<PAGE>
As filed with the Securities and Exchange Commission on November 30, 1999
Registration No. 333-88019
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 6
To
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. [_]
---------------
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 November 30, 1999
PROSPECTUS
7,500,000 Shares
[HEALTHCENTRAL.COM LOGO]
Common Stock
--------------------------------------------------------------------------------
We are offering 7,500,000 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 $9.00 and $11.00 per share.
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 7.
<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 1,125,000 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
Fidelity Capital Markets
a division of National Financial Services Corporation
Facilitating Electronic Distribution
, 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 quote will read as follows:
HealthCentral.com's goal is to become the most trusted and complete source
of online healthcare information and products.
On the right side of the page, we will show screens, in cascading format, from
the websites in the HealthCentral.com network.
<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 quote will be on the left end side:
In addition to our HealthCentral.com network, we act as an application
service provider, which means that we design, host and maintain websites
for healthcare institutions.
Next to the above quote will be two screens, displayed horizontally from left
to right, from the homepages of two institutional clients.
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:
The 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 right will be a picture of Dr. Dean Edell. In a cascade to the left of
this picture will be the headings "Dr. Dean Edell," "People's Pharmacy" and
"RxList.com."
<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 bullet points will be used in reference to the features:
. SEARCH ENGINE
. TODAY'S TOP STORIES
. DR. DEAN TODAY
. DR. DEAN PREVIOUS TOPICS
. COLUMNISTS
. NEWS POLLS AND QUIZZES
. HEALTH PROFILE
. MY HEALTH: PERSONALIZED NEWS PAGES, QUESTIONNAIRES AND NEWSLETTERS
. 90 COLLECTIONS OF HEALTH-RELATED RESOURCES
Bottom Half of Page
The bottom half of this page will be the homepage from www.healthcentralrx.com.
Lines will point to specific features on the homepage screen. The following
quotes will be used in reference to the features:
We provide our customers with access to prescription pharmaceuticals, health
and beauty aids and health-related over-the-counter products with useful
features such as a keyword search engine and virtual shopping bag. Our product
categories are:
. HEALTH
. PERSONAL CARE
. SUPPLEMENTS
. BEAUTY CATEGORY
. PARENTING
. PRESCRIPTION MEDICATIONS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 21
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 32
Management................................................................. 54
Transactions with Affiliates............................................... 64
Principal Stockholders..................................................... 67
Description of Capital Stock............................................... 69
Shares Eligible for Future Sale............................................ 72
Underwriting............................................................... 74
Legal Matters.............................................................. 77
Experts.................................................................... 77
Additional Information..................................................... 77
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.
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' obligations to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
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 the ability to purchase
health-related products online, or 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. Dr. Edell has a daily syndicated radio program,
which is broadcast on over 300 radio stations, as well as a brief radio
rush hour broadcast. We believe these two radio broadcasts combined reach
an estimated 13 million listeners per week. Dr. Edell also has a
syndicated television report broadcast in over 50 television markets. In
September 1999, according to an audit completed by Nielsen I/PRO,
www.healthcentral.com attracted approximately 5.3 million page views, and
according to Double Click 781,542 unique users.
. www.HealthCentralRx.com. HealthCentralRx.com is our online drug store,
offering over 23,000 stock keeping units, or SKUs, a term used to
describe distinct retail products. HealthCentralRx.com has fulfillment
agreements with Bergen Brunswig, a major drug distributor, for health and
beauty aids, over-the-counter products and prescription drug orders.
HealthCentralRx.com is one of five health anchor tenants on the America
Online HealthOnline Pharmacy Channel.
. www.RxList.com. RxList.com is our online database of over 4,000
pharmaceuticals and other medicines, with extensive information on 600
entries. RxList.com has been developed and enhanced since 1995.
RxList.com has direct links from over 10,000 websites and search engines
seeking drug information. According to Nielsen I/PRO, www.RxList.com
attracted approximately 2.8 million page views in September 1999, and,
according to DoubleClick, 364,000 unique users in that same month.
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. We recently launched
www.peoplespharmacy.healthcentral.com, featuring pharmacy-related content
provided exclusively by the authors of The People's Pharmacy, a newspaper
column published in over 150 newspapers. We also recently launched a co-branded
health channel with MediaLinx, a Canadian portal, which focuses on Canadian
health content.
In addition, we act as an application service provider, which means that we
design, host and maintain websites for healthcare institutions. These websites
are private label websites, which means that they are branded under our
clients' own names and brands rather than ours. 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
3
<PAGE>
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 almost one third of a surveyed group of Internet users
shopped for health and personal care 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.
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 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. For the nine month period ended September 30, 1999, we had net losses
of $9.1 million, and as of September 30, 1999 we had an accumulated deficit of
$9.6 million. 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--in television, radio and print media-- through our
relationships with established medical professionals in traditional media
such as Dr. Dean Edell and Joe and Teresa Graedon, through our
relationships with AltaVista, America Online and MediaLinx and through
television, radio and newspaper advertising;
. cultivate multiple revenue streams of sponsorship and advertising fees
principally from our flagship HealthCentral.com website and our
RxList.com website, e-commerce revenue from HealthCentralRx.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 HealthCentralRx.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,
RxList.com and PeoplesPharmacy.HealthCentral.com;
. increase users' return visits to our network through interactive
features;
. 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.
Recent Acquisitions
In October 1999, we acquired ePills Inc., an online pharmacy company, and
RxList.com, Inc., an online pharmaceutical database company. We recently
changed the name of ePills to "HealthCentralRx.com, Inc." All references to our
online drug store in this prospectus have been changed to reflect the new name.
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, www.rxlist.com and www.healthcentralrx.com,
does not constitute part of this prospectus.
"HealthCentral.com," "Windom Health," "HealthCentralRx.com," "RxList.com,"
"HealthView" and "LifeView" are our trademarks. We are in the process of filing
for federal trademark registrations for the trademarks "HealthCentral.com,"
"HealthCentralRx.com" and "Windom Health Enterprises." This prospectus also
makes reference to trademarks of other companies.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by HealthCentral.com.......... 7,500,000 shares
Common stock to be outstanding after the offering.. 19,720,631 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 September 30, 1999 and
excludes the following:
. a total of 2,006,157 shares issuable upon exercise of outstanding options
at a weighted average exercise price of $1.29 per share;
. a total of 666,373 shares issuable upon exercise of outstanding warrants
at a weighted average exercise price of $2.89 per share;
. a total of 5,219,927 shares available for future issuance under our 1998
and 1999 stock plans;
. a total of 1,579,065 shares, of which 86,969 shares were reserved for
issuance pursuant to the assumption of options, issued in connection with
our acquisition of HealthCentralRx.com in October 1999; and
. a total of 836,422 shares issued in connection with our acquisition of
RxList.com in October 1999.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions: .
. the conversion of each outstanding share of preferred stock into one
share of common stock immediately before the completion of this offering,
. a five-for-four split of our capital stock effective upon the completion
of this offering,
. no exercise of the underwriters' overallotment option, and
. the filing of our amended and restated certificate of incorporation upon
completion of this offering.
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>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------- -----------------------
1997 1998 1998 1999
------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.................. $ -- $ 15,259 $ 48 $ 488,646
Total operating expenses.. 1,148 461,494 82,557 9,671,679
------------ ------------ --------- -----------
Loss from operations...... (1,148) (446,235) (82,509) (9,183,033)
Interest income, net...... -- -- -- 76,963
------------ ------------ --------- -----------
Net loss.................. $ (1,148) $ (446,235) $ (82,509) $(9,106,070)
============ ============ ========= ===========
Basic and diluted net loss
per share................ $ -- $ (0.10) $ -- $ (1.76)
============ ============ ========= ===========
Shares used in computing
basic and diluted net
loss per share........... 4,610,000 4,669,628 4,662,769 5,168,638
============ ============ ========= ===========
Pro forma basic and
diluted net loss per
share.................... $ (0.10) $ (1.42)
============ ===========
Shares used in computing
pro forma basic and
diluted net loss per
share.................... 4,691,820 6,390,540
============ ===========
</TABLE>
The pro forma balance sheet data as of September 30, 1999 reflects:
. 1,579,065 shares of common stock, of which 86,969 shares were reserved
for issuance pursuant to the assumption of options, issued to
HealthCentralRx.com stockholders in connection with our acquisition of
HealthCentralRx.com in October 1999; and
. 836,422 shares of common stock issued in connection with our acquisition
of RxList.com in October 1999 and a total of $2.6 million in notes
payable issued to shareholders of RxList.com.
The pro forma as adjusted balance sheet data gives effect to our receipt of
the estimated net proceeds from the sale of 7,500,000 shares of common stock in
this offering at an assumed initial public offering price of $10.00 per share
after deducting the estimated underwriting discount and commissions and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
September 30, 1999
------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $16,228,912 $16,267,401 $ 84,517,401
Working capital.......................... 15,205,156 11,966,550 80,216,550
Total assets............................. 30,372,507 57,299,340 125,549,340
Long-term obligations, including current
portion................................. 369,954 4,219,954 4,219,954
Total stockholders' equity............... 27,377,962 49,556,870 117,806,870
</TABLE>
6
<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. 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 only launched our HealthCentral.com website in November 1998 and our
HealthCentralRx.com website in September 1999, which makes it difficult for
investors to evaluate an investment in our common stock.
We have a limited operating history on which you can evaluate our business.
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, such as drkoop.com, drugstore.com and planetRx;
. gain advertising and sponsorship revenue from vendors of health-related
products and services;
. implement a successful e-commerce strategy through our
HealthCentralRx.com subsidiary;
. create and maintain successful strategic alliances with portals,
provider 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 had an accumulated deficit of $9.6 million at September 30, 1999 and expect
our expenses to increase, and thus we may never become profitable.
We expect our operating expenses to substantially exceed revenues for the
foreseeable future, and we may never become profitable. Since our inception, we
have had very limited revenues and have incurred net losses in each year. While
we are unable to predict accurately our future operating expenses, we currently
expect these expenses to increase substantially, as we, among other things:
. make substantial payments to both our existing and future business
partners to gain advertising revenue, traffic or otherwise expand our
HealthCentral.com network;
. promote our HealthCentral brand;
. develop or acquire unique health-related content;
. hire additional employees;
. develop and expand our systems infrastructure and support functions; and
. offer product promotions.
A failure to build our brand names quickly and significantly will result in
lower than expected revenues.
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
7
<PAGE>
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 intend to market our HealthCentralRx.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 HealthCentralRx.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. Dr. Edell is not
contractually obligated to provide content or drive traffic to our network, and
he is not compensated for such activity. 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.
In addition, under his agreement with Premiere Radio Networks, the
syndicator of his radio show, 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. Although we maintain
key person life insurance for Dr. Edell, his role in our company is
sufficiently critical that the insurance would not adequately protect us in the
event of his death. See "Business--Strategic Relationships."
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,
content and product providers, institutional clientele and other sources of
online revenue. We compete with other dedicated healthcare websites, such as
drkoop.com, OnHealth.com and DiscoveryHealth.com. In addition, we compete with
online portal companies, healthcare providers and payors and consumer affinity
groups. See "Business--Competition--HealthCentral.com and RxList.com."
Through HealthCentralRx.com, we compete with:
. other online drug stores, such as drugstore.com and planetRx,
. pharmacy benefit managers, or PBMs, that sell pharmaceuticals directly,
. traditional brick-and-mortar drug stores, including drug store chains,
supermarkets, mass market retailers and independent drug stores, many of
whom have begun or have announced their intention to offer online
services, and
. hospitals, HMOs and mail order prescription drug providers, many of whom
are beginning to offer products and services over the Internet.
8
<PAGE>
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
online competitors forming alliances with brick and mortar drug stores, HMOs,
PBMs or other competitors, which could both strengthen our competitors and/or
preclude us from entering into similar relationships with their partners. For
instance, drugstore.com has formed an alliance with RiteAid, and planetRx has
formed a strategic alliance with Express Scripts, Inc. Increased competition
could result in price reductions, fewer customer orders, reduced margins and
loss of, or failure to build, market share.
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, that our product mix is inappropriate for their needs, or that it
would be better for them to independently develop and manage their own
websites. See "Business--Competition--Institutional Internet Services."
We need to generate substantial revenues from our e-commerce business for
healthcare products, this market is unproven, and we have limited experience in
it.
The healthcare e-commerce market is unproven.
Our rate of revenue growth could be significantly less than that of online
merchants in other industries because 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.
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, or additional steps
required to obtain reimbursement from, insurance carriers or pharmacy
benefit managers;
. lack of consumer awareness of our online drug store;
. longer delivery times for Internet orders, delays in responses to
customer inquiries and/or difficulties in returning products, as
compared to brick-and-mortar drug stores;
. shipping charges and problems related to shipping, such as product
damage or failure to ship the correct order;
. lack of face-to-face interaction with a pharmacist;
9
<PAGE>
. failure to meet shoppers' pricing expectations for prescription drugs,
over-the-counter medicines and health and beauty products;
. customer concerns about security and privacy with regard to transmitting
personal health information over the Internet; and
. inability to meet immediate delivery or pick-up requirements for
prescriptions for acute conditions.
We have limited experience in the healthcare e-commerce market.
HealthCentralRx.com was only incorporated in January 1999 and only launched
its website in September 1999, and thus we have limited experience to date in
the sale of healthcare products and services online. We may need to expand the
breadth and depth of our product offerings, which would be both expensive and
time-consuming.
We are dependent on Bergen Brunswig and Medi-Mail for fulfillment of our orders
and access to pharmacy benefit managers.
In July and September 1999, HealthCentralRx.com entered into a series of
agreements with Bergen Brunswig and its Medi-Mail subsidiary relating to the
fulfillment of orders placed on our HealthCentralRx.com website for healthcare
products and access to the PlusCare Provider Network of pharmacy benefit
managers, or PBMs. This fulfillment mechanism is complex and will require us to
develop reporting systems and integrate Bergen Brunswig's fulfillment systems
with our web-based systems. Developing and integrating operational systems is
technically difficult and may be delayed, which could delay our receipt of
revenues and diminish customer acceptance. In addition, there are many
important details regarding pricing, revenue sharing and operational procedures
which Bergen Brunswig and we have not yet finalized. Because Bergen Brunswig is
our exclusive fulfillment partner for some products, any failure by Bergen
Brunswig to supply sufficient quantities and types of products in a timely
manner could result in customer dissatisfaction and harm our e-commerce
business. 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 our relationship with Bergen
Brunswig, customer perceptions, revenues and our ability to execute our e-
commerce strategy may be jeopardized.
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.
Many PBMs are in the early stages of evaluating the impact of the Internet and
online pharmacies on their businesses. Thus, 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 January 24, 1999
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. See "Business--Strategic Relationships--Bergen
Brunswig."
Because we need to make substantial cash outlays and do not expect a
significant near-term improvement in our cash flows, 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
10
<PAGE>
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 obligated to pay
AltaVista $31.5 million over the next two years, America Online $12.3 million
over the next two years, $3 million in connection with our acquisition of
RxList.com and $1.25 million in connection with our acquisition of
HealthCentralRx.com. In addition, we may enter into additional business
relationships that require us to make additional cash payments.
The sale of additional equity or convertible debt securities could result in
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.
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.
We have a three-year agreement with AltaVista to develop a co-branded health
channel and a two-year agreement with America Online under which our online
drug store will be one of five health-related anchor tenants on the America
Online HealthOnline Pharmacy Channel. Each of these agreements requires us to
make large payments over the respective terms of the agreements in exchange for
minimum numbers of user impressions--$65.6 million in cash and stock to
AltaVista over the three year term, and $12.3 million in cash to America Online
over the two year term. Either AltaVista or we may terminate the AltaVista
agreement after two years, in which case our total payment obligation over the
first two years would be $34.5 million in cash and stock, of which $1 million
has been paid. However, even if AltaVista delivers the minimum required
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 from the
co-branded channel to the HealthCentral.com website sufficient to justify our
expenses. If we do not receive the revenues we currently expect from these
relationships, or if either the AltaVista Health Channel or the America Online
HealthOnline Pharmacy Channel is unsuccessful in attracting traffic to our
websites or in enhancing our brands, these substantial investments may not be
recovered.
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. 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 HealthCentralRx.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. We also plan
to post product information on our HealthCentralRx.com and RxList.com websites,
which creates additional potential for claims to be made against us. 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
HealthCentralRx.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
HealthCentralRx.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,
11
<PAGE>
whether through HealthCentralRx.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 health-related products we sell
through HealthCentralRx.com.
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
and could seriously damage our reputation.
Extensive and changing government regulation of the healthcare and pharmacy
industries is expensive to comply with and exposes us to the risk of
substantial government penalties.
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;
. advertising drugs, cosmetics and nutritional supplements;
. storage, transmission and disclosure of medical information and
healthcare records; and
. state insurance regulations.
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."
In order to gain market share, we need to continue to provide unique content,
which is expensive and difficult to obtain.
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 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, it could delay
market acceptance of the HealthCentral.com network.
If consumers perceive our healthcare content to be influenced by our
relationships with advertisers or health-related product vendors, our
reputation could suffer.
We receive sponsorship revenues from advertisers of health-related products
on our websites and revenues from sales of health-related products. However,
our success in attracting and retaining users to our websites
12
<PAGE>
depends on our being a trusted source of independent health-related
information. There has been recent press attention focused on possible
conflicts of interest within the online healthcare information industry. Any
consumer perception that our editorial content is influenced by our commercial
relationships could harm our reputation and business.
We rely on relationships with other Internet companies, which are short-term or
non-exclusive, to drive traffic and build brand awareness.
We have entered into agreements with 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
agreements are, or possible future agreements may be, short-term, non-exclusive
or may be terminated at the convenience of either party. We may be unable to
develop and maintain these relationships and generate sufficient traffic and
revenues from them. In addition, these third parties may never achieve market
acceptance themselves.
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.
Any systems problems in the HealthCentral.com network, including our
HealthCentralRx.com online drug store, such as system disruptions, slower
system response times, and degradation in customer service levels, could result
in negative publicity, cause our users to use our competitors' services, and
reduce our revenues. Additionally, if we fail to meet the website performance
standards in our contracts with our institutional clients, they may terminate
their agreements, require refunds or fail to renew contracts with us, any of
which could decrease our institutional revenues.
From time to time, we have experienced temporary system interruptions for a
variety of reasons, including power and telecommunications failures, flaws in
our software and greater than expected site traffic. We are also vulnerable to
breaches in our security and natural disasters. 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. We have no formal disaster recovery plan, and our insurance may not
adequately compensate us for losses that may occur due to systems
interruptions.
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,
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
13
<PAGE>
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.
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. Widespread adoption of filter software, which limits or prevents
advertising from being delivered to an Internet user's computer, 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. In addition,
advertising and product claims of companies marketing or 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 as a result of a variety of
factors, including:
. shifts in user traffic levels on HealthCentral.com and
HealthCentralRx.com and associated costs;
. shifts in the rate at which visitors to our HealthCentralRx.com website
convert into customers;
. demand for our products and mix of products sold;
. shifts in the nature and amount of publicity about us or our
competitors;
. changes in our pricing policies or the pricing policies of our
competitors;
. changes in the frequency and size of repeat purchases by customers of
our online drug store;
. shifts in our ability, and that of our fulfillment partners, Bergen
Brunswig and Medi-Mail, to ensure sufficient product supply;
. seasonal patterns of spending by advertisers and sponsors and trends in
advertising rates;
. long sales cycles and delays in website development for institutional
projects;
. costs related to acquisitions of businesses or the timing of payments to
our strategic partners;
. fluctuations in expected revenues from our strategic relationships;
14
<PAGE>
. changes in reimbursement policies and practices of pharmacy benefit
managers and insurance companies for prescription drugs;
. our technological capabilities to accommodate any future growth in our
operations or customers; 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.
Our recent growth has strained our existing personnel and other resources, and
any failure to manage this growth could increase our operating costs.
We have experienced and are currently experiencing a period of significant
growth, which has placed, and will continue to place, a significant strain on
our resources. Any failure to successfully manage our growth could distract
management attention and result in our failure to execute on our business plan.
As a result of the acquisition of our online drug store, HealthCentralRx.com,
we have added over 13 new employees, and we will need to assimilate the
operations of HealthCentralRx.com into our operations. Our senior management
has no prior operational experience in the online drug store business. In order
to manage this growth effectively, we have to implement new transaction-
processing, operational, reporting, and financial systems, expand and train our
employee base, and maintain close coordination among our technical, finance,
marketing, sales and editorial staffs. We also need to devote significant
management time and financial resources to website and content development,
strategic relationships, technology infrastructure and operational
infrastructure.
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
HealthCentralRx.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 could be severely harmed.
We need to hire additional personnel in virtually all operational areas,
including sales and marketing, production, research and development, customer
service and administration. Competition for personnel throughout the Internet
and healthcare industries is intense. 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 private label websites for healthcare institutions
could adversely affect our revenue growth.
We expect that the sales process for our institutional web site development
business will be lengthy and will involve a significant business and technical
evaluation and possible 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 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, healthcentralrx.com and rxlist.com. The
regulation of domain names in the United States and in foreign
15
<PAGE>
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,
healthcentralrx.com or rxlist.com domain names 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 brands, 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. We are currently in
the process of purchasing the domain names doctoredell.com and dredell.com from
a third party. Any confusion that may result from information on or related to
any websites with domain names relating to our brands could impair both our
ability to capitalize upon our brands and our marketing strategy.
We may not achieve the expected benefits of the acquisition of
HealthCentralRx.com, and the integration of HealthCentralRx.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 HealthCentralRx.com
personnel and operations or fund or accomplish the execution of this e-commerce
business plan. The integration of HealthCentralRx.com into our business may
strain our existing technology and operations systems as we attempt to
assimilate HealthCentralRx.com into our existing operations. In addition, key
HealthCentralRx.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 acquisitions of three companies, Windom Health,
HealthCentralRx.com and RxList.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 HealthCentralRx.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. Any
breach of security from a physical break-in, computer virus, programming error
or attack by a third party or an 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 do not have full redundancy for all of our computer and
telecommunications facilities and do not maintain a back-up data facility.
