrue statement, omission or
alleged omission of a material fact in the Registration Statement, any
prospectus included in the Registration Statement, or any amendment or
supplement to the Registration Statement or any such prospectus, or any
violation or alleged violation by Buyer of the Securities Act, the Exchange
Act, any state law, rule or regulation promulgated thereunder, and Buyer will,
as incurred, reimburse such Holder for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the indemnity contained in this
Section 5.9(f)(1) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected
without the consent of Buyer (which consent shall not be unreasonably
withheld), nor shall Buyer shall not be liable in any such case to the extent
that such loss, claim, damage or liability arises out of, or is based upon (A)
an untrue statement or alleged untrue statement made in such Registration
Statement in reliance upon and in conformity with written information
furnished to Buyer by such Holder in an instrument executed by such Holder and
specifically stated to be for use in the preparation of the Registration
Statement, (B) the failure of such Holder to comply with any of the covenants
and agreements contained in Sections 5.9(h) or 5.9(j) hereof, or (C)
-37-
<PAGE>
any untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or
sales by the Holder.
(2) Each Holder, severally and not jointly, agrees to
indemnify and hold harmless Buyer from and against any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) to which Buyer
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon (A) an untrue statement, alleged
untrue statement, omission or alleged omission of a material fact in the
Registration Statement, any prospectus included in the Registration Statement,
or any amendment or supplement to the Registration Statement or any such
prospectus in reliance upon and in conformity with written information
furnished to Buyer by such Holder in an instrument executed by such Holder and
specifically stated to be for use in preparation of the Registration
Statement, or any violation or alleged violation by Holder of the Securities
Act, the Exchange Act, any state law, rule or regulation promulgated
thereunder, provided, however, the indemnity contained in this Section
5.9(f)(2) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of Holder (which consent shall not be unreasonably withheld), and
provided that no Holder shall be liable in any such case for any untrue
statement included in any Prospectus which statement has been corrected in a
writing delivered to Buyer at least two business days before the sale from
which such loss arose, (B) the failure of such Holder to comply with any of
the covenants and agreements contained in Sections 5.9(h) or 5.9(j) hereof, or
(C) any untrue statement in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Holder prior to the pertinent sale or
sales by the Holder; and each Holder, severally and not jointly, will, as
incurred, reimburse Buyer for any legal or other expenses reasonably incurred
in investigating, defending or preparing to defend any such action, proceeding
or claim. In no event shall the amount payable by any Holder to Buyer pursuant
to this Section 5.9(f) by reason of a sale of Buyer Common Stock by such
Holder exceed the amount of the net proceeds to such Holder from the sale of
Buyer Common Stock from which such liability arose.
(3) Promptly after receipt by any indemnified person under
subsections (1) or (2) above of a notice of a claim or the beginning of any
action in respect of which indemnity is to be sought against an indemnifying
person pursuant to this Section 5.9(f), such indemnified person shall notify
the indemnifying person in writing of such claim or of the commencement of
such action (provided, however, that no failure to provide such notice shall
relieve any indemnifying person of any liability hereunder except to the
extent that such indemnifying person is prejudiced thereby), and, subject to
the provisions hereinafter stated, in case any such action shall be brought
against an indemnified person and the indemnifying person shall have been
notified thereof, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall wish, to assume the defense thereof,
with counsel reasonably satisfactory to the indemnified person. After notice
from the indemnifying person to such indemnified person of the indemnifying
person's election to assume the defense thereof, the indemnifying person shall
not be liable to such indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the defense thereof;
provided, however, that, if the indemnifying person shall propose that the
same counsel represent it and the indemnified person, and if counsel for the
indemnified person shall reasonably have
-38-
<PAGE>
concluded that there is an actual conflict of interest posed by the
representation proposed by the indemnifying person, the indemnified person
shall be entitled to retain its own counsel reasonably satisfactory to the
indemnifying person at the expense of such indemnifying person; provided,
however that if more than one indemnified person makes a claim against an
indemnifying person based on substantially similar facts, the indemnifying
person shall not be responsible for the fees of more than one counsel for all
indemnified persons whose claims are based on substantially similar facts.
