<PAGE>
As filed with the Securities and Exchange Commission on November 8, 1999
Registration No. 333-88019
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
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 Number)
Incorporation or Classification Code
Organization) Number)
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
(510) 250-2500
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
----------------
Albert L. Greene
Chief Executive Officer
HealthCentral.com
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
(510) 250-2500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
Copies to:
Mark A. Medearis Craig S. Andrews
Laurel Finch David G. Odrich
Scott Ring Jeffrey C. Thacker
Gene Yoon Michelle A. Lara
VENTURE LAW GROUP BROBECK, PHLEGER & HARRISON LLP
A Professional Corporation 550 West "C" Street
2800 Sand Hill Road Suite 1300
Menlo Park, CA 94025 San Diego, CA 92101
----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Securities To Be Proposed Maximum Aggregate Offering Amount of Registration Fee
Registered price (1)
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<S> <C> <C>
Common stock, par value $0.001 per share $86,250,000 $23,977.50 (2)
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</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) and Rule 457(o) under the
Securities Act.
(2) $23,977.50 has been previously paid by the Registrant in connection with
the filing of the Registration Statement on September 29, 1999.
----------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and 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 8, 1999
PROSPECTUS
7,500,000 Shares
[HEALTHCENTRAL.COM LOGO]
Common Stock
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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 2 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. Next to the picture of Dr.
Edell will read the following quote:
Dr. Dean Edell has been one the leading physician broadcasters in the
United States over the past twenty years. Dr. Edell hosts a daily one-hour
radio program on over 300 radio station stations. His daily television
report is broadcast in over 50 markets.
To the left of the picture of Dr. Edell will be a picture of The People's
Pharmacy book. Directly next to this picture will read the following quote:
Joe and Teresa Graedon write The People's Pharmacy, a newspaper column
published in over 150 newspapers. The Graedons also host a weekly radio
show broadcast on more than 500 stations around the world.
<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.
----------------
This prospectus includes statistical data regarding the Internet industry
from information published by industry sources such as Cyber Dialogue, IDC,
Forrester Research and Jupiter Communications. We believe that this data is
inherently imprecise, and you should not place undue reliance on this data.
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 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 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. We believe,
based on a third-party survey, that almost one third of surveyed 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,
.our reincorporation in Delaware before the effectiveness of this offering,
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 56,361,304 124,611,304
Long-term obligations, including current
portion................................. 369,954 4,219,954 4,219,954
Total stockholders' equity............... 27,377,962 48,618,834 116,868,834
</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, but are not the only risks we face. If any of these or other risks
actually occurs, the trading price of our common stock could decline, and you
may lose all or a part of your investment.
Risks Related to Our Business
We 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;
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. 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
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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,
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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
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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
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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;
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. 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
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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
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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
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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
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<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."
*****
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 determined 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.
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<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 64,910,970 133,153,470
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 48,618,834 116,868,834
----------- ----------- ------------
Total capitalization.................... $27,747,916 $52,838,788 $121,088,788
=========== =========== ============
</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 EITF 96-18,
and the warrants will be valued using the Black-Scholes option pricing model in
accordance with SFAS 123. 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 200,000 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
$14.9 million. This acquisition was accounted for using the purchase method of
accounting. We recorded intangibles and goodwill of approximately $13.6
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
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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.
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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.
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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.
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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. We believe, based on a third-party survey, that almost one
third of those surveyed 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
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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.
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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
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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;
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. 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.
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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>
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<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.
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<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 5.3 million page views and 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 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 and providing website development services:
<TABLE>
<CAPTION>
Name Description
---- -----------
<C> <S>
Brown & Toland Medical Group Partnership of University of California at San
Francisco and California Pacific Physicians
with over 1,600 physicians
Network of 48 hospitals based in California,
Catholic Healthcare West Nevada and Arizona
Healthcare insurer serving over six million
Humana members in 15 states
LifeMasters Healthcare company providing disease management
by a combination of communications technology
and ongoing nursing support
Acute care hospital and health center
Mills Peninsula Medical 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 Seventh largest healthcare network in the U.S.
with 26 acute care hospitals and relationships
with approximately 5,000 physicians
</TABLE>
Strategic Relationships
We have the following strategic relationships:
Dr. Dean Edell. In May 1999, we entered into a 15-year agreement with Dr.
Edell, in which he granted us the exclusive right to the use of his name in
connection with our business and exclusive commercialization
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
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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
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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
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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.
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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
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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.
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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, an M.P.H. in Epidemiology and Biostatistics, and a Dr.P.H. in Health
Information Sciences from the University of California, Berkeley.
Ann-Marie Buddrus has served as our Vice President of Production since
HealthCentral.com acquired Windom Health in August 1999. At Windom Health, Ms.
Buddrus served as Vice President of Production from March 1999 to August 1999.
From May 1997 to March 1999, she served as President of JUMP Design, an
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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.
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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
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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.
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<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.
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<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 have 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 such lesser number of shares as the board of directors determines.
This amendment to the 1999 plan will be submitted for approval by our
stockholders prior to the completion of this offering. Unless terminated
earlier by the board of directors, the 1999 plan will terminate in August 2009.
As of 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
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<PAGE>
other most highly compensated officers will generally equal at least 100% of
the grant date fair market value. Payment of the exercise or purchase price may
be made in cash or such other consideration as determined by the administrator.
With respect to options granted under the 1999 plan, the administrator
determines the term of options, which may not exceed 10 years (or 5 years in
the case of an incentive stock option granted to a holder of more than 10% of
the total voting power of all classes of our stock). Generally, an option
granted under the 1999 plan is nontransferable other than by will or the laws
of descent and distribution, and may be exercised during the lifetime of the
optionee only by such optionee. However, the administrator may in its
discretion provide for the limited transferability of nonstatutory stock
options granted under the 1999 plan under certain circumstances. Stock issued
pursuant to stock purchase rights granted under the 1999 plan is generally
subject to a repurchase right exercisable by us upon the termination of the
holder's employment or consulting relationship with us for any reason
(including death or disability). This repurchase right will lapse in accordance
with the terms of the stock purchase right determined by the administrator at
the time of grant.
If we are acquired by another corporation, 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. The administrator has the authority to amend or terminate
the 1999 plan, but no action may be taken that impairs the rights of any holder
of an outstanding option or stock purchase right without the holder's consent.
In addition, we must obtain stockholder approval of amendments to the plan as
required by applicable law.
1998 Stock Plan. Our 1998 stock plan was adopted by our board of directors
in August 1998 and approved by our stockholders in August 1998. The 1998 plan
provides for the grant to employees of incentive stock options and the grant of
nonstatutory stock options and stock purchase rights to employees, consultants
and directors. An aggregate of 3,000,000 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
with respect to the following features. 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. In addition, the 1998 plan does not allow for the granting of
nonstatutory stock options with any transferability rights.
1999 Employee Stock Purchase Plan. Our 1999 employee stock purchase plan was
adopted by our board of directors in September 1999 and will be submitted for
approval by our stockholders prior to completion of this offering. A total of
1,250,000 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 such lesser number of shares as the board
of directors determines. The 1999 purchase plan becomes effective upon the date
of this offering. Unless terminated earlier by the board of directors, the 1999
purchase plan shall terminate in September 2019.
The 1999 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods (other than the first offering period) commencing on February 1 and
August 1 of each
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<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 any such subsidiary for at least 20
hours per week and more than five months per year. The 1999 purchase plan
permits eligible employees to purchase common stock through payroll deductions,
which in any event may not exceed 20% of an employee's base salary. The
purchase price is equal to the lower of 85% of the fair market value of the
common stock at the beginning of each offering period or at the end of each
purchase period, subject to certain adjustments as provided in the plan.
Employees may end their participation in the 1999 purchase plan at any time
during an offering period, and participation ends automatically on termination
of employment.
An employee is not eligible to participate in the 1999 purchase plan if
immediately after the grant of an option to purchase stock under the plan such
employee would own stock and/or hold outstanding options to purchase stock
equaling 5% or more of the total voting power or value of all classes of our
stock or stock of our subsidiaries, or if such option would permit an
employee's rights to purchase stock under the 1999 purchase plan at a rate that
exceeds $25,000 of fair market value of such stock for each calendar year in
which the option is outstanding. In addition, no employee may purchase more
than 2,500 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 shall automatically be
withdrawn from the offering period as of the end of the purchase date and re-
enrolled in the new twenty-four month offering period beginning on the first
business day following the purchase date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 1999
purchase plan will be assumed or an equivalent right substituted by our
acquiror. If our acquiror did not agree to assume or substitute stock purchase
rights, any offering period and purchase period then in progress would be
shortened and a new 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 will be submitted for
approval by our stockholders prior to completion of this offering. It will
become effective upon the date of this offering. A total of 312,500 shares of
common stock has
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<PAGE>
been reserved for issuance under the directors' plan, all of which remain
available for future grants. The directors' plan provides for the grant of
nonstatutory stock options to our nonemployee directors. The directors' plan is
designed to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the board of directors. To
the extent they arise, it is expected that conflicts of interest will be
addressed by abstention of any interested director from both deliberations and
voting regarding matters in which such director has a personal interest. Unless
terminated earlier, the directors' plan will terminate in September 2009.
The directors' plan provides that each person who becomes a nonemployee
director after the completion of this offering will be granted a nonstatutory
stock option to purchase 12,500 shares of common stock on the date on which
such individual first becomes a member of our board of directors. In addition,
on the date of each annual stockholders meeting, each nonemployee director who
will continue serving on the board following the meeting and who has been a
director of HealthCentral.com for at least six months prior to the meeting date
will be granted an option to purchase 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 such 90-day period, the option shall terminate. If a
director's service terminates as a result of his or her disability or death, or
if a director dies within three months following termination for any reason,
the director or his or her estate will have 12 months after the date of
termination or death, as applicable, to exercise options that were vested as of
the date of termination.
If we are acquired by another corporation, each option outstanding under the
directors' plan will be assumed or equivalent options substituted by our
acquirer, unless our acquirer does not agree to such assumption or
substitution, in which case the options will terminate upon consummation of the
transaction to the extent not previously exercised. In connection with any
acquisition, each director holding options under the directors' plan will have
the right to exercise his or her options immediately before the consummation of
the merger as to all shares underlying the options, including shares which
would not have been vested and exercisable but for the acquisition. Our board
of directors may amend or terminate the directors' plan as long as such action
does not adversely affect any outstanding option and we obtain stockholder
approval for any amendment to the extent required by applicable law.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
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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.
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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 our executive
officers, directors and 5% stockholders and persons and entities associated
with them in these private placement transactions. All shares of our preferred
stock will convert into common stock on a 1-for-1 basis upon completion of this
offering. 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>
Series A
Series A Preferred Stock Series B
Preferred Stock Warrants Preferred Stock
--------------- --------------- ---------------
<S> <C> <C> <C>
Directors
Entities affiliated with
James J. Hornthal 50,000 24,000 19,230
Entities affiliated with
MedVenture Associates III,
L.P. (Annette Campbell-
White) -- -- 673,077
Wesley D. Sterman 75,000 36,000 19,230
Robin Wolaner 25,000 12,000 --
Sheryle J. Bolton 12,500 6,000 --
East Peak Partners (Jeff
Edwards (1)) 200,000 96,000 142,313
Executive Officers
Albert L. Greene 12,500 6,000 9,615
C. Fred Toney -- -- 61,153
5% stockholders
Entities affiliated with
InterWest Partners VII,
L.P. -- -- 961,538
Entities affiliated with
Delphi Ventures IV, LP -- -- 961,538
</TABLE>
- --------
(1) Jeff Edwards resigned as a director in August 1999.
In April 1999, we issued promissory notes in the aggregate principal amount
of $500,000 to MedVenture Associates III, L.P., a 5% stockholder, and MedVen
Affiliates III, L.P., both of which are affiliated with Annette Campbell-White,
one of our directors. The promissory note bore an interest rate of 4.99%. The
principal amount of this note was converted into shares of Series B preferred
stock and the interest of $8,340 was paid in full in September 1999.
In July 1999, we issued a promissory note in the principal amount of
$100,000 and a warrant to purchase 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.
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.
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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 Chief Executive Officer
and chairman of its board of directors and is also chairman of the board of
directors of NewsNetCentral, for which News Travel Network was a predecessor
entity.
In May 1999, we entered into a fifteen-year agreement with Dr. Edell, a
director and 5% stockholder, in which he granted us the exclusive right to the
use of his name in connection with our business and exclusive commercialization
rights to his services over the Internet, except for publication of radio
transcripts and Internet broadcasts of his radio program. Under this agreement,
we own all content that Dr. Edell creates for our HealthCentral.com network.
Dr. Edell has the right to review and reasonably approve all content and
advertising in the Dr. Dean section of our HealthCental.com website. 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 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.
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<PAGE>
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."
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<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.
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<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. Story 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.
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<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. If
AltaVista meets given performance thresholds under our agreement regarding our
co-branded health channel, we will issue warrants to AltaVista to purchase
shares of common stock, with the number of shares depending on the amount by
which AltaVista exceeds the performance thresholds. These warrants will have
varying exercise prices.
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<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
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<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.
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<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.
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<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.
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<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
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<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. 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. 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 reincorporation and stock split described in Note 1 to the financial
statements has not been consummated at November 8, 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 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 (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>
Year Ended Nine Months Ended
December 31, September 30, Cumulative
---------------------- ------------------------ Period from
Period from Inception
Inception to to
December 31, September
1996 1997 1998 1998 1999 30, 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 September 1999, the Company's Board of Directors authorized 1) the
reincorporation of the Company in Delaware, and 2) a 5-for-4 stock split of its
common and preferred stock, both subject to shareholder approval.
The Company has a limited operating history and its prospects are subject to
risks, expenses and uncertainties frequently encountered by companies in the
new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and expand the Company's online brands,
the rejection of the Company's products and services by Internet consumers,
vendors and/or advertisers, the inability of the Company to maintain and
increase the levels of traffic on its HealthCentral.com network of websites, as
well as other risks and uncertainties.
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>
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 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)
In connection with an agreement to develop a co-branded website, the Company
issued options to purchase a of 200,000 shares of the Company's common stock
under the 1999 Plan. The Company valued the options using the Black-Scholes
option pricing model, applying an expected life of four years, a weighted
average risk-free rate of 5.77%, an expected dividend yield of zero percent, a
volatility of 70% and a deemed value of common stock of $8.41 per share. The
estimated fair value of the options of $1,403,850 is being amortized over the
term of the agreement.