Any failure to protect our intellectual property rights could impair our
ability to establish our brands.
If we fail to adequately protect our proprietary rights in our content,
technology, products and services, 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 combination of copyright and trademark
laws, trade secrets, confidentiality provisions and other contractual
provisions to protect our proprietary rights, but these
16
<PAGE>
legal means afford only limited protection. Unauthorized parties may attempt to
copy aspects of our websites or to obtain and use information that we regard as
proprietary. We have applied for a U.S. trademark registration for
"HealthCentral.com," but we may be unable to secure this registration. In
addition, our competitors or others may adopt service names similar to ours,
thereby impeding our ability to build our brand identity and potentially
confusing consumers. We also rely on a variety of technologies that are
licensed from third parties, including our database and Internet server
software. These third-party licenses may not be available to us on commercially
reasonable terms in the future. See "Business--Intellectual Property Rights."
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. Some of the information in our RxList.com database regarding
drug descriptions, clinical pharmacology, indications and usage, warnings and
the like is copied from package inserts, which accompany the particular drug.
We have not obtained licenses to reproduce this information from the various
pharmaceutical companies. Although we have not received a copyright claim to
date, we could face potential copyright infringement claims in this regard. 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-related information, including with regard to possible adverse
reactions or side effects from medications or a particular medical condition
they may have, or may distribute our content to others, third parties may sue
us for various causes of action based on the nature and content of materials
that we publish. 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, none of which we edit.
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 either our material systems or the systems of our vendors or
business partners, or other systems, such as those of telecommunications
companies or financial institutions or the Internet, to be able to distinguish
between twentieth century dates and twenty-first century dates could disrupt
our operations. 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. Our reasonably
likely worst-case scenario would be the failure of the application server
software that facilitates the business logic for our e-commerce business, which
would disrupt our e-commerce business until the server could be replaced. We
have not developed a contingency plan to
17
<PAGE>
address situations that may result if we or our vendors are unable to achieve
year 2000 compliance, and do not intend to develop a contingency plan.
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 with our
institutional customers 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 42.8% 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 purchase health-related
products online 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 important channel for the delivery of
healthcare information, products and services. 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, or delays in the adoption of new
standards required to handle increased levels of Internet activity.
If we do not respond to rapid technological changes affecting the Internet
healthcare industry, our products and services could become obsolete.
Any failure to respond to technological advances and emerging industry
standards could impair our ability to attract and retain customers. As the
Internet and online commerce industry evolve, we must address the increasingly
sophisticated and varied needs of our prospective customers and respond to
technological advances
18
<PAGE>
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.
Governmental regulation of the Internet could increase our operating costs.
We receive confidential medical and credit card information from our
customers and website visitors. Laws and regulations directly applicable to
communications or commerce over the Internet are becoming more prevalent, and
compliance with any new laws could increase our operating expenses. 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. 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, on companies that maintain
medical or pharmaceutical records.
A number of proposals have been made to impose additional taxes on the sale
of goods through the Internet. Taxation of online commerce could impair the
growth of our e-commerce business and add to the complexity of our transaction
processing system. See "Business--Other Governmental Regulation."
The health industry is extremely dynamic and constantly changing, and thus our
business may be affected by pricing pressures and healthcare reform
initiatives.
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. Healthcare 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.
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. Presently, anticipated uses of the proceeds of
this offering and our existing cash balances include making cash payments of
$31.5 million over the next two years to AltaVista, $12.3 million over the next
two years to America Online, $3 million in connection with our acquisition of
RxList.com and $1.25 million in connection with our acquisition of
HealthCentralRx.com, and funding working capital, sales and marketing, website
and content development, infrastructure improvements, operating losses, and
potential acquisitions and strategic alliances. We have not yet determined the
allocation of net proceeds and our existing cash balances among the foregoing
purposes.
The market prices of Internet-related companies have been extremely volatile,
and an active trading market for our stock may not develop or be sustained.
Recent initial public offerings by Internet companies have in many cases
been accompanied by exceptional share price and trading volume changes in the
first days and weeks after the securities were released for public trading. In
addition, if an active trading market does not develop, investors may have
difficulty selling shares of our stock at a desirable price, or at all.
Investors may not be able to resell their shares at or above the initial public
offering price. In the past, securities class action litigation has often been
brought against a company
19
<PAGE>
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 assumed initial public offering price of $10.00 per share will
be only $3.69. In addition, we have issued options and warrants to acquire
common stock at prices significantly below the initial public offering price,
which will result in additional dilution when and if they are exercised.
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. See
"Shares Eligible for Future Sale."
Some shares in this offering may have been offered in violation of the
Securities Act of 1933, which could give purchasers of these shares the right
to seek refunds or damages.
Prior to the effectiveness of our registration statement for this offering,
Lehman Brothers sent a letter and other written materials, accompanied by a
preliminary prospectus, to approximately 114 employees, consultants and
directors of HealthCentral.com whom we had designated as potential purchasers
of up to 90,900 shares of common stock in a directed share program in
connection with this offering. We then sent a follow-up email to this group of
people regarding the directed share program, which did not contain a legend
delineated under Rule 134 of the Securities Act, and which thus may have
constituted a prospectus that does not meet the requirements of the Securities
Act. If this follow-up email did constitute a violation of the Securities Act
of 1933, the recipients of the email who purchased common stock in this
offering could have the right, for a period of one year from the date of their
purchase of common stock, to obtain recovery of the consideration paid in
connection with their purchase of common stock or, if they already sold the
stock, sue us for damages resulting from their purchase of common stock. These
refunds or damages could total up to $1 million, based on an assumed public
offering price of $11.00 per share, if the investors suffer a total loss of
their investment during this period and seek refunds or damages. If this were
to occur, our results of operations and cash position could suffer.
*****
20
<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.
USE OF PROCEEDS
Our net proceeds from the sale of the 7,500,000 shares of common stock we
are offering are estimated to be $68.3 million, or $78.7 million if the
underwriters' over-allotment option is exercised in full, assuming an offering
price of $10.00 per share, after deducting the estimated underwriting discount
and commissions and the estimated offering expenses.
We currently expect to use the net proceeds of this offering, along with our
existing cash balances, primarily to fund working capital and sales and
marketing, to make cash payments of $31.5 million over the next two years to
AltaVista, $12.3 million over the next two years to America Online, $3 million
in connection with our acquisition of RxList.com and $1.25 million in
connection with our acquisition of HealthCentralRx.com, and to fund website and
content development, infrastructure improvements and 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, if any, we generate from operations. We
have not yet prepared a quantified business plan. Thus, we have not yet
specified the allocation of net proceeds and our existing cash balances among
the foregoing purposes. 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.
21
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
. the actual capitalization of HealthCentral.com as of September 30, 1999.
. the pro forma capitalization of HealthCentral.com after giving effect to:
. automatic conversion of all outstanding shares of preferred stock into
5,050,955 shares of common stock;
. 1,579,065 shares of common stock valued at $9.07 per share, of which
86,969 shares were reserved for issuance pursuant to the assumption of
options, issued to shareholders of HealthCentralRx.com in connection
with our acquisition of HealthCentralRx.com in October 1999; and
. 836,422 shares of common stock valued at $10.00 per share issued in
connection with our acquisition of RxList.com in October 1999 and a
total of $2.6 million in notes payable issued to shareholders of
RxList.com.
. 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
$10.00 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>
September 30, 1999
--------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- ------------
<S> <C> <C> <C>
Long term debt--including current
portion................................ $ 369,954 $ 4,219,954 $ 4,219,954
----------- ----------- ------------
Stockholders' equity:
Convertible preferred stock, par value
$0.001; 5,875,000 shares authorized,
5,050,955 shares issued and
outstanding; 5,875,000 shares
authorized, none issued or
outstanding pro forma; 5,000,000
shares authorized, none issued or
outstanding pro forma as adjusted.... 5,657 -- --
Common stock, par value $0.001,
27,750,000 shares authorized,
7,169,676 shares issued and
outstanding; 27,750,000 shares
authorized, 14,636,118 issued and
outstanding pro forma; 100,000,000
shares authorized, 22,136,118 shares
issued and outstanding, pro forma as
adjusted............................. 7,125 14,636 22,136
Additional paid-in capital............ 43,421,952 65,849,006 134,091,506
Notes receivable from stockholders.... (405,931) (405,931) (405,931)
Deferred stock compensation .......... (6,097,302) (6,097,302) (6,097,302)
Accumulated deficit................... (9,553,539) (9,803,539) (9,803,539)
----------- ----------- ------------
Total stockholders' equity............ 27,377,962 49,556,870 117,806,870
----------- ----------- ------------
Total capitalization.................... $27,747,916 $53,776,824 $122,026,824
=========== =========== ============
</TABLE>
--------
This table excludes the following shares as of September 30, 1999:
. 2,006,157 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.29 per share,
. 666,373 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.89 per share, and
. a total of 5,219,927 shares available for future issuance under our 1998
and 1999 stock plans. See "Management--Stock Plans" and Note 7 of Notes
to Consolidated Financial Statements.
22
<PAGE>
DILUTION
The pro forma net tangible book value per share of our common stock at
September 30, 1999 was $0.92. 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 September 30, 1999, and
includes the pro forma effects of the following events:
. the automatic conversion of all outstanding shares of preferred stock
into 5,050,955 shares of common stock;
. 1,579,065 shares of common stock valued at $9.07 per share, of which
86,969 shares were reserved for issuance pursuant to the assumption of
options, issued to shareholders of HealthCentralRx.com in connection with
our acquisition of HealthCentralRx.com in October 1999; and
. 836,422 shares of common stock valued at $10.00 per share issued in
connection with our acquisition of RxList.com in October 1999 and a total
of $2.6 million in notes payable issued to shareholders of RxList.com.
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
September 30, 1999 would have been $81.8 million, or $3.69 per share. This
represents an immediate increase in pro forma net tangible book value of $2.77
per share to existing stockholders and an immediate dilution of $6.31 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............... $10.00
Pro forma net tangible book value per share as of September
30, 1999................................................... $0.92
Increase per share attributable to new investors............ 2.77
-----
Pro forma net tangible book value after the offering.......... 3.69
------
Dilution per share to new investors........................... $ 6.31
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 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 Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 14,636,118 66.1% $ 33,101,994 31% $ 2.26
New investors........... 7,500,000 33.9 75,000,000 69 10.00
---------- ----- ------------ -----
Totals................ 22,136,118 100.0% $108,101,994 100.0%
========== ===== ============ =====
</TABLE>
--------
This table excludes the following shares as of September 30, 1999:
. 2,006,157 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.29 per share,
. 666,373 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.89 per share, and
. a total of 5,219,927 shares available for future issuance under our 1998
and 1999 stock plans. See "Management--Stock Plans" and Note 7 of Notes
to Consolidated Financial Statements.
23
<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 62.9% 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 8,625,000 or
approximately 37.1% of the total number of shares of our common stock
outstanding after this offering.
24
<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 nine months ended September 30, 1999 and the balance sheet data at
December 31, 1997 and 1998 and September 30, 1999 are derived from the audited
consolidated 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 for the nine months ended September 30, 1998 is 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 nine months ended September 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 consolidated 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 Nine Months
December 31, December 31, Ended September 30,
------------ ---------------------- ------------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Advertising............ $ -- $ -- $ 15,259 $ 48 $ 408,293
Content subscription
and license........... -- -- -- -- 80,353
---------- ---------- ---------- ---------- -----------
Total revenues....... -- -- 15,259 48 488,646
---------- ---------- ---------- ---------- -----------
Operating expenses:
Production, content and
product development... -- -- 136,788 43,390 1,750,246
Sales and marketing.... -- 848 141,516 4,338 1,568,729
General and
administrative........ 86 300 78,549 34,829 1,147,989
Amortization of
intangible assets..... -- -- -- -- 519,017
Stock compensation..... -- -- 104,641 -- 4,130,7987
Acquired in-process
research and
development........... -- -- -- -- 554,901
---------- ---------- ---------- ---------- -----------
Total operating
expenses.............. 86 1,148 461,494 82,557 9,671,679
---------- ---------- ---------- ---------- -----------
Loss from operations.... (86) (1,148) (446,235) (82,509) (9,183,033)
Interest income, net.... -- -- -- -- 76,963
---------- ---------- ---------- ---------- -----------
Net loss................ $ (86) $ (1,148) $ (446,235) $ (82,509) $(9,106,070)
========== ========== ========== ========== ===========
Basic and diluted net
loss per share......... $ -- $ -- $ (0.10) $ -- $ (1.76)
========== ========== ========== ========== ===========
Shares used in computing
basic and diluted
net loss per share..... 3,855,486 4,610,000 4,669,628 4,662,769 5,168,638
========== ========== ========== ========== ===========
Pro forma basic and
diluted net loss per
share.................. $ (0.10) $ (1.42)
========== ===========
Shares used in computing
pro forma basic and
diluted net loss
per share.............. 4,691,820 6,390,540
========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1996 1997 1998 1999
------ ------ ---------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $7,414 $6,773 $1,091,551 $16,228,912
Working capital.......................... 7,414 6,773 1,039,092 15,205,156
Total assets............................. 7,414 6,773 1,670,281 30,372,507
Long-term obligations.................... -- -- -- 369,954
Total shareholders' equity............... 7,414 6,773 1,602,633 27,377,962
</TABLE>
25
<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 company providing website development
and consulting services 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 August 1999, we acquired Windom Health, and
in October 1999 we acquired HealthCentralRx.com, our online drug store, and
RxList.com, an online pharmaceutical database company.
We have historically derived revenues from advertising activities consisting
of short-term banner advertisements. As of September 30, 1999 we had not
entered into any barter arrangements. We record advertising revenues in the
period the advertising impressions are delivered to customers. We currently use
an outside vendor, DoubleClick, to solicit potential advertisers, to serve the
ads to our website and to bill and collect for these services. This outside
vendor provides monthly reports indicating impressions delivered, the amount
billed for our advertising services and the related administrative fee. The
Company records advertising revenues, as reported by the outside vendor, net of
this administrative fee because we bear no collection risk for the gross amount
of the advertising fees. The Company's advertising contracts do not guarantee a
minimum number of impressions to be delivered.
In the future, we intend to go beyond traditional banner advertising
arrangements and enter into sponsorship agreements in which we will provide our
customers with enhanced promotional opportunities, exclusivity arrangements and
the design of customized co-branded web pages. We expect to recognize
sponsorship revenues ratably over the term of the sponsorship agreement. We
expect that costs incurred in connection with sponsorship agreements will be
included in production, content and product development expense.
We also act as an application service provider, which means that we design,
host and maintain private label websites for healthcare institutions. Revenues
derived from our application service contracts principally consist of license
fees for website development applications, consulting fees from custom website
development and hosting, and website maintenance fees. Our license, hosting and
maintenance fees are recognized ratably over the term of the license, generally
between 12 and 24 months. For consulting projects, revenues are recognized at
the time services are rendered based on charges for time and materials.
In order to implement our e-commerce strategy, we acquired
HealthCentralRx.com in October 1999. In July and September 1999,
HealthCentralRx.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
26
<PAGE>
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 $1,000 in 1997, $446,000 in 1998
and $9.1 million for the nine months ended September 30, 1999. We anticipate
that we will incur additional operating losses for the foreseeable future.
Recent Events
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 the aggregate payment
obligation over the first two years in cash and stock would be $34.5 million,
of which $1 million has already been paid. In addition, if AltaVista meets
given performance thresholds based on the number of impressions delivered in
excess of guaranteed minimum amounts, we will issue to AltaVista warrants to
purchase shares of common stock, with the number of shares depending on the
amount by which AltaVista exceeds the thresholds. These warrants will have
varying exercise prices. The fair value of any warrants earned will be measured
on the date the performance commitment is met in accordance with 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," and the warrants will be valued using the Black-Scholes
option pricing model in accordance with Statement of Financial Accounting
Standards No.123, "Accounting for Stock-Based Compensation." The fair value of
the warrants will be expensed immediately and included in sales and marketing
expense.
In September 1999, we entered into a four year agreement with The People's
Pharmacy to operate a co-branded website. We are entitled to all advertising
revenues from the co-branded website in exchange for a cash payment of $50,000
per annum. We also granted options to purchase up to 250,000 shares of common
stock to the principals of The People's Pharmacy.
In October 1999, we acquired HealthCentralRx.com in exchange for 1,579,065
shares of common stock, including 86,969 shares reserved for issuance pursuant
to the assumption of options held by HealthCentralRx.com stockholders, and the
assumption of liabilities, representing a total purchase price of approximately
$15.9 million. This acquisition was accounted for using the purchase method of
accounting. We recorded intangibles and goodwill of approximately $14.5
million, 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.
In October 1999, we acquired RxList.com in exchange for 836,422 shares of
common stock and a total of $2.6 million in notes payable to the RxList.com
shareholders discounted at a deemed interest rate of 10% over 6 months,
representing a total purchase price of approximately $11 million. This
acquisition was accounted for using the purchase method of accounting. We
recorded intangibles and goodwill of approximately $11.3 million which will be
amortized on a straight line basis over two to three years.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Revenues. Revenues consist of advertising revenues from short-term banner
advertisements and institutional sales revenues derived from designing, hosting
and maintaining private label websites for healthcare institutions. Our total
revenues were $489,000 for the nine months ended September 30, 1999, consisting
of $408,000 in advertising revenues and $80,000 in institutional sales
revenues. We had nominal revenues during the nine months ended September 30,
1998.
27
<PAGE>
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 $1.8 million for the nine months ended September 30, 1999 from
$43,000 for the nine months ended September 30, 1998, primarily as a result of
$1.3 million in production and engineering staff costs and $275,000 of
amortization expense related to a warrant issued in connection with a content
licensing agreement. 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 were $1.6 million for the
nine months ended September 30, 1999, primarily attributable to $1.2 million in
advertising and public relations expenses and $200,000 in sales personnel
costs. We had nominal sales and marketing expenses during the nine months ended
September 30, 1998. 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 $1.1
million for the nine months ended September 30, 1999 from $35,000 for the nine
months ended September 30, 1998. The increase was primarily related to $710,000
in personnel-related costs and $415,000 in legal and accounting expenses
incurred 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.
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 nine months ended September
30, 1999, we recorded $9.9 million of deferred stock compensation. We amortized
$4.1 million in stock compensation in the nine months ended September 30, 1999.
Deferred stock compensation is being amortized over the respective vesting
periods of the outstanding options, generally four years.
Years Ended December 31, 1998, 1997 and Period Ended December 31, 1996
Revenues. Our total revenues were $15,000 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 $137,000 in 1998. There were no production, content
and product development expenses in 1997 and 1996. Production, content and
product development expenses in 1998 were attributable to personnel costs
associated with the development of the HealthCentral.com website.
Sales and Marketing. Sales and marketing expenses were $142,000 in 1998,
primarily due to $38,000 in sales and marketing personnel expenses and $103,000
in public relations expenses. We had $1,000 in sales and marketing expenses in
1997.
General and Administrative. General and administrative expenses were $79,000
in 1998, primarily due to $67,000 in personnel expenses and $6,000 in
professional services fees. We had no general and administrative expenses in
1997.
28
<PAGE>
Stock Compensation. Through December 31, 1998, we had recorded a total of
$389,000 of deferred stock compensation. We recognized amortization of stock
compensation of $105,000 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 notes payable. As of September 30,
1999, we had $16.2 million in cash and cash equivalents. Net cash provided by
financing activities was $1.9 million in 1998, which was the result of our
preferred stock financing in December 1998. Net cash provided by financing
activities was $1,000 in 1997, which was the result of the sale of common
stock. Net cash provided by financing activities was $8,000 in 1996, which was
the result of the sale of common stock. In August and September 1999, we sold
4,038,455 shares of Series B preferred stock resulting in net cash proceeds of
approximately $18.3 million. As of September 30, 1999 we had also issued notes
payable in the amount of $1.5 million, which were subsequently converted into
shares of Series B convertible preferred stock.
Net cash used in operating activities was $2.9 million in the nine months
ended September 30, 1999 and $287,000 in 1998. Net cash used in operating
activities in 1999 was comprised primarily of a $9.1 million net operating loss
and a $1.0 million increase in prepaid expenses, partially reduced by $4.1
million in non-cash stock compensation expense, $553,000 in depreciation and
amortization of fixed and intangible assets, $1.1 million increase in accounts
payable, $635,000 in accrued expenses and $276,000 in amortization of a prepaid
license. Net cash used in operating activities was $1,000 in 1997 and $86 in
1996, both of which were the result of net operating losses.
Net cash used in investing activities was $1.7 million for the nine months
ended September 30, 1999 and $564,000 in 1998. Cash used in investing
activities in the nine months ended September 30, 1999 was primarily due to
cash paid to the Windom Health shareholders in connection with that
acquisition. Cash used in 1998 was related to bridge loans made to Windom
Health. There were no changes in cash flows as a result of investing activities
in 1996.
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,
of which $1 million has been paid. In addition, in August 1999,
HealthCentralRx.com entered into a two-year agreement with America Online under
which HealthCentralRx.com appears as one of five anchor tenants on the America
Online HealthOnline Pharmacy Channel and receives a minimum number of
advertising impressions in exchange for payments of $12.3 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
29
<PAGE>
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. We currently expect to use the
net proceeds of this offering, along with our existing cash balances, primarily
to fund working capital and sales and marketing, to make cash payments of $31.5
million over the next two years to AltaVista, $12.3 million over the next two
years to America Online, $3 million in connection with our acquisition of
RxList.com and $1.25 million in connection with our acquisition of
HealthCentralRx.com, and to fund website and content development,
infrastructure improvements and operating losses. Additionally, we will
continue to evaluate possible acquisitions of or investments in complementary
businesses, technologies, services or products. We currently believe that our
available cash and cash equivalents at September 30, 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 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 September 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 depend to conduct our operations are not
year 2000 compliant. Our potential areas of exposure include products purchased
from third parties, or embedded technology, information technology, or IT,
systems, including computers and software, and non-information technology,
including telephone systems and other equipment used internally. We have
completed our year 2000 testing of our internally developed IT systems, which
consist of internally developed software for the operation of our websites.