(4) If the indemnification provided for in this Section 5.9(f)
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (1) or (2) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof), in such proportion as is
appropriate to reflect the relative fault of each such party, as well as any
other relevant equitable considerations, provided, however, that any
contribution by a Holder shall not exceed the net proceeds to such Holder for
the sale of Buyer Common Stock from which such liability arose, except in the
case of willful fraud by such Holder. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Buyer on the one hand or a
Holder on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Buyer and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 5.9(f) were determined by any method of
allocation which does not take account of the equitable considerations
referred to above in this Section 5.9(f)(4). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities
(or actions in respect thereof) referred to above in this Section 5.9(f)(4)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action, proceeding or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(5) The obligations of the Buyer and the Holders under this
Section 5.9(f) shall be in addition to any liability which Buyer and the
respective Holders may otherwise have and shall extend, upon the same terms
and conditions, to each director and officer of Buyer or any Holder, and to
each person, if any, who controls Buyer or any Holder within the meaning of
the Securities Act or the Exchange Act.
(g) Restrictive Legend. Each certificate representing Merger
------------------
Shares shall bear substantially the following legends (in addition to any
legends required under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE
-39-
<PAGE>
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM.
ADDITIONALLY, THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO CERTAIN RESTRICTIONS SPECIFIED IN THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, HC2 ACQUISITION CORP., AND EPILLS INC.
DATED ___________________, 1999 (THE "AGREEMENT"), WHICH INCLUDES AN
OBLIGATION TO NOTIFY THE ISSUER PRIOR TO ANY SALE OR OTHER TRANSACTION,
AND NO TRANSFER OF SHARES SHALL BE VALID OR EFFECTIVE ABSENT COMPLIANCE
WITH SUCH RESTRICTIONS. ALL SUBSEQUENT HOLDERS OF THIS CERTIFICATE WILL
HAVE AGREED TO BE BOUND BY CERTAIN OF THE TERMS OF THE AGREEMENT,
INCLUDING SECTION 5.9 OF THE AGREEMENT. COPIES OF THE AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE REGISTERED HOLDER OF
THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER.
The legend contained in this Section 5.9(g) shall be removed from a certificate
in connection with any sale in compliance with the terms of this Agreement and
pursuant to the Resale S-1 Registration Statement, or pursuant to Rule 144 (if
accompanied by any legal opinion reasonably required by the Buyer), but shall
not be removed in any other circumstance without Buyer's prior written consent
(which consent shall not be unreasonably withheld or delayed and shall be
granted if such legend is no longer appropriate).
(h) Transfer of Shares After Registration.
-------------------------------------
(1) Restriction. No Holder may make any sale of any Merger
-----------
Shares except (A) in accordance with the Resale S-1 Registration Statement, in
which case Holder must comply with the requirement of delivering a current
prospectus, (B) in accordance with Rule 144, or (C) pursuant to an exemption
from the registration requirements of the Securities Act, if accompanied by an
opinion of counsel that registration is not necessary, which opinion and
counsel shall be reasonably satisfactory to Buyer.
(2) Notice to Buyer of Proposed Sale and Right of Buyer to
------------------------------------------------------
Suspend Use of Registration Statement. If, at any time during the period after
- -------------------------------------
the Registration Statement has been declared effective and on or before the
date that is one year after the Closing of the Merger, any Holder shall
propose to sell any Registrable Securities pursuant to the Resale S1
Registration Statement, it shall submit written notice to the Buyer (a "Notice
------
of Sale") by facsimile transmission of such intention which shall include the
- -------
name of the Holder, the number of shares of Registrable Securities that such
holder intends to sell and the Holder's telephone and facsimile numbers. (If
the Notice of Sale is actually received on a day other than a business day, it
will be deemed received on the next business day; the date on which the Notice
of Sale is received is referred to as the "Notice Date;" the time on which the
-----------
Notice of Sale is received is
-40-
<PAGE>
referred to as the "Notice Time".) Upon receiving a Notice of Sale from a
-----------
Holder, the Buyer will notify the Holder as soon as reasonably practicable
(but in no event later than the same time as the Notice Time on the next
business day following the Notice Date) whether (i) the Buyer believes that
the prospectus contained in the Registration Statement, as then amended or
supplemented, is available for immediate use, whereupon the Buyer shall so
notify the Holder(s) and the Holder(s) will have a period of five (5) trading
days following such notification in which to sell its Registrable Securities
or (ii) the Buyer believes that it is necessary or appropriate to file a
supplement or file a post-effective amendment to the registration statement or
the prospectus or any document incorporated therein by reference or file any
other report or document so that, as thereafter delivered to the purchasers of
the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading (a "Prospectus Update"). If the
-----------------
Buyer notifies the Holder(s) that it believes it may be necessary or
appropriate to effectuate a Prospectus Update and the Buyer is not exercising
any right it may have under Section 5.9(i) to postpone the Prospectus Update,
the Buyer will thereupon use all reasonable efforts to effectuate such
Prospectus Update as soon as reasonably possible, and not later than three (3)
business days after the Notice of Sale is received by the Buyer, except that
the Buyer will have up to an additional two (2) business days to effectuate
such Prospectus Update if, because of the particular circumstances involved,
the Buyer could not effectuate the Prospectus Update earlier, despite all
reasonable diligence. As soon as the Prospectus Update has been effectuated,
the Buyer will notify each Holder who has submitted a Notice of Sale that the
prospectus is available for use, whereupon each such Holder will have a period
of five (5) trading days in which to sell its Registrable Securities.