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>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
-------------------------------------- --------------
<CAPTION>
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:
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 a four year agreement with the
People's Pharmacy in which a co-branded website will be developed. The Company
is entitled to all advertising revenues from the co-branded website in exchange
for a cash payment of $50,000 per annum. The Company also granted to the
principals of People's Pharmacy options to purchase 200,000 shares of common
stock.
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>
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.
F-19
<PAGE>
HEALTHCENTRAL.COM
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management. The
preliminary purchase price allocation, which is subject to adjustment after the
closing date, is summarized below:
<TABLE>
<S> <C>
Goodwill........................................................ $10,500,000
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............................................ $14,947,000
===========
</TABLE>
The total purchase price of $14,947,000 consisted of 1,388,360 shares of the
Company's common stock valued at $12,662,992, assumption of 86,969 employee
stock options valued $6.11 per share, assumed liabilities of $1,653,000 and
estimated transaction costs of $168,000. The deemed value of the Company's
common stock on the date the definitive merger agreement was signed was $9.07
per share.
The purchase price excludes 103,736 shares of common stock which were
revalued on September 30, 1999 according to SFAS 123 in association with a
cashless exercise of the related stock options.
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 $11.5 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
December
31, Six Months
------------------------ Ended June
1997 1998 30, 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Revenues:
Customer A............................. 33% -- --
Customer B............................. 16% -- --
Customer C............................. 18% 17% 11%
Customer D............................. 18% 18% 13%
Customer E............................. -- -- 33%
<CAPTION>
December 31,
------------------------ June 30,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Accounts Receivable:
Customer B............................. 79% -- --
Customer C............................. -- 16% --
Customer E............................. -- 14% 27%
Customer F............................. -- 17% --
Customer G............................. -- 35% --
Customer H............................. -- -- 32%
Customer I............................. -- -- 16%
</TABLE>
Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including accounts receivable, accounts payable, accrued expenses and other
liabilities approximate fair value due to their short maturities. Based upon
borrowing rates currently available to the Company for leases with similar
terms, the carrying value of capital lease obligations approximate fair value.
Property and equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives which range from three to
five years. Leasehold improvements and equipment held under capital leases are
amortized using the straight-line method over the term of the lease or
estimated useful lives, whichever is shorter. Repairs and maintenance costs are
charged to expense when incurred. When assets are sold or retired, the cost and
the related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is included in operations.
F-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.
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 revalued according to SFAS 123. The
expense recognized from inception to September 20, 1999 was $596,396.
F-37
<PAGE>
HEALTHCENTRALRX.COM, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
In February 1999, the Company granted 55,810 of fully vested options to non-
employees. The Company valued these options using the Black-Scholes option
pricing model applying an expected life of two years, a weighted average risk-
free rate of 4.76%, an expected dividend yield of zero percent, a volatility of
70% and a deemed value of common stock of $0.23 per share. The estimated fair
value of these options was not significant.
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>
HEALTHCENRALRX.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 28, 1999, all of the Company's outstanding common stock was
acquired by HealthCentral.com for consideration of 1,388,360 shares of
HealthCentral.com common stock valued at $9.07 per share, the assumption of
86,969 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> <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> <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 -- -- 20,576,020 (B) 30,845,794
Other assets............ 951,808 19,750 -- -- 971,558
----------- ----------- --------- ----------- -----------
Total assets.......... $30,372,507 $ 1,533,775 $ 151,002 $24,304,020 $56,361,304
=========== =========== ========= =========== ===========
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) 9,540
Additional paid-in
capital............... 43,421,952 -- 102,716 21,385,741 (G) 64,910,409
(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 21,393,020 48,618,834
----------- ----------- --------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)........... $30,372,507 $ 1,533,775 $ 151,002 $24,304,020 $56,361,304
=========== =========== ========= =========== ===========
</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.......... -- -- -- 276,500 (D) 276,500
Amortization of
goodwill............. -- -- -- 7,141,795 (E) 7,141,795
---------- ---------- ------- ----------- ------------
Total operating
expenses........... 461,494 1,104,392 21,305 7,418,295 9,005,486
---------- ---------- ------- ----------- ------------
Loss from operations.... (446,235) (551,762) (9,317) (7,418,295) (8,425,609)
Interest income
(expense), net......... -- (18,025) 20 -- (18,005)
---------- ---------- ------- ----------- ------------
Net loss................ $ (446,235) $ (569,787) $(9,297) $(7,418,295) $(8,443,614)
========== ========== ======= =========== ============
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 -- -- -- 7,567,598 (E) 8,049,295
Acquired in-process
research and
development........... 554,901 -- -- -- -- 554,901
----------- ---------- ----------- -------- ----------- ------------
Total operating
expenses............. 9,671,679 469,697 2,885,806 118,263 8,604,529 21,749,974
----------- ---------- ----------- -------- ----------- ------------
Loss from operations.... (9,183,033) (429,171) (2,885,806) 113,073 (8,604,529) (20,989,466)
Interest income
(expense), net......... 76,963 (50,603) (100) 121 -- 26,381
----------- ---------- ----------- -------- ----------- ------------
Net loss................ $(9,106,070) $(479,774) $(2,885,906) $113,194 $(8,604,529) $(20,963,085)
=========== ========== =========== ======== =========== ============
Basic and diluted net
loss per share......... $ (1.76) $ (2.16)
=========== ============
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) $ (1.92)
=========== ============
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............................................ $10,500,000 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................................ $14,947,000
===========
</TABLE>
The total purchase price of $14,947,000 consisted of 1,388,360 shares of the
Company's common stock valued at $12,559,202, assumption of 86,969 shares of
employee stock options valued at $6.11 per share, assumed liabilities of
$1,653,000 and estimated transaction costs of $168,000. The deemed value of the
Company's common stock on the date the acquisition agreement was signed was
$9.07 per share.
The Company issued 103,736 additional shares of common stock in connection
with the acquisition which were not included in the computation of the purchase
price since the shares were marked to fair value on September 30, 1999
according to SFAS 123 in association with a cashless exercise.
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 $11.5 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 $20,576,000 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 and URL
HealthCentral.com Strategic Partners include:
Yahoo!
AltaVista
Snap!
Excite
[Looksmart]
Ask Jeeves!
Broadcast.com
NetPulse
<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 .......... $ 23,977.50
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............................. 15,000.00
Miscellaneous fees and expenses............................... 1,035.00
-------------
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.
3.1** Second Amended and Restated Articles of Incorporation of the
Registrant (current).
3.2** Amended and Restated Certificate of Incorporation of the Registrant
(as proposed for reincorporation in Delaware).
3.3** Amended and Restated Certificate of Incorporation of the Registrant
(as proposed for public company).
3.4** Bylaws of the Registrant, as amended (current).
3.5** Amended and Restated Bylaws of the Registrant (as proposed for
public company).
4.1 Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the common
stock being registered.
10.1** First Amended and Restated Investors' Rights Agreement dated August
27, 1999 between the Registrant and certain investors.
10.2 1999 Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.3*** Amended and Restated 1998 Stock Plan, as amended, and form of stock
option agreement and restricted stock purchase agreement.
10.4 1999 Employee Stock Purchase Plan, and form of subscription
agreement.
10.5 1999 Directors' Stock Option Plan, and form of stock option
agreement.
10.6** Form of Common Stock Agreement between the Registrant and each of
Dean S. Edell M.D. and James J. Hornthal.
10.7** Engagement Letter between the Registrant and Hambrecht & Quist dated
March 22, 1999.
10.8** Consulting Agreement between the Registrant and Michael D. McDonald
dated August 12, 1999.
10.9** Employment Agreements between the Registrant and each of Deryk Van
Brunt and Marcos A. Athanasoulis.
10.10** Employment Agreement between the Registrant and Albert Greene dated
August 16, 1999.
10.11** Offer Letter from the Registrant to C. Fred Toney dated June 16,
1999.
10.12** Letter Agreement between the Registrant and Ann Marie Buddrus dated
August 4, 1999.
10.13** Lock-Up Agreement between the Registrant and Dr. Dean S. Edell dated
August 27, 1999.
10.14** Form of Change of Control Agreement between the Registrant and
Albert L. Greene.
10.15** License and Confidential Information Agreement between the
Registrant and Dr. Dean S. Edell dated May 14, 1999.
10.16** Office Lease between the Registrant and Christie Avenue Partners JS
dated March 26, 1999.
10.17** Landlord's Consent and Agreement (Sublease) between the Registrant
and Burnham Pacific Operating Partnership, L.P. dated July 22, 1999.
10.18** Joint Development Agreement/Base Agreement by and between the
Registrant, Windom Health Enterprises and Global Health Initiatives
dated August 12, 1999.
10.19+** Co-Branded Site Agreement by and between the Registrant, Graedon
Enterprises, Inc., and Joe Graedon and Teresa Graedon dated
September 9, 1999.
10.20+*** Agreement between the Registrant and AltaVista Company dated
September 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.
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.
+ Confidential treatment requested as to certain portions of this Exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules
All financial statement schedules have been omitted because they are not
required, are not applicable or because the information required to be included
in such schedules is included in the financial statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 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 8, 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. 3 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 8, 1999
____________________________________ Officer and Director
Albert L. Greene (Principal Executive
Officer)
/s/ C. Fred Toney Chief Financial Officer November 8, 1999
____________________________________ (Principal Financial and
C. Fred Toney Accounting Officer)
* Co-Chairman of the Board November 8, 1999
____________________________________
James J. Hornthal
* Co-Chairman of the Board November 8, 1999
____________________________________
Michael D. McDonald
* Director November 8, 1999
____________________________________
Louis M. Andersen
* Director November 8, 1999
____________________________________
Sheryle J. Bolton
* Director November 8, 1999
____________________________________
Annette Campbell-White
* Director November 8, 1999
____________________________________
Dean S. Edell
* Director November 8, 1999
____________________________________
Wesley D. Sterman
* Director November 8, 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.
Second Amended and Restated Articles of Incorporation of the
3.1** Registrant (current).
3.2** Amended and Restated Certificate of Incorporation of the Registrant
(as proposed for reincorporation in Delaware).
Amended and Restated Certificate of Incorporation of the Registrant
3.3** (as proposed for public company).
3.4** Bylaws of the Registrant, as amended (current).
Amended and Restated Bylaws of the Registrant (as proposed for
3.5** public company).
4.1 Specimen Stock Certificate.
Opinion of Venture Law Group regarding the legality of the common
5.1* stock being registered.
10.1** First Amended and Restated Investors' Rights Agreement dated August
27, 1999 between the Registrant and certain investors.
1999 Stock Plan, as amended, and form of stock option agreement and
10.2 restricted stock purchase agreement.
10.3*** Amended and Restated 1998 Stock Plan, as amended, and form of stock
option agreement and restricted stock purchase agreement.
1999 Employee Stock Purchase Plan, and form of subscription
10.4 agreement.
1999 Directors' Stock Option Plan, and form of stock option
10.5 agreement.
10.6** Form of Common Stock Agreement between the Registrant and each of
Dean S. Edell M.D. and James J. Hornthal.
Engagement Letter between the Registrant and Hambrecht & Quist dated
10.7** March 22, 1999.
Consulting Agreement between the Registrant and Michael D. McDonald
10.8** dated August 12, 1999.
Employment Agreements between the Registrant and each of Deryk Van
10.9** Brunt and Marcos A. Athanasoulis.
Employment Agreement between the Registrant and Albert Greene dated
10.10** August 16, 1999.
Offer Letter from the Registrant to C. Fred Toney dated June 16,
10.11** 1999.
Letter Agreement between the Registrant and Ann Marie Buddrus dated
10.12** August 4, 1999.
Lock-Up Agreement between the Registrant and Dr. Dean S. Edell dated
10.13** August 27, 1999.
Form of Change of Control Agreement between the Registrant Albert L.
10.14** Greene.
10.15** License and Confidential Information Agreement between the
Registrant and Dr. Dean S. Edell dated May 14, 1999.
Office Lease between the Registrant and Christie Avenue Partners JS
10.16** 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.
Agreement between the Registrant and AltaVista Company dated
10.20+*** 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.
Pharmacy Services Fulfillment Agreement between ePills, Inc. and
10.23+** Medi-Mail, Inc. dated August 1999.
10.24** Form of Indemnification Agreement.
Agreement and Plan of Reorganization by and between Registrant and
10.25** RxList.com dated October 25, 1999.
10.26 Industrial Lease between ePills.com and H.S.P. dated May 4, 1999.
Co-Branding Content Agreement between Registrant and MediaLinx
10.27+ Interactive, L.P. dated June 30, 1999.
Advertising Insertion Order between ePills, Inc. and America Online,
10.28+ 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.
+Confidential treatment requested as to certain portions of this Exhibit.
<PAGE>
EXHIBIT 4.1
===============================================================================
COMMON STOCK [LOGO OF HEALTHCENTRAL.COM] COMMON STOCK
NUMBER SHARES
HEALTHCENTRAL.COM CUSIP 42221V 10 6
PH SEE REVERSE FOR
DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE, OF
HEALTHCENTRAL.COM
CERTIFICATE OF STOCK
Transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
/s/ [CORPORATE SEAL /s/
OF HEALTHCENTRAL.COM]
CHIEF FINANCIAL OFFICER AND TREASURER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
================================================================================
================================================================================
HEALTHCENTRAL.COM
The Corporation will furnish without charge to each stockholder who so requests
a copy of the powers, designations, preferences and relative, participating,
optional or other special rights to each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian.........
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act................
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
<PAGE>
FOR VALUE RECEIVED, _____________________________ hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
________________________________________________________________________Attorney
to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT X_______________________________
MUST CORRESPOND WITH THE NAME(S) AS (SIGNATURE)
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, X_______________________________
WITHOUT ALTERATION OR ENLARGEMENT OR (SIGNATURE)
ANY CHANGE WHATEVER.
---------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
---------------------------------------
SIGNATURE(S) GUARANTEED BY:
---------------------------------------
-2-
<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
-13-
<PAGE>
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 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.