These software systems perform health risk assessments, process customer
interactions and transactions and provide distribution, monitoring and back-up
capabilities. Based on our assessment to date, we believe that our internally
developed IT systems are year 2000 compliant. In addition, the vendors of all
of our hardware systems have stated that their systems are year 2000 compliant.
30
<PAGE>
Our embedded technology consists of third party software, which is used in
our accounting, database and security systems, all of which has been purchased
in the last few years. We have contacted all of our third party software
vendors. We have either received assurances that their software is year 2000
compliant, or we have relied on statements on their websites to this effect.
We do not currently expect that any major internal computers, applications
or equipment will have to be upgraded or modified to be year 2000 compliant. We
have not developed a contingency plan in the case of a material year 2000
problem, and do not plan to develop a contingency plan. We have not used any
independent verification processes to confirm the reliability of our estimates
of our year 2000 risks and costs.
We are in the process of developing and integrating reporting, transaction
processing and fulfillment mechanisms with each of Bergen Brunswig and its
Medi-Mail subsidiary in order to operate our online drug store. If Bergen
Brunswig, Medi-Mail or our HealthCentralRx.com subsidiary experience year 2000
problems, our order processing, customer service, product delivery,
reimbursement mechanisms and other aspects of our online drug store business
could be seriously impaired. Bergen Brunswig and Medi-Mail have informed us
that they are year 2000 compliant. Bergen Brunswig has informed us that they
have not used independent verification and validation processes to confirm the
reliability of their assessment of their year 2000 risks. We use a java-based
Locomotive application server to facilitate the business logic for our e-
commerce business. Because this software is java-based, we do not anticipate a
year 2000 problem, but we have not received assurances from the vendor
regarding year 2000 compliance. If this server failed as a result of year 2000
problems, it could take a few weeks and up to $100,000 to replace, which could
impair our e-commerce business. We believe this scenario is our reasonably
likely worst case scenario for year 2000 issues.
Our non-information, or non-IT, systems consist of telephone systems,
copiers and other equipment used internally. We have not performed a year 2000
assessment of our non-IT systems.
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
software that is relatively new and conforms to industry-standards, and our
lack of older legacy software. No IT projects have been deferred due to our
year 2000 efforts.
If our production and operational facilities that support our websites are
not year 2000 compliant, portions of our websites may become inaccessible. A
disruption in our operations could cause our users and customers to stop doing
business with us. If 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 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 suppliers, telecommunications companies, financial institutions and other
third parties on whom we depend to conduct our business do not successfully
address such issues, our business could be significantly disrupted.
31
<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
and the online sale of health-related products, or 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,
HealthCentralRx.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 promotion strategy -- involving exposure in
television, radio and print media -- which leverages 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 HealthCentralRx.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. RxList.com is our online database of over 4,000 pharmaceuticals
and other medicines, with extensive information on 600 entries. 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
recently launched our PeoplesPharmacy.HealthCentral.com website, featuring Joe
and Teresa Graedon, and our Canadian co-branded health channel on MediaLinx.
In addition, we act as an application service provider, which means that we
design, host and maintain websites for healthcare institutions. These websites
are private label websites, which means that they are branded under our
clients' own names and brands rather than ours. 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.
32
<PAGE>
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 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 almost one third of a
surveyed group of Internet users shopped for health and personal care 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
33
<PAGE>
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.
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, our RxList.com pharmaceutical database
and our HealthCentralRx.com online drug store. We recently launched our
PeoplesPharmacy.HealthCentral.com website and our MediaLinx Canadian affiliate,
and we plan to launch 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. HealthCentralRx.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.
HealthCentralRx.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, HealthCentralRx.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 interactive features, 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 450,000 subscriptions.
34
<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 means that the
websites are branded under our clients' own names and brands rather than ours.
These private label websites enable 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 software 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 RxList.com and HealthCentralRx.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 Medical Minutes radio
programs typically aired five times a week during morning and evening
rush hour traffic. We believe Dr. Edell reaches approximately 13 million
radio listeners weekly through these two radio broadcasts combined, based
on data provided by Arbitron. Dr. Edell also has a daily syndicated
television report, which is broadcast in over 50 markets, including eight
of the 20 largest television markets in the United States. As of
September 30, 1999, syndicators in 18 markets have agreed to rebrand the
television report as The HealthCentral.com Report upon annual syndication
renewals.
. The People's Pharmacy. Teresa and Joe Graedon write The People's
Pharmacy, a newspaper column syndicated by King Features and published in
over 150 newspapers, including in markets such as New York, Baltimore,
Los Angeles, Boston and Chicago. The Graedons also host a weekly radio
show
35
<PAGE>
that is broadcast on over 500 stations around the world. In addition, they
are the authors of ten books, including The People's Pharmacy, a New York
Times No. 1 best seller. We recently launched 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. HealthCentralRx.com has a two-year
agreement with America Online, under which HealthCentralRx.com is one of
the five health-related anchor tenants on the America Online HealthOnline
Pharmacy Channel. We also recently launched 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:
. 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 450,000 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. DoubleClick also acts as our advertising sales agent for our
RxList.com website. 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. HealthCentralRx.com, our online drug store, offers
prescription pharmaceutical products, health and beauty aids, parenting
and personal care products and nutritional supplements.
HealthCentralRx.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 21 employees 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 HealthCentralRx.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,
RxList.com and PeoplesPharmacy.HealthCentral.com;
. strengthening the HealthCentral.com brand through traditional and online
advertising;
. expanding our broad range of consumer products and services;
. 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;
36
<PAGE>
. 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 a competitive advantage.
37
<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 Consumer, Exclusive Internet publication of
Institutional pharmacological information and
resources developed by Joe and Teresa
Graedon, health columnists, radio
personalities, and authors of 10 books,
including The People's Pharmacy
----------------------------------------------------------------------------------------------
RxList Consumer, Internet drug index that contains
Institutional content on pharmaceuticals. Keyword
search, alternative medicines, drug
specific discussions, and drug
summaries including physician
monographs, consumer monographs and
searchable drug topics. Includes a
database of over 4,000 pharmaceuticals
and other medicines, with extensive
information on 600 entries.
----------------------------------------------------------------------------------------------
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
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Content/Tool Availability Description
---------------------------------------------------------------------------------------
<S> <C> <C>
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
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 Adam.com 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>
39
<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>
HealthCentralRx.com
HealthCentralRx.com, our online drug store, was founded in January 1999 and
in September 1999 launched its website. HealthCentralRx.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. HealthCentralRx.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.
HealthCentralRx.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 HealthCentralRx.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 HealthCentralRx.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. 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.
40
<PAGE>
Shopping @ HealthCentralRx.com
Customers at HealthCentralRx.com can fill prescriptions and shop for brand
name health and beauty aids online from the privacy and convenience of their
homes. The HealthCentralRx.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 HealthCentralRx.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
HealthCentralRx.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 HealthCentralRx.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
HealthCentralRx.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.
41
<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 September 1999, according to an audit completed by Nielsen I/PRO,
www.healthcentral.com attracted approximately 5.3 million page views and
approximately 1.3 million total visits, with an average visit time of 7
minutes, 40 seconds. DoubleClick measured 781,542 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.
In September 1999, according to Nielsen I/PRO, www.RxList.com attracted
approximately 2.8 million page views and 773,516 total visits, with an average
visit time of 6 minutes and 19 seconds. DoubleClick measured 364,304 unique
users during that same month.
Institutional
The following is a list of our current institutional customers, to whom we
are currently licensing applications or 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 Medical
Centers with over 1,800 physicians
Catholic Healthcare West Network of 48 hospitals based in California,
Nevada and Arizona
Humana Healthcare insurer serving over six million
members in 15 states and Puerto Rico
LifeMasters Healthcare company providing disease
management by a combination of communications
technology and ongoing nursing support
Mills Peninsula Health Services Acute care hospital and health center
affiliated with Sutter 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 Non-profit healthcare network with 26 acute
care hospitals and relationships with
approximately 7,000 physicians throughout
Northern California
</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
42
<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, HealthCentralRx.com entered into a two-year
agreement with America Online, under which HealthCentral.com will appear as one
of five health-related anchor tenants on the America Online HealthOnline
Pharmacy Channel. HealthCentralRx.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 with Bergen Brunswig 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 in
over 150 newspapers, including in markets such as New York, Baltimore, Los
Angeles, Boston and Chicago. They also host a weekly radio show that is
broadcast on over 500 stations around the world. 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 250,000 shares of our common stock.
MediaLinx. We recently launched 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
43
<PAGE>
tools that integrate with evolving healthcare standards. Our HealthCentral.com
and HealthCentralRx.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 RxList.com and HealthCentralRx.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 and RxList.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 and
RxList.com websites. 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 for the
HealthCentral.com website 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.
HealthCentralRx.com
Our current sales and marketing strategy is to establish brand awareness and
build brand loyalty of HealthCentralRx.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.
44
<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., HealthCentralRx.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 and RxList.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 and RxList.com consumer websites
compete 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.
HeathCentralRx.com
The online e-commerce markets in the health, beauty, wellness, personal care
and pharmacy categories are fragmented and intensely competitive. 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;
45
<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.
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.
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 are in the process of filing for federal trademark
registrations for the trademarks "HealthCentral.com," "HealthCentralRx.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."
46
<PAGE>
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 to protect
our intellectual property rights impair our ability to establish our brands"
and "--We may be sued by third parties for infringement of their proprietary
rights."
Government Healthcare Regulation
General. Numerous state and federal laws regulate our health business, as
described below. 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. See "Risk Factors--Extensive and
changing government regulation of the healthcare industries is expensive to
comply with and exposes us to the risk of substantial governmental penalties."
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.
47
<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/HealthCentralRx.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.
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
48
<PAGE>
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.
Medical Information and Data. There are changing federal and state laws
governing the storage, transmission 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. On November 3, 1999, the Department of Health and Human
Services issued proposed regulations regarding standards to protect the privacy
of individually identifiable health information. We or third parties involved
in transmitting information to or through our site may have to comply with such
regulations in the future.
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
49
<PAGE>
where a portion of such remuneration is offered, paid, solicited or received
for a lawful purpose. Certain courts 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
50
<PAGE>
equipment covered by federal or state self-referral laws, the manner in which
we are paid by the referral 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.
51
<PAGE>
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 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 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
52
<PAGE>
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.
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 HealthCentralRx.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 October 15, 1999, we had 73 employees, of which 14 were employed in
sales and marketing, 25 were employed in engineering, 21 were employed in
production, and 13 were employed in general management and administration. We
believe that our relations with our employees is good.
Facilities
We lease a total of approximately 22,600 square feet at our three
facilities in Emeryville, California. The lease for approximately 7,300 square
feet expires in March 2004, the lease for approximately 8,800 feet expires in
December 2003 and the lease for approximately 6,500 square feet expires in
June 2002. 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.
53
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of October 31, 1999
are as follows:
<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
Robert M. Cudd.......... 45 Vice President of Marketing
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, Mr. Toney 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 boards 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 and an M.P.H. in Epidemiology and Biostatistics from the University of
California, Berkeley, and is a doctoral fellow in Health Information Sciences
at 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
54
<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.
Robert M. Cudd has served as Vice President of Marketing since joining
HealthCentral.com in October 1999. From March 1998 to September 1999, Mr. Cudd
served as Vice President of Marketing and Editorial at Fatbrain.com, an
Internet retailer of professional books and documents. From September 1996 to
March 1998, Mr. Cudd served as Vice President of Marketing for West Marine,
Inc., a boating supply and accessory retailer and, from February 1994 to May
1996, he served as the Director of Marketing at Computer City, a reseller of
computer hardware and software. Mr. Cudd holds a B.S. degree in Business from
Ferris State College.
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 of
HealthCentral.com 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. She has also served as its
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.
55
<PAGE>
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.
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 1991 and has served as a director of Heartport since
that time. Dr. Sterman served as Heartport's Chairman of the Board from May
1998 until June 1999 and as its President and Chief Executive Officer from May
1991 until May 1998. 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 after the completion of this offering into the
following three classes, each serving staggered three-year terms: 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 62,500 shares of our common stock at an exercise
price of $0.25 per share. In February 1999, we granted Dr. Sterman a
nonstatutory stock option to purchase 62,500 shares of our common stock at an
exercise price of $0.25 per share. In August 1999, we granted Dr. McDonald a
nonstatutory stock option to purchase 62,500 shares
56
<PAGE>
of our common stock, Mr. Andersen a nonstatutory stock option to purchase
12,500 shares of our common stock, and Dr. Sterman a nonstatutory stock option
to purchase 12,500 shares of our common stock, each at an exercise price of
$1.28 per share. Each of these option grants vests over a 48-month period.
Board Committees
The audit committee consists of Ms. Campbell-White, Mr. Andersen and Ms.
Bolton The audit committee:
. makes recommendations to the board of directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided
by our independent auditors; and
. reviews and evaluates our audit and control functions.
The compensation committee consists of Ms. Bolton, Dr. Sterman and Ms.
Wolaner. The compensation committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the board of directors regarding such matters.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of the board of directors are
currently Ms. Bolton, Dr. Sterman and Ms. Wolaner, none of whom has ever been
an officer or employee of HealthCentral.com.
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive
officers serving on our board of directors or compensation committee.
Executive Compensation
The following table sets forth the compensation received for services
rendered to us during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and President, Albert Greene. Mr. Greene was our only paid
executive officer during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------- ----------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Salary ($) Bonus ($) Awards ($) Options (#) Compensation($)
------------------ ---------- --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Albert L. Greene, Chief
Executive Officer and
President............. 64,800 -- -- 149,718 --
</TABLE>
In addition, Mr. Greene was granted the following restricted stock awards
during 1998, each with a purchase price equal to the fair market value of our
common stock, as determined by our board of directors at the time granted:
. In February 1998, Mr. Greene was issued 55,991 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 cancellation of indebtedness owing for
the performance of services previously rendered by Mr. Greene. At the end
of the fiscal year ended December 31, 1998, this common stock was valued
at $559,910, assuming that the fair market value as of that date was
equal to the assumed offering price of $10.00 per share.
. In September 1998, Mr. Greene was issued 23,916 shares of common stock at
a purchase price of $0.25 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 $239,160, assuming that the fair market value as of that
date was equal to the assumed offering price of $10.00 per share.
57
<PAGE>
Option Grants
The following table shows information regarding a stock option granted to
Mr. Greene, our Chief Executive Officer and President. Mr. Greene was a
consultant during 1998, and, at December 31, 1998, he was our only executive
officer. No stock appreciation rights were granted to Mr. Greene during that
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
149,718 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 assumed offering price of $10.00 per share was the fair
market value of the common stock on the date of grant and that the price of the
applicable stock increases from the date of grant until the end of the ten-year
option term at the annual rates specified. There is no assurance provided to
any executive officer or any other holder of our securities that the actual
stock price appreciation over the 10-year option term will be at the assumed 5%
and 10% levels or at any other defined level.
Option Grants in 1998
<TABLE>
<CAPTION>
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of Stock
Shares Granted to Price Appreciation
Underlying Employees Exercise for Option Term ($)
Options and Price Expiration ---------------------
Name Granted (#) Consultants per Share ($) Date 5% 10%
---- ---------- ----------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Albert L. Greene........ 149,718 100% $0.25 8/25/2008 $2,401,319 $3,845,870
</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 as of December 31, 1998, using an assumed initial public offering
price of $10.00 per share as the fair market value, and the exercise price of
the option.
Aggregated Option Exercises in 1998 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares December 31, 1998 (#) December 31, 1998 ($)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Albert L. Greene........ -- -- 149,718 -- $1,459,751 --
</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.
58
<PAGE>
Messrs. Greene and Toney also have change of control provisions, which
provide that fifty percent 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 vest on our
acquisition by another company and the remaining fifty percent vest 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 the grant of
nonstatutory stock options and stock purchase rights to employees, 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, 250,000 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 4,375,000
shares, and to incorporate certain other changes, after which amendment a total
of 4,625,000 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 787,500 shares, 3.5% of our
outstanding common stock on the last day of the immediately preceding fiscal
year, or a lesser number of shares as the board of directors determines. These
amendments to the 1999 plan were approved by our stockholders in November 1999.
Unless terminated earlier by the board of directors, the 1999 plan will
terminate in August 2009.
As of September 30, 1999, options to purchase 250,000 shares of common stock
were outstanding under the 1999 plan at a weighted average exercise price of
$1.28 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
59
<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 the 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, the vesting and exercisability
applicable to outstanding options and stock purchase rights and to shares
outstanding under the 1999 plan will accelerate as to 50% of the award that is
unvested at the time of the transaction. In addition, outstanding options and
stock purchase rights may be assumed or an equivalent award substituted by our
acquiror. However, if the acquiror does not agree to such assumption or
substitution, outstanding awards will become fully vested and exercisable
immediately prior to consummation of the transaction and then terminate upon
such consummation. Outstanding awards will adjust in the event of a stock
split, stock dividend or other similar change in our capital. 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
and approved by our stockholders in August 1998. The 1998 plan provides for the
grant to employees, including employee directors, of incentive stock options
and the grant of nonstatutory stock options and stock purchase rights to
employees, consultants and directors. An aggregate of 3,000,000 shares of
common stock have been reserved for issuance under the 1998 plan. As of
September 30, 1999, options to purchase 1,756,157 shares of common stock at a
weighted average exercise price of $1.29 were outstanding, 398,916 shares with
a weighted average purchase price of $1.06 have been issued upon exercise of
options or stock purchase rights and 844,927 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
that the 1998 plan imposes a limitation of 1,250,000 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.
1999 Employee Stock Purchase Plan. Our 1999 employee stock purchase plan was
adopted by our board of directors in September 1999 and approved by our
stockholders in November 1999. A total of 1,250,000 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 437,500 shares, 2% of our
outstanding common stock on the last day of the immediately preceding fiscal
year, or a 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
60
<PAGE>
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 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 the 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,
with the maximum payroll deduction rate capped at 20% of a participant's
compensation. 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 he or
she 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 to accrue 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 2,500
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 will 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 purchase 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.
Assumed HealthCentralRx.com 1999 Stock Option Plan. We assumed the
HealthCentralRx.com 1999 Stock Option Plan in connection with our acquisition
of HealthCentralRx.com in October 1999. The HealthCentralRx.com 1999 option
plan provides for the grant to employees of incentive stock options and the
grant of nonstatutory stock options to employees, consultants and directors. As
of October 31, 1999, options to purchase 86,968 shares of common stock at a
weighted average exercise price of $2.38 were outstanding under this plan. We
do not currently anticipate granting any other options under this plan. Unless
terminated earlier, the HealthCentralRx.com 1999 option plan will terminate in
February 2009.
The terms of options issued under our HealthCentralRx.com 1999 option plan
are generally the same as those that may be issued under our other 1999 plan,
except with respect to the following features. The HealthCentralRx.com 1999
option plan does not impose a limit on the number of shares of stock subject to
options that may be granted to any individual employee during a fiscal year,
and it does not allow for the granting of stock options with any
transferability rights.
1999 Directors' Stock Option Plan. The 1999 directors' stock option plan was
adopted by the board of directors in September 1999 and approved by our
stockholders in November 1999. It will become effective upon the date of this
offering. A total of 312,500 shares of common stock has been reserved for
issuance under
61
<PAGE>
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 the 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 12,500 shares of common stock on the date on which he
or she 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 6,250 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 the common stock on the
date of grant and will be nontransferable. All options granted under the
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 this 90-day period, the option will 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 the action
does not adversely affect any outstanding option. We will 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
62
<PAGE>
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.
63
<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: a total of 1,012,500
shares of Series A preferred stock at a price of $2.00 per share and warrants
to purchase 486,000 shares of Series A preferred stock at a price of $2.00 per
share in December 1998, and a total of 4,038,455 shares of Series B preferred
stock at a price of $5.20 per share in August and September 1999. The following
table summarizes the shares of preferred stock purchased by, and warrants to
purchase shares of Series A preferred stock issued to, our executive officers,
directors, including Jeff Edwards, who resigned as a director in August 1999,
and 5% stockholders and persons and entities associated with them in these
private placement transactions. Current fair market values listed in the table
are based on the assumed offering price of $10.00 per share and the assumption
that all warrants to purchase Series A preferred stock will be exercised in
connection with this offering. All shares of our preferred stock will convert
into common stock on a 1-for-1 basis upon completion of this offering. Shares
and warrants held by affiliated persons and entities have been aggregated. See
"Principal Stockholders." In connection with the above transactions, we entered
into an agreement with the investors providing for registration rights with
respect to these shares. See "Description of Capital Stock--Registration
Rights."
<TABLE>
<CAPTION>
Current
Series A Fair
Series A Preferred Stock Series B Market
Preferred Stock Warrants Preferred Stock Value
--------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Directors
Entities affiliated with
James J. Hornthal 50,000 24,000 19,230 $ 932,300
Entities affiliated with
MedVenture Associates
III, L.P. (Annette Camp-
bell-White) -- -- 673,077 $6,730,770
Wesley D. Sterman 75,000 36,000 19,230 $ 130,230
Robin Wolaner 25,000 12,000 -- $ 370,000
Sheryle J. Bolton 12,500 6,000 -- $ 185,000
East Peak Partners (Jeff
Edwards) 200,000 96,000 142,313 $4,383,130
Executive Officers
Albert L. Greene 12,500 6,000 9,615 $ 281,150
C. Fred Toney -- -- 61,153 $ 611,530
5% stockholders
Entities affiliated with
InterWest Partners VII,
L.P. -- -- 961,538 $9,615,380
Entities affiliated with
Delphi Ventures IV, LP -- -- 961,538 $9,615,380
</TABLE>
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 2,777 shares of our common stock at a
purchase price of $3.60 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 2,777 shares of our common stock at a
purchase price of $3.60 per share to the Hornthal Living Trust, an entity with
which James J. Hornthal, a co-chairman of our board of 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.