(i) The Buyer will be entitled to postpone, for the minimum period
provided below, the filing of any Prospectus Update otherwise required to be
prepared and filed by it pursuant hereto if, at the time it receives a Notice
of Sale, the Buyer determines in its reasonable judgment, after consultation
with counsel, that (i) the Buyer would be required to prepare and file any
financial statements (other than those it customarily prepares or before it
customarily files such financial statements), (ii) the Buyer would be required
to file an amendment to the registration statement to describe facts or events
which individually or in the aggregate represent a fundamental change in the
information contained in the registration statement within the meaning of Item
512 of Regulation S-K promulgated under the Securities Act, or (iii) the
filing would require the premature announcement of any financing, acquisition,
corporate reorganization, contract or other material corporate transaction or
development involving the Buyer such as the Buyer reasonably determines would
be materially detrimental to the interests of the Buyer and its shareholders.
The postponement will be for the minimum period reasonably required for the
Buyer to prepare and file the necessary documents, in the case of a
postponement pursuant to (i) or (ii) above, or the minimum period reasonably
required to avoid such premature disclosure, in the case of (iii) above, and
which period will not be in excess of thirty (30) days unless, because of the
unusual nature of the particular circumstances, it is necessary that the
period extend beyond thirty (30) days. The Buyer will promptly give each
Holder who has submitted a Notice of
-41-
<PAGE>
Sale notice of any postponement exercised pursuant to this Section 5.9(i). As
soon as the Prospectus Update has been effectuated following a postponement
effected pursuant to this Section 5.9(i), the Buyer will notify each Holder
who has submitted a Notice of Sale that the prospectus is available for use,
whereupon each such Holder will have a period of five (5) trading days in
which to sell its Registrable Securities.
(j) The Holder(s) may not sell shares of Registrable Securities
under this Section 5.9 without first (i) complying with the Notice of Sale
requirements of Section 5.9(h)(2) and (ii) allowing the Buyer to prepare
Prospectus Updates (including any permitted postponements thereof) as set
forth in Sections 5.9(h)(2) and 5.9(i). A Holder will submit a Notice of Sale
only if in good faith it actually intends to sell the Registrable Securities
within such five (5) trading day period and with the understanding that a
Notice of Sale is to be made only on the occasion that the sale of Registrable
Securities is actually contemplated and not on a continual basis. A Holder
will notify the Buyer by facsimile transmission promptly after it has
completed or otherwise ceased sales following submission of a Notice of Sale.
The Holder(s) will provide to the Buyer all information in the Holder(s)'
possession or control, and will take all actions, as may be required in order
to permit the Buyer to comply with all applicable requirements of the
Securities Act and any applicable state securities laws.
(k) Notwithstanding anything herein to the contrary, Buyer shall
keep a registration statement effective and available pursuant to this Section
5.9 for a minimum of thirty (30) days (after taking into account any periods
of delay permitted under Sections 5.9(h) and (i) above), shall permit the
Holders to sell the Merger Shares covered by such registration statement for a
minimum of thirty (30) days, and under no circumstances shall the Buyer be
required to keep a registration statement effective and available pursuant to
this Section 5.9 for greater than thirty (30) days (after taking into account
any periods of delay permitted under Sections 5.9(h) and (i) above).
(l) Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Registrable Securities to the public without
registration, Buyer agrees to use its reasonable best efforts to:
(1) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the Merger;
(2) File with the SEC in a timely manner all reports and other
documents required of Buyer under the Securities Act and the Exchange Act; and
(3) So long as a Holder owns any Registrable Securities, to
furnish to that Holder forthwith upon request a written statement by Buyer as
to its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Buyer, and such other reports and documents of Buyer as
such Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing such Holder to sell any such Registrable
Securities without registration.