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>
HEALTHCENTRAL.COM
1999 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
<Optionee>
<OptioneeAddress1>
<OptioneeAddress2>
You have been granted an option to purchase Common Stock "Common Stock" of
------------
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date: <BoardApprovalDate>
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting): <GrantDate>
Vesting Commencement Date: <VestingCommenceDate>
Exercise Price per Share: $<ExercisePrice>
Total Number of Shares Granted: <NoofShares>
Total Exercise Price: $<TotalExercisePrice>
Type of Option: <NoSharesISO> Incentive Stock Option
-------------
<NoSharesNSO> Nonstatutory Stock Option
-------------
Term/Expiration Date: <ExpirDate>
Vesting Schedule: This Option may be exercised, in whole or in part,
in accordance with the following schedule:
<CliffVestAmount> of the Shares subject to the
Option shall vest on the <CliffMonthNumber> month
anniversary of the Vesting Commencement Date and
1/<TotalVestingMonths> of the total number of
Shares subject to the Option shall vest on the
<MonthVestDate> of each month thereafter.
Termination Period: This Option may be exercised for
<NumberDaystoExercise> days after termination of
employment or consulting relationship except as set
out in Sections 6 and 7 of the Stock Option
<PAGE>
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 1999 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
<Optionee>: HealthCentral.com
By:
- ----------------------- ---------------------------
Signature
- ----------------------- ------------------------------
Print Name Print Name and Title
-2-
<PAGE>
HEALTHCENTRAL.COM
1999 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. HealthCentral.com, a California corporation (the
---------------
"Company"), hereby grants to <Optionee> ("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 1999 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.
-3-
<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 cash,
-----------------
check or any other method permitted under the Plan; provided however that the
Administrator may refuse to allow Optionee to tender a particular form of
payment (other than cash or check) if, in the Administrator's sole discretion,
acceptance of such form of consideration would not be in the best interests of
the Company at such time.
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 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
-4-
<PAGE>
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, the Option is not transferable other than as designated by Optionee
by will or by the laws of descent and distribution, and during Optionee's life,
may be exercised only by the Participant. 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 (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), subject to such limits as the Administrator may
establish, and the transferee shall remain subject to all the terms and
conditions applicable to the Option prior to such transfer. 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.
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
-5-
<PAGE>
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 more than 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 more than 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 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,
-6-
<PAGE>
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, or the Shares to be issued in connection with the Stock Purchase
Right, if any, 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 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.
-7-
<PAGE>
[Signature Page Follows]
-8-
<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: ________________________ ______________________________
<Optionee>
-9-
<PAGE>
EXHIBIT A
---------
HEALTHCENTRAL.COM
1999 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 <Optionee>
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
- -----------
not defined, they shall have the meaning ascribed to them in the 1999 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 1999 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $<ExercisePrice> per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
- -------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
-------------------
number of Shares to be transferred to each Proposed Transferee; and (iv) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or 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
-2-
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(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
-3-
<PAGE>
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.
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
-4-
<PAGE>
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO FOR 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.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to this Agreement.
(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.
-5-
<PAGE>
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 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.
-6-
<PAGE>
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-7-
<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>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
---------- -----------------------
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy
of this section to be delivered to each issuee or transferee of such security at
the time the certificate evidencing the security is delivered to the issuee or
transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is
not in violation of any securities law of the foreign state, territory or
country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or Subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110
of the Code but exempt from that qualification requirement by subdivision (f)
of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<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) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(t) "Option" means a stock option granted pursuant to the Plan.
------
(u) "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.
(v) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(w) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(x) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(y) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(z) "Plan" means this 1998 Stock Plan.
----
(aa) "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.
(bb) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 10 below.
-3-
<PAGE>
(cc) "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.
(dd) "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.
(ee) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(ff) "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.
(gg) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(hh) "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) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a Committee appointed by the Board.
-4-
<PAGE>
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
grants under the Plan may be made by different bodies with respect to Directors,
non-Director officers and Employees or Consultants who are not Reporting
Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, such grants shall be made by (A) the Board if the Board may
make grants to Reporting Persons under the Plan in compliance with Rule 16b-3,
or (B) a Committee designated by the Board to make grants to Reporting Persons
under the Plan, which Committee shall be constituted in such a manner as to
permit grants under the Plan to comply with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
make grants to Reporting Persons under the Plan, all to the extent permitted by
Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
- ----------
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(p) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
-5-
<PAGE>
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(g) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees; provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Purchase Right
may, if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
-6-
<PAGE>
(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 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
-7-
<PAGE>
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.
(B) granted to any other eligible person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant if required by the Applicable Laws.
(iii) In the case of a Nonstatutory Stock Option that is
granted after the date, if any, upon which the Common Stock becomes a Listed
Security, the per Share exercise price shall be such price as is determined by
the Administrator.
(iv) 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
-8-
<PAGE>
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 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.
-9-
<PAGE>
(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) 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
-10-
<PAGE>
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement), by such Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
death or, if earlier, the date of termination of the Optionee's Continuous
Status as an Employee or Consultant. To the extent that the Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 10(b), 10(c)
and 10(d) above or in the Option Agreement to such greater time as the Board
shall deem appropriate, provided, that in no event shall such option be
exercisable later than the date of expiration of the term of such Option as set
forth in the Option Agreement.
(f) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(g) Buy-Out Provisions. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time such offer is made.
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
-11-
<PAGE>
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 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. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash or check payment, (b) out of
the Optionee's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to or less than the amount required to be
withheld, or (d) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, or the Shares to be issued in connection
with the Stock Purchase Right, if any, that number of Shares having a Fair
Market Value equal to the amount required to be withheld. For this purpose, the
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined (the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
-12-
<PAGE>
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
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
-13-
<PAGE>
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.
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.
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
-14-
<PAGE>
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.
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
-15-
<PAGE>
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.
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
schedule: 1/48 of the total
number of Shares subject to
the Option shall vest on the
monthly anniversary of the
Vesting Commencement Date.
Termination Period: This Option may be exercised for
30 days after termination of
employment or consulting
relationship except as set out in
Sections 6 and 7 of the Stock
Option Agreement (but in no event
later than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1998 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
HEALTHCENTRAL.COM
________________________ By:______________________
Signature
________________________ ______________________
Print Name Print Name and Title
<PAGE>
HEALTHCENTRAL.COM
1998 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. HealthCentral.com, a California corporation (the
---------------
"Company"), hereby grants to ____________ ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the HealthCentral.com 1998 Stock Plan (the "Plan")
----
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a
share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by
------------------
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
--------- ------------------
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the Shares
shall be considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash or check;
(b) cancellation of outstanding indebtedness;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six months on the date of surrender,
and (ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Exchange Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the Exercise
Price.
4. Restrictions on Exercise. This Option may not be exercised until
------------------------
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at such Termination Date, or if Optionee does not exercise this
Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the
<PAGE>
Expiration Date set forth in the Notice of Stock Option Grant), exercise this
Option to the extent Optionee was entitled to exercise it as of such Termination
Date. To the extent that Optionee was not entitled to exercise the Option as of
the Termination Date, or if Optionee does not exercise such Option (to the
extent so entitled) within the time specified in this Section 6(a), the Option
shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the Fair Market Value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option at
the Termination Date, or if Optionee does not exercise such Option to the extent
so entitled within the time specified in this Section 6(b), the Option shall
terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. Except as otherwise provided in this
-----------------------------
Section 8, the Option is not transferable other than as designated by Optionee
by will or by the laws of descent and distribution, and during Optionee's life,
may be exercised only by the Participant. 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 (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), subject to such limits as the Administrator may
establish, and the transferee shall remain subject to all the terms and
conditions applicable to the Option prior to such transfer. 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.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
<PAGE>
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case, the
long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 20% if the Shares are held more than
one year after exercise. If Shares purchased under an Incentive Stock Option are
disposed of within one year after exercise or within two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (i) the Fair Market Value of the
Shares on the date of exercise, or (ii) the sale price of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations. Optionee understands that, upon
---------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then Fair Market Value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to 6 months if Optionee is subject to Section 16 of the
Exchange Act. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation, or collect from Optionee and pay to the
applicable
<PAGE>
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if
permitted by the Administrator, in its discretion, by surrendering to the
Company Shares which (i) in the case of Shares previously acquired from the
Company, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal to
or greater than Optionee's marginal tax rate times the ordinary income
recognized, or (d) by electing to have the Company withhold from the Shares to
be issued upon exercise of the Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. For this purpose, the Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
--------
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
-------
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature Page Follows]
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
HEALTHCENTRAL.COM
By:______________________
______________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
NAME OF OPTIONEE
<PAGE>
EXHIBIT A
---------
HEALTHCENTRAL.COM
1998 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
HealthCentral.com, a California corporation (the "Company"), and ____________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1998 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $______________ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
-------------------
of Shares to be transferred to each Proposed Transferee; and (iv) the terms and
conditions of each proposed sale or transfer. The Holder shall offer the Shares
at the same price (the "Offered Price") and upon the same terms (or terms as
-------------
similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time
----------------------------------
within 30 days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price")
-------------- --------------
for the Shares purchased by the Company or its assignee(s) under this Section
3(a) shall be the Offered Price. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration shall
be determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made,
-------
at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) Exception for Certain Family Transfers. Anything to
--------------------------------------
the contrary contained in this Section 3(a) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by will
or intestacy to Purchaser's Immediate Family (as defined below) or a trust for
the benefit of Purchaser's Immediate Family shall be exempt from the provisions
of this Section 3(a). "Immediate Family" as used herein shall mean spouse,
----------------
lineal descendant or antecedent, father, mother, brother or sister. In such
case, the transferee or other recipient shall receive and hold the Shares so
transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section 3.
<PAGE>
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(b)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such
<PAGE>
period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO, OR IN CONNECTION
<PAGE>
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION
OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
<PAGE>
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
HEALTHCENTRAL.COM
By:________________________________
Name:______________________________
(print)
Title:_____________________________
PURCHASER:
___________________________________
(Signature)
___________________________________
(Print Name)
Address:___________________________
I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
___________________________________
Spouse of
<PAGE>
EXHIBIT 10.4
HEALTHCENTRAL.COM
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of HealthCentral.com.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means HealthCentral.com, a Delaware corporation.
-------
(e) "Compensation" means all regular straight time gross earnings and
------------
shall not include commissions or payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee 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 and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "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.
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if
<PAGE>
the issuance of options to such Subsidiary's Employees pursuant to the Plan
would not cause the Company to incur adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
---------------
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Date" means the last day of each Purchase Period of the
-------------
Plan.
(q) "Purchase Period" means a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan (including without limitation an
automatic increase pursuant to Section 13(a) below or as a result of a
stockholder-approved amendment to the Plan), and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
-----------------
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
-------------------------------
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
-2-
<PAGE>
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months' duration, with new Offering
Periods commencing on or about February 1 and August 1 of each year (or at such
other time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until January 31, 2002.
--------
The Plan shall continue until terminated in accordance with Section 19 hereof.
The Board of Directors of the Company shall have the power to change the
duration and/or the frequency of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected.
(b) Purchase Periods. Each Offering Period shall consist of four (4)
----------------
consecutive purchase periods of six (6) months' duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
-------------
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the IPO Date and shall end on July 31,
2000. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Purchase Period to be affected.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than ten percent (10%) (or such greater percentage as the Board may
establish from time to time before an Offering Date, which percentage shall not
exceed twenty percent (20%)) of such participant's Compensation on each payday
during the Offering Period. All payroll deductions made by a participant shall
be credited to his or her account under the Plan. A participant may not make
any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period
may increase and on one occasion only during the Offering Period may decrease
the rate of his or her Contributions with respect to the Offering Period by
completing and filing with the Company a new subscription agreement authorizing
a change in the payroll deduction rate. The change in rate shall be effective
as of the beginning of the next calendar month following the date of filing of
the new subscription agreement, if the agreement is filed at least ten (10)
business days prior to such date and, if not, as of the beginning of the next
succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased by the Company to 0% at any time during a
Purchase Period. Payroll deductions shall re-commence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the
-4-
<PAGE>
participant's account as of the Purchase Date by the applicable Purchase
Price; provided however that the maximum number of Shares an Employee may
purchase during each Purchase Period shall be 2,500 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 19 below), and provided further that such purchase shall
be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any payroll deductions accumulated in a participant's
account which are not sufficient to purchase a full Share shall be retained in
the participant's account for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10
below. Any other amounts left over in a participant's account after a Purchase
Date shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and
-5-
<PAGE>
his or her option for the current period will be automatically terminated, and
no further Contributions for the purchase of Shares will be made during the
Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on any
--------------------
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period. Participants shall automatically be
withdrawn as of July 31, 2000 from the Offering Period beginning on the IPO Date
and re-enrolled in the Offering Period beginning on August 1, 2000 if the Fair
Market Value of the Shares on the IPO Date is greater than the Fair Market Value
of the Shares on July 31, 2000, unless a participant notifies the Administrator
prior to July 31, 2000 that he or she does not wish to be withdrawn and re-
enrolled.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan 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 pursuant to Section 19 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) 437,500 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 19 below), (ii) two percent (2%) of the Shares outstanding
on the last day of the immediately preceding fiscal year, or (iii) such lesser
number of Shares as is determined by the Board. If the Board determines that,
on a given
-6-
<PAGE>
Purchase Date, the number of shares with respect to which options are to be
exercised may exceed (i) the number of shares of Common Stock that were
available for sale under the Plan on the Offering Date of the applicable
Offering Period, or (ii) the number of shares available for sale under the
Plan on such Purchase Date, the Board may in its sole discretion provide (x)
that the Company shall make a pro rata allocation of the Shares of Common
Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and
continue all Offering Periods then in effect, or (y) that the Company shall
make a pro rata allocation of the shares available for purchase on such
Offering Date or Purchase Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock
on such Purchase Date, and terminate any or all Offering Periods then in
effect pursuant to Section 20 below. The Company may make pro rata allocation
of the Shares available on the Offering Date of any applicable Offering Period
pursuant to the preceding sentence, notwithstanding any authorization of
additional Shares for issuance under the Plan by the Company's stockholders
subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been
-7-
<PAGE>
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such Shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 13(a)(i) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares 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 issue 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 subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed
-8-
<PAGE>
or an equivalent option shall be substituted by the successor corporation or a
parent or Subsidiary of such successor corporation. In the event that the
successor corporation refuses to assume or substitute for outstanding options,
each Purchase Period and Offering Period then in progress shall be shortened
and a new Purchase Date shall be set (the "New Purchase Date"), as of which
-----------------
date any Purchase Period and Offering Period then in progress will terminate.