64
<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 total principal amount of
$300,000 and warrants to purchase 8,333 shares of Series B preferred stock at a
purchase price of $3.60 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 notes bore an
interest rate of 10.00%. The principal amount of these notes were 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 cash, shares of our common stock and promissory notes to the following
individuals who are directors or executive officers:
. 1,642,272 shares of common stock, approximately $39,795 in cash and a
promissory note in the principal amount of $357,684 to Michael D.
McDonald, the co-chairman of our board of directors;
. 204,852 shares of common stock, approximately $4,960 in cash and a
promissory note in the principal amount of $44,617 to Deryk Van Brunt,
our Senior Vice President of Operations; and
. 81,689 shares of common stock, approximately $1,980 in cash 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. The proceeds from our issuances of promissory notes in 1998 and 1999 were
used for working capital and general corporate purposes.
In September 1996, we issued 1,152,500 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 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. We are not
obligated to make any payments of cash or equity under the terms of this
agreement.
In August 1999, we entered into a Joint Development Agreement with Global
Health Initiatives, of which Dr. McDonald, one of the co-chairmen of our board
of directors, is the president and chairman of the board. This agreement
provides for our joint collaboration in the performance of services and
development of products, with pricing to be determined and agreed upon by the
parties on a project-by-project basis. 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:
. health care systems consulting;
. enterprise engineering;
. health information systems; or
. virtual health management.
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
65
<PAGE>
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 4,783
shares of common stock at an exercise price of $0.25 per share, which shares
have fully vested, and an immediately exercisable option to purchase 449,156
shares of common stock at an exercise price of $0.25 per share, which shares
vest over a 36 month period beginning in August 1999. Additionally, in October
1999, we granted to Mr. Greene an option to purchase 44,643 shares of common
stock at an exercise price of $10.08 per share, which shares vest over a 48
month period beginning October 1999.
In June 1999, we granted to C. Fred Toney immediately exercisable options to
purchase an aggregate of 312,500 shares of our common stock at an exercise
price of $1.28 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 62,500 shares of our common stock at an exercise
price of $1.28 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 100,000 shares of our common stock at an
exercise price of $1.28 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 option to purchase 25,000 shares of our common stock at an exercise price of
$8.19 per share, which shares vest over a 48 month period beginning in
September 1999. In August 1999, we granted to Ann-Marie Buddrus, our Vice
President of Production, an immediately exercisable option to purchase 62,500
shares of our common stock at an exercise price of $1.28 per share, which
shares vest over a 48 month period beginning in September 1998.
In October 1999, we granted to Robert M. Cudd, our Vice President of
Marketing, an option to purchase 125,000 shares of our common stock at an
exercise price of $10.08 per share, which shares vest over a 48 month period
beginning in October 1999.
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, the co-chairman of our board of directors, under which Dr. McDonald
has agreed to provide us with strategic consulting services related to our
institutional business. The consulting agreement 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.
We believe that all of our transactions with affiliates were entered into on
terms and conditions no less favorable to us than those that could have been
obtained from unaffiliated third parties. In addition, transactions with our
affiliates are approved by a majority of our board of directors, including a
majority of our independent and disinterested directors.
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."
66
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of September 30, 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
12,220,631 shares of common stock outstanding as of September 30, 1999 and an
assumed 19,720,631 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 on or before November 29, 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. 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 that officers' employment, which repurchase right lapses over time.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned
Total -----------------
Number of Before After
Name and Address Shares Offering Offering
---------------- --------- -------- --------
<S> <C> <C> <C>
James J. Hornthal(1) ............................. 2,401,007 19.6% 12.2%
Dean S. Edell .................................... 2,305,000 18.9 11.7
Michael D. McDonald(2) ........................... 1,646,178 13.5 8.3
Entities affiliated with Delphi Ventures
3000 Sand Hill Road, Building One, Suite 315
Menio Park, CA 94025(3).......................... 961,538 7.9 4.9
Entities affiliated with InterWest Partners
3000 Sand Hill Road, Building Three, Suite 225
Menlo Park, CA 94025(4) ......................... 961,538 7.9 4.9
Entities affiliated with MedVenture Associates
Four Orinda Way, Building D, Suite 150
Orinda, CA 94563(5) ............................. 681,410 5.6 3.5
Albert L. Greene(6) .............................. 711,680 5.5 3.5
Louis M. Andersen(7) ............................. 3,125 * *
Sheryle J. Bolton(8) ............................. 35,427 * *
Annette Campbell-White(5) ........................ 681,410 5.6 3.5
Wesley D. Sterman(9) ............................. 142,730 1.2 *
Robin Wolaner(10) ................................ 53,302 * *
All directors and executive officers as a group
(14 persons)(11) ................................. 8,865,054 67.2 42.8
</TABLE>
--------
* Less than one percent.
(1) Represents 2,374,230 shares held by an investment entity and trust
controlled by Mr. Hornthal, and 26,777 shares that the investment entity
and trust have the right to acquire pursuant to the exercise of warrants.
67
<PAGE>
(2) Includes 3,906 shares issuable pursuant to the exercise of stock options.
Does not include 175,957 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.
(3) Includes 942,116 shares held by Delphi Venture IV, L.P. and 19,422 shares
held by Delphi BioInvestments IV, L.P. The general partners of each of
these limited partnerships are David L. Douglass, James J. Bochnowski and
Donald J. Lothrop, all of whom share voting and dispositive power over
these shares.
(4) Includes 919,807 shares held by InterWest Partners VII, L.P. and 41,731
shares held by InterWest Investors VII, L.P. The managing directors of the
entity that is the general partner of each of these limited partnerships
are Harvey B. Cash, Alan W. Crites, Philip T. Gianos, W. Scott Hedrick, W.
Stephen Holmes, Gilbert H. Kliman and Arnold L. Oronsky, all of whom share
voting and dispositive power over these shares.
(5) Includes 645,616 shares held by MedVenture Associates III, L.P. and 27,461
shares held by MedVen Affiliates III, L.P. Also includes 7,993 shares that
MedVenture Associates III, L.P. has the right to acquire and 340 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. The managing members of the entity that is the general
partner of each of MedVenture Associates III, L.P. and MedVen Affiliates
III, L.P. are Annette Campbell-White, Gary H. Stroy and George Y. Choi,
all of whom share voting and dispositive power over these shares.
(6) Includes 603,658 shares issuable pursuant to the exercise of outstanding
options and 6,000 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 6,000 shares issuable pursuant to the exercise of a warrant and
16,927 shares issuable pursuant to the exercise of stock options.
(9) Includes 36,000 shares issuable pursuant to the exercise of a warrant and
12,500 shares issuable pursuant to the exercise of stock options.
(10) Includes 12,000 shares issuable pursuant to the exercise of a warrant and
16,927 shares issuable pursuant to the exercise of stock options.
(11) Includes an aggregate of 95,110 shares issuable pursuant to the exercise
of warrants and an aggregate of 882,043 shares issuable pursuant to the
exercise of outstanding options.
68
<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 September 30, 1999, there were 12,220,631 shares of common stock
outstanding, held of record by approximately 52 stockholders, which reflects
the conversion of all outstanding shares of preferred stock into common stock.
Upon completion of this offering, there will be 19,720,631 shares of common
stock outstanding, based upon shares outstanding as of September 30, 1999 and
assuming no exercise of the underwriters' overallotment option or additional
exercise of outstanding options or warrants after September 30, 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 5,050,955 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 September 30, 1999, warrants were outstanding to purchase an aggregate
of 666,373 shares of common stock at a weighted average exercise price of $2.89
per share. Of these warrants, warrants to purchase an aggregate of 580,228
shares of common stock at a weighted average exercise price of $2.45 per share
will terminate upon the completion of this offering if not exercised prior to
such time. We also 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.
Under our agreement with AltaVista regarding our co-branded health channel, if
AltaVista meets given performance thresholds, ranging from 25% to 150% based on
the number of impressions delivered in excess of guaranteed minimum amounts, 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.
69
<PAGE>
Registration Rights
As of September 30, 1999, the holders of 11,382,508 shares of common stock
and warrants to purchase 498,249 shares of common stock 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 these "registrable securities." Subject
to limitations specified in the agreement, these registration rights include
the following:
. 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 the
shares of our common stock issued to the former HealthCentralRx.com and
RxList.com stockholders in connection with our acquisitions of
HealthCentralRx.com and RxList.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 our company 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
70
<PAGE>
. 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.
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 permits 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.
71
<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 19,720,631 outstanding shares
of common stock, based upon shares outstanding as of September 30, 1999 and
assuming no exercise of options or warrants. Of these shares, the 7,500,000
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 12,220,631 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 stockholders 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 4,899,906
shares will be eligible for sale. All but 900,000 of such shares are held
by affiliates.
. Between 180 days and 365 days after the effective date, approximately
6,168,225 shares will be eligible for sale under Rule 144 at various
times. All but 3,432,732 shares are held by affiliates.
. Beginning 365 days after the effective date, approximately 1,152,500
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 197,206 shares immediately after the
offering, based upon shares outstanding as of September 30, 1999 and
assuming no exercise of options or warrants; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
72
<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 a registration statement 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 HealthCentralRx.com 1999 stock
option 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 statement 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
September 30, 1999, there were outstanding options for the purchase of
2,006,157 shares of common stock.
73
<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., Wit Capital Corporation and Fidelity Capital Markets, a
division of National Financial Services 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 .........................................
Fidelity Capital Markets, a division of National Financial
Services Corporation............................................
---------
Total.......................................................... 7,500,000
=========
</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 1,125,000 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 1,125,000 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
74
<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 $1.5 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.
75
<PAGE>
At our request, the underwriters have reserved up to 10% shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees, consultants and their family members and to our business associates
at the initial public offering price set forth on the cover page of this
prospectus. The consultants that may participate in this directed share program
provide us with a variety of services, including engineering, programming,
finance and administration, recruiting, production, and sales and marketing
services. 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.
76
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo
Park, California 94025. Mark Medearis, a Director of Venture Law Group, is our
Secretary. 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 7,691 shares of our common
stock.
EXPERTS
The consolidated financial statements of HealthCentral.com as of December
31, 1997 and 1998 and September 30, 1999 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 and the nine months in the period ended
September 30, 1999, 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.
The financial statements of RxList.com as of December 31, 1997 and 1998 and
September 30, 1999 and for each of the two years in the period ended December
31, 1998 and the nine months in the period ended September 30, 1999, 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. Some 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 do not contain
any untrue statement of a material fact nor do they omit a material fact
necessary to make those statements not misleading. 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.
These 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.
77
<PAGE>
HEALTHCENTRAL.COM
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
HealthCentral.com ----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Windom Health Enterprises, Inc.
Report of Independent Accountants.......................................... F-22
Balance Sheets............................................................. F-23
Statements of Operations................................................... F-24
Statements of Shareholders' Deficit........................................ F-25
Statements of Cash Flows................................................... F-26
Notes to Financial Statements.............................................. F-27
HealthCentralRx.com, Inc.
Balance Sheet.............................................................. F-32
Statement of Operations.................................................... F-33
Statement of Stockholders' Deficit......................................... F-34
Statement of Cash Flows.................................................... F-35
Notes to Financial Statements.............................................. F-36
</TABLE>
<TABLE>
<S> <C>
RxList.com
Report of Independent Accountants.......................................... F-40
Balance Sheets............................................................. F-41
Statements of Operations................................................... F-42
Statements of Partners'/Shareholders' Equity............................... F-43
Statements of Cash Flows................................................... F-44
Notes to Financial Statements.............................................. F-45
Pro forma Combined Financial Statements (unaudited)
Unaudited Pro Forma Combined Financial Statements.......................... F-48
Unaudited Pro forma Combined Balance Sheet................................. F-49
Unaudited Pro forma Combined Statements of Operations...................... F-50
Unaudited Pro forma Combined Statements of Operations...................... F-51
Notes to Unaudited Pro Forma Combined Financial Statements................. F-52
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
The stock split described in Note 1 to the financial statements has not been
consummated at November 30, 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 consolidated balance sheets and the related
consolidated 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) and its subsidiary at December
31, 1997 and 1998 and September 30, 1999, and the results of their operations
and their 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 and
the nine months ended September 30, 1999, 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
October 22, 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)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
------------------- September 30, September 30,
1997 1998 1999 1999
------- ---------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 6,773 $1,091,551 $16,228,912
Accounts receivable, net of
allowance for doubtful
accounts of $0, $0, and
$16,780, respectively....... -- 15,189 264,620
Prepaid expenses............. -- -- 1,449,429
------- ---------- -----------
Total current assets........ 6,773 1,106,740 17,942,961
Receivable from related
party........................ -- 563,541 --
Property and equipment, net... -- -- 689,963
Intangible assets............. -- -- 10,787,775
Other assets.................. -- -- 951,808
------- ---------- -----------
Total assets................ $ 6,773 $1,670,281 $30,372,507
======= ========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............. $ -- $ 28,482 $ 1,683,118
Accrued expenses............. -- 39,166 768,088
Deferred revenue............. -- -- 173,385
Current portion of
obligations under capital
leases...................... -- -- 113,214
------- ---------- -----------
Total current liabilities... -- 67,648 2,737,805
Obligations under capital
leases....................... -- -- 256,740
------- ---------- -----------
Total liabilities........... -- 67,648 2,994,545
------- ---------- -----------
Commitments and contingencies
(Note 9)
Stockholders' equity:
Convertible preferred stock,
$0.001 par value, 1,875,000
shares authorized at
December 31, 1998 and
5,875,000 shares authorized
at September 30, 1999;
1,012,500 and 5,050,955
issued and outstanding at
December 31, 1998 and
September 30, 1999; none
issued and outstanding pro
forma (aggregate liquidation
preference $23,025,000) .... -- 1,134 5,657 $ --
Common stock, $0.001 par
value, 12,500,000 shares
authorized at December 31,
1997, 23,750,000 shares
authorized at December 31,
1998 and 27,750,000 shares
authorized at September 30,
1999, 4,610,000, 4,689,906,
7,169,676 and 12,220,631
shares issued and
outstanding at December 31,
1997 and 1998, September 30,
1999 and pro forma,
respectively ............... 4,379 4,468 7,125 12,782
Additional paid-in capital... 3,628 2,334,912 43,421,952 43,421,952
Note receivable from
stockholder................. -- (5,931) (405,931) (405,931)
Deferred stock compensation.. -- (284,481) (6,097,302) (6,097,302)
Accumulated deficit.......... (1,234) (447,469) (9,553,539) (9,553,539)
------- ---------- ----------- -----------
Total stockholders' equity.. 6,773 1,602,633 27,377,962 $27,377,962
------- ---------- ----------- ===========
Total liabilities and
stockholders' equity...... $ 6,773 $1,670,281 $30,372,507
======= ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
Period from Year Ended Nine Months Ended Period from
Inception to December 31, September 30, Inception to
December 31, ---------------------- ------------------------ September 30,
1996 1997 1998 1998 1999 1999
------------ ---------- ---------- ----------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising................. $ -- $ -- $ 15,259 $ 48 $ 408,293 $ 423,552
Content subscription and
license.................... -- -- -- -- 80,353 80,353
--------- ---------- ---------- ---------- ----------- -----------
Total revenues -- -- 15,259 48 488,646 503,905
--------- ---------- ---------- ---------- ----------- -----------
Operating expenses:
Production, content and
product development........ -- -- 136,788 43,390 1,750,246 1,887,034
Sales and marketing......... -- 848 141,516 4,338 1,568,729 1,711,093
General and administrative.. 86 300 78,549 34,829 1,147,989 1,226,924
Amortization of intangible
assets..................... -- -- -- -- 519,017 519,017
Stock compensation.......... -- -- 104,641 -- 4,130,797 4,235,438
Acquired in-process research
and development............ -- -- -- -- 554,901 554,901
--------- ---------- ---------- ---------- ----------- -----------
Total operating expenses.. 86 1,148 461,494 82,557 9,671,679 10,134,407
--------- ---------- ---------- ---------- ----------- -----------
Loss from operations.......... (86) (1,148) (446,235) (82,509) (9,183,033) (9,630,502)
Interest income, net ......... -- -- -- -- 76,963 76,963
--------- ---------- ---------- ---------- ----------- -----------
Net loss...................... $ (86) $ (1,148) $ (446,235) $ (82,509) $(9,106,070) $(9,553,539)
========= ========== ========== ========== =========== ===========
Basic and diluted net loss
per share.................... $ -- $ -- $ (0.10) $ -- $ (1.76) $ (2.04)
========= ========== ========== ========== =========== ===========
Shares used in computing basic
and diluted net loss per
share........................ 3,855,486 4,610,000 4,669,628 4,662,769 5,168,638 4,673,362
========= ========== ========== ========== =========== ===========
Pro forma basic and diluted
net loss per share (Note 1).. $ (0.10) $ (1.42)
========== ===========
Shares used in computing pro
forma basic and diluted net
loss per share............... 4,691,820 6,390,540
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION TO DECEMBER 31, 1996, THE TWO YEARS ENDED
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Note
Preferred Stock Common Stock Additional Receivable Deferred Total
---------------- ---------------- Paid-In from Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholder Compensation Deficit Equity
--------- ------ --------- ------ ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders in August
1996................ -- $ -- 3,457,500 $3,872 $ 3,628 $ -- $ -- $ -- $ 7,500
Net loss............. -- -- -- -- -- -- -- (86) (86)
--------- ------ --------- ------ ----------- --------- ----------- ----------- -----------
Balance at December
31, 1996............ -- -- 3,457,500 3,872 3,628 -- -- (86) 7,414
Issuance of common
stock for cash...... -- -- 1,152,500 507 -- -- -- -- 507
Net loss............. -- -- -- -- -- -- -- (1,148) (1,148)
--------- ------ --------- ------ ----------- --------- ----------- ----------- -----------
Balance at December
31, 1997............ -- -- 4,610,000 4,379 3,628 -- -- (1,234) 6,773
Issuance of Series A
preferred stock and
warrants, net....... 1,012,500 1,134 -- -- 1,933,891 -- -- -- 1,935,025
Issuance of common
stock............... -- -- 79,906 89 8,271 (5,931) -- -- 2,429
Deferred compensation
expense in
connection with
issuance of stock
options............. -- -- -- -- 389,122 -- (389,122) -- --
Amortization of
deferred
compensation........ -- -- -- -- -- -- 104,641 -- 104,641
Net loss............. -- -- -- -- -- -- -- (446,235) (446,235)
--------- ------ --------- ------ ----------- --------- ----------- ----------- -----------
Balance at December
31, 1998............ 1,012,500 1,134 4,689,906 4,468 2,334,912 (5,931) (284,481) (447,469) 1,602,633
Deferred compensation
expense in
connection with
issuances of stock
options ............ -- -- -- -- 9,943,618 -- (9,943,618) -- --
Amortization of
deferred
compensation........ -- -- -- -- -- -- 4,130,797 -- 4,130,797
Issuance of Series B
convertible
preferred stock and
warrants, net....... 4,038,455 4,523 -- -- 19,810,542 -- -- -- 19,815,065
Common stock issued
for acquisition..... -- -- 2,104,770 2,357 9,309,157 -- -- -- 9,311,514
Stock option
exercise............ -- -- 375,000 300 415,200 (400,000) -- -- 15,500
Issuance of Series A
convertible
preferred stock
warrants............ -- -- -- -- 49,372 -- -- -- 49,372
Issuance of common
stock warrants...... -- -- -- -- 1,559,151 -- -- -- 1,559,151
Net loss............. -- -- -- -- -- -- -- (9,106,070) (9,106,070)
--------- ------ --------- ------ ----------- --------- ----------- ----------- -----------
Balance at September
30, 1999............ 5,050,955 $5,657 7,169,676 $7,125 $43,421,952 $(405,931) $(6,097,302) $(9,553,539) $27,377,962
========= ====== ========= ====== =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Year Ended Nine Months Ended Cumulative
Inception to December 31, September 30, Period from
December 31, -------------------- ----------------------- Inception to
1996 1997 1998 1998 1999 September 30, 1999
------------ -------- ---------- ----------- ----------- ------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (86) $ (1,148) $ (446,235) $(82,509) $(9,106,070) $(9,553,539)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Common stock issued
for services ........ -- -- 2,429 -- -- 2,429
Stock compensation
expense.............. -- -- 104,641 -- 4,130,797 4,235,438
Amortization of
prepaid license...... -- -- -- -- 275,927 275,927
Depreciation and
amortization
expense.............. -- -- -- -- 552,901 522,910
Acquired in process
research and
development.......... -- -- -- -- 554,901 554,901
Changes in assets and
liabilities:
Accounts receivable... -- -- (15,189) -- (29,432) (44,621)
Prepaid expenses...... -- -- -- (34,420) (1,003,910) (1,003,910)
Accounts payable...... -- -- 28,482 -- 1,112,403 1,140,885
Accrued expenses...... -- -- 39,166 (3,528) 635,380 674,546
Deferred revenue...... -- -- -- -- (53,301) (53,301)
------- -------- ---------- -------- ----------- -----------
Net cash used in
operating
activities.......... (86) (1,148) (286,706) (120,457) (2,930,395) (3,218,335)
------- -------- ---------- -------- ----------- -----------
Cash flows from
investing activities:
Purchase of property
and equipment, net.... -- -- -- -- (191,885) (191,885)
Cash paid in connection
with acquisition, net
of cash received...... -- -- -- -- (498,423) (498,423)
Note receivable from
related party......... -- -- (563,541) -- (1,052,901) (1,616,442)
------- -------- ---------- -------- ----------- -----------
Net cash used in
investing
activities.......... -- -- (563,541) -- (1,743,209) (2,306,750)
------- -------- ---------- -------- ----------- -----------
Cash flows from
financing activities:
Proceeds from issuance
of convertible
preferred stock, net
of issuance costs..... -- -- 1,935,025 224,528 18,315,065 20,250,090
Proceeds from stock
option exercise....... -- -- -- -- 15,500 15,500
Payments on capital
leases................ -- -- -- -- (19,600) (19,600)
Proceeds from issuance
of notes payable...... -- -- -- -- 1,500,000 1,500,000
Proceeds from sale of
common stock.......... 7,500 507 -- -- -- 8,007
------- -------- ---------- -------- ----------- -----------
Net cash provided by
financing
activities.......... 7,500 507 1,935,025 224,528 19,810,965 21,753,997
------- -------- ---------- -------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 7,414 (641) 1,084,778 104,071 15,137,361 16,228,912
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 $110,844 $16,228,912 $16,228,912
======= ======== ========== ======== =========== ===========
Supplemental
disclosures of non-
cash investing and
financing activities:
Deferred stock
compensation......... $ -- $ -- $ 389,122 $ -- $ 9,943,618 $10,332,740
Warrants issued in
connection with
agreements........... $ -- $ -- $ -- $ -- $ 1,608,523 $ 1,608,523
Common stock purchased
with note
receivable........... $ -- $ -- $ 5,931 $ -- $ 400,000 $ 405,931
Warrants issued in
connection with sale
of preferred stock .. $ -- $ -- $ 408,629 $ -- $ 301,317 $ 709,946
Issuance of stock in
connection with
acquisition.......... $ -- $ -- $ -- $ -- $ 9,311,514 $ 9,311,514
Payment of note
payable with
preferred stock...... $ -- $ -- $ -- $ -- $ 1,500,000 $ 1,500,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED 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 November 1999, the Company reincorporated in the state of Delaware. Also
in November 1999, the Board of Directors and shareholders of the Company
approved a 5-for-4 stock split of its common and preferred stock, which will be
effected prior to the completion of the offering.