-42-
<PAGE>
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order or
prohibition issued by any Governmental Entity preventing the consummation of
the Merger shall be in effect. In the event an injunction or other order shall
have been issued, each party agrees to use its reasonable diligent efforts to
have such injunction or other order lifted.
(b) Governmental Approval. Buyer, Company and Merger Sub and their
---------------------
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act under state blue sky laws and Delaware Law.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Buyer and Merger Sub in this Agreement shall
be true and correct in all material respects (except for such representations
and warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations and
warranties were made on and as of such time and (ii) Buyer and Merger Sub
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them as of the Effective Time, and Company shall have
received a certificate signed on behalf of Buyer and the Merger Sub by the
Chief Executive Officer or the President and the Chief Financial Officer to
such effect.
(b) Legal Opinion. Company shall have received a legal opinion
-------------
from Buyer's legal counsel substantially in the form of Exhibit 6.2(b)
--------------
hereto.
(c) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations,
results of operations or prospects of Buyer and its subsidiaries, taken as a
whole.
-43-
<PAGE>
(d) Third Party Consents. Company shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the consent or approval of those
persons and entities whose consent or approval shall be required in order for
Buyer and Merger Sub to consummate the Merger.
(e) Intentionally omitted.
(f) Employment and Non-Competition Agreements. The Buyer shall
-----------------------------------------
have executed the Employment and Non-Competition Agreements substantially in
the form attached as Exhibit 6.2(f) (each an "Employment and Non-Competition
-------------- ------------------------------
Agreement") with Christopher Kolb, Howard Vinik and Timothy Seng.
- ---------
(g) Escrow Agreement. The Buyer and Escrow Agent shall have
----------------
executed the Escrow Agreement substantially in the form attached Exhibit
6.2(g).
(h) Matus Advisory Agreement. The Buyer and Geoffrey Matus shall
------------------------
have entered into an Advisory Agreement substantially in the form attached as
Exhibit 6.2(h) (the "Matus Advisory Agreement").
(i) Assumption of Notes. Buyer will execute an Assumption Agreement
-------------------
substantially in the form attached as Exhibit 6.2(i), pursuant to which it will
assume the obligations of the Company under those certain promissory notes dated
as of January 25, 1999, as amended by letter agreement dated September __, 1999,
payable to each of Rhemai 3, B.V., Hawk Hill Investment Limited and CCG Canada
Inc.
6.3 Additional Conditions to the Obligations of Buyer and Merger Sub.
----------------------------------------------------------------
The obligations of Buyer and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Buyer:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Company in this Agreement shall be true and
correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations and
warranties were made on and as of such time and (ii) Company shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time, and Buyer shall have received a
certificate signed on behalf of Company by the President and Chief Financial
Officer to such effect.
(b) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Company's legal counsel, in substantially the form of Exhibit 6.3(b).
(c) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations,
results of operations or prospects of Company other than the good faith use of
cash reasonably consistent with projections previously provided to Buyer.
-44-
<PAGE>
(d) FIRPTA Certificate. Company shall have provided Buyer with the
------------------
FIRPTA Notification Letter.
(e) Third Party Consents. Buyer shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the consent or approval of those
persons and entities whose consent or approval shall be required in order for
Company to consummate the Merger or ensure the continuation of all contracts
of Company, including but not limited to AOL's consent to the Merger pursuant
to the AOL Advertising Insertion Order dated August 20, 1999.
(f) Resignation of Directors. The directors of Company in office
------------------------
immediately prior to the Effective Time shall have resigned as directors of
the Surviving Corporation effective as of the Effective Time.
(g) Employment and Non-Competition Agreements. Each of Christopher
-----------------------------------------
Kolb, Howard Vinik, and Timothy Seng shall have executed the Employment and
Non-Competition Agreement.
(h) Confidentiality Agreements. The employees and consultants of
--------------------------
Company listed on Exhibit 6.3(h), who constitute all of Buyer's employees and
consultants, shall have entered into Confidential Information and Invention
Assignment Agreements in the Buyer's standard form, to be effective upon the
Closing.