The New Purchase Date shall be on or before the date of consummation of the
transaction and the Board shall notify each participant in writing, at least
ten (10) days prior to the New Purchase Date, that the Purchase Date for his
or her option has been changed to the New Purchase Date and that his or her
option will be exercised automatically on the New Purchase Date, unless prior
to such date he or she has withdrawn from the Offering Period as provided in
Section 10. For purposes of this Section 19, an option granted under the Plan
shall be deemed to be assumed, without limitation, if, at the time of issuance
of the stock or other consideration upon a Corporate Transaction, each holder
of an option under the Plan 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 the 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 19); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board 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 in Fair Market Value to the per
Share consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this Section 20, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any
-9-
<PAGE>
successor rule or provision or any applicable law or regulation), the Company
shall obtain stockholder approval in such a manner and to such a degree as so
required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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 any of the
aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-10-
<PAGE>
HEALTHCENTRAL.COM
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
HealthCentral.com 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period ______________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 10% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "HealthCentral.com 1999 Employee Stock Purchase
Plan." I understand that my participation in the Plan is in all respects
subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
______________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after
the Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of
whether I disposed of the shares at a price less than their fair market value
at the Purchase Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares under the option, or (2) 15% of the fair market value of
the
-2-
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility
to participate in the Plan.
SIGNATURE: ____________________________
SOCIAL SECURITY #: ____________________
DATE: _________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
_______________________________________
(Signature)
_______________________________________
(Print name)
-3-
<PAGE>
HEALTHCENTRAL.COM
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the HealthCentral.com 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ _____________________________________
Signature of Employee
_____________________________________
Social Security Number
<PAGE>
Exhibit 10.5
HEALTHCENTRAL.COM
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. Purposes of the Plan. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Change of Control" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation 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 their 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.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the Common Stock of the Company.
------------
(e) "Company" means HealthCentral.com, a Delaware corporation.
-------
(f) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "Corporate Transaction" means a dissolution or liquidation of the
---------------------
Company, 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.
(h) "Director" means a member of the Board.
--------
(i) "Employee" means any person, including any officer or Director,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(k) "Option" means a stock option granted pursuant to the Plan. All
------
options shall be nonstatutory stock options (i.e., options that are not intended
to qualify as incentive stock options under Section 422 of the Code).
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means an Outside Director who receives an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Directors' Stock Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 312,500 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
11 below) (the "Pool"). 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, the unpurchased Shares that were subject thereto
shall, unless the Plan has 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 in order to satisfy the exercise price
for such Option, 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. If Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director who becomes an Outside Director after
the effective date of this Plan shall be automatically granted an Option to
purchase 12,500 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 11 below) (the "First Option")
------------
on the date on which such person first becomes an Outside Director, whether
through election by the stockholders of the Company or appointment by the Board
to fill a vacancy.
(iii) Each Outside Director shall thereafter be automatically
granted an Option to purchase 6,250 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 11 below)
(a "Subsequent Option") on the date of each Annual Meeting of the Company's
-----------------
stockholders immediately following which such Outside Director is serving on the
Board, provided that, on such date, he or she shall have served on the Board for
at least six (6) months prior to the date of such Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in accordance with Section 17 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
17 hereof.
(vi) The terms of each First Option granted hereunder shall be as
follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 below;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
-3-
<PAGE>
(3) the First Option shall be become vested and exercisable
in installments as to 1/48 of the Shares subject to the First Option on each
monthly anniversary of the date of grant of the Option.
(vii) The terms of each Subsequent Option granted hereunder
shall be as follows:
(1) the Subsequent Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 below;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option, determined
in accordance with Section 8 hereof; and
(3) the Subsequent Option shall become vested and exercisable
in installments as to 1/12 of the Shares subject to the Subsequent Option on
each monthly anniversary of the date of grant of the Option.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, such officer may suspend the Optionee's right to
exercise any option pending a determination by the Board (excluding the Outside
Director accused of such misconduct). If the Board (excluding the Outside
Director accused of such misconduct) determines an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board of Directors (excluding the
Outside Director accused of such
-4-
<PAGE>
misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof unless an Option terminates sooner pursuant to Section
9 below.
8. 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 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
-----------------
the Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal, or if there is a public market for the Common Stock but the
- --------------
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System).
(c) Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having 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 (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
-5-
<PAGE>
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided however that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 below has been
obtained.
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 full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) 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, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after 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 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which 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 Continuous Status as a Director. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
-6-
<PAGE>
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) (A) During the term of the Option who is, at the time of his
or her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, or (B) three (3)
months after the termination of Continuous Status as a Director, the Option may
be exercised, at any time within twelve (12) months following the date of death,
by the 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 the date of termination, as
applicable. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
an Optionee was not entitled to exercise the Option at the date of death or
termination or if he or she does not exercise such Option (to the extent he or
she was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.
10. Nontransferability of Options. The Option 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 or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii) and
(iii) above, and the number of Shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share of Common Stock covered by each such
outstanding Option, 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 or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) 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.
(b) Corporate Transactions. In the event of a Corporate Transaction,
----------------------
each outstanding Option shall be assumed or an equivalent option shall be
substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation, unless the successor
-7-
<PAGE>
corporation does not agree to assume the outstanding Options or to substitute
equivalent options, in which case the Options shall terminate upon the
consummation of the transaction; provided however that in the event on any
transaction that qualifies as a Change of Control and notwithstanding whether or
not outstanding Options are assumed, substituted for or terminated in connection
with the transaction, the vesting of each outstanding Option shall accelerate in
full such that each Optionee shall have the right to exercise his or her Option
as to all of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable, immediately prior to consummation of the
transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction, each Optionee would be entitled
to receive upon exercise of an Option the same number and kind of shares of
stock or the same amount of property, cash or securities as the Optionee would
have been entitled to receive upon the occurrence of such transaction if the
Optionee 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 11); provided however that if such consideration
received in the transaction 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.
(c) 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 to reflect the effect of such distribution.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this
-8-
<PAGE>
Plan had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board, which agreement must be in writing and
signed by the Optionee and the Company.
14. 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 legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time (the "Applicable Laws"). Such compliance shall be determined by the
---------------
Company in consultation with its legal counsel.
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.
15. 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.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company.
Such stockholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
-9-
<PAGE>
HEALTHCENTRAL.COM
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
"Optionee"
You have been granted an option to purchase Common Stock of
HealthCentral.com (the "Company") as follows:
-------
Date of Grant "GrantDate"
Vesting Commencement Date "VestingStartDate"
Exercise Price per Share "ExercisePrice"
Total Number of Shares Granted "SharesGranted"
Total Exercise Price "TotalExercisePrice"
Expiration Date "ExpirDate"
Vesting Schedule This Option is fully vested and may
be exercised, in whole or in part, at
any time after the Date of Grant and
prior to its expiration as set forth
below and in the Stock Option
Agreement.
Termination Period This Option may be exercised for 90
days after termination of Optionee's
Continuous Status as a Director, or
such longer period as may be
applicable upon death or Disability
of Optionee as provided in the Plan,
but in no event later than the
Expiration Date as provided above.
<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 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: HEALTHCENTRAL.COM
By:
- ---------------------------- -----------------------------
"Optionee"
Title:
--------------------------
-2-
<PAGE>
HEALTHCENTRAL.COM
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. Grant of Option. The Board of Directors of the Company hereby grants
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to the Optionee named in the Notice of Stock Option Grant (the "Optionee")
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attached to this Agreement an option (the "Option") to purchase a number of
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Shares, as 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"'),
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subject to the terms and conditions of the 1999 Directors' Stock Option Plan
(the "Plan"), which is incorporated herein by reference. Capitalized terms not
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defined herein shall have the meanings ascribed to such terms in the Plan. In
the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Nonstatutory Stock Option Agreement, the terms and
conditions of the Plan shall prevail.
2. Exercise of Option.
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(a) Right to Exercise. This Option is exercisable during its term in
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accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or other termination of
Optionee's service as a Director, the exercisability of the Option is governed
by the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
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exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
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which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
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such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
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any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
<PAGE>
(c) 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; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. Non-Transferability of Option. This Option may not be transferred in
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any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
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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 Nonstatutory Stock Option
Agreement.
6. Tax Consequences. Set forth below is a brief summary of certain
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federal and California tax consequences relating to this Option under the law 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 HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. Since this Option does not qualify as an
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incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal and California income tax liability upon exercise. The 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
Exercised Shares on the date of exercise over their aggregate Exercise Price.
(b) Disposition of Shares. If the Optionee holds the Option Shares
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for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes. 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.
-2-
<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 Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
HEALTHCENTRAL.COM
By:
- ------------------------------- -----------------------------
"Optionee"
Title:
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CONSENT OF SPOUSE
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The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.
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Spouse of Optionee
-3-
<PAGE>
EXHIBIT A
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NOTICE OF EXERCISE
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To: HealthCentral.com
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
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This is official notice that the undersigned ("Optionee") intends to
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exercise Optionee's option to purchase __________ shares of HealthCentral.com
Common Stock, under and pursuant to the Company's 1999 Directors' Stock Option
Plan and the Nonstatutory Stock Option Agreement dated _______________, as
follows:
Grant Number:
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Date of Purchase:
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Number of Shares:
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Purchase Price:
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Method of Payment of
Purchase Price:
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Social Security No.:
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The shares should be issued as follows:
Name:
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Address:
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Signed:
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Date:
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<PAGE>
EXHIBIT 10.20
EXECUTION COPY
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AGREEMENT
THIS AGREEMENT ("Agreement") is made and effective as of September 27, 1999
(the "Effective Date") by and between AltaVista Company, a Delaware corporation
with principal business offices at 529 Bryant Street, Palo Alto, California
94301 (together with its Affiliates, "AltaVista"), and HealthCentral.com, Inc.,
a California corporation with principal business offices at 6001 Shellmound St.,
Suite 800, Emeryville, California 94608 ("HealthCentral").
RECITALS
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WHEREAS, HealthCentral is the owner and provider of health related Web
sites, which provide access to health content and information appearing on the
Internet at www.HealthCentral.com. For purposes of this Agreement, HealthCentral
Content, as defined herein, shall appear on Web pages on the AltaVista
Platforms, as defined herein, with both AltaVista brand features and
HealthCentral brand features; and
WHEREAS, as used in this Agreement, "Web" refers to the World Wide Web,
that part of the Internet designed to allow easier navigation of the network of
computers through the use of graphical user interfaces and hypertext links
between different addresses. A "Web page" or "page" or a "Web site" permits an
end user to view and interact with companies on the Web by displaying the
content through the aforementioned graphical interfaces. "Internet" means a
global network of interconnected computer networks, each using the Transmission
Control Protocol/Internet Protocol and/or such other standard network
interconnection protocols as may be adapted from time to time; and
WHEREAS, AltaVista also maintains and/or manages certain Web pages which
may be delivered to users worldwide via email, desktop "channels" or Internet
"push" technologies which may incorporate content supplied by AltaVista by third
parties for the purpose of providing value to AltaVista users and providing
access to the content, products and/or services of such third parties; and
WHEREAS, AltaVista is also in the business of developing Web-page
platforms, providing Web-based search capabilities, and developing and serving
other Web sites on behalf of its customers and business partners; and
WHEREAS, AltaVista and its Affiliates customarily enter into third party
agreements that provide for customization of one or more AltaVista Platforms.
The customized AltaVista Platforms may be branded using third parties' names, or
co-branded with any combination of AltaVista's, AltaVista's Affiliates and third
parties' names. Pursuant to the terms and conditions of this Agreement, through
the process of AltaVista Platforms customization, any amount of content,
advertising or other features may be modified, added or deleted; and
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>
WHEREAS, AltaVista desires to license the HealthCentral Content from
HealthCentral for its AltaVista Platforms and AltaVista and HealthCentral wish
to distribute the Content through one or more AltaVista Platforms.
NOW THEREFORE, in consideration of the agreements, covenants and conditions
set forth herein, intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following terms will have the
following specified meanings:
1.1 "Above the Fold" means situated within the portion of a page that
is designed to be visible on a standard computer screen at a resolution of [*]
(such resolution to be updated by AltaVista at its sole discretion in good faith
and to be consistent with the design of the AltaVista Platform throughout the
Term as appropriate) without requiring the user to scroll horizontally or
vertically through the page.
1.2 "Advertising Impression" means (i) a banner or other GIF
advertisement for HealthCentral and/or any of its Affiliates; (ii) a Text Link
Advertisement to the HealthCentral Site; or (iii) a Contextual Advertising Unit.
1.3 "Affiliate" means, with respect to a party, any Person that,
directly or indirectly, Controls, or is Controlled by, or is under common
Control with, such party.
1.4 "AltaVista Health Channel" means that area of the AltaVista
Platform that is accessed from the "Health" link (or other comparable link
regardless of name that provides access to the AltaVista Health Channel) on the
AltaVista Platform Home Page.
1.5 "AltaVista Health Channel Home Page" means with respect to the
AltaVista Health Channel, the first page that is displayed to the user within
the Channel.
1.6 "AltaVista Marks" means the AltaVista trademarks, service marks,
logos and domain names.
1.7 "AltaVista Platform" means a generic set of domestic Web pages,
and any domestic Mirror Site, that may also function together as a Web site.
The AltaVista Platforms may contain any or all of the following domestic sites:
an Internet index, a search tool, advertising, or any other feature that might
be desirable on a Web homepage. As used herein, the term "AltaVista Platforms"
shall include generic and customized AltaVista Platforms, including but not
limited to domestic sites and channels, such as an AltaVista.com, My AltaVista,
AV.com, Microav.com, the AltaVista Channels, My AV, Shopping.com and Zip2.com.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
2
<PAGE>
1.8 "AltaVista Search Results Page" means the page on the AltaVista
Platform containing the results of a search query entered by a User.
1.9 "AltaVista Platform Home Page" means with respect to the
AltaVista Platform, the page that is displayed to the user when the URL
www.altavista.com is entered.
1.10 "Co-Branded Page" means a Web page that has HealthCentral
Content and/or the Health Central Mark in the Masthead.
1.11 "Contextual Advertising Unit" means an advertisement whose
subject matter is relevant to the content to which it is adjacent and that links
to a relevant page on the HealthCentral Site.