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.
Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Windom Health Enterprises, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Development stage enterprise
For the period from inception through September 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 consolidated financial statements for the nine months ended September
30, 1998 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.
F-7
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets, as follows:
<TABLE>
<S> <C>
Computer and network equipment .................................... 2-3 years
Furniture and office equipment..................................... 5 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the life
of the lease, or the useful life of the assets, whichever is shorter.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. ("SFAS") 121. "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of " . 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.
Intangible assets
Intangible assets consist primarily of goodwill, which is being amortized on
a straight line basis over three years.
The Company considers potential impairments of its intangible assets on an
exception basis when evidence exists that events or changes in circumstances
may have made recovery of the carrying value unlikely. An impairment loss is
recognized when the expected undiscounted future net cash flows is less than
the carrying amount of the asset. No such losses have been identified to date.
Pro forma stockholders' equity
The pro forma stockholders' equity as of September 30, 1999 reflects the
conversion of all outstanding shares of convertible preferred stock into an
aggregate of 5,050,955 shares of common stock.
Comprehensive income
The Company adopted the provisions of 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
impressions are delivered to customers. The Company uses an outside vendor to
solicit customers to use its advertising services, to serve the
F-8
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ads to its website and to bill and collect for these services. This outside
vendor provides monthly reports indicating the impressions delivered, amounts
billed for the Company's advertising services and the related administrative
fee. The Company records advertising revenues, as reported by the outside
vendor, net of this administrative fee as the Company bears no collection risk
for the gross amount of the advertising fees. The Company's advertising
contracts do not guarantee a minimum number of impressions to be delivered.
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 nine months
ended September 30, 1999 was $992,486 and has been included in sales and
marketing expense in the consolidated statement of operations.
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 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 and B convertible preferred stock.
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, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Series A convertible preferred stock.............. 1,012,500 1,012,500
Series B convertible preferred stock.............. -- 4,038,455
Convertible preferred stock warrants.............. 486,000 666,373
Common stock options.............................. 274,718 2,006,157
Common stock subject to repurchase................ 17,937 312,500
--------- ---------
1,791,155 8,035,985
========= =========
</TABLE>
The restricted shares subject to repurchase are excluded from the
calculation of basic and diluted earnings per share until the restrictions
lapse.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
nine months ended September 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 and Series B 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 nine months ended September 30, 1999. The calculation
of pro forma diluted net loss per share excludes potential shares of common
stock as their effect would be antidilutive.
F-9
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
December 31
----------- September 30,
1997 1998 1999
----- ----- -------------
<S> <C> <C> <C>
Property and equipment:
Furniture and office
equipment.............. $ -- $ -- $279,525
Leasehold improvements.. -- -- 11,777
Computer and network
equipment.............. -- -- 432,554
----- ----- --------
723,856
Less accumulated
depreciation and
amortization........... -- -- (33,893)
----- ----- --------
$ $ $689,963
===== ===== ========
</TABLE>
Property and equipment includes $369,954 of computer equipment under capital
leases at September 30, 1999. Accumulated amortization of assets under capital
leases totaled $21,110 at September 30, 1999.
F-10
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31
------------- September 30,
1997 1998 1999
----- ------- -------------
<S> <C> <C> <C>
Intangible assets:
Goodwill....................................... $ -- $ -- $10,751,471
Core technology................................ -- -- 374,952
Acquired workforce............................. -- -- 180,369
Less accumulated amortization.................. -- -- (519,017)
----- ------- -----------
$ -- $ -- $10,787,775
===== ======= ===========
Accrued liabilities:
Accrued compensation........................... $ -- $39,166 $ 330,156
Accrued professional fees and other............ -- -- 437,932
----- ------- -----------
$ -- $39,166 $ 768,088
===== ======= ===========
</TABLE>
NOTE 3--ACQUISITION OF WINDOM HEALTH ENTERPRISES, INC.:
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.
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........................................................ $10,751,000
Identifiable assets............................................. 842,000
Core technology................................................. 375,000
Acquired workforce.............................................. 180,000
In-process research and development............................. 555,000
-----------
Total purchase price............................................ $12,703,000
===========
</TABLE>
The total purchase price of $12.7 million consisted of cash of $51,000, a
note payable of $458,000, 2,104,770 shares of the Company's common stock valued
at $9,311,514, assumed liabilities of $2,868,457 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 $4.42 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 of 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.
F-11
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill and other intangibles are being amortized on a straightline basis
over the estimated period of benefit of two to three years.
The following unaudited pro forma financial information presents the
consolidated results of the Company as if the acquisition had occurred at the
beginning of each period, and includes adjustments for amortization of
intangibles. This pro forma financial information is not intended to be
indicative of future results. Unaudited pro forma consolidated results of
operations are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Revenues.......................................... $ 568 $ 529
Net loss.......................................... (4,831) (12,447)
Basic and diluted net loss per share.............. (1.03) (2.41)
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS:
In August 1998, in association with a letter of intent relating to the
merger with Windom Health, the Company entered into a License and Management
Agreement (the "Agreement") with 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, the net outstanding balance due from Windom
Health amounted to $563,541. The cumulative amount due from Windom Health at
the merger date (August 12, 1999) was eliminated in consolidation.
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 96,153
shares of the Company's Series B convertible preferred stock at $5.20 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
to purchase 8,333 shares of the Company's Series B convertible preferred stock
at an exercise price of $3.60 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 $7.39
per share. The estimated fair value of the warrants of $39,008 was amortized
over the period of the borrowing agreement until the notes were canceled in
August 1999 upon the issuance of 57,691 shares of the Company's Series B
convertible stock at $5.20 per share.
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 19,230 shares of the Company's Series B convertible preferred stock
at $5.20 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 16,664 shares of the Company's
common stock at $3.60 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
F-12
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $6.07 and $6.92 per
share. The estimated fair value of the warrants of $64,017 was amortized over
the period the notes became exercisable and included within interest expense in
the statement of operations. In August 1999, the notes were canceled upon the
issuance of 115,383 shares of the Company's Series B convertible preferred
stock at $5.20 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 the Board of Directors, which provided for an $85,000
bonus to be paid to him on the closing of the Company's 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.
NOTE 5--CONVERTIBLE PREFERRED STOCK:
Convertible preferred stock at September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Net
Authorized Outstanding Amount Proceeds
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A...................... 1,625,000 1,012,500 $ 2,025,000 $ 1,935,025
Series B...................... 4,250,000 4,038,455 21,000,000 19,815,065
</TABLE>
The holders of preferred stock have various rights and preferences as
follows:
Voting
Each share of Series A and Series B 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 1,250,000 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 and Series B convertible preferred stock are entitled to
receive noncumulative dividends at the per annum rate of $0.13 and $0.33 per
share respectively, when and if declared by the Board of Directors. The holders
of Series A and Series B convertible preferred stock are 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 September 30, 1999.
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
F-13
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
own less than 51% of the resulting voting power of the surviving entity, the
holders of Series A and Series B convertible preferred stock are entitled to
receive an amount of $2.00 and $5.20 per share respectively, 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 and Series B convertible preferred
stockholders.
Conversion
Each share of Series A and Series B 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 and Series B 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 in which the pre-money valuation of the Company, as defined in
the Articles of Incorporation, is at least $125 million with gross proceeds of
at least $15,000,000, (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 486,000 shares of Series A convertible
preferred stock at an exercise price of $2.00 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 $1.52 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 12,249 Series A convertible preferred stock warrants at
an exercise price of $2.00 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 $4.59 per share. The fair value of the warrants
of $49,372 is being amortized over the period of the leases.
In August, 1999, in connection with investment banking services provided
during the Series B preferred stock offering, the Company issued warrants to
purchase an aggregate of 69,231 shares of Series B preferred stock at an
exercise price of $5.20 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 $7.95. The estimated fair value of the warrants of $301,317 was
netted against the proceeds from the offering.
NOTE 6--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 27,750,000 shares of $0.001 par value common stock. A portion of the
shares sold are subject to a right of repurchase by the
F-14
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company subject to vesting over a one year period. At September 30, 1998,
there were 312,500 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 73,896 shares of the Company's common stock at an
exercise price of $6.50 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 $4.97 per share. The fair value of the warrant of
$155,301 is being amortized over the period of the content license agreement.
In June 1999, the Company granted an officer immediately exercisable
options to purchase as aggregate of 312,500 shares of common stock at an
exercise price of $1.28 per share. In July 1999, in connection with the
exercise of these options, the officer issued a promissory note in the amount
of $400,000 bearing interest at the rate of 5.74% per annum, due upon the
earlier of July 12, 2003 or the termination of employment. Under the
restricted stock purchase agreement, 100% of the shares exercised are
initially subject to repurchase and held in escrow by the Company. The shares
will be released from the repurchase option in accordance with the original
vesting schedule of the underlying common stock option grant.
The Company has reserved shares of common stock for future issuance in
connection with the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Stock option plans................................ 3,000,000 7,250,000
Warrants.......................................... 486,000 666,373
Convertible stock................................. 1,012,500 5,050,955
</TABLE>
NOTE 7--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. An aggregate of 3,000,000 shares of
common stock have been reserved for issuance under the 1998 Plan.
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.
In August 1999, the Company adopted the 1999 Stock Option Plan (the "1999
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. At the time of adoption, 250,000 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 4,375,000 shares, and to incorporate certain other
changes, after which a total of 4,625,000 shares of common stock have been
reserved for issuance under the 1999 Plan.
F-15
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the period from January 1, 1998 through September 30, 1999, the
Company recorded $10,332,740 of deferred stock compensation in accordance with
APB 25, SFAS 123 and Emerging Issues Task Force 96-18, related to options
granted to consultants and employees in 1998 and 1999. During this period the
Company determined the fair value of options granted to consultants 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 $1.52 and $10.08 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 $4,130,797 for the year
ended December 31, 1998 and the nine months ended September 30, 1999,
respectively.
The following table summarizes activity under the 1998 Plan:
<TABLE>
<CAPTION>
Shares
Available Number of Weighted Average
for Grant Shares Exercise Price
---------- --------- ----------------
<S> <C> <C> <C>
Balances at December 31, 1997........ -- -- $ --
Shares reserved for grant.......... 3,000,000 -- --
Options granted.................... (274,718) 274,718 0.25
Restricted stock granted........... (23,916) -- 0.25
---------- ---------
Balances at December 31, 1998........ 2,701,366 274,718 0.25
Options granted.................... (1,856,439) 1,856,439 1.40
Options Exercised.................. -- (375,000) 1.11
---------- ---------
Balances at September 30, 1999....... 844,927 1,756,157 1.29
========== =========
</TABLE>
During 1999, the Company issued stock options under the 1998 Plan with the
following weighted average fair values:
<TABLE>
<CAPTION>
Options Weighted Average
Granted Fair Value
--------- ----------------
<S> <C> <C>
Below fair value.................................. 1,747,689 $5.42
At fair value..................................... 108,750 8.89
</TABLE>
The following table summarizes information under the 1998 Plan at September
30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------
Weighted Average
Exercise Remaining Contractual Weighted Average Weighted Average
Prices Number Life (Years) Exercise Price Number Exercise Price
-------- --------- --------------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.25 791,157 9.2 $ 0.25 279,598 $ 0.25
1.28 856,250 9.8 1.28 29,427 1.28
8.19 68,750 9.9 8.19 -- 8.19
10.08 40,000 10.0 10.08 -- 10.08
--------- -------
1,756,157 309,025
========= =======
</TABLE>
F-16
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the 1999 Plan:
<TABLE>
<CAPTION>
Shares Available Number of Weighted Average
for Grant Shares Exercise Price
---------------- --------- ----------------
<S> <C> <C> <C>
Balances at December 31,
1998..................... -- -- $ --
Shares reserved for
grant.................. 4,625,000 -- --
Options granted......... (250,000) 250,000 1.28
--------- -------
Balances at September 30,
1999..................... 4,375,000 250,000 1.28
========= =======
</TABLE>
During 1999, the Company issued stock options under the 1999 Plan with the
following weighted average fair values:
<TABLE>
<CAPTION>
Weighted Average
Options Granted Fair Value
--------------- ----------------
<S> <C> <C>
Below fair value............................ 250,000 $8.41
</TABLE>
The following table summarizes information under the 1999 Plan at September
30, 1999:
<TABLE>
<CAPTION>
Weighted Average
Exercise Number Remaining Contractual Weighted Average Number Weighted Average
Price Outstanding Life (Years) Exercise Price Exercisable Exercise Price
-------- ----------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.28 250,000 3.9 $1.28 31,250 $1.28
</TABLE>
Fair value disclosures
If compensation cost for the Company's stock based compensation plan had
been determined based on the fair value at grant dates for awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Net loss:
As reported.......................... $(446,235) $ (9,106,070)
Pro forma............................ (446,235) (10,602,856)
Basic and diluted net loss per share:
As reported.......................... $ (0.10) $ (1.76)
Pro forma............................ (0.10) (2.05)
</TABLE>
NOTE 8--INCOME TAXES:
As of December 31, 1998 and September 30, 1999, the Company has net
operating loss carryforwards of approximately $239,000 and $3,681,277
respectively, 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-17
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Net operating loss carryforwards.................. $ 95,600 $ 1,568,098
Allowances........................................ -- 6,712
Acquired liabilities.............................. -- 198,406
Deferred compensation............................. 42,900 728,732
--------- -----------
Gross deferred tax asset........................ 138,500 2,501,948
Valuation allowance............................... (138,500) (2,501,948)
--------- -----------
Net deferred tax assets......................... $ -- $ --
========= ===========
</TABLE>
Due to uncertainty surrounding the realization of deferred tax assets,
management has provided a full valuation allowance has been provided against
the deferred tax asset.
NOTE 9--COMMITMENTS AND CONTINGENCIES:
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 September 30, 1999, the Company had paid approximately $94,083 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 a $50,000 advertising allowance and the greater
of $100,000, due in quarterly $25,000 payments, or 30% of all net advertising
revenue generated from the publisher's content pages. Advertising expenses
associated with the agreement will be recognized ratably over the term of the
agreement, adjusted for any increases due to greater than estimated advertising
revenue generated from the 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 September 30, 1999, the Company had paid approximately $58,179
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.
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. The required payments will be expensed
ratably over the term of the contract based on the number of impressions
delivered by AltaVista. In addition, if AltaVista meets given performance
thresholds, ranging from 25% to 150% based on the number of impressions
delivered in excess of guaranteed minimum amounts, the Company will issue to
AltaVista warrants to purchase up to a maximum of
F-18
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
375,000 shares of common stock, with the number of shares dependent on the
amount by which AltaVista exceeds the thresholds. These warrants will have
varying exercise prices. The fair value of any warrants earned will be measured
on the date the performance commitment is met in accordance with EITF 96-18,
and the warrants will be valued using the Black-Scholes option pricing model in
accordance with SFAS 123.
In September 1999, the Company entered into an 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 co-branded website in exchange
for a cash payment of $50,000 per annum. The Company also granted options to
the principals of the People's Pharmacy to purchase up to 250,000 shares of the
Company's common stock at an exercise price of $1.28 per share. Pursuant to the
terms of the agreement, options for 31,250 shares of stock vested upon signing
the agreement. Accordingly, the fair value of these options of $234,000 was
included in production, content and product development expense in the nine
months ended September 30, 1999. Further, options for 156,250 shares of common
stock with a fair value of $1,170,000, which will be subject to periodic
remeasurement, will be amortized over the performance period of the agreement.
The Company valued these options using the Black-Scholes option pricing model,
applying an expected life of 4 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 $8.41 per share. With regard to the remaining
62,500 options, the Company will not receive the related services stipulated in
the agreement and, therefore, these options will never vest. Accordingly, no
value has been ascribed to these options.
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through March 2005. Rent
expense for the two years ended December 31, 1997 and 1998 and nine month
period ended September 30, 1999 was $0, $1,560 and $58,605, respectively. The
terms of the facility leases provide for rental payments on a graduated scale.
Future minimum lease payments under noncancelable operating and capital
leases are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Leases Leases
------------ --------- ----------
<S> <C> <C>
1999................................................... $ 160,431 $ 320,956
2000................................................... 164,878 343,792
2001................................................... 106,731 350,545
2002................................................... 22,125 357,619
2003................................................... -- 155,338
2004 and thereafter.................................... -- 21,834
--------- ----------
Total minimum lease payments and sublease income....... 454,165 $1,550,084
==========
Less amount representing interest...................... (84,211)
---------
Present value of capital lease obligations............. 369,954
Less current portion................................... (113,214)
---------
Long-term portion of capital lease obligations....... $ 256,740
=========
</TABLE>
Contingencies
The Company is subject to claims and assessments from time to time in the
ordinary course of business. Management does not believe that any such matters,
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition.
F-19
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10--SUBSEQUENT EVENTS:
Acquisitions
On October 5, 1999, the Company acquired HealthCentralRx.com, Inc.
HealthCentralRx.com 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
preliminary purchase price allocation, which is subject to adjustment after the
closing date, is summarized below:
<TABLE>
<S> <C>
Goodwill........................................................ $11,441,000
Identifiable assets............................................. 1,147,000
Contracts....................................................... 1,189,000
Core technology................................................. 1,241,000
Tradename....................................................... 443,000
Acquired workforce.............................................. 177,000
In-process research and development............................. 250,000
-----------
Total purchase price............................................ $15,888,000
===========
</TABLE>
The total purchase price of $15,888,000 consisted of 1,492,096 shares of
common stock valued at $13,533,000 based upon the deemed value of the Company's
common stock of $9.07 per share on the date the definitive merger agreement was
signed. The purchase price also included the assumption of 86,969 employee
stock options valued at $6.11 per share, assumed liabilities of $1,653,000 and
estimated transaction costs of $171,000.
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.
On October 28, 1999, the Company acquired RxList.com. RxList.com maintains a
website that allows visitors to search for information regarding prescription
and other medications.
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 was
based on estimated fair values as determined by management. The preliminary
purchase price allocation, which is subject to adjustment after the closing
date, is summarized below:
<TABLE>
<CAPTION>
<S> <C>
Goodwill........................................................ $11,212,000
Net liabilities assumed......................................... (287,000)
Pharmaceutical database......................................... 123,000
-----------
Total purchase price............................................ $11,048,000
===========
</TABLE>
F-20
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total purchase price of $11.0 million consisted of 836,422 shares of the
Company's common stock valued at $8,364,216, an aggregate of $2.6 million in
notes payable issued to RxList.com shareholders discounted at a deemed interest
rate of 10% over 6 months and estimated transaction costs of $143,000. The
deemed value of the Company's common stock on the date the acquisition
agreement was signed was $10.00.
Goodwill and other intangibles are being amortized on a straightline basis
over the estimated period of benefit of two to three years.
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. The plan is effective upon the effective
date of the initial public offering. 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.