(i) Dissenting Stockholders. Holders of no more than 10% of
-----------------------
Company's issued and outstanding capital stock as of the Closing shall have
elected to, or continue to have contingent rights to, exercise appraisal
rights under Delaware Law as to such shares.
(j) Escrow Agreement. The Escrow Agent and Stockholders' Agent
----------------
shall have executed and delivered to Buyer the Escrow Agreement.
(k) Intentionally omitted.
(l) Bergen Brunswig Fulfillment Agreement. The Bergen Fulfillment
-------------------------------------
Agreement executed and delivered concurrently with the execution of this
Agreement, and as amended by the Bergen Letter Agreement, shall remain in full
force and effect.
(m) IPO Lockup Agreement. Each of the Company Stockholders and
--------------------
Company option holders shall have executed Buyer's underwriters' standard form
of 180 day lockup agreement in connection with Buyer's proposed initial public
offering in the form attached as Exhibit 6.3(m).
(n) Service Mark License and Access Agreement. The Service Mark
-----------------------------------------
License and Access Agreement executed and delivered concurrently with the
execution of this Agreement shall remain in full force and effect.
(o) Stockholder Agreement. Each Company Stockholder shall have
---------------------
executed and delivered to Buyer the Stockholder Agreement in the form attached
as Exhibit 6.3(o).
--------------
-45-
<PAGE>
(p) Purchasers' Representative. Each of the Company Stockholders
--------------------------
who is not an accredited investor as defined in Rule 501 of the Securities Act
has appointed Geoffrey Matus to act as a "purchaser representative" as defined
in Rule 501 of the Securities Act.
(q) Intentionally omitted.
(r) Matus Advisory Agreement. Geoffrey Matus shall have executed and
------------------------
delivered the Matus Advisory Agreement.
(s) Certificates. Each of the Company Stockholders shall have
------------
executed and delivered to the Buyer the Certificates representing all of the
shares of Company Common Stock outstanding, together with duly executed stock
powers transferring such Certificates to Merger Sub.
(t) Assignment of URLs. Geoffrey Matus shall have executed and
------------------
delivered an application for the assignment of the URLs "ePills.com,"
"ePills.net" and "Medicinas.com" to the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. At any time prior to the Effective Time, whether
-----------
before or after approval of the matters presented in connection with the
Merger by the shareholders of Company, this Agreement may be terminated:
(a) by mutual consent of Buyer and Company;
(b) by Company or Buyer, by giving written notice to the other
party, if the other party is in material breach of any representation,
warranty, or covenant of such other party contained in this Agreement, which
breach shall not have been cured, if subject to cure, within 15 days following
receipt by the breaching party of written notice of such breach by the other
party;
(c) by Buyer, by giving written notice to the Company, if the
Closing shall not have occurred on or before October 15, 1999 by reason of the
failure of any condition precedent under Section 6.1 or 6.3 (unless the
failure results primarily from a breach by Buyer or Merger Sub of any
representation, warranty, or covenant of Buyer or Merger Sub contained in this
Agreement or Buyer's failure to fulfill a condition precedent to closing or
other default);
(d) by Company, by giving written notice to Buyer, if the Closing
shall not have occurred on or before October 15, 1999 by reason of the failure
of any condition precedent under Section 6.1 or 6.2 (unless the failure
results primarily from a breach by the Company of any representation,
warranty, or covenant of Company contained in this Agreement or the Company's
failure to fulfill a condition precedent to closing or other default);
-46-
<PAGE>
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Buyer,
Merger Sub or Company or their respective officers, directors, shareholders or
affiliates, except to the extent that such termination results from the
material breach by a party hereto of any of its representations, warranties or
covenants set forth in this Agreement; provided that, the provisions of
Section 5.2 (Confidentiality) and this Section 7.2 shall remain in full force
and effect and survive any termination of this Agreement.
7.3 Amendment; Waiver. The boards of directors of the parties hereto
-----------------
may cause this Agreement to be amended at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto. At any
time prior to the Effective Time any party hereto may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Notwithstanding any investigation conducted before or after the Closing Date,
Buyer and the Company will be entitled to rely upon the other party's
representations, warranties and covenants set forth in this Agreement. The
obligations of the Buyer and the Company with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect for a period of six months after the Closing, provided
that if a notice is given in accordance with the Escrow Agreement before the
expiration of such six month period, then (notwithstanding the expiration of
such time period) the representation, warranty or covenant applicable to such
claim shall survive until, but only for the purpose of, the resolution of such
claim.