1.12 "Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether by contract or through the ownership of voting securities,
including the ownership of more than fifty percent (50%) of the equity,
partnership or similar interest in such Person.
1.13 "Damages" means judgments, losses, deficiencies, damages,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses).
1.14 "HealthCentral Competitors" means the companies listed on
Schedule 1.14 which are directly competitive to the business of HealthCentral.
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1.15 "HealthCentral Content" means the content set forth on Schedule
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1.15, as may be amended from time to time by mutual agreement of the Parties.
- ----
1.16 "HealthCentral Mark" means the mark set forth on Schedule 1.16.
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1.17 "HealthCentral Site" means the site currently located at
healthcentral.com any healthcentral.com network sites, any Mirror Site and any
site owned or controlled by HealthCentral or its Affiliates that provides health
related content and/or information.
1.18 "including" or "include," when used herein, shall be deemed to be
followed by the words "without limitation."
1.19 "Masthead" means the top area of each page within the AltaVista
Health Channel containing the branded name for the Channel. An example of the
current Masthead is set forth on Schedule 1.19.
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1.20 "Mirror Site" means an Internet site that (a) contains the exact
form and content of a site, (b) is located at a geographic location distinct
from a site, and (c) is created for the purpose of improving the performance of
and accessibility to a site.
3
<PAGE>
1.21 "Other AltaVista Channels" means channels other than the Health
Channel on the AltaVista Platform that, in AltaVista's sole discretion, relate
to health, including but not limited to, children, family, sports, fitness,
nutrition, men and women.
1.22 "Party" or "Parties" means each of AltaVista and any of its
Affiliates and HealthCentral and any of its Affiliates.
1.23 "Person" means any individual, corporation, partnership, limited
liability company, trust, association or other entity or organization, including
any governmental or political subdivision or any agency or instrumentality
thereof.
1.24 "Search Partner Tile" means an advertisement on the AltaVista
Search Results Page of approximately 88 pixels by 31 pixels.
1.25 "Start Date" means the earlier of (a) launch of the AltaVista
Health Channel and (b) January 15, 2000.
1.26 "Term" shall have the meaning set forth in Section 10.1.
1.27 "Text Link Advertisement" means a text link on the AltaVista
Platform that is not located or placed within any health content provided by
HealthCentral.
1.28 "Third Party" means any Person that is not a party hereto or a
wholly owned Affiliate of a party hereto.
1.29 "User Data" means all data entered by a user or otherwise
relating to a user's experience on a site, including demographic data and e-
commerce activity.
ARTICLE II
CO-BRANDING AND DESIGN
2.1 Masthead. HealthCentral hereby grants to AltaVista a non-
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exclusive, worldwide, royalty free, license for the Term to incorporate the
HealthCentral Mark within the Masthead. AltaVista shall display the Masthead on
every page of the AltaVista Health Channel; provided, however, that the
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HealthCentral Mark shall only be included in the Masthead with respect to all
AltaVista Health Channel pages that feature HealthCentral Content. [*] on the
design of the Masthead, and the incorporation of the HealthCentral Mark within
the Masthead.
2.2 Channel Design. During the Term of this Agreement, [*]
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the visual appearance of (a) the AltaVista Health Channel Home Page and (b) any
page within the AltaVista Health Channel containing HealthCentral Content;
provided, however, AltaVista shall in good faith make the final determination
- --------
with respect to design decisions (except the initial design), and AltaVista
shall make reasonable efforts that such design shall be consistent with the rest
of the AltaVista Platform.
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
4
<PAGE>
2.3 Return Links. HealthCentral shall display a return link,
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subject to design specifications, to the AltaVista Health Channel on: (a) all
pages of the HealthCentral Site viewed by a user who originated from a page on
the AltaVista Health Channel; and (b) any and all subsequent pages of the
HealthCentral Site viewed by such user. Such link shall return the user to the
page on the AltaVista Health Channel from which the user initially linked to the
HealthCentral Site. The parties shall agree on the minimum size of such return
link.
ARTICLE III
USE OF HEALTHCENTRAL CONTENT
3.1 Grant of License. HealthCentral hereby grants to AltaVista a
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non-exclusive, worldwide, royalty free license for the Term, to display and
distribute the HealthCentral Content on the AltaVista Health Channel, and to
make such copies as are necessary to make such display and distribution.
HealthCentral shall have the obligation, at its own expense, to obtain all
necessary Third Party rights and licenses to make the foregoing grant of rights
to AltaVista.
3.2 Transmission and Timeliness of Content. The protocols for
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transmitting the HealthCentral Content from HealthCentral to AltaVista are set
forth on Schedule 3.2. HealthCentral shall ensure that substantially all of the
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HealthCentral Content is delivered on a timely basis such that AltaVista is in
possession of the HealthCentral Content, (a) prior to such HealthCentral Content
being provided to any Third Party, and (b) [*] after such HealthCentral Content
is displayed on the HealthCentral Site.
3.3 Use of Content. AltaVista shall cooperate with HealthCentral
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regarding the placement and use of the HealthCentral Content, provided that
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AltaVista shall make the final determination regarding any Content placement and
use issues. AltaVista shall have no obligation to use every item of the
HealthCentral Content, and may edit individual HealthCentral Content items in
its sole discretion within the guidelines of Schedule 3.3 (which shall be
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updated and mutually agreed among the Parties every ninety (90) days throughout
the Term of this Agreement) in order to meet AltaVista Platform format
requirements; provided, however, AltaVista shall have the right to edit the
headlines and develop abstracts and summaries of any HealthCentral Content.
3.4 Editorial Control of the Content. HealthCentral shall have
--------------------------------
complete editorial control over the topics covered by, and creation of, the
HealthCentral Content, provided that AltaVista shall have reasonable input into
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the selection of topics covered by HealthCentral.
3.5 Archive. During the Term, and subject to the terms of any Third
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Party content license agreements with HealthCentral, AltaVista shall have the
right to archive any of the HealthCentral Content including current and future,
provided by HealthCentral to AltaVista hereunder, as provided in Schedule 3.3,
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and to provide users with the ability to search for and retrieve HealthCentral
Content that was previously displayed on the AltaVista Health Channel.
AltaVista shall destroy such archived content promptly following the expiration
or termination of
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
5
<PAGE>
this Agreement. AltaVista shall promptly comply with any good faith request by
HealthCentral to remove archived HealthCentral Content as necessary for
HealthCentral to comply with its Third Party agreements.
3.6 Content Quality. HealthCentral shall use reasonable efforts to
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ensure that, throughout the Term, the quality of the HealthCentral Content is
comparable to the content offered on the sites of the HealthCentral
Competitors (including, timeliness,); provided that the quality of the
HealthCentral Content shall always be at least as high as it exists as of the
Effective Date. HealthCentral acknowledges that a breach of this Section 3.6
shall give AltaVista a right to terminate this Agreement; provided, however,
that HealthCentral may have an opportunity to cure such breach within seventy
five (75) days after receiving a termination notice from AltaVista.
3.7 Exclusivity. HealthCentral shall be the exclusive health content
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provider for the AltaVista Health Channel and throughout the AltaVista Platform;
----------------------------------
provided that in the event that AltaVista requests health-related content not
- --------
then-currently provided by HealthCentral, AltaVista shall provide HealthCentral
with a reasonably detailed written description of the content requested
("Content Notice'). HealthCentral shall have a [*] to provide such content. In
the event HealthCentral is unable to make such content available to AltaVista
commencing on or before [*], AltaVista may obtain such content from a Third
Party (including any of the HealthCentral Competitors listed on Schedule 1.14),
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and thereafter (i) HealthCentral shall have no further right to
provide the content requested in the Content Notice, and (ii) AltaVista shall
have no further obligation to HealthCentral with respect to such content
AltaVista shall in good faith use its reasonable efforts to integrate any
content received from a Third Party into the AltaVista Health Channel consistent
with the then current design of the AltaVista Health Channel.
In the event AltaVista creates, develops, and maintains additional
channels with Third Parties within the AltaVista Platform, which contain health
related content, AltaVista shall in good faith use its reasonable efforts to
utilize content generated by HealthCentral for such other channels, unless such
content is not substantially similar to the content offered by such Third Party.
AltaVista shall have the right to incorporate any and all headline
health related news stories delivered to AltaVista by nationally or
internationally recognized newspaper, news source, or media company, on the
AltaVista Health Channel so long as such content is not available by
HealthCentral on a timely basis.
3.7 [*] Opportunities. The parties hereby acknowledge that
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the terms and conditions of this Agreement shall relate only to the [*] versions
of AltaVista Health Channel and the AltaVista Platform. However, as AltaVista
develops and operates [*] Web sites or channels with respect to [*] content,
information, search or otherwise, AltaVista shall in good faith use its
reasonable efforts to provide HealthCentral [*] the terms and conditions of a
business relationship with the AltaVista entity or
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
6
<PAGE>
division operating and/or developing such Web sites. In the event HealthCentral
is not able to negotiate the terms and conditions with such AltaVista entity,
HealthCentral shall have [*] to at least match the terms and conditions and
breadth and depth of content, including, but not limited to amount of content,
timeliness of content, quality of writing, and topics covered, offered by a
Third Party; provided, however, if HealthCentral cannot [*] such terms,
conditions, and content, the AltaVista entity or division operating and/or
developing such [*] Web site may enter into an agreement with such Third Party.
This Section 3.7 in its entirety is subject to the approval of each AltaVista
entity or division operating and/or developing any such Web sites and AltaVista
shall use its best efforts to obtain such approvals within [*] of the Effective
Date.
ARTICLE IV
HEALTHCENTRAL ADVERTISING
4.1 Contextual Advertising Units. Each Co-Branded Page on the
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AltaVista Health Channel shall contain at least one Contextual Advertising Unit.
The design, size and placement of the Contextual Advertising Units shall be
subject to mutual approval of the Parties; provided, that such Units shall
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always be displayed Above the Fold and that such Units shall contain up to three
links. These links may connect to any web site in the HealthCentral.com
network. In addition, such links may contain at most one (1) sponsorship
textual attribution with respect to only such sponsors name (i.e. "sponsored by
[name of company or name of brand]); provided, however, that such links shall
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not (i) be allowed to appear on the AltaVista Health Channel Home Page, and (ii)
link directly to such sponsor. In connection with any sponsorship textual
attribution, (i) AltaVista shall every ninety (90) days during the Term of this
Agreement provide a list of [*] that HealthCentral may not be allowed to sell
any textual sponsorships to such sponsors and (ii) HealthCentral shall provide
AltaVista with fourteen (14) days notification prior to any sponsorship
placement of any and all sponsors in which HealthCentral intends to sell any
textual sponsorships.
4.2 Allocation of Advertising Impressions During Term. AltaVista
-------------------------------------------------
shall use its best efforts to display HealthCentral Advertising Impressions
evenly on a monthly basis pursuant to the following schedule during the Term:
(a) During the first twelve months after the Start Date ("Year
1"), [*] Advertising Impressions;
(b) During the second twelve month period after the Start Date
("Year 2"), [*] Advertising Impressions; and
(c) During the third twelve month period after the Start Date
("Year 3"), [*] Advertising Impressions.
4.3 Allocation of Advertising Impressions Across the AltaVista
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Platform.
- --------
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
7
<PAGE>
(a) Year One. The guaranteed Advertising Impressions during
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Year 1, set forth in Section 4.2 above, shall be distributed
among the AltaVista Home Page, the AltaVista Search Results
Page, the AltaVista Health Channel, and Other AltaVista
Channels as follows:
AltaVista Home Page
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(i) Advertisement GIFS and text links: [*] impressions
AltaVista Search Results Page (when "Health" or health-
------------------------------------------------------
related keywords are included as a query):
-----------------------------------------
(i) Banners: [*] impressions
(ii) Search Partner Tiles: [*] impressions
AltaVista Health Channel:
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(i) Banners: [*] impressions
(ii) Contextual Advertising Units: [*] impressions
Other AltaVista Channels or Directories (categorized search
-----------------------------------------------------------
result listings):
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(i) Banners: [*] impressions.
(b) Year Two. The number and distribution of Advertising
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Impressions during Year 2 shall be [*] of those set forth
above in Section 4.3(a) for Year 1, subject to revision by
mutual agreement of the Parties.
(c) Year Three. The number and distribution of Advertising
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Impressions during Year 3 shall be [*] of those set forth
above in Section 4.3(b) for Year 2, subject to revision by
mutual agreement of the Parties.
4.4 Accounting. In determining the number of Advertising Impressions
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displayed by AltaVista pursuant to Section 4.2:
(a) A minimum of [*] of the Advertising Impressions shall be from
pages containing only one Advertising Impression;
(b) A maximum of [*] of the Advertising Impressions may be from pages
containing two Advertising Impressions;
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
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<PAGE>
(c) A maximum of [*] of the Advertising Impressions may be from pages
containing three or more Advertising Impressions;
(d) Additional Advertising Impressions (beyond those permitted by
Sections 4.4(b) and (c) from pages with more than one Advertising
Impressions may not be credited towards the make up of any
shortfalls (as provided for in Section 7.3) or the Performance
Thresholds in Section 8.2.
(e) The inclusion of the HealthCentral Mark in the Masthead pursuant
to Section 2.1 shall not be counted as an Advertising Impression.
4.5 Location. All HealthCentral Advertising Impressions shall appear
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above the Fold.
4.6 Monitoring and Reporting; Reallocation. AltaVista shall monitor
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the number of HealthCentral Advertising Impressions, and provide written reports
thereof, including number of impressions and number of visitors to
HealthCentral, on a weekly basis, as appropriate, consistent with AltaVista's
reporting policies. AltaVista and HealthCentral shall mutually agree to on any
plans to reallocate Advertising Impressions between banners and Contextual
Advertising Units and to reposition Advertising Impressions within the AltaVista
Platform, where available, as necessary in order to at least meet the
requirements of Section 4.2 and maximize the performance hereunder.
4.7 Advertising of HealthCentral Competitors. AltaVista shall not
----------------------------------------
display any advertisements of any HealthCentral Competitor on the AltaVista
Health Home Page or any page throughout the AltaVista Platform, containing
HealthCentral Content. Subject to the foregoing, there shall be no other limit
on the type or number of advertisements that AltaVista may display within the
AltaVista Platform, including within the AltaVista Health Channel HealthCentral
may update the list of HealthCentral Competitors with other companies
competitive to HealthCentral once every 3 months during the Term, upon thirty
(30) days notice to AltaVista, provided that the list may never contain more
--------
than seven (7) companies.