F-21
<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-22
<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-23
<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-24
<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-25
<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
activities:
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
activities:
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-26
<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. The Company recognizes software license revenue under Statement of
Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-9,
Modifications of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions. When contracts contain multiple elements and vendor-
specific objective evidence exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the "Residual Method"
prescribed by SOP 98-9. To date, vendor-specific objective evidence has not
been available for all undelivered elements and, accordingly, the Company has
recognized the revenues from licenses, hosting and maintenance ratably over the
term of the agreement, generally 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-27
<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 Six Months
December 31, Ended
------------- June 30,
1997 1998 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-28
<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-29
<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-30
<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-31
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 661
Prepaid expenses................................................ 255,816
Other current assets............................................ 1,103,047
Total current assets.......................................... 1,359,524
Property and equipment, net....................................... 154,501
Other assets...................................................... 19,750
-----------
Total assets.................................................. $ 1,533,775
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................ $ 118,067
Accrued expenses................................................ 279,132
Bank overdraft.................................................. 162,816
Note payable to stockholders.................................... 1,250,000
-----------
Total liabilities............................................. 1,810,015
-----------
Commitments (Note 7)
Stockholders' deficit:
Common stock, no par value, 1,250,000 shares
authorized, 973,617 shares issued
and outstanding................................................ 2,609,666
Accumulated deficit............................................. (2,885,906)
-----------
Total stockholders' deficit................................... (276,240)
-----------
Total liabilities and stockholders' deficit................... $ 1,533,775
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
Inception to
September 30,
1999
-------------
<S> <C>
Operating expenses:
Production, content and product development.................... $ 548,388
Sales and marketing............................................ 848,622
General and administrative expenses............................ 892,400
Stock compensation expense..................................... 596,396
-----------
Total operating expenses..................................... 2,885,806
-----------
Loss from operations............................................. (2,885,806)
Interest expense................................................. (100)
-----------
Net loss......................................................... $(2,885,906)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period from Inception to September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Common Shares Total
------------------ Accumulated Stockholders'
Shares Amount Deficit Deficit
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock for
cash........................... 847,999 $1,760,225 $ -- $ 1,760,225
Exercise of stock options....... 81,098 596,396 -- 596,396
Issuance of warrant............. 44,520 253,045 -- 253,045
Net loss........................ -- -- (2,885,906) (2,885,906)
------- ---------- ----------- -----------
Balance at September 30, 1999... 973,617 $2,609,666 $(2,885,906) $ (276,240)
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period from
Inception to
September 30,
1999
-------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(2,885,906)
Adjustments to reconcile net loss to net cash used in operating
activities:
Expense recognized in connection with issuance of warrants.... 42,174
Depreciation and amortization................................. 6,675
Stock compensation expense.................................... 596,396
Changes in assets and liabilities:
Other assets................................................ (1,167,742)
Accounts payable............................................ 118,067
Accrued expenses............................................ 279,132
-----------
Net cash used in operating activities..................... (3,011,204)
-----------
Cash flows from investing activities:
Purchase of property and equipment.............................. (161,176)
-----------
Net cash used in investing activities..................... (161,176)
-----------
Cash flows from financing activities:
Bank overdraft.................................................. 162,816
Proceeds from issuance of common stock.......................... 1,760,225
Proceeds from issuance of convertible notes payable............. 1,250,000
-----------
Net cash provided by financing activities................. 3,173,041
-----------
Net increase in cash and cash equivalents....................... 661
Cash and cash equivalents at beginning of period................ --
-----------
Cash and cash equivalents at end of period...................... $ 661
===========
Supplemental disclosures of non-cash investing and financing
activities:
Warrants issued in connection with agreements................... $ 253,045
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
HealthCentralRx.com, 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 September 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 September 30, 1999 and for the period from
inception to September 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-36
<PAGE>
HEALTHCENTRALRX.COM, 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 will be responsible for all refunds relating to
sales where a customer is not satisfied with the products received. The Company
will provide an estimated allowance for such returns in the period of the sale.
The Company will also retain credit risk for sales of all products made by its
fulfillment partners.
NOTE 2--BALANCE SHEET COMPONENT:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Computer equipment and software................................ $135,720
Office equipment............................................... 25,456
--------
161,176
Less accumulated depreciation and amortization................. (6,675)
--------
$154,501
========
</TABLE>
Depreciation expense was $6,675 for the period ended September 30, 1999.
NOTE 3--NOTE PAYABLE TO STOCKHOLDERS:
During the period from January 27, 1999 to September 30, 1999, stockholders
of the Company advanced the Company $1,250,000 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 8).
Upon the completion of an IPO by HealthCentral.com, the notes are no longer
convertible.
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.
F-37
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
From inception through September 30, 1999, the Company granted a total of
81,098 options to employees. In September 1999, 80,098 of the options were
exercised by a cashless exercise and were remeasured to fair value in
accordance with Emerging Issues Task Force Issue No. 87-6, "Adjustments
Relating to Stock Compensation Plans" as they did not meet the minimum holding
period requirement. The expense recognized from inception to September 30, 1999
was $596,396.
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.
The following table summarizes activity under the 1999 Plan:
<TABLE>
<CAPTION>
Shares Number
Available of Weighted Average
for Grant Shares Exercise Price
--------- ------- ----------------
<S> <C> <C> <C>
Balances at January 27, 1999............ -- -- $ --
Shares reserved for grant............. 240,000 -- --
Options granted....................... (136,908) 136,908 3.91
Options exercised..................... -- (81,098) 4.05
-------- -------
Balances at September 30, 1999.......... 103,092 55,810 3.70
======== =======
</TABLE>
NOTE 5--COMMON STOCK:
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 is being amortized over the
period of the agreement.
NOTE 6--INCOME TAXES:
As of September 30, 1999, the Company has net operating loss carryforwards
of approximately $1.6 million for federal and state income tax purposes. The
net operating loss carryforwards expire primarily in the year 2019 for federal
and in 2006 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-38
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Net operating loss carryforwards............................... $ 638,486
Other.......................................................... 169,278
---------
Gross deferred tax asset..................................... 807,764
Valuation allowance............................................ (807,764)
---------
Net deferred tax assets...................................... $ --
=========
</TABLE>
Due to uncertainty surrounding the realization of deferred tax assets,
management has a full valuation allowance has been provided against the
deferred tax asset.
NOTE 7--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 September 30,
1999. At September 30, 1999, the total remaining commitment under this lease
arrangement is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999.............................................................. $125,364
2000.............................................................. 129,252
2001.............................................................. 99,126
--------
$353,742
========
</TABLE>
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.
Through September 30, 1999, the Company has paid $1,760,078 in conjunction with
this agreement.
NOTE 8--SUBSEQUENT EVENTS:
Acquisition
On October 5, 1999, all of the Company's outstanding common stock was
acquired by HealthCentral.com for consideration of 1,492,096 shares of
HealthCentral.com common stock valued at $9.07 per share, the assumption of
86,969 HealthCentralRx.com stock options valued at $6.11 per share and the
assumption of $1.7 million of liabilities.
F-39
<PAGE>
Report of Independent Accountants
To the Shareholders of
RxList.com
In our opinion, the accompanying balance sheets and the related statements
of operations, of partners'/shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of RxList.com at
December 31, 1997 and 1998 and at September 30, 1999, and the results of its
operations and its cash flows for each of the two years ended December 31, 1998
and the nine months ended September 30, 1999 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 statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
October 25, 1999
F-40
<PAGE>
RXLIST.COM
BALANCE SHEETS
<TABLE>
<CAPTION>
December
31,
----------- September 30,
1997 1998 1999
---- ------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $260 $1,116 $ 37,828
Accounts receivable............................... -- 1,299 111,967
Prepaid expenses.................................. -- 3,750 --
---- ------ --------
Total current assets............................ 260 6,165 149,795
---- ------ --------
Equipment........................................... -- 2,716 2,716
Less accumulated depreciation....................... -- (830) (1,509)
---- ------ --------
Net equipment..................................... -- 1,886 1,207
---- ------ --------
Total assets.................................... $260 $8,051 $151,002
==== ====== ========
LIABILITIES AND PARTNERS'/SHAREHOLDERS' EQUITY
Current liabilities:
Accrued professional fees and other............... $-- $ -- $ 26,910
---- ------ --------
Total current liabilities....................... -- -- 26,910
---- ------ --------
Partners'/shareholders' equity:
Partners' capital................................. 260 8,051 --
Common stock, $0.001 par value, 10,000,000 shares
authorized, 2,000 shares issued and outstanding
at September 30, 1999............................ -- -- --
Additional paid-in capital........................ -- -- 102,716
Accumulated earnings.............................. -- -- 21,376
---- ------ --------
Total shareholders' equity...................... 260 8,051 124,092
---- ------ --------
Total liabilities and partners'/shareholders'
equity....................................... $260 $8,051 $151,002
==== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
RXLIST.COM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
---------------- --------------------
1997 1998 1998 1999
------- ------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Advertising revenue................... $ 4,500 $11,988 $10,690 $231,336
------- ------- ------- --------
Operating expenses:
Production, content and product
development.......................... 3,840 17,346 7,473 61,423
Sales and marketing................... 2,300 3,844 3,844 37,791
General and administrative............ 180 115 104 19,049
------- ------- ------- --------
Total operating expenses............ 6,320 21,305 11,421 118,263
------- ------- ------- --------
Income (loss) from operations........... (1,820) (9,317) (731) 113,073
Interest income......................... 14 20 11 121
------- ------- ------- --------
Net income (loss)....................... $(1,806) $(9,297) $ (720) $113,194
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
RXLIST.COM
STATEMENTS OF PARTNERS'/SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Partners'
Common Stock Additional Capital/
Partners' ------------- Paid-In Retained Shareholders'
Capital Shares Amount Capital Earnings Equity
--------- ------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $ 26 -- $ -- $ -- $ -- $ 26
Contributions of
capital................ 4,040 -- -- -- -- 4,040
Distributions to
shareholders........... (2,000) -- -- -- -- (2,000)
Net loss................ (1,806) -- -- -- -- (1,806)
-------- ----- ----- -------- -------- --------
Balance at December 31,
1997................... 260 -- -- -- -- 260
Contributions of
capital................ 17,088 -- -- -- -- 17,088
Net loss................ (9,297) -- -- -- -- (9,297)
-------- ----- ----- -------- -------- --------
Balance at December 31,
1998................... 8,051 -- -- -- -- 8,051
Contributions of
capital................ 18,634 -- -- -- 18,634
Distributions to
shareholders........... (4,379) -- -- -- (4,379)
Net income through June
30..................... 71,818 -- -- -- 71,818
Issuance of common stock
upon conversion to S
corporation............ (94,124) 2,000 -- 94,124 -- --
Contributions of
capital................ -- -- -- 8,592 -- 8,592
Distributions to
shareholders........... -- -- -- -- (20,000) (20,000)
Net income.............. -- -- -- -- 41,376 41,376
-------- ----- ----- -------- -------- --------
Balance at September 30,
1999................... $ -- 2,000 $ -- $102,716 $ 21,376 $124,092
======== ===== ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
RXLIST.COM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
----------------- ---------------------
1997 1998 1998 1999
------- -------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................... $(1,806) $ (9,297) $ (720) $ 113,194
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..... -- 830 604 679
Changes in assets and liabilities:
Accounts receivable............. -- (1,299) (6,000) (110,668)
Prepaid expenses................ -- (3,750) -- 3,750
Accrued professional fees and
other.......................... -- -- -- 26,910
------- -------- ------- ---------
Net cash provided by (used in)
operating activities......... (1,806) (13,516) (6,116) 33,865
------- -------- ------- ---------
Cash flows from investing
activities:
Purchase of property and equipment.. -- (2,716) (2,716) --
------- -------- ------- ---------
Net cash used in investing
activities................... -- (2,716) (2,716) --
------- -------- ------- ---------
Cash flows from financing
activities:
Proceeds from capital
contributions...................... 4,040 17,088 9,240 27,226
Distributions to shareholders....... (2,000) -- -- (24,379)
------- -------- ------- ---------
Net cash provided by financing
activities................... 2,040 17,088 9,240 2,847
------- -------- ------- ---------
Net increase in cash and cash
equivalents........................ 234 856 408 36,712
Cash and cash equivalents at
beginning of period................ 26 260 260 1,116
------- -------- ------- ---------
Cash and cash equivalents at end of
period............................. $ 260 $ 1,116 $ 668 $ 37,828
======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
RXLIST.COM
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
RxList.com (the "Company") was formed in 1995 as a partnership and was
incorporated in California in July 1999. The Company maintains a website that
allows visitors to search for information regarding prescription medication.
The Company's website also provides links to other prescription medication and
general medical websites.
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 for the nine months ended September 30, 1998 are
unaudited and should be read in conjunction with the Company's annual financial
statements for the year ended December 31, 1998. The 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.
Revenue recognition
The Company records advertising revenues in the period the advertising
impressions are delivered 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 impressions delivered, amounts billed
for the Company's advertising services and the related administrative fee. The
Company records advertising revenues, as reported by the outside vendor, net of
this administrative fee as the Company bears no collection risk for the gross
amount of the advertising fees. The Company's advertising contracts do not
guarantee a minimum number of impressions to be delivered.
Production, content and product development expense
Production, content and product development expenses consist primarily of
consulting fees and other costs related to content acquisition and licensing
and website operations.
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.
F-45
<PAGE>
RXLIST.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company currently has the following concentrations of revenues and
accounts receivables:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Revenues:
Customer A..................................... 100% -- --
Customer B..................................... -- 75% --
Customer C..................................... -- 11% 46%
Customer D..................................... -- -- 44%
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Accounts Receivable:
Customer C..................................... -- 100% 48%
Customer D..................................... -- -- 52%
</TABLE>
Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including accounts receivable and accrued expenses approximate fair value due
to their short maturities.
Equipment
Equipment is recorded at cost and depreciated using the straight-line method
over the estimated useful life which is three years. 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.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". 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 July 1999. 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. From inception through June 1999 the Company's
partners recorded their respective portions of the Company's taxable income
(loss) in their individual tax returns.
NOTE 2--RELATED PARTIES:
During the years ended December 31, 1997, 1998 and the nine months ended
September 30, 1999, IRC Medical Publishing ("IRC") paid expenses of $3,840,
$17,088 and $27,226, respectively, on behalf of the Company. Such amounts were
not reimbursed by the Company and, accordingly, were recorded as contributed
capital in the accompanying financial statements. One of the Company's founders
is an officer of IRC.
F-46
<PAGE>
RXLIST.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3--SUBSEQUENT EVENT:
In October 1999, the Company was acquired by HealthCentral.com. The purchase
price was comprised of 836,422 shares of HealthCentral.com common stock valued
at $10.00 per share and an aggregate of $2.6 million in notes payable which
bear interest at 5% per annum. All the Company's outstanding stock was
surrendered and the Company's shareholders received their pro rata share of the
purchase price.
F-47
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On August 12, 1999 and October 5, 1999, HealthCentral.com acquired Windom
Health Enterprises, Inc. ("Windom Health") and HealthCentralRx.com, Inc.,
respectively, in transactions accounted for using the purchase method of
accounting. On October 28, 1999, HealthCentral.com acquired RxList.com, which
will also be 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 consolidated balance sheet of the
Company at September 30, 1999 and the balance sheets of HealthCentralRx.com and
RxList.com at September 30, 1999 assuming the transactions were consummated on
September 30, 1999. 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 nine months ended September 30, 1999. The
operations of Windom Health and RxList.com have been included in the unaudited
pro forma combined statements of operations as though these acquisitions had
been consummated on January 1, 1998. The operations of HealthCentralRx.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 consolidated financial statements and notes thereto, which are included
elsewhere herein.
F-48
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------------------------
HealthCentral
As Reported Rx.com RxList.com Adjustments Pro Forma
----------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $16,228,912 $ 661 $ 37,828 $ -- $16,267,401
Accounts receivable,
net................... 264,620 -- 111,967 -- 376,587
Prepaid expenses and
other current assets.. 1,449,429 1,358,863 -- -- 2,808,292
----------- ----------- --------- ----------- -----------
Total current assets.. 17,942,961 1,359,524 149,795 -- 19,452,280
Property and equipment,
net.................... 689,963 154,501 1,207 -- 845,671
Intangible assets....... 518,001 -- -- 3,728,000 (A) 4,246,001
Goodwill................ 10,269,774 -- -- 21,514,056 (B) 31,783,830
Other assets............ 951,808 19,750 -- -- 971,558
----------- ----------- --------- ----------- -----------
Total assets.......... $30,372,507 $ 1,533,775 $ 151,002 $25,242,056 $57,299,340
=========== =========== ========= =========== ===========
Current liabilities:
Accounts payable....... $ 1,683,118 $ 118,067 $ -- $ -- $ 1,801,185
Accrued expenses....... 768,088 279,132 26,910 311,000 (F) 1,385,130
Bank overdraft......... -- 162,816 -- -- 162,816
Deferred revenue....... 173,385 -- -- -- 173,385
Current portion of
obligations under
capital leases........ 113,214 -- -- -- 113,214
Notes payable.......... -- 1,250,000 -- 2,600,000 (I) 3,850,000
----------- ----------- --------- ----------- -----------
Total current
liabilities.......... 2,737,805 1,810,015 26,910 2,911,000 7,485,730
Obligations under
capital leases......... 256,740 -- -- -- 256,740
----------- ----------- --------- ----------- -----------
Total liabilities..... 2,994,545 1,810,015 26,910 2,911,000 7,742,470
----------- ----------- --------- ----------- -----------
Stockholders' equity
(deficit):
Convertible preferred
stock................. 5,657 -- -- -- 5,657
Common Stock........... 7,125 2,609,666 -- (2,607,251)(G)(H) 8,979
Additional paid-in
capital............... 43,421,952 -- 102,716 22,324,338 (G) 65,849,006
(H)
Notes receivable from
stockholders.......... (405,931) -- -- -- (405,931)
Deferred stock
compensation.......... (6,097,302) -- -- -- (6,097,302)
Accumulated earnings
(deficit)............. (9,553,539) (2,885,906) 21,376 2,614,530 (C)(G) (9,803,539)
----------- ----------- --------- ----------- -----------
Total stockholders'
equity (deficit)..... 27,377,962 (276,240) 124,092 22,331,056 49,556,870
----------- ----------- --------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)........... $30,372,507 $ 1,533,775 $ 151,002 $25,242,056 $57,299,340
=========== =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited combined
financial statements.
F-49
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------------
As
Reported Windom RxList.com Adjustments Pro Forma
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Content subscription
and license.......... $ -- $ 552,630 $ -- $ -- $ 552,630
Advertising........... 15,259 -- 11,988 -- 27,247
---------- ---------- ------- ----------- -----------
15,259 552,630 11,988 -- 579,877
---------- ---------- ------- ----------- -----------
Operating expenses:
Production, content
and product
development.......... 136,788 642,317 17,346 -- 796,451
Sales and marketing... 141,516 83,187 3,844 -- 228,547
General and
administrative....... 78,549 378,888 115 -- 457,552
Stock compensation.... 104,641 -- -- -- 104,641
Amortization of other
intangibles.......... -- -- -- 275,500 (D) 276,500
Amortization of
goodwill............. -- -- -- 7,145,428 (E) 7,149,428
---------- ---------- ------- ----------- -----------
Total operating
expenses........... 461,494 1,104,392 21,305 7,425,928 9,013,119
---------- ---------- ------- ----------- -----------
Loss from operations.... (446,235) (551,762) (9,317) (7,425,928) (8,433,242)
Interest income
(expense), net......... -- (18,025) 20 -- (18,005)
---------- ---------- ------- ----------- -----------
Net loss................ $ (446,235) $ (569,787) $(9,297) $(7,425,928) $(8,451,247)
========== ========== ======= =========== ===========
Basic and diluted net
loss per share......... $ (0.10) $ (1.11)
========== ===========
Shares used in computing
basic and diluted net
loss per share......... 4,669,628 7,610,819
========== ===========
Pro forma basic and
diluted
net loss per share..... $ (0.10) $ (1.11)
========== ===========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 4,691,820 7,633,011
========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited combined
financial statements.
F-50
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-----------------------------------------------------------------------------
HealthCentral
As Reported Windom Rx.Com RxList.com Adjustments Pro Forma
----------- ---------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Content subscription
and license........... $ 80,353 $ 40,526 $ -- $ -- $ -- $ 120,879
Advertising............ 408,293 -- -- 231,336 -- 639,629
----------- ---------- ----------- -------- ----------- ------------
488,646 40,526 -- 231,336 -- 760,508
----------- ---------- ----------- -------- ----------- ------------
Operating expenses:
Production, content
and product
development........... 1,750,246 301,955 548,388 61,423 -- 2,662,012
Sales and marketing.... 1,568,729 92,835 848,622 37,791 -- 2,547,977
General and
administrative........ 1,147,989 74,907 892,400 19,049 -- 2,134,345
Stock compensation..... 4,130,797 -- 596,396 -- -- 4,727,193
Amortization of other
intangibles........... 37,320 -- -- -- 1,036,931 (D) 1,074,251
Amortization of
goodwill.............. 481,697 -- -- -- 7,776,687 (E) 8,258,384
Acquired in-process
research and
development........... 554,901 -- -- -- -- 554,901
----------- ---------- ----------- -------- ----------- ------------
Total operating
expenses............. 9,671,679 469,697 2,885,806 118,263 8,813,618 21,959,063
----------- ---------- ----------- -------- ----------- ------------
Loss from operations.... (9,183,033) (429,171) (2,885,806) 113,073 (8,813,618) (21,198,555)
Interest income
(expense), net......... 76,963 (50,603) (100) 121 -- 26,381
----------- ---------- ----------- -------- ----------- ------------
Net loss................ $(9,106,070) $(479,774) $(2,885,906) $113,194 $(8,813,618) $(21,172,174)
=========== ========== =========== ======== =========== ============
Basic and diluted net
loss per share......... $ (1.76) $ (2.19)
=========== ============
Shares used in computing
basic and diluted net
loss per share......... 5,168,638 9,688,895
=========== ============
Pro forma basic and
diluted net loss per
share.................. $ (1.42) $ (1.94)
=========== ============
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 6,390,540 10,910,797
=========== ============
</TABLE>
The accompanying notes are an integral part of these unaudited combined
financial statements.
F-51
<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
purchase price allocation is summarized below:
<TABLE>
<CAPTION>
Amortization
Life
------------
<S> <C> <C>
Goodwill............................................. $10,751,000 3 years
Identifiable assets.................................. 842,000 --
Core technology...................................... 375,000 3 years
Acquired workforce................................... 180,000 2 years
In-process research and development.................. 555,000 --
-----------
Total purchase price................................. $12,703,000
===========
</TABLE>
The total purchase price of $12.7 million consisted of cash of $51,000, a
note payable of $458,000, 2,104,770 shares of the Company's common stock valued
at $9,311,514, assumed liabilities of $2,868,457 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 $4.42 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.
HealthCentralRx.com
On October 5, 1999, the Company acquired HealthCentralRx.com, Inc.
HealthCentralRx.com 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.
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
F-52
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(unaudited)
acquisition were based on estimated fair values as determined by management.