8.2 Indemnity by Company Shareholders. From and after the Closing Date,
---------------------------------
and subject to the other provisions of this Article 8, each Company
Stockholder shall jointly and severally indemnify and hold harmless Buyer and
Surviving Corporation (an "Indemnified Person") against, and reimburse Buyer
------------------
and/or Surviving Corporation for, any liability, damage, loss, obligation,
demand, judgment, fine, penalty, cost or expense, including reasonable
attorneys' fees and expenses, and the costs of investigation incurred in
defending against or settling such liability, damage, loss, cost or expense or
claim therefor and any amounts paid in settlement thereof (collectively
"Damages") imposed on or reasonably incurred by Buyer as a result of: (i) any
-------
breach of any representation or warranty or failure to perform any covenant on
the part of Company under this Agreement, (ii) resulting from any claim by a
Company Stockholder or former Company stockholder based upon an ownership
right or alleged ownership right of any shares of stock of the Company, the
form of consideration payable in the Merger or any actions of the board of
directors of the Company in connection with the transactions
-47-
<PAGE>
contemplated by this Agreement or (iii) or arising out of any facts relating
to [* * *]
8.3 Method of Asserting Claims. All claims for indemnification by an
--------------------------
Indemnified Person pursuant to this Article VIII shall be made in accordance
with the provisions of the Escrow Agreement.
8.4 Limitations. Notwithstanding anything to the contrary herein,
-----------
(a) the aggregate liability of the Company Stockholders for Damages
under this Article VIII shall be limited to the Escrow Fund (or a portion
thereof, as set forth in the Escrow Agreement). Except with respect to claims
based on fraud, in the event the Merger occurs, the rights of an Indemnified
Person under this Article VIII shall be limited exclusively to the right to
receive the Escrow Shares (or a portion thereof, as set forth in the Escrow
Agreement) and such indemnification shall be the exclusive remedy of the
Indemnified Persons with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement. No Company Stockholder
shall have any right of contribution against the Company with respect to any
breach by the Company of any of its representations, warranties, covenants or
agreements.
(b) Subject to Section 12(a) of the Escrow Agreement, the Company
Stockholders shall have no obligation to indemnify the Indemnified Person
pursuant to Section 8.2 hereof unless and until all Damages thereunder shall
exceed $50,000 in the aggregate, at which point the Company Stockholders shall
be responsible for all Damages (including the first $50,000 of such Damages)
imposed on or incurred by the Indemnified Person. As used in this Agreement,
"Damages" shall be determined after giving effect to the receipt by the
Indemnified Person of any insurance proceeds relating to such Damages.
8.5 Stockholders' Agent. Geoffrey Matus shall be constituted and
-------------------
appointed as agent ("Stockholders' Agent") for and on behalf of the Company
-------------------
Stockholders to give and receive notices and communications, to authorize
delivery to Buyer of the Buyer Common Stock in satisfaction of claims by
Buyer, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims, and to take
all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing. Notices or communications to or
from the Stockholders' Agent shall constitute notice to or from each of the
Company Shareholders. A decision, act, consent or instruction of the
Stockholders' Agent shall constitute a decision of all Company Stockholders
with respect to this Section 8 and shall be final, binding and conclusive upon
each such Company Stockholder, and the Buyer may rely upon any decision, act,
consent or instruction of the Stockholders' Agent as being the decision, act,
consent or instruction of each and every such Company Stockholder.
-48-
* * * CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR A PORTION OF THIS EXHIBIT
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Buyer or Merger Sub, to:
HealthCentral.com
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
Attn: Chief Executive Officer
Facsimile No.:
Telephone No.: 510-250-2500
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Mark A. Medearis
Facsimile No.: (415) 233-8386
Telephone No.: (415) 854-4488
(b) if to Company, to:
ePills Inc.
5900 Hollis Street
Suite O
Emeryville, CA 94608
Attn: President
Fax: (510) 594-8285
Tel: (510) 250-3110
-49-
<PAGE>
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Attn: Steven S. Pretsfelder, Esq.
Facsimile No.: (212) 702-5941
Telephone No.: (212) 702-5730
and to:
Goldman, Spring, Schwartz & Kichler
40 Sheppard Avenue West
Suite 700
North York, Ontario M2N 6K9
Canada
Attn: Samuel Schwartz, Esq.