4.8 Deep Links to HealthCentral Site. AltaVista shall configure the
--------------------------------
navigation of the AltaVista Health Channel such that no more than the third
click from the AltaVista Health Homepage will bring a user to a related page on
the HealthCentral Site.
ARTICLE V
E-COMMERCE
5.1 E-commerce Business Model. The Parties shall mutually agree to
-------------------------
jointly create and develop an e-commerce business model with respect to the
AltaVista Health Channel within ninety (90) calendar days of the Effective Date
[*].
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
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ARTICLE VI
DATA RIGHTS
6.1 AltaVista Data. AltaVista shall own all demographic and e-
--------------
commerce User Data collected on the AltaVista Health Channel. AltaVista shall
make available to HealthCentral, subject to AltaVista's privacy policies and
applicable law, and Third Party obligations, User Data from those pages of the
AltaVista Health Channel containing HealthCentral Content, solely for
HealthCentral's own use. HealthCentral shall not sell, license or otherwise
distribute such User Data to any Third Party.
6.2 HealthCentral Data. HealthCentral shall own all User Data
------------------
collected on the HealthCentral Site.
ARTICLE VII
FEES AND PAYMENTS
7.1 Initial Fee. Within seven (7) calendar days after the Effective
-----------
Date and upon mutual agreement of the initial AltaVista Health Channel design,
HealthCentral shall pay AltaVista a non-refundable initial fee (the "Initial
Fee") of [*]. In no event shall the Initial Fee be paid after September 30,
1999.
7.2 Annual Fees. During the Term, HealthCentral shall make annual
-----------
cash payments to AltaVista as set forth below. Such payments for each year
indicated are payable in equal monthly installments during that year, as
follows:
(a) During Year 1, [*];
(b) During Year 2, [*]; and
(c) During the Year 3, [*].
The first such payment shall be due on the Start Date, and subsequent payments
shall be due on the first day of each month thereafter.
7.3 Fee Reduction. In the event that AltaVista delivers [*] or less
-------------
of the guaranteed number of Advertising Impressions set forth in Sections 4.2
and 4.3 (prorated evenly on a monthly basis over the twelve (12) month period),
for the first six month period or second six month period of any year, then
AltaVista shall have seventy-five (75) calendar days following the end of such
six month period to make up the shortfall. For purposes of this Section, "to
make up the shortfall" shall mean that AltaVista shall have delivered one
hundred (100%) percent of the prorated number of Advertising Impressions due for
such
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
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seventy-five day period, plus additional Advertising Impressions in an amount
equal to the number of Advertising Impressions which AltaVista failed to deliver
during the six month period in question. In the event that AltaVista has failed
to make up the shortfall, then the monthly fees payable during the six months
following the seventy-five (75) day period shall be reduced by [*].
In the event AltaVista makes up any shortfall and as a result, the
guaranteed number of Advertising Impressions is greater than [*] and less than
one hundred (100%) percent during any six month period and corresponding cure
period (the "Shortfall Spread"), the Shortfall Spread shall be carried forward
to any following period on a cumulative basis with potential corresponding fee
reduction or termination (as provided for above) until AltaVista makes up any
such shortfall. For example, if AltaVista is at [*] of target (as set forth in
Schedule 8.2) for each of two six month periods and the shortfall was not
cured, and therefore the Shortfall Spread of [*] in the first six (6) months
is added to the Shortfall Spread of [*] in the second six (6) months to amount
to a cumulative total of a [*] Shortfall Spread, as a result the fees are
decreased as provided for in this Section 7.3.
During any period in which the payments have been reduced as provided
for above, if AltaVista shall make up the shortfall, upon making up any and all
shortfalls, all payments, including former payments due during such period and
any subsequent payments, due hereunder shall be restored to the original payment
structure.
7.4 Late Payments. All amounts owed hereunder not paid when due and
-------------
payable will bear interest from the date such amounts are due and payable at the
lesser of (a) 1.5 percent per month and (b) the maximum allowable rate of
interest in the State of California for transactions between sophisticated
commercial parties.
7.5 Taxes. In addition to the amounts set forth above, HealthCentral
-----
shall pay to AltaVista or to the relevant taxing authority, as appropriate,
[*] applicable sales, use, goods and services, value added or other taxes
payable under this Agreement (other than taxes levied or imposed on
AltaVista's income). In all cases, the amounts due under this Agreement will
be [*].
7.6 Advertising Revenue. Any and all advertising on the Co-Branded
-------------------
Pages shall be sold by AltaVista and the revenue generated by such advertising
shall be retained solely by AltaVista (except for the textual sponsorship, which
can be sold by HealthCentral).
ARTICLE VIII
EQUITY GRANT AND WARRANTS
8.1 Equity Grants. At the end of each of Year 1, Year 2, and, if
-------------
this Agreement is not terminated earlier in accordance with Section 10.2(a),
Year 3 of the Agreement, HealthCentral shall issue AltaVista shares of common
stock of HealthCentral (the "HealthCentral Common Stock") with the number of
shares issued at the end of each such Year
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
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equal to the quotient of [*] divided by the Year End Price for such Year. The
"Year End Price" means: (i) in the event that the HealthCentral Common Stock
is publicly traded on a nationally recognized exchange or on the Nasdaq
National Market on the last day of such Year, the average closing price per
share of the HealthCentral Common Stock for the ten (10) trading days prior to
the last day of such Year, or (ii) in the event the HealthCentral Common Stock
is not publicly traded, the fair market value of the HealthCentral Common
Stock as of the last day of such Year, as determined in good faith and
substantiated by the Board of Directors of HealthCentral; provided, however,
--------
that notwithstanding the previous formula in no event shall the shares issued
to AltaVista at the end of such Year be greater than [*] shares or less than
[*] shares (except in the case of Year 3 if there is an early termination
pursuant to Section 10.2(a) in which case no shares will be issued).
8.2 Warrants. On the last day of each of Year 1, Year 2, and if this
--------
Agreement is not terminated in accordance with Section 10.2(a), Year 3 (each of
which shall be an "Issuance Date"), HealthCentral shall grant to AltaVista a
warrant (collectively, the "Warrants") to purchase that number of shares of
HealthCentral Common Stock as set forth for such Year on Schedule 8.2 (up to a
------------
maximum of [*] shares) provided that AltaVista has met the applicable
--------
performance threshold (the "Performance Thresholds") set forth on Schedule 8.2
------------
for such Year. Each such Warrant shall be exercisable for a period of sixty days
after the applicable Issuance Date, and the exercise price per share for the
Warrants issued, if any, shall be as follows: (i) [*] for a Warrant issued
during or at the end of Year 1; [*] for a Warrant issued during or at the end of
Year 2; and [*] for a Warrant issued during or at the end of Year 3. Each of the
Warrants granted to AltaVista shall provide AltaVista with a right to make a
cashless exercise of such Warrants.
8.3 Registration Rights. The Company will use its best efforts to
-------------------
amend the First Amended and Restated Investors' Rights Agreement dated August
27, 1999 between the Company and certain investors, a copy of which is attached
as Exhibit 8.3 (the "Investor Rights Agreement") to include the shares of
-----------
HealthCentral Common Stock (including shares issuable pursuant to Section 8.1 or
8.2, if any) as Registrable Securities thereunder solely for the purpose of
granting AltaVista piggy back registration rights (the "Piggy Back Registration
Rights") for such shares, subject to AltaVista's adherence to all the terms of
the Investor Rights Agreement, as amended, including but not limited to market
standoff provisions and cutback provisions regarding the number of shares that
AltaVista may sell in any such offering. If the Company is unable to amend the
Investor Rights Agreement to include the shares issued and issuable to
AltaVista, then the Company shall hereby grant AltaVista piggyback registration
rights with respect to any shares of HealthCentral Common Stock to be issued to
AltaVista during the Term of this Agreement, whether in the form of an equity
grant or an exercise of Warrants. Pursuant to such Piggy Back Registration
Rights, AltaVista shall have the right to include all or any portion of the
shares of HealthCentral Common Stock then held by AltaVista in any Registration
Statement on Form S-1 or S-3 filed by HealthCentral with the Securities and
Exchange Commission during the Term of this Agreement and for a period of one
(1) year after termination of this Agreement subject to, including but not
limited to market standoff provisions and cutback provisions regarding the
number of shares that AltaVista may sell in any such offering; provided,
--------
however, that AltaVista shall not have any Piggy Back Registration Rights in
connection with
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
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any Registration Statement with respect to any initial public offering of
HealthCentral Common Stock.
8.4 Adjustment for Recapitalization. In the event HealthCentral
-------------------------------
shall at any time subdivide its outstanding shares of HealthCentral Common Stock
by recapitalization, reclassification or split-up thereof, or if HealthCentral
shall declare a stock dividend or distribute shares of HealthCentral Common
Stock to its shareholders, the number of shares of HealthCentral Common Stock to
be issued pursuant to Sections 8.1 and 8.2 immediately prior to such subdivision
shall be proportionately increased and the Exercise Price per share shall be
proportionately decreased, and if HealthCentral shall at any time combine the
outstanding shares of HealthCentral Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of HealthCentral
Common Stock to be issued pursuant to Sections 8.1 and 8.2 immediately prior to
such combination shall be proportionately decreased and the Exercise Price per
share shall be proportionately increased. Any such adjustments pursuant to this
Section 8.4 shall be effective at the close of business on the effective date of
such subdivision or combination or, if any adjustment is the result of a stock
dividend or distribution, then the effective date for such adjustment shall be
the record date therefor.
ARTICLE IX
INTELLECTUAL PROPERTY RIGHTS
9.1 Ownership by AltaVista. HealthCentral acknowledges that, as
----------------------
between it and AltaVista, AltaVista owns all right, title and interest in and to
all intellectual property contained on the AltaVista Platform, including the
AltaVista Marks and the AltaVista Health Channel, except for the HealthCentral
Mark and HealthCentral Content. HealthCentral understands and agrees that its
use of any of the foregoing AltaVista property in connection with this Agreement
shall not create in it any right, title or interest, in or to such property, and
that all such use and goodwill associated with any such use shall inure to the
benefit of AltaVista.
9.2 Ownership by HealthCentral. AltaVista acknowledges that, as
--------------------------
between it and HealthCentral, HealthCentral owns all right, title and interest
in and to all intellectual property contained on the HealthCentral Mark, the
HealthCentral Content and the HealthCentral Site. AltaVista understands and
agrees that its use of any of the foregoing HealthCentral property in connection
with this Agreement shall not create in it any right, title or interest, in or
to such property, and that all such use and goodwill associated with any such
use shall inure to the benefit of HealthCentral.
9.3 Trademark Quality Control. Each Party's use of the other's
-------------------------
trademark shall be in accordance with such Party's policies regarding trademark
usage. In the event that a Party determines that its trademarks are being used
by the other Party in a manner that is inconsistent with its quality standards
and reasonably demonstrates such inconsistency to the other Party, such other
Party shall within thirty (30) days thereafter cure such inconsistency; provided
--------
that if either party does not cure such inconsistency within such period, such
party shall be in breach of this Agreement.
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Each of the Parties hereto shall use the other party's logos and/or
trademarks in accordance with each parties' respective trademark and/or logo
usage policies.
ARTICLE X
TERM AND TERMINATION
10.1 Term. This Agreement shall begin on the Effective Date, and
----
shall expire three (3) years after the Start Date (the "Term"), unless
terminated earlier as provided below.
10.2 Termination by Either Party. This Agreement shall be subject to
---------------------------
termination upon the occurrence of any of the following events:
(a) Either Party may terminate prior to the commencement of Year
3 by providing written notice to the other Party at least
ninety (90) calendar days prior to the end of Year 2. Such
termination shall be effective as of the commencement of
Year 3. If the foregoing termination occurs, subject to
Sections 10.3 and 10.4, all obligations of the Parties
relating to Year 3 of the Agreement shall not apply.
(b) HealthCentral may terminate if AltaVista fails to deliver at
least [*] of the guaranteed number of Advertising
Impressions, set forth in Section 4.2 and 4.3 (prorated
evenly on a monthly basis over a twelve (12) month period),
for any consecutive six (6) month period, provided that
--------
AltaVista shall have ninety (90) calendar days following the
end of such six month period within which to make up the
shortfall by delivering more than [*] of the guaranteed
number of Advertising Impressions. In the event AltaVista
delivers more than [*] of the guaranteed number of
Advertising Impressions, HealthCentral shall no longer have
a right to terminate this Agreement pursuant to this
section. Such termination shall become effective upon sixty
(60) calendar days' written notice to AltaVista.
(c) AltaVista may terminate this Agreement pursuant to Section
3.6.
(d) Either Party may terminate if the other commits a material
breach of this Agreement that is not cured within thirty
(30) calendar days after receipt of written notice of the
breach.
(e) Either party may terminate immediately upon notice if:
(i) either Party files a petition for bankruptcy or is
adjudicated a bankrupt;
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTION.
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(ii) a petition in bankruptcy is filed against either Party
and such petition is not removed or resolved within
ninety (90) calendar days;
(iii) either Party becomes insolvent or makes an assignment
for the benefit of its creditors or an arrangement for
its creditors pursuant to any bankruptcy law;
(iv) either Party discontinues its business; or
(v) a receiver is appointed for either Party or its
business.
(f) Either party may terminate if the other Party has any change
in the actual or beneficial ownership or control of more
than fifty percent (50%) of its voting stock in one or more
related transactions such that after such transaction(s)
fifty percent (50%) or more of such voting stock is held or
controlled by an entity, other than a Party hereto, that is
a direct competitor of the other Party, then the other Party
shall have the right, exercisable in its sole discretion, to
terminate. Such termination shall be effective upon thirty
(30) calendar days written notice, and must be given at any
time within thirty (30) calendar days following the closing
of such transaction(s).
10.3 Effect of Termination.
---------------------
(a) Termination of this Agreement by either Party shall not act
as a waiver of any breach of this Agreement and shall not
act as a release of either Party hereto from any liability
for breach of such Party's obligations under this Agreement.
(b) Within forty-five (45) calendar days following the
expiration or termination of this Agreement, each Party
shall pay to the other Party all sums, if any, due and owing
as of the date of expiration or termination, net of any
amounts due from the other Party as of such date.