The preliminary purchase price allocation, which is subject to adjustment after
the closing date, is summarized below:
<TABLE>
<CAPTION>
Amortization
Life
------------
<S> <C> <C>
Goodwill............................................ $11,441,000 3 years
Identifiable assets................................. 1,147,000 --
Contracts........................................... 1,189,000 2 years
Core technology..................................... 1,241,000 3 years
Trade name.......................................... 443,000 3 years
Acquired workforce.................................. 177,000 2 years
In-process research and development................. 250,000 --
-----------
Total purchase price................................ $15,888,000
===========
</TABLE>
The total purchase price of $15,888,000 consisted of 1,492,096 shares of
common stock valued at $13,533,000 based upon the deemed value of the Company's
common stock of $9.07 per share on the date the definitive merger agreement was
signed. The purchase price also included the assumption of 86,969 employee
stock options valued at $6.11 per share, assumed liabilities of $1,653,000 and
estimated transaction costs of $171,000.
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.
RxList.com
On October 28, 1999, the Company acquired RxList.com. RxList.com maintains a
website that allows visitors to search for information regarding prescription
and other medications.
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 was
based on estimated fair values as determined by management. The preliminary
purchase price allocation, which is subject to adjustment after the closing
date, is summarized below:
<TABLE>
<CAPTION>
Amortization
Life
------------
<S> <C> <C>
Goodwill........................................... $11,212,000 3 years
Net liabilities assumed............................ (287,000) --
Pharmaceutical database............................ 123,000 2 years
-----------
Total purchase price............................... $11,048,000
===========
</TABLE>
F-53
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(unaudited)
The total purchase price of $11.0 million consisted of 836,422 shares of the
Company's common stock valued at $8,364,216, an aggregate of $2.6 million in
notes payable issued to RxList.com shareholders discounted at a deemed interest
rate of 10% over 6 months and estimated transaction costs of $143,000. The
deemed value of the Company's common stock on the date the acquisition
agreement was signed was $10.00.
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, HealthCentralRx.com or RxList.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 nine months ended September 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.
The 5,076,464 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 Nine Months
December 31, Ended September
1998 30, 1999
------------ ----------------
<S> <C> <C>
Shares used in computing basic and diluted
net loss per share.......................... 4,669,628 5,168,638
Adjustment to reflect assumed conversion of
preferred stock............................. 22,192 1,221,902
Adjustment to reflect common stock issued in
acquisitions................................ 2,941,191 4,520,257
--------- ----------
Shares used in computing pro forma basic and
diluted net loss per share.................. 7,633,011 10,910,797
========= ==========
</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 $3,728,000 of other intangible assets, summarized as
follows:
<TABLE>
<S> <C>
Core technology............................................... $1,616,000
Contracts..................................................... 1,189,000
Trade name.................................................... 443,000
Other......................................................... 480,000
----------
$3,728,000
==========
</TABLE>
F-54
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(B) Represents $21,514,000 of goodwill.
(C) Represents $250,000 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 September 30, 1999.
(D) Represents amortization of other intangible assets over two to
three years.
(E) Represents amortization of goodwill over three years.
(F) Represents accrued transaction costs associated with the
acquisitions.
(G) Represents the elimination of equity accounts of the acquired
companies.
(H) Represents the common stock issued in connection with the
acquisitions.
(I) Represents notes payable issued in connection with the RxList.com
acquisition.
F-55
<PAGE>
Inside Back Cover
HealthCentral.com logo
<PAGE>
7,500,000 Shares
[HEALTHCENTRAL.COM LOGO]
Common Stock
-----------
PROSPECTUS
, 1999
-----------
Lehman Brothers Hambrecht & Quist
Pacific Growth Equities, Inc.
Wit Capital Corporation
Fidelity Capital Markets
a division of National Financial Services 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 .......... $ 26,375.25
NASD filing fee............................................... 9,987.50
Nasdaq National Market listing fee............................ 95,000.00
Printing and engraving expenses............................... 400,000.00
Legal fees and expenses....................................... 550,000.00
Accounting fees and expenses.................................. 400,000.00
Blue Sky qualification fees and expenses...................... 5,000.00
Transfer Agent and Registrar fees............................. 12,602.25
-------------
Total..................................................... $1,500,000.00
=============
</TABLE>
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 1,012,500 shares of
common stock, and warrants to purchase 486,000 shares of Series A
Preferred Stock at a purchase price of $2.00 to investors.
(2) In May 1999, the Registrant issued a warrant to purchase 12,249 shares
of Series A Preferred Stock at a purchase price of $2.00 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 73,896
shares of Common Stock at a purchase price of $6.50 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 16,664 shares of common stock at a purchase price of $3.60
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 2,104,770 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 4,038,455
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 8,333 shares of Series B
Preferred Stock at a purchase price of $3.60 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 69,231 shares of Series B Preferred Stock at a
purchase price of $5.20 per share.
(10) In October 1999, the Registrant issued or reserved for issuance upon
the exercise of options a total of 1,579,065 shares of its common
stock to individuals and entities in connection with an acquisition of
a company.
(11) In October 1999, the Registrant issued 836,422 shares to individuals
in connection with an acquisition of a company.
(12) As of September 30, 1999, 398,916 shares of common stock had been
issued upon exercise of options or pursuant to restricted stock
purchase agreements and 1,756,157 shares of common stock were issuable
upon exercise of outstanding options under the Registrant's 1998 Stock
Plan.
(13) As of September 30, 1999, 250,000 shares of common stock were issuable
upon exercise of outstanding options under the Registrants' 1999 Stock
Plan.
(14) 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.
(15) Prior to the completion of this offering, the Registrant intends to
effect a five-for-four split of its outstanding common stock in which
every outstanding share of common stock will be split into 1.25 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 five-for-four 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)(11) as well
as the issuances in 15(a)(13) 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)(12) 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)(14) and (15) 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 were
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 (subject to negotiation).
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 agreements and
restricted stock purchase agreements.
10.3*** Amended and Restated 1998 Stock Plan, as amended, and form of stock
option agreements and restricted stock purchase agreements.
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 27, 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.
10.25** Agreement and Plan of Reorganization by and between Registrant and
RxList.com dated October 25, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.26** Industrial Lease between ePills.com and H.S.P. dated May 4, 1999.
10.27+** Co-Branding Content Agreement between the Registrant and MediaLinx
Interactive, L.P. dated June 30, 1999.
10.28+** Advertising Insertion Order between ePills, Inc. and America Online,
Inc. dated August 20, 1999.
10.29** Assumed HealthCentralRx.com 1999 Stock Option Plan and form of
incentive stock option agreement.
21.1** List of subsidiaries.
23.1 Form of Consent of Independent Accountants.
23.1b Consent of Independent Accountants.
23.1c Consent of Independent Accountants.
23.2 Consent of Attorney (See Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
*** Supersedes exhibit previously filed.
+ 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.
(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 Amendment No. 6 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Emeryville, State of California, on November 30, 1999.
HEALTHCENTRAL.COM
/s/ C. Fred Toney
By:__________________________________
C. Fred Toney
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive November 30, 1999
____________________________________ Officer and Director
Albert L. Greene (Principal Executive
Officer)
/s/ C. Fred Toney Chief Financial Officer November 30, 1999
____________________________________ (Principal Financial and
C. Fred Toney Accounting Officer)
* Co-Chairman of the Board November 30, 1999
____________________________________
James J. Hornthal
* Co-Chairman of the Board November 30, 1999
____________________________________
Michael D. McDonald
* Director November 30, 1999
____________________________________
Louis M. Andersen
* Director November 30, 1999
____________________________________
Sheryle J. Bolton
* Director November 30, 1999
____________________________________
Annette Campbell-White
* Director November 30, 1999
____________________________________
Dean S. Edell
* Director November 30, 1999
____________________________________
Wesley D. Sterman
* Director November 30, 1999
____________________________________
Robin Wolaner
</TABLE>
*Power of Attorney
/s/ C. Fred Toney
By: ___________________________
C. Fred Toney
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1** Form of Underwriting Agreement (subject to negotiation).
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 agreements and
restricted stock purchase agreements.
10.3*** Amended and Restated 1998 Stock Plan, as amended, and form of stock
option agreements and restricted stock purchase agreements.
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 27, 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.
10.25** Agreement and Plan of Reorganization by and between Registrant and
RxList.com dated October 25, 1999.
10.26** Industrial Lease between ePills.com and H.S.P. dated May 4, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.27+** Co-Branding Content Agreement between Registrant and MediaLinx
Interactive, L.P. dated June 30, 1999.
10.28+** Advertising Insertion Order between ePills, Inc. and America Online,
Inc. dated August 20, 1999.
10.29** Assumed HealthCentralRx.com 1999 Stock Option Plan and form of
incentive stock option agreement.
21.1** List of subsidiaries.
23.1 Form of Consent of Independent Accountants.
23.1b Consent of Independent Accountants.
23.1c Consent of Independent Accountants.
23.2 Consent of Attorney (See Exhibit 5.1).
24.1** Power of Attorney
27.1** Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
*** Supersedes exhibit previously filed.
+ 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>
Exhibit 10.2
HEALTHCENTRAL.COM
1999 STOCK PLAN
(as amended September 23, 1999)
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants and
to promote the success of the Company's business. Options granted under the
Plan may be Incentive Stock Options 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 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 its Committee 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 or which, together with the
Company, is under common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(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 one or more committees or subcommittees of the
---------
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
<PAGE>
(h) "Common Stock" means the Common Stock of the Company.
------------
(i) "Company" means HealthCentral.com, a California corporation.
-------
(j) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent, Subsidiary or Affiliate to render services
and is compensated for such services, and any director of the Company whether
compensated for such services or not.
(k) "Continuous Service Status" means the absence of any interruption
-------------------------
or termination of service as an Employee or Consultant. Continuous Service
Status 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 ninety (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 Parents, Subsidiaries, Affiliates or their
respective successors. Unless otherwise determined by the Administrator or the
Company, a change in status from an Employee to a Consultant or from a
Consultant to an Employee will not constitute an interruption of Continuous
Service Status.
(l) "Corporate Transaction" 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.
(m) "Director" means a member of the Board.
--------
(n) "Employee" means any person (including, if appropriate, any Named
--------
Executive, officer or Director) 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.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "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 on the date of determination (or if no trading or
bids occurred on the date of determination, on the last trading day prior to the
date 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
-2-
<PAGE>
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 date of determination
(or if no bids occurred on the date of determination, on the last trading day
prior to the date of determination); or
(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.
(q) "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 Option Agreement.
(r) "Listed Security" means any security of the Company that 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.
(s) "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(t) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "Option" means a stock option granted pursuant to the Plan.
------
(v) "Option Agreement" means a written document, the form(s) of which
----------------
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(w) "Option Exchange Program" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(y) "Optionee" means an Employee or Consultant who receives an Option.
--------
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(aa) "Participant" means any holder of one or more Options or Stock
-----------
Purchase Rights, or the Shares issuable or issued upon exercise of such awards,
under the Plan.
-3-
<PAGE>
(bb) "Plan" means this 1999 Stock Plan.
----
(cc) "Reporting Person" means an officer, Director, or greater than
----------------
ten percent stockholder 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.
(dd) "Restricted Stock" means Shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(ee) "Restricted Stock Purchase Agreement" means a written document,
-----------------------------------
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(ff) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as amended from time to time, or any successor provision.
(gg) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(hh) "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.
(ii) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(jj) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(kk) "Ten Percent Holder" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 4,625,000 Shares of Common Stock (after giving effect to the Company's 5-for-
4 stock split effected in connection with its reincorporation under the laws of
Delaware and subject to further adjustment pursuant to Section 14 below), plus
an annual increase on the first day of each of the Company's fiscal years
beginning in 2001, 2002, 2003, 2004 and 2005 equal to the lesser of (i) 787,500
Shares (after giving effect to the Company's 5-for-4 stock split effected in
connection with its reincorporation under the laws of Delaware and subject to
further adjustment pursuant to Section 14 below), (ii) 3.5 percent of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (iii)
such lesser number of Shares as the Board shall determine. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become 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 which are retained by the Company upon exercise of an
Option or Stock Pur-
-4-
<PAGE>
chase 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 or purchase shall be treated as not issued and shall continue to be
available under the Plan. Shares issued under the Plan and later repurchased by
the Company pursuant to any repurchase right which the Company may have shall
not be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to grant Options or Stock Purchase Rights to
Employees and Consultants.
(b) Administration with respect to Reporting Persons. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3(d) and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, 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 any 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 a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) 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, 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(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options
and Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(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
-5-
<PAGE>
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;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) 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 and to
make any other amendments or adjustments to any Option that the Administrator
determines, in its discretion and under the authority granted to it under the
Plan, to be necessary or advisable, provided however that no amendment or
adjustment to an Option that would materially and adversely affect the rights of
any Optionee shall be made without the prior written consent of the Optionee;
(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
Participants.
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 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
-6-
<PAGE>
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) No Employment Rights. The Plan shall not confer upon any
--------------------
Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way with
such Participant's 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 (10) years unless sooner
terminated under Section 16 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
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of the Option shall be five (5) years from the date
of grant thereof or such shorter term as may be provided in the Option
Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in Section 14 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 2,000,000 (after giving effect to
the Company's 5-for-4 stock split effected in connection with its
reincorporation under the laws of Delaware and subject to further adjustment
pursuant to Section 14 below).
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. 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 Administrator and set forth in the Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a
Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; or
(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, the per
Share exercise price shall be such price as is determined by the Administrator;
provided however that in the case of a Nonstatutory Stock option granted to a
person who, at the time of the grant of such Option, is a Named Executive of the
Company, the per Share Exercise Price shall be no less than 100% of the Fair
Market Value on the date of grant if such Option is intended to qualify as
-7-
<PAGE>
performance-based compensation under Section 162(m) of the Code and if not so
intended shall be such price as is determined by the Administrator.
(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) Permissible Consideration. 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 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) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate (subject, if applicable, to the provisions of
Section 153 of the Delaware General Corporation Law); (4) cancellation of
indebtedness; (5) other Shares that (x) in the case of Shares acquired upon
exercise of an Option either 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) or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option is exercised; (6) authorization from 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
exercise of the Option and prompt delivery to the Company of the sale or loan
proceeds required to pay the exercise price and any applicable withholding
taxes; (8) any combination of the foregoing methods of payment; or (9) 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 and the Administrator may refuse to accept a particular form of
consideration at the time of any Option exercise if, in its sole discretion,
acceptance of such form of consideration is not in the best interests of the
Company at such time.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the terms of the Plan, and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee. 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.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be 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 Option and the Company has
received full payment for the Shares with
-8-
<PAGE>
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 9(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 stockholder 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 14 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. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Service Status, such Optionee
may, but only within three (3) months (or such other period of time 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) 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. Unless otherwise determined by the Administrator or
the Company, no termination shall be deemed to occur and this Section 10(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. Notwithstanding Section 10(b) above,
----------------------
(i) In the event of termination of an Optionee's Continuous
Service Status as a result of his or her total and permanent disability (within
the meaning of Section 22(e)(3) of the Code), Optionee may, but only within
twelve (12) months (or such other period of time as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
made at the time of grant of the Option) 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
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Service Status as a result of a disability which does not fall within the
meaning of total and permanent disability (as set forth in Section 22(e)(3) of
the Code), Optionee may, but only within six (6) months (or such other period of
time as is determined by the Administrator, with such determination in the case
of an Incentive Stock Option made at the time of grant of the Option) from the
date of such termination (but in no event later than the expiration date of the
term of
-9-
<PAGE>
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 three (3) months of the date of such
termination, the Option will not qualify for Incentive Stock Option treatment
under the Code. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within six months (6) from the date of termination,
the Option shall terminate.
(d) Death of Optionee. Notwithstanding Section 10(b) above, in the
-----------------
event of the death of an Optionee during the period of Continuous Service Status
since the date of grant of the Option, or within thirty (30) days following
termination of Optionee's Continuous Service Status, the Option may be
exercised, at any time within twelve (12) months (or such other period of time
as is determined by the Administrator, with such determination in the case of an
Incentive Stock Option made at the time of grant of the Option) 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 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 Optionee's Continuous Service
Status. To the extent that Optionee was not entitled to exercise the Option at
the date of death or termination, as the case may be, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(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 Service
Status 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 Administrator 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) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted under the Plan
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. 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, and the time within which such person must
accept such offer. The purchase price of Shares subject to Stock Purchase
Rights shall be as determined by the Administrator in accordance with the
Applicable Laws. The offer to purchase Shares subject to Stock Purchase Rights
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
-10-
<PAGE>
(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 or consulting relationship 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 cash or
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Administrator may determine in accordance
with the Applicable Laws.
(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 Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder 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 14
of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
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 under the
Applicable Laws (the "Tax Date").
--------
-11-
<PAGE>
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant 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 Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
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; provided that the Administrator may in its discretion
and to the extent permitted by the Applicable Laws 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 Option or
Stock Purchase Right, only by such holder or a transferee permitted by this
Section 13.
14. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of Shares set forth
in Sections 3(a)(i) and 8 above, 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 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
-12-
<PAGE>
adjustment shall be made by the Administrator, 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 fifteen (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) Corporate Transaction; Change in Control. In the event of a
----------------------------------------
Corporate Transaction or a Change in Control, each outstanding Option and 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 (such entity, the "Successor Corporation"), unless the
---------------------
Successor Corporation does not agree to assume the outstanding Options or Stock
Purchase Rights or to substitute equivalent options or rights, in which case
such Options or Stock Purchase Rights shall terminate upon the consummation of
the transaction. In the event of a transaction that qualifies as a Change of
Control (i) in which outstanding awards are being assumed or substituted, the
vesting and exercisability of each outstanding Option and Stock Purchase Right
shall accelerate such that the Options and Stock Purchase Rights shall become
vested and exercisable to the extent of 50% of the Shares then unvested, and any
repurchase right of the Company with respect to Shares issued upon exercise of
an Option or Stock Purchase Right shall lapse as to 50% of the Shares subject to
such repurchase right prior to consummation of the Change of Control, and (ii)
in which outstanding awards are terminating because the Successor Corporation
has not agreed to assume or substitute such awards, the vesting and
exercisability of each outstanding Option and Stock Purchase Right shall
accelerate such that the Options and Stock Purchase Rights shall become vested
and exercisable to the extent of 100% of the Shares then unvested, and any
repurchase right of the Company with respect to Shares issued upon exercise of
an Option or Stock Purchase Right shall lapse as to 100% of the Shares subject
to such repurchase right prior to consummation of the Change of Control, in each
case at such time and upon such conditions as the Administrator shall determine.
To the extent that an Option or Stock Purchase Right is not exercised prior to
consummation of a Corporate Transaction or Change of Control in which the Option
or Stock Purchase Right is not being assumed or substituted, such Option or
Stock Purchase Right shall terminate upon such consummation and the
Administrator shall notify the Optionee or holder of such fact at least five (5)
days prior to the date on which the Option or Stock Purchase Right terminates.
For purposes of this Section 14, an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon a Corporate Transaction or Change of Control, as the case may
be, each holder of an Option would be entitled to receive upon exercise of the
Option 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 at such time (after giving effect to any adjustments in the number
of Shares covered by the Option as provided for in this Section 14); provided,
however, that if such consideration received in the transaction was not solely
common stock of the Successor Corporation, the Administrator may, with the
consent of the Successor Corporation, provide for the consideration to be
received upon exercise of the
-13-
<PAGE>
Option to be solely Common Stock of the Successor Corporation 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 stockholders 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 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.
(e) Limitation on Payments. In the event that the vesting
----------------------
acceleration provided for in subsection (c) above (x) constitutes "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code (the
"Code"), and (y) but for this Section 14(e) 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 vesting acceleration shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result in
no portion of such severance benefits being subject to excise tax under Code
Section 4999,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the optionee on an after-tax basis of the greater
amount of acceleration benefits, notwithstanding that all or some portion of
such benefits may be taxable under Code Section 4999. Any determination required
under this Section 14(e) shall be made in writing by the Company's independent
accountants or other outside tax advisors, whose determination shall be based on
factual assertions provided by the Company, and which will be conclusive and
binding for all purposes on the Company and the optionee. In the event that (A)
above applies, then the optionee shall be responsible for any excise taxes
imposed with respect to such benefits. In the event that (B) above applies, then
each benefit provided hereunder shall be proportionately reduced to the extent
necessary to avoid imposition of such excise taxes.
15. 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 Administrator;
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.
16. 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 (other than an adjustment pursuant to Section 14 above) shall
be made that would materially and adversely affect the rights of any
Participant, without his or her consent. In addition, to the extent necessary
and desirable to comply with the Applicable Laws, the Company shall obtain
stockholder 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 materially and adversely affect Options or Stock Purchase
Rights already granted, unless mutually agreed otherwise between the Participant
and the Administrator, which agreement must be in writing and signed by the
Participant and the Company.
17. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right 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.
-14-
<PAGE>
18. 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.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
-15-
<PAGE>
[Post-IPO Officer Form of Option Agreement]
HEALTHCENTRAL.COM
1999 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
You have been granted an option to purchase Common Stock of
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date: GrantDate
Date of Grant (Later of Board
Approval Date or Commencement of
Employment/Consulting): GrantDate
Exercise Price Per Share: PricePerShare
Total Number of Shares Granted: NumberofShares
Total Price of Shares Granted: TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option
-------------
NoSharesNSO Nonstatutory Stock Option
-------------
Term/Expiration Date: Expiration
Vesting Commencement Date: VestingCommencement
Vesting Schedule: VestingSchedule
In the event of a Change of Control, the
vesting and exercisability of the Option
shall accelerate as provided in the
Company's 1999 Stock Plan; provided
however that the Shares remaining unvested
following such acceleration shall
thereafter vest and become exercisable in
equal monthly installments over the 12-
month period following the closing date of
the Change of Control.
Termination Period: Option may be exercised for a period of
______ after termination of employment or
consulting relationship except as set out
in Sections 7 and 8 of the Stock Option
Agreement (but in no event later than the
Expiration Date).
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 HealthCentral.com 1999 Stock Plan and the Stock
Option Agreement, all of which are attached and made a part of this document.
-1-
<PAGE>
OPTIONEE HEALTHCENTRAL.COM
By:
----------------------- ---------------------
Signature
Address: Title:
--------------- -------------------
-----------------------
-2-
<PAGE>
HEALTHCENTRAL.COM
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option.