Facsimile No.: (416) 225-4805
Telephone No.: (416) 225-9400
(c) Each such notice or other communication shall be in writing and
shall be effective (i) if given by telecopier, when such telecopy is
transmitted to the telecopier number specified in Section 9.1 (with
confirmation of transmission); or (ii) if given by any other means, when
delivered at the address specified in Section 9.1. Any party by notice given
in accordance with this Section 9.1 to the other party may designate another
address (or telecopier number) or person for receipt of notices hereunder.
Notices by a party may be given by counsel to such party.
9.2 Interpretation. The table of contents and headings contained in
--------------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, any
reference to a party's "knowledge" or "to the best of its knowledge" means
such party's actual knowledge after due and diligent inquiry of officers,
directors and other employees of such party reasonably believed to have
knowledge of such matters.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
9.4 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Buyer Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof,
-50-
<PAGE>
except for the Confidentiality Agreement, which shall continue in full force
and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; and (b) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement, or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California. Each of the parties
hereto irrevocably consents to the exclusive jurisdiction of any court located
within the State of California, in connection with any matter based upon or
arising out of this Agreement or the matters contemplated herein, agrees that
process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
9.7 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.8 Resolution of Conflicts; Arbitration. Any dispute arising out of or
------------------------------------
related to this agreement, which cannot be resolved by negotiation, shall be
settled by binding arbitration conducted by a single arbitrator, selected by
mutual agreement of the Stockholder Agent and Buyer, conducted in the San
Francisco Bay Area in accordance with the rules then in effect of the American
Arbitration Association. Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. The non-prevailing party to
an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred
by the other party to the arbitration.
-51-
<PAGE>
IN WITNESS WHEREOF, Buyer, Company, Merger Sub and Stockholder Agent have
caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized, all as of the date first written above.
HEALTHCENTRAL.COM
By:__________________________________
Name:___________________________
Title:__________________________
E-PILLS INC.
By:__________________________________
Name:___________________________
Title:__________________________
HC2 ACQUISITION CORPORATION
By:__________________________________
Name:___________________________
Title:__________________________
STOCKHOLDER AGENT
_________________________________________
GEOFFREY MATUS
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
-52-
<PAGE>
Exhibit 10.24
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of ___________
---------
____, 1999, by and between HealthCentral.com, a Delaware corporation (the
"Company"), and <IndemniteeName> (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order,
<PAGE>
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to any criminal
action or proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
-2-
<PAGE>
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice
------------------
of a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
-3-
<PAGE>
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement,
-----
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange
-4-
<PAGE>
Commission (the "SEC") has taken the position that indemnification is not
---
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from
----------------------------------------
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
-5-
<PAGE>
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this
-6-
<PAGE>
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
-7-
<PAGE>
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
HEALTHCENTRAL.COM
By:___________________________________________
Title:________________________________________
Address: 6001 Shellmound Street, Suite 800
Emeryville, CA 94608
AGREED TO AND ACCEPTED:
<IndemniteeName>
_____________________________
(Signature)
Address:
-9-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Windom Health Enterprises.
- --------------------------
ePills, Inc. (upon the closing of the acquisition pursuant to the agreement
- ------------ disclosed in Exhibit 10.21)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333- ) of our report dated September 24, 1999, except as to the
second paragraph of Note 1 which is as of November , 1999, relating to the
financial statements of HealthCentral.com, which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
, 1999
<PAGE>
EXHIBIT 23.1b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333- ) of our report dated September 24, 1999, relating to the
financial statements of Windom Health Enterprises, Inc. which appears in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
September 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 69,383 1,091,551
<SECURITIES> 0 0
<RECEIVABLES> 42,167 15,189
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 271,932 1,106,740
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,579,662 1,670,281
<CURRENT-LIABILITIES> 532,607 67,648
<BONDS> 0 0
0 0
1,134 1,134
<COMMON> 4,468 4,468
<OTHER-SE> 541,453 1,597,031
<TOTAL-LIABILITY-AND-EQUITY> 1,579,662 1,670,281
<SALES> 126,546 15,259
<TOTAL-REVENUES> 126,546 15,259
<CGS> 496,197 136,788
<TOTAL-COSTS> 496,197 136,788
<OTHER-EXPENSES> 2,092,574 461,494
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,958,509) (446,235)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,958,509) (446,235)
<EPS-BASIC> (0.37) (0.09)
<EPS-DILUTED> (0.31) (0.09)
</TABLE>