10.4 Survival. The respective rights and obligations of AltaVista and
--------
HealthCentral under the provisions of Articles 8.3 (registration rights with
respect to previously issued securities) through 16 shall survive expiration or
termination of this Agreement.
15
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ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 Mutual Representations and Warranties. Each Party hereby
-------------------------------------
represents and warrants to the other Party that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all the necessary power and authority
(i) to conduct its business in the manner in which its
business is currently being conducted, (ii) to own and use
its assets in the manner in which its assets are currently
owned and used, and (iii) to enter into this Agreement and
perform its obligations under this Agreement; and
(b) Its execution and delivery of this Agreement, and the
performance of its obligations and duties hereunder, do not
and will not (i) conflict with or result in any breach of
any provision of its certificate of incorporation or by-
laws, (ii) require any filing with, or permit,
authorization, consent or approval of, any governmental
entity, (iii) result in a violation or breach of, or
constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, any terms,
conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other
instrument or obligation to which it is a party or by which
any of its properties or assets may be bound, (iv) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to it, excluding from the foregoing
clauses (ii), (iii) and (iv) such filings, violations,
breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on it or its
ability to perform under this Agreement.
11.2 Representations and Warranties by HealthCentral. HealthCentral
-----------------------------------------------
represents and warrants that:
(a) The HealthCentral Content (as delivered to AltaVista) will
not contain any matter which constitutes a libel, slander or
violation of any personal proprietary or privacy right of
any Third Party;
(b) The HealthCentral Content (as delivered to AltaVista) will
not infringe the intellectual property rights of any Third
Party;
(c) The HealthCentral Content (as delivered to AltaVista) will
not violate any laws, regulations, statutes or warranties;
16
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(d) To our knowledge, the HealthCentral Content (as delivered to
AltaVista) will be accurate, complete, timely, and correct
in all respects
(e) All action on the part of HealthCentral for the
authorization, execution, delivery and performance of all
its obligations under this Agreement or any document
contemplated hereby has been taken including resolutions
related to this Agreement and the issuance of shares
HealthCentral Common Stock pursuant to Sections 8.1 and 8.2.
This Agreement, when executed and delivered by HealthCentral
will constitute the valid and binding obligation of
HealthCentral, and will be enforceable against it in
accordance with its terms;
(f) As of the date of this Agreement, the capitalization of
HealthCentral is set forth on Schedule 11.2 (f) hereto. All
-----------------
the outstanding capital stock of HealthCentral is duly
authorized, validly issued, fully paid and nonassessable.
Except as set forth on Schedule 11.2 (f), there are no
-----------------
shares of capital stock of HealthCentral authorized, issued
or outstanding, and there are no existing options, warrants,
calls, pre-emptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character,
relating to issued or unissued capital stock of
HealthCentral obligating HealthCentral to issue, transfer or
sell or cause to be issued, transferred or sold any shares
of its capital stock. There are no voting trusts or other
agreements or understandings to which HealthCentral is a
party and to the best of HealthCentral's knowledge there are
no agreements or understandings between holders of capital
stock of HealthCentral with respect to the voting of such
stock;
(g) True and complete copies of the financial statements of
HealthCentral, together with the related auditors reports,
have been provided to AltaVista. Such financial statements
have been prepared from, are in accordance with and
accurately reflect, the books and records of HealthCentral,
comply in all material respects with applicable accounting
requirements, have been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may
be stated in the notes thereto) and fairly present the
financial position and the results of operations and cash
flows (and changes in financial position, if any) of
HealthCentral as of the times and for the periods referred
to therein (subject, in the case of unaudited statements, to
normally recurring year-end audit adjustments which are not
material);
17
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(h) The shares of HealthCentral Common Stock issuable pursuant
to Section 8.1 of this Agreement, and upon exercise of the
Warrants when issued, sold and delivered in compliance with
this Agreement and the Warrants, will be duly authorized,
validly issued, fully paid and nonassessable, will be free
of any liens and encumbrances and will not be subject to any
preemptive rights, rights of first refusal or redemption
rights; and
(i) The issuance of shares of HealthCentral Common Stock
pursuant to Section 8.1 of this Agreement, the Warrants and
shares of HealthCentral Common Stock issuable upon exercise
of the Warrants constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act
of 1933, as amended.
11.3 Representations and Warranties by AltaVista. AltaVista
-------------------------------------------
represents and warrants that:
(a) AltaVista will operate and maintain the AltaVista Health
Channel in compliance with all applicable laws, regulations,
statutes, and warranties.
(b) All action on the part of AltaVista for the authorization,
execution, delivery and performance of all its obligations
under this Agreement or any document contemplated hereby has
been taken. This Agreement, when executed and delivered by
AltaVista will constitute the valid and binding obligation
of AltaVista, and will be enforceable against it in
accordance with its terms.
11.4 No Other Representations or Warranties. Each Party acknowledges
--------------------------------------
that the other Party makes no representations, warranties or agreements related
to the subject matter hereof that are not expressly provided for in this
Agreement.
ARTICLE XII
INDEMNIFICATION AND REMEDIES
12.1 HealthCentral Indemnity. HealthCentral shall indemnify, defend
-----------------------
and hold AltaVista harmless from and against all Damages incurred in connection
with or arising from any claim that: (a)HealthCentral violated any
representation or warranty hereunder; (b) HealthCentral breached any covenant or
agreement by HealthCentral under this Agreement; (c) the HealthCentral Marks,
the HealthCentral Site, the HealthCentral Content (as delivered to AltaVista
hereunder) or any other materials provided by HealthCentral hereunder violate
the intellectual property or other rights of any Third Party; or (d) any claim
by a Third Party regarding HealthCentral's performance or non-performance of its
obligations under this Agreement.
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12.2 AltaVista Indemnity. AltaVista shall indemnify, defend and hold
-------------------
HealthCentral harmless from and against all Damages incurred in connection with
or arising from any claim that: (a) AltaVista violated any representation or
warranty hereunder; (b) AltaVista breached any covenant or agreement by
AltaVista under this Agreement; (c) the AltaVista Marks or the AltaVista
Platform (excluding any items covered by 12.1(c)), or any material modifications
made by AltaVista to the HealthCentral Marks or the HealthCentral Content,
violate the intellectual property or other rights of any Third Party; or (d) any
claim by a Third Party regarding AltaVista's performance or non-performance of
its obligations under this Agreement.
12.3 Indemnification Procedure
-------------------------
(a) A party seeking indemnification (the "Indemnified Party")
shall promptly notify the other party (the "Indemnifying
Party") in writing of any claim for indemnification,
provided, that failure to give such notice shall not relieve
--------
the Indemnifying Party of any liability hereunder (except to
the extent the Indemnifying Party has suffered actual
material prejudice by such failure).
(b) The Indemnified Party shall tender sole defense and control
of such claim to the Indemnifying Party. The Indemnified
Party shall, if requested by the Indemnifying Party, give
reasonable assistance to the Indemnifying Party in defense
of any claim. The Indemnifying Party shall reimburse the
Indemnified Party for any reasonable legal expenses directly
incurred from providing such assistance, as such expenses
are incurred.
(c) The Indemnifying Party shall have the right to consent to
the entry of judgment with respect to, or otherwise settle,
an indemnified claim with the prior written consent of the
Indemnified Party, which consent shall not be unreasonably
withheld; provided, however, that the Indemnified Party may
-------- -------
withhold its consent if any such judgment or settlement
imposes any unreimbursed monetary or continuing non-monetary
obligation on such Party or does not include an
unconditional release of that Party and its Affiliates from
all liability in respect of claims that are the subject
matter of the indemnified claim.
12.4 Remedies Cumulative. Except as otherwise expressly specified
-------------------
herein, the rights and remedies granted to each Party under this Agreement are
cumulative and in addition to, and not in lieu of, any other rights or remedies
that such Party may possess at law or in equity.
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ARTICLE XIII
CONFIDENTIALITY
13.1 Confidential Information. "Confidential Information" means
------------------------
information about the disclosing Party's business or activities that are
proprietary or confidential, which shall include all business, financial,
technical and other information of a Party marked or designated by such Party as
"confidential" or "proprietary"; provided that information shall not be
considered Confidential Information of a disclosing Party if it can be shown
that such information: (i) is known to the recipient on the Effective Date
directly or indirectly from a source other than one having an obligation of
confidentiality to the disclosing Party; (ii) hereafter becomes known
(independently of disclosure by the disclosing Party) to the recipient directly
or indirectly from a source other than one having an obligation of
confidentiality to the disclosing Party; (iii) becomes publicly known or
otherwise ceases to be confidential, except through a breach of this Agreement
by the recipient; or (iv) was independently developed by the recipient without
use of Confidential Information of the other Party. Confidential Information
may be disclosed to a legal, judicial or governmental entity provided that the
--------
disclosing Party has been given notice by the recipient so that the disclosing
Party can seek a protective order or the appropriate protection for the
Confidential Information.
13.2 Protection of Confidential Information. The Parties recognize
--------------------------------------
that, in connection with the performance of this Agreement, each of them may
disclose to the other its Confidential Information, including the creation of
materials and the development of technology and techniques that are not
generally known in the industry. The Party receiving any Confidential
Information of the other Party agrees to maintain the confidential status of
such Confidential Information and not to use any such Confidential Information
for any purpose other than the purposes for which it was originally disclosed to
the receiving Party, and not to disclose any of such Confidential Information to
any Third Party.
13.3 Permitted Disclosure. The Parties acknowledge and agree that
--------------------
each may disclose any given Confidential Information: (i) as required by law or
generally accepted accounting practices; (ii) to their respective directors,
officers, employees, attorneys, accountants and other advisors or independent
contractors, who are under an obligation of confidentiality no less stringent
than set forth herein, on a "need-to-know" basis; (iii) to their respective
Affiliates; or (iv) in connection with disputes or litigation between the
Parties that related to such Confidential Information and each Party shall
endeavor to limit disclosure to that purpose.
13.4 Applicability. The foregoing obligations shall apply to
-------------
directors, officers, employees and representatives of the Parties and any other
person to whom the Parties have delivered copies of, or permitted access to,
such Confidential Information in connection with the performance of this
Agreement, and each Party shall advise each of the above of the obligations set
forth in this Article 13.
13.5 Third Party Confidential Information. Any confidential
------------------------------------
information of a Third Party disclosed to either AltaVista or
20
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HealthCentral shall be treated by AltaVista or HealthCentral, as the case may
be, in accordance with the terms under which such Third Party confidential
information was disclosed; provided that the Party disclosing such Third Party
--------
confidential information shall first notify the other Party that such
information constitutes Third Party confidential information and the terms
applicable to such Third Party confidential information.
13.6 Confidentiality of Agreement. Except as required by law
----------------------------
(including disclosures necessary or appropriate in filings with the Securities
Exchange Commission) or generally accepted accounting principles, and except to
assert its rights hereunder or for disclosures on a "need-to-know" basis to its
own officers, directors, employees and professional advisers or to prospective
investors or acquirers in connection with an investment in or acquisition of
such Party, each Party hereto agrees that neither it, nor its directors,
officers, employees, consultants or agents shall disclose the specific terms of
this Agreement without the prior consent of the other Party.
13.7 Public Disclosure. In connection with any public disclosure or
-----------------
filing with any governmental agency, including the Securities and Exchange
Commission, HealthCentral agrees to seek confidential treatment of the terms and
conditions of this Agreement. Such confidential treatment request shall not be
filed without the prior written consent of AltaVista not to be unreasonably
withheld. In addition, any description of this Agreement in any publicly filed
document by HealthCentral shall not be filed without the prior written consent
of AltaVista, not to be unreasonably withheld.
The parties acknowledge and agree that neither party may, at any time,
issue any press release or make any other disclosure about this Agreement, its
term or its existence, including but not limited to any disclosure to its
shareholders or other vendors, without the prior written approval of the other
party. If, however, a party determines, upon the opinion of counsel, that
disclosure regarding the other party, its Affiliates, this Agreement and/or the
relationship between such party and the other party and its Affiliates is
required by law or otherwise desirable, then disclosure shall be permitted, but
only after the other party is given the opportunity to review and reasonably
revise all such written disclosure. Under such circumstances, a copy of any such
written documentation shall be provided to the other party at least three (3)
business days (or as promptly as possible in the event three (3) business days
is not practicable) prior to its expected disclosure.
ARTICLE XIV
DISCLAIMER OF WARRANTIES
14.1 HEALTHCENTRAL HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS
EXPLICITLY PROVIDED FOR IN SECTION 11.3, THE ALTAVISTA PLATFORM AND THE
ALTAVISTA HEALTH CHANNEL ARE PROVIDED "AS IS, WITH ALL FAULTS," AND THAT
ALTAVISTA MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO (A)
THE USEFULNESS, ACCURACY, COMPLETENESS, FEASIBILITY, RELIABILITY OR
EFFECTIVENESS OF THE ALTAVISTA PLATFORM OR THE ALTAVISTA HEALTH CHANNEL; (B)
THAT THE
21
<PAGE>
ALTAVISTA PLATFORM OR THE ALTAVISTA HEALTH CHANNEL WILL OPERATE UNINTERRUPTED OR
ERROR-FREE; OR (C) THAT DEFECTS IN THE ALTAVISTA PLATFORM OR THE ALTAVISTA
HEALTH CHANNEL HAVE BEEN OR WILL BE CORRECTED. WITHOUT LIMITING THE FOREGOING,
ALTAVISTA HEREBY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NONINFRINGEMENT. IN NO EVENT SHALL ALTAVISTA BE LIABLE TO
HEALTHCENTRAL FOR ANY FAILURE, DISRUPTION, DOWNTIME, INTERRUPTION, INCORRECT
LINKAGE, DELAY, INACCURACY OR OTHER NONPERFORMANCE OF THE ALTAVISTA PLATFORM OR
THE ALTAVISTA HEALTH CHANNEL.