---------------
(a) General Terms. HealthCentral.com (the "Company"), hereby grants
------------- -------
to the Optionee named in the Notice of Stock Option Grant attached to this
Agreement ("Optionee"), an option (the "Option") to purchase the 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 1999 Stock Plan (the "Plan") adopted by the Company, which is incorporated
----
in this Agreement by reference. In the event of a conflict between the terms of
the Plan and the terms of this Agreement, the terms of the Plan shall govern.
Unless otherwise defined in this Agreement, the terms used in this Agreement
shall have the meanings defined in the Plan.
(b) Tax Status of Option. Unless and to the extent designated a
--------------------
Nonstatutory Stock Option in the Notice of Stock Option Grant, this Option is
intended to be an Incentive Stock Option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to the maximum extent
----
permitted under applicable tax law. If any portion of this Option is designated
as an Incentive Stock Option it shall qualify as such only to the extent that
the aggregate fair market value of the Shares (generally, the Option's exercise
price) subject to this Option (and all other Incentive Stock Options granted to
Optionee by the Company or any Parent or Subsidiary) that first become
exercisable in any calendar year does not exceed $100,000. To the extent that
the aggregate fair market value of such Shares exceeds $100,000, the Shares in
excess of such limit shall be treated as subject to a Nonstatutory Stock Option,
in accordance with Section 5 of the Plan.
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 Sections 9 and 10 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 this
Section 2 and by Sections 6, 7 and 8 below.
(iii) In no event may this Option be exercised after the Expiration
Date of the Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise.
------------------
(i) This Option shall be exercisable by delivering to the Company
a written notice of exercise (in the form attached as Exhibit A) 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
-1-
<PAGE>
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee agrees
to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise.
(iii) 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 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. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option shall be
exercised; (d) authorization from 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; or (e) if there is a
public market for the Shares and they are registered under the Securities 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.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders 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 ("Regulation G") 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.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Service Status, 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 out in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at the date of
such termination, or if Optionee does not exercise this Option within the time
specified in the Notice of Stock Option Grant, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Service Status as a
result of total and permanent disability (as
-2-
<PAGE>
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of termination of employment (but in no event later
than the Expiration Date of the Option as set forth in the Notice of Stock
Option Grant), exercise the Option to the extent otherwise so entitled at the
date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option (to the extent otherwise so entitled) within the time specified in
this Agreement, the Option shall terminate.
8. 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 Service Status since the date of grant of the Option,
or (b) within thirty (30) days after the termination of Optionee's Continuous
Service Status, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the Expiration
Date of the Option as 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 date of death or termination, as applicable. To the extent
that Optionee was not entitled to exercise this Option at the date of death or
termination, as applicable, or if Optionee's estate or the person who acquired
the right to exercise the Option as a result of Optionee's death does not
exercise this Option within the time specified in the Notice of Stock Option
Grant, the Option shall terminate
9. Non-Transferability of Option. Except as otherwise provided in this
-----------------------------
Section 9, 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. However, Optionee, with the approval
of the Administrator, may transfer the Option to or for the benefit of one or
more members of Optionee's Immediate Family (as defined below), including,
without limitation, to a trust for the benefit of one or more members of
Optionee's Immediate Family or to a partnership or limited liability company
composed of one or more members of Optionee's Immediate Family, and subject to
such limits as the Administrator may establish. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and permitted
transferees of Optionee. No transfer for consideration shall be permitted
except to a partnership or limited liability company composed of one or more
members of Optionee's Immediate Family.
The foregoing right to transfer the Option shall apply to the right to
consent to amendments to this Agreement and, in the discretion of the
Administrator, shall also apply to the right to transfer ancillary rights
associated with the Option. The term "Immediate Family" shall mean Optionee's
spouse or former spouse, parents, children, stepchildren, adoptive
relationships, sisters, brothers, grandchildren, nieces, nephews, mother-in-law,
father-in-law, sons-in-law, daughters-in-law, brothers-in-law or sisters-in-law
(and, for this purpose, shall also include Optionee). Optionee acknowledges and
agrees that Optionee shall be responsible for payment of any applicable income
and employment tax withholdings imposed upon the transfer and/or subsequent
exercise of a transferred Option, and such transfer and the transferee's right
to receive the shares subject to this Option upon exercise thereof is
conditioned on satisfaction of such withholding taxes as the Company determines
may be due.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement
-3-
<PAGE>
or the Plan shall confer upon Optionee any right with respect to continuation as
an Employee or Consultant with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her employment
or consulting relationship at any time, with or without cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE AND
DOES NOT ADDRESS STATE, LOCAL OR FOREIGN ISSUES, AND THAT THE TAX LAWS AND
REGULATIONS SUMMARIZED ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal 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 item of alternative minimum taxable income 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, Optionee may incur regular federal 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. In addition, if Optionee is an employee of
the Company, 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. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on the
date of exercise, or (ii) the sales proceeds, over the Exercise Price. If this
Option is a Nonstatutory Stock Option, then gain realized on the disposition of
Shares will be treated as long-term or short-term capital gain depending on
whether or not the disposition occurs more than one year after the exercise
date. In the case of either an Incentive Stock Option or a Nonstatutory Stock
Option, the long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 20% if the Shares are held
more than one year after exercise.
(d) Notice of Disqualifying Disposition. If the Option granted to
-----------------------------------
Optionee in this Agreement 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 transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee 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.
13. Withholding Tax Obligations.
---------------------------
-4-
<PAGE>
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
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. 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.
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: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) 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 (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be withheld, or (iv) 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 determined as of the applicable Tax
Date equal to the amount required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all Applicable
Laws. 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:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) 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 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, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, 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 under the applicable laws (the
"Tax Date").
--------
14. Signature. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
-5-
<PAGE>
[Remainder of page left intentionally blank]
-6-
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: HealthCentral.com
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of HealthCentral.com
Common Stock, under and pursuant to the Company's 1999 Stock Plan and the Stock
Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name:
________________________________
Address:
________________________________
Signed:
________________________________
Date:
________________________________
<PAGE>
HEALTHCENTRAL.COM
1999 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
You have been granted an option to purchase Common Stock of
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date: GrantDate
Date of Grant (Later of Board
Approval Date or Commencement of
Employment/Consulting): GrantDate
Exercise Price Per Share: PricePerShare
Total Number of Shares Granted: NumberofShares
Total Price of Shares Granted: TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option
-------------
NoSharesNSO Nonstatutory Stock Option
-------------
Term/Expiration Date: Expiration
Vesting Commencement Date: VestingCommencement
Vesting Schedule: VestingSchedule
Termination Period: Option may be exercised for a period
of ______ after termination of
employment or consulting relationship
except as set out in Sections 7 and 8
of the Stock Option Agreement (but in
no event later than the Expiration
Date).
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 HealthCentral.com 1999 Stock Plan and the Stock
Option Agreement, all of which are attached and made a part of this document.
OPTIONEE HEALTHCENTRAL.COM
By:
--------------------------- ----------------------------
Signature
Address: Title:
------------------- -------------------------
---------------------------
-1-
<PAGE>
HEALTHCENTRAL.COM
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option.
---------------
(a) General Terms. HealthCentral.com (the "Company"), hereby grants
------------- -------
to the Optionee named in the Notice of Stock Option Grant attached to this
Agreement ("Optionee"), an option (the "Option") to purchase the 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 1999 Stock Plan (the "Plan") adopted by the Company, which is incorporated
----
in this Agreement by reference. In the event of a conflict between the terms of
the Plan and the terms of this Agreement, the terms of the Plan shall govern.
Unless otherwise defined in this Agreement, the terms used in this Agreement
shall have the meanings defined in the Plan.
(b) Tax Status of Option. Unless and to the extent designated a
--------------------
Nonstatutory Stock Option in the Notice of Stock Option Grant, this Option is
intended to be an Incentive Stock Option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to the maximum extent
----
permitted under applicable tax law. If any portion of this Option is designated
as an Incentive Stock Option it shall qualify as such only to the extent that
the aggregate fair market value of the Shares (generally, the Option's exercise
price) subject to this Option (and all other Incentive Stock Options granted to
Optionee by the Company or any Parent or Subsidiary) that first become
exercisable in any calendar year does not exceed $100,000. To the extent that
the aggregate fair market value of such Shares exceeds $100,000, the Shares in
excess of such limit shall be treated as subject to a Nonstatutory Stock Option,
in accordance with Section 5 of the Plan.
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 Sections 9 and 10 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 this
Section 2 and by Sections 6, 7 and 8 below.
(iii) In no event may this Option be exercised after the Expiration
Date of the Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise.
------------------
(i) This Option shall be exercisable by delivering to the Company a
written notice of exercise (in the form attached as Exhibit A) 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
-1-
<PAGE>
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee agrees to
make adequate provision for federal, state or other tax withholding obligations,
if any, which arise upon the exercise of the Option or disposition of Shares,
whether by withholding, direct payment to the Company, or otherwise.
(iii) 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 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. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option shall be
exercised; (d) authorization from 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; or (e) if there is a
public market for the Shares and they are registered under the Securities 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.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders 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 ("Regulation G") 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.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Service Status, 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 out in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at the date of
such termination, or if Optionee does not exercise this Option within the time
specified in the Notice of Stock Option Grant, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Service Status as a
result of total and permanent disability (as
-2-
<PAGE>
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of termination of employment (but in no event later
than the Expiration Date of the Option as set forth in the Notice of Stock
Option Grant), exercise the Option to the extent otherwise so entitled at the
date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option (to the extent otherwise so entitled) within the time specified in
this Agreement, the Option shall terminate.
8. 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 Service Status since the date of grant of the Option,
or (b) within thirty (30) days after the termination of Optionee's Continuous
Service Status, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the Expiration
Date of the Option as 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 date of death or termination, as applicable. To the extent
that Optionee was not entitled to exercise this Option at the date of death or
termination, as applicable, or if Optionee's estate or the person who acquired
the right to exercise the Option as a result of Optionee's death does not
exercise this Option within the time specified in the Notice of Stock Option
Grant, the Option shall terminate
9. 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.
The designation of a beneficiary does not constitute a transfer. An Option may
be exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement or the Plan shall confer upon Optionee any right with respect to
continuation as an Employee or Consultant with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
his or her employment or consulting relationship at any time, with or without
cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE AND
DOES NOT ADDRESS STATE, LOCAL OR FOREIGN ISSUES, AND THAT THE TAX LAWS AND
REGULATIONS SUMMARIZED ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal 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 item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
-3-
<PAGE>
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal 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. In addition, if Optionee is an employee of
the Company, 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. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on the
date of exercise, or (ii) the sales proceeds, over the Exercise Price. If this
Option is a Nonstatutory Stock Option, then gain realized on the disposition of
Shares will be treated as long-term or short-term capital gain depending on
whether or not the disposition occurs more than one year after the exercise
date. In the case of either an Incentive Stock Option or a Nonstatutory Stock
Option, the long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 20% if the Shares are held
more than one year after exercise.
(d) Notice of Disqualifying Disposition. If the Option granted to
-----------------------------------
Optionee in this Agreement 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 transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee 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.
13. Withholding Tax Obligations.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
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. 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.
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: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) 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 (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be
-4-
<PAGE>
withheld, or (iv) 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 determined as of the applicable Tax Date equal to the amount required to
be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all Applicable
Laws. 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:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) 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 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, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, 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 under the applicable laws (the
"Tax Date").
--------
14. Signature. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
-5-
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: HealthCentral.com
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of HealthCentral.com
Common Stock, under and pursuant to the Company's 1999 Stock Plan and the Stock
Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name:_______________________________
Address:____________________________
____________________________
____________________________
Signed: ____________________________
Date:_______________________________
<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:
----------------------------
<CompanyAddressLine1>
<CompanyAddressLine2>
PURCHASER:
<Optionee>
-----------------------------------
(Signature)
____________________________________
(Print Name)
Address:
<OptioneeAddress1>
<OptioneeAddress2>
I, ______________________, spouse of <Optionee>, 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 <Optionee>
-8-
<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) "Corporate Transaction" 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.
(m) "Director" means a member of the Board.
--------
(n) "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.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "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
-2-
<PAGE>
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(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.
(q) "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.
(r) "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.
(s) "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(t) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(u) "Option" means a stock option granted pursuant to the Plan.
------
(v) "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.
(w) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(y) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(aa) "Plan" means this 1998 Stock Plan.
----
-3-
<PAGE>
(bb) "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.
(cc) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 10 below.
(dd) "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.
(ee) "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.
(ff) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(gg) "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.
(hh) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(ii) "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 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 3,000,000 Shares of Common Stock (after giving effect to the
Company's 5-for-4 stock split effected in connection with its reincorporation
under the laws of Delaware and subject to further adjustment as provided in
Section 13 below). 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) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the
-4-
<PAGE>
Applicable Laws, the Board may authorize one or more officers to grant Options
or Stock Purchase Rights to Employees and Consultants.
(b) Administration with respect to Reporting Persons. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3(d) and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, 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 any 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 a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) 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, 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(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(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;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(f) instead of Common Stock;
-5-
<PAGE>
(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 and to
make any other amendments or adjustments to any Option that the Administrator
determines, in its discretion and under the authority granted to it under the
Plan, to be necessary or advisable, provided however that no amendment or
adjustment to an Option that would materially and adversely affect the rights of
any Optionee shall be made without the prior written consent of the Optionee;
(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. Limitations on Grants to Employees. Subject to adjustment as provided
----------------------------------
in Section 13 below, the maximum number of Shares which may be subject to
Options or Stock Purchase Rights granted to any one Employee under the Plan for
any fiscal year of the Company shall be 1,250,000 Shares (after giving effect to
the Company's 5-for-4 stock split effected in connection with its
reincorporation under the laws of Delaware and subject to further adjustment as
provided in Section 13 below).
9. 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 granted
prior to the date, if any, upon which the Common Stock becomes a Listed Security
and 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 if required by the Applicable Laws.
-7-
<PAGE>
(B) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per Share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code and if not so intended shall be such price as is determined
by the Administrator.
(C) 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 if required by the Applicable Laws.
(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 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 and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if
it determines, in its sole discretion, that acceptance of such form of
consideration is not in the best interests of the Company at such time.
10. 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
-8-
<PAGE>
Listed Security shall become exercisable at the rate of at least 20% per year
over five years from the date the Option is granted if required by the
Applicable Laws. 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 if required by
the Applicable Laws. 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 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 9(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 13 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 10(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) 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 10(b)
-9-
<PAGE>
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 10(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 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
-10-
<PAGE>
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) 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.
11. 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, if required by the Applicable Laws,
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 if
required by the Applicable Laws.
(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
-11-
<PAGE>
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 13 of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
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 under the
Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
-12-
<PAGE>
(f) In the event an election to have Shares withheld is made by a
Participant 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 Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. 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 and the number of Shares set forth in Section 8 above, 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
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) Corporate Transaction; Change in Control. In the event of a
----------------------------------------
Corporate Transaction or a Change in Control, each outstanding Option and 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 (such entity, the "Successor Corporation"), unless the
---------------------
Successor Corporation does not agree to assume the outstanding Options or Stock
Purchase Rights or to substitute equivalent options or rights, in which case
such Options or Stock Purchase Rights shall terminate upon consummation of the
transaction. In the event of a transaction that qualifies as a Change of
Control (i) in which outstanding awards are being continued, assumed or
substituted, the vesting and exercisability of each outstanding Option and Stock
Purchase Right shall accelerate such that the Options and Stock Purchase Rights
shall become vested and exercisable to the extent of 50% of the Shares then
unvested, and any repurchase right of the Company with respect to Shares issued
upon exercise of an Option or
-13-
<PAGE>
Stock Purchase Right shall lapse as to 50% of the Shares subject to such
repurchase right prior to consummation of the Change of Control, and (ii) in
which outstanding awards are terminating, the vesting and exercisability of each
outstanding Option and Stock Purchase Right shall accelerate such that the
Options and Stock Purchase Rights shall become vested and exercisable to the
extent of 100% of the Shares then unvested, and any repurchase right of the
Company with respect to Shares issued upon exercise of an Option or Stock
Purchase Right shall lapse as to 100% of the Shares subject to such repurchase
right prior to consummation of the Change of Control, in each case at such time
and upon such conditions as the Administrator shall determine. To the extent
that an Option or Stock Purchase Right is not exercised prior to consummation of
a Corporate Transaction or Change of Control in which the Option or Stock
Purchase Right is terminating, such Option or Stock Purchase Right shall
terminate upon such consummation.
For purposes of this Section 13(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 13); 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 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.
(e) Limitation on Payments. In the event that the vesting
----------------------
acceleration provided for in subsection (c) above (x) constitutes "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code (the
"Code"), and (y) but for this Section 13(e) 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 vesting acceleration shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject to excise tax under Code
Section 4999,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the optionee on an after-tax basis of the greater
amount of acceleration benefits, notwithstanding that all or some portion of
such benefits may be taxable under Code Section 4999. Any determination required
under this Section 13(e) shall be made in writing by the Company's independent
accountants or other outside tax advisors, whose determination shall be based on
factual assertions provided by the Company, and which will be conclusive and
binding for all purposes on the Company and the optionee. In the event that (A)
above applies, then the optionee shall be responsible for any excise taxes
imposed with respect to such benefits. In the event that (B) above applies, then
each benefit provided hereunder shall be proportionately reduced to the extent
necessary to avoid imposition of such excise taxes.
14. 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 the Administrator may in
its discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements, or amend outstanding Option Agreements to allow for transferability
by, 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 14.
-14-
<PAGE>
15. 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.
16. 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.
17. 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 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.
18. 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.
-15-
<PAGE>
19. 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.
20. 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.
21. 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.
-16-
<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 vesting
schedule: 1/4th of the Shares
subject to the Option shall vest
and become exercisable on the 12-
month anniversary of the Vesting
Commencement Date and 1/48th of
the total number of Shares subject
to the Option shall vest and
become exercisable on the monthly
anniversary date of the Vesting
Commencement Date thereafter.
In the event of a Change of
Control, the vesting and
exercisability of the Option shall
accelerate as provided in the
Company's 1998 Stock Plan;
<PAGE>
provided however that the Shares
remaining unvested following such
acceleration shall therafter vest
and become exercisable in equal
monthly installments over the 12-
month period following the closing
date of the Change of Control.
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).
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 Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent
<PAGE>
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. Except as otherwise provided in this
-----------------------------
Section 8, 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. However, Optionee, with the approval
of the Administrator, may transfer the Option to or for the benefit of one or
more members of Optionee's Immediate Family (as defined below), including,
without limitation, to a trust for the benefit of one or more members of
Optionee's Immediate Family or to a partnership or limited liability company
composed of one or more members of Optionee's Immediate Family, and subject to
such limits as the Administrator may establish. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and permitted
transferees of Optionee. No transfer for consideration shall be permitted
except to a partnership or limited liability company composed of one or more
members of Optionee's Immediate Family.
The foregoing right to transfer the Option shall apply to the right to
consent to amendments to this Agreement and, in the discretion of the
Administrator, shall also apply to the right to transfer ancillary rights
associated with the Option. The term "Immediate Family" shall
<PAGE>
mean Optionee's spouse or former spouse, parents, children, stepchildren,
adoptive relationships, sisters, brothers, grandchildren, nieces, nephews,
mother-in-law, father-in-law, sons-in-law, daughters-in-law, brothers-in-law or
sisters-in-law (and, for this purpose, shall also include Optionee). Optionee
acknowledges and agrees that Optionee shall be responsible for payment of any
applicable income and employment tax withholdings imposed upon the transfer
and/or subsequent exercise of a transferred Option, and such transfer and the
transferee's right to receive the shares subject to this Option upon exercise
thereof is conditioned on satisfaction of such withholding taxes as the Company
determines may be due.
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.
(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
<PAGE>
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.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
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. 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.
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: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) 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 (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be withheld, or (iv) 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 determined as of the applicable Tax
Date equal to the amount required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all Applicable
Laws. 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:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
<PAGE>
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) 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 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, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, 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 under the applicable laws (the
"Tax Date").
--------
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: ________________________ ______________________________
[Employee]
<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 intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser
<PAGE>
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.
9
<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
10
<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 WITH, THE SALE OR DISTRIBUTION THEREOF.
11
<PAGE>
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.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter
12
<PAGE>
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]
13
<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:
[Employee]
____________________________________
(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 _____________
14
<PAGE>
[Employee Form of Option Agreement]
HEALTHCENTRAL.COM
1998 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee]
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 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: 1/4th of the Shares subject to
the Option shall vest on the 12th month
anniversary of the Vesting Commencement
Date and 1/48th of the total number of
Shares subject to the Option shall vest on
the monthly anniversary date of the
Vesting Commencement Date thereafter.
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
<PAGE>
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.
[EMPLOYEE] 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 Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent
<PAGE>
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.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee
<PAGE>
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. 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.
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: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) 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 (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be withheld, or (iv) 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 determined as of the applicable Tax
Date equal to the amount required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all applicable
laws. 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:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(iii) 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 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, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, 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 under the applicable laws (the
"Tax Date").
--------
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
<PAGE>
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: ________________________ ______________________________
[Employee]
<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 intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser
<PAGE>
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.
-9-
<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
-10-
<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 WITH, THE SALE OR DISTRIBUTION THEREOF.
-11-
<PAGE>
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.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter
-12-
<PAGE>
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]
-13-
<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:
[Employee]
--------------------------------------------
(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 _____________
-14-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 (File No. 333-88019) of our report dated October 22,
1999, except as to the second paragraph of Note 1 which is as of November ,
1999, relating to the consolidated 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 Amendment No. 6 to the Registration
Statement on Form S-1 (File No. 333-88019) 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
November 29, 1999
<PAGE>
EXHIBIT 23.1c
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 (File No. 333-88019) of our report dated October 25,
1999, relating to the financial statements of RxList.com, 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
November 29, 1999