14.2 ALTAVISTA HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS PROVIDED FOR
IN SECTION 11.2, THE HEALTHCENTRAL SITE AND THE HEALTHCENTRAL CONTENT ARE
PROVIDED "AS IS, WITH ALL FAULTS" AND THAT HEALTHCENTRAL MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO (A) THAT THE
HEALTHCENTRAL SITE WILL OPERATE UNINTERRUPTED OR ERROR-FREE; OR (B) THAT DEFECTS
IN THE HEALTHCENTRAL SITE HAVE BEEN OR WILL BE CORRECTED. WITHOUT LIMITING THE
FOREGOING, HEALTHCENTRAL HEREBY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. IN NO EVENT SHALL
HEALTHCENTRAL BE LIABLE TO ALTAVISTA FOR ANY FAILURE, DISRUPTION, DOWNTIME,
INTERRUPTION, INCORRECT LINKAGE, DELAY, INACCURACY OR OTHER NONPERFORMANCE OF
THE HEALTHCENTRAL SITE.
ARTICLE XV
LIMITATION OF LIABILITY
15.1 EXCEPT FOR A BREACH OF ARTICLE 13 ABOVE OR EXCEPT IN THE EVENT OF
GROSS NEGLIGENCE OR WILLFUL MISCONDUCTOR A CLAIM PURSUANT TO INDEMNIFICATION
OBLIGATIONS HEREIN, IN NO EVENT SHALL A PARTY TO THIS AGREEMENT BE LIABLE FOR
ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, FOR LOST PROFITS, IN ANY WAY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, EVEN IN THE EVENT SUCH PARTY HAS BEEN ADVISED AS TO THE POSSIBILITY
OF SUCH DAMAGES.
ARTICLE XVI
MISCELLANEOUS
16.1 No Joint Venture. The sole relationship between the Parties
----------------
shall be that of independent contractors. No partnership, joint venture, or
other formal business relationship is hereby created between the Parties hereto.
Neither Party shall make any warranties or representations, or assume or create
any obligations, on the other Party's behalf except as may be
22
<PAGE>
expressly permitted hereunder or in writing by such other Party. Each Party
shall be solely responsible for the actions of all their respective employees,
agents and representatives.
16.2 Governing Law. This Agreement shall be interpreted and construed
-------------
in accordance with the laws of the State of California without regard to the
principles of conflicts of laws, and with the same force and effect as if fully
executed and performed therein, and the laws of the United States of America.
16.3 Amendment or Modification. This Agreement may not be amended,
-------------------------
modified or supplemented by the Parties in any manner, except by an instrument
in writing signed on behalf of each of the Parties by a duly authorized officer
or representative.
16.4 No Assignment. Neither Party shall transfer or assign any rights
-------------
or delegate any obligations hereunder, in whole or in part, whether voluntarily
or by operation of law, without the prior written consent of the other Party.
Any purported transfer, assignment or delegation by either Party without the
appropriate prior written approval shall be null and void and of no force or
effect. Notwithstanding the foregoing, without securing such prior consent,
either Party shall have the right to assign this Agreement and the obligations
hereunder to any successor of such Party by way of merger, consolidation,
reorganization or the acquisition of substantially all of the business and
assets of the assigning Party relating to the Agreement, provided however that
--------
the foregoing shall not be construed to limit a Party 's right to terminate this
Agreement in accordance with Article 10.
16.5 Notices. Any notice or other communication to be given hereunder
-------
shall be in writing and shall be (as elected by the Party giving such notice):
(i) personally delivered; (ii) transmitted by postage prepaid registered or
certified mail, return receipt requested; (iii) deposited prepaid with a
nationally recognized overnight courier service; or (iv) sent by facsimile.
Unless otherwise provided herein, all notices shall be deemed to have been duly
given on: (a) the date of receipt (or if delivery is refused, the date of such
refusal) if delivered personally or by courier; (b) three (3) days after the
date of posting if transmitted by mail; or (c) if transmitted by facsimile, the
date a confirmation of transmission is received. Either Party may change its
address for purposes hereof on not less than three (3) days prior notice to the
other Party. Notices hereunder shall be directed to, unless otherwise instructed
by the receiving Party:
If to AltaVista to:
------------------
529 Bryant Street
Palo Alto, California 94301
Attn: Stephanie A. Lucie
If to HealthCentral, to
-----------------------
HealthCentral.com, Inc.
6001 Shellmound St., Suite 800
23
<PAGE>
Emeryville, CA 94608
Attn: Fred Toney
with a copy to
--------------
Venture Law Group
2800 Sand Hill Road Menlo Park, CA 94025
Attn: Mark A. Medearis
16.6 Entire Agreement. This Agreement represents the entire
----------------
agreement of the Parties with respect to the subject matter hereof and
supersedes all prior and/or contemporaneous agreements and understandings,
written or oral between the Parties with respect to the subject matter hereof.
16.7 Waiver. Any of the provisions of this Agreement may be waived
------
by the Party entitled to the benefit thereof. Neither Party shall be deemed, by
any act or omission, to have waived any of its rights or remedies hereunder
unless such waiver is in writing and signed by the waiving Party, and then only
to the extent specifically set forth in such writing. A waiver with reference to
one event shall not be construed as continuing or as a bar to or waiver of any
right or remedy as to a subsequent event.
16.8 No Third Party Beneficiaries. Nothing express or implied in
----------------------------
this Agreement is intended to confer, nor shall anything herein confer, upon any
person other than the Parties and the respective successors or assigns of the
Parties, any rights, remedies, obligations or liabilities whatsoever.
16.9 Fees and Expenses. Each Party shall be responsible for the
------------------
payment of its own costs and expenses, including attorney's fees and expenses,
in connection with the negotiation and execution of this Agreement.
16.10 Severability. If the application of any provisions of this
------------
Agreement to any particular facts of circumstances shall be held to be invalid
or unenforceable by any court of competent jurisdiction, then: (i) the validity
and enforceability of such provision or provisions as applied to any other
particular facts or circumstances and the validity of other provisions of this
Agreement shall not in any way be affected or impaired thereby; and (ii) such
provision or provisions shall be reformed without further action by the Parties
hereto and only to the extent necessary to make such provision or provisions
valid and enforceable when applied to such particular facts and circumstances.
16.11 Counterparts; Facsimiles. This Agreement may be executed in
------------------------
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one and
the same instrument. Each Party shall receive a duplicate original of the
counterpart copy or copies executed by it. For purposes hereof, a facsimile copy
of this Agreement, including the signature pages hereto, shall be deemed
24
<PAGE>
to be an original. Notwithstanding the foregoing, the Parties shall each deliver
original execution copies of this Agreement to one another as soon as
practicable following execution thereof.
25
<PAGE>
EXECUTION COPY
--------------
IN WITNESS WHEREOF, the Parties to this Agreement by their duly authorized
representatives have executed this Agreement as of the date first above written.
AltaVista Company HealthCentral.com, Inc.
By: /s/ Rod Schrock By: /s/ Albert L. Greene
Name: Rod Schrock Name: Albert L. Greene
Title: Chief Executive Officer Title: President &
Chief Executive Officer
26
<PAGE>
Schedule 1.14 - HealthCentral Competitors
As of September 27, 1999:
1. DrKoop.com
2. WebMD/Healtheon
3. BetterHealth/AllHealth
4. DiscoveryHealth
5. IntelliHealth
6. Thrive Online
7. OnHealth
27
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Schedule 1.15 - HealthCentral Content
Subject to the design phase, the HealthCentral Content will be substantially
similar to the following:
AltaVista Content Overview
<TABLE>
<CAPTION>
GUIDE
<S> <C> <C> <C> <C>
Co-branded
pages on AV
Co-branded
pages on HC
* and underlining = Special Exclusive For AV
- --------------------------------------------------
Level 1: Level 2: Level 3:
- -------------------------------------------------
DAILY FEATURES Home Page Brief Page Full Text
Page
- --------------------------------------------------
HEALTH NEWS, DAILY M-F
News
Daily Newsletter
DR. DEAN - DAILY - M-F
Dean Topic
Dean Question
Ask Dr. Dean
TV Report (text)
*Special AV Question of the Day
- --------------------------------------------------
*Special AV Dr. Dean: Classics
- --------------------------------------------------
Dr. Dean Digest Daily Newsletter
TV Report: Audio/Slide Show (Q1)
TV Report Streaming Video (Q1)
- --------------------------------------------------
WEEKLY FEATURES Level 1: Level 2: Level 3:
- --------------------------------------------------
Home Page Brief Page Full Text
Page
WEEKLY NEWS FEATURES
Mystery Photo
Mystery Photo Archives
News Quiz
Poll
WEEKLY COLUMNISTS
Flower, Futurist, Current (1x/wk)
Flower, Futurist, Archives
London, Humorist, Current (1x/wk)
London, Humorist, Archives
Schmalz, Librarian, Current (1x/wk)
Schmalz, Librarian, Archives
ASK A DOCTOR (Launches 10/15)
Questions and Answers (27x/wk)
Doctor Profiles (3x/wk)
Future Topics Calendar
List of Archives
Ask A Doctor Weekly Newsletter
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C> <C>
PEOPLES PHARMACY (Launches 11/1)
Drug Column
Herbal Column
Questions and Answers
Ask PP
*AV Special Question and Answer
- --------------------------------------------------
TOPIC NEWSLETTERS
*40 Monthly Topic Newsletters - Co-Branded
- --------------------------------------------------
- --------------------------------------------------
MONTHLY FEATURES Level 1: Level 2: Level 3:
- --------------------------------------------------
Home Page Brief Page Full Text
Page
TOPIC NEWSLETTERS
**50 Monthly Topic Newsletters - Co-Branded
- --------------------------------------------------
PEOPLES PHARMACY
Monthly Radio Program Guide
- ---------------------------------------------------
STATIC/REFERENCE CONTENT
- --------------------------------------------------
HEALTH NEWS (3 Years)
News Archives
DR. DEAN - DAILY - M-F
Dean Topic Archives (from 11/1/98)
Dean Question Archives (from 11/1/98)
TV Report (text) (3 years)
ASK A DOCTOR (Launches 10/15)
Questions and Answers Archives
Doctor Profiles Archives
PEOPLES PHARMACY (Launches 11/1)
Drug Column Archives
Herbal Column Archives
Questions and Answers Archives
Herb Monographs (50)
In-Depth Guides (27)
Top 20 Home Remedies (Q4)
Alternative Medicine Columns (Q4)
PP Drug Database (Q1)
CENTERS
90 Topic Centers
LIBRARY
*Windom/HealthCentral.com Library (750) (not on HC)
- --------------------------------------------------
Adam.com Encyclopedias (6,000)
Clinical Pharmacology Drug DB (900)
PERSONAL FEATURES
Cool Tools (10-15)
Alcohol and Substance Abuse Mini-Profile
Diet and Nutrition Mini-Profile
Fitness and Exercise Mini-Profile
Stress Mini-Profile
Sexual Health Mini-Profile
LifeView - Health Risk Assessment
</TABLE>
29
<PAGE>
Schedule 1.16 - HealthCentral Mark
These are the current HealthCentral Marks. These will be updated as needed.
[LOGO OF HEALTHCENTRAL]
HealthCentral.com
HealthCentral.com Network
30
<PAGE>
Schedule 1.19 - AltaVista Health Channel Masthead
The parties shall mutually agree on the design of the Masthead, and the
incorporation of the HealthCentral Mark within the Masthead. The foregoing
notwithstanding, the HealthCentral logo shall be of a size that is clear and
explicit.
31
<PAGE>
Schedule 3.2 - Protocol For Transmission Of HealthCentral Content To AltaVista
The following represents two protocols that would be acceptable to
HealthCentral.com.
Option 1:
XML content feed.
In this type of feed, HealthCentral sets up a URL (i.e.
feeds.healthcentral.com/altavista/newsfeed.xml). This page returns a properly
formatted news feed. For example a news feed with one story might look like:
Dr. Dean Edell www.healthcentral.com Could All The Ointments I Use Interact?
Drugs and Medications
Terry: When I got out of the shower the other morning, I sprinkled powder on my
athlete's foot, dabbed hydrocortisone on my poison oak, and smeared sunscreen
all over.
Could these ointments interact and affect each other somehow?
Dr. Dean: The way you're slapping everything on there reminds me of the over-
enthusiasm when Rogaine first came on the market. Men were glopping on so much
Rogaine they were growing hair on their foreheads.
There are about four thousand drugs on the market, meaning there are four
thousand times four thousand possible interactions. Of these 16 million
combinations, each has about 10 different side effects. So there are 160 million
things to keep track of and, of course, no one can and no one does.
Ointments and topical preparations are probably studied the least because they
aren't considered very critical. But even topicals have side effects and they
can be absorbed into the body.
Pharmacological contraindications are in place for some ointments. Cortisone,
for example, works by reducing both inflammation and the body's immune response.
It is, therefore, not recommended for certain kinds of infections because it
allows them to grow rapidly. On the other hand, cortisone is the drug of choice
after a transplant when we don't want the immune system fighting off the new
organ.
As I recall, cortisone is either useless for athlete's foot fungus or makes it
worse. So right away, you've got a conflict.
Your question is great, Terry, but I can't give you a specific answer. I'd say
you'd be wise to use as few of these things together at one time as is possible,
or at least try to use them on separate body parts.
http://www.healthcentral.com/centers/onecenter.cfm?center=Skin
Visit Our Skin and Hair Center
Wednesday September 22, 1999
Pros:
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. Content is available in a raw form and may be re-used in many different
ways on the partner site
. The feed includes information about the content and is not just a "blob" of
stuff
. The feed is separate from the presentation (i.e. UI). No changes are needed
to the feed even if the look and feel of the site changes dramatically.
Cons:
. Requires that the content is parsed on the partner side
. More complicated implementation
Option 2:
HTML Widgets
We can also provide preformatted chunks of html at a feed url. This URL can be
harvested by the third party and inserted directly into an HTML page. These
"widgets" are pre-formatted as specified with the partner site. For example an
html widget that creates a box with up to date headlines may be harvested and
placed wherever the latest headlines should be on the partner site. In some
cases the content may be directly included as an ilayer and/or iframe.
Pros:
. No parsing of the content feed is needed.
. Content may be directly inserted
. Easy Implementation
Cons:
. Any changes to formatting must be coordinated with both sides
. Content may be thought of as "blobs" without context or meaning. That is -
there is no way to know that one piece is a headline and one piece is the
summary of an article
Examples available upon request.
33
<PAGE>
Schedule 3.3 - Use of Content
AltaVista agrees to provide format guidelines including minimum and maximum word
and character counts for headlines, abstracts, subtitles and articles to be
supplied by HealthCentral.
AltaVista will not parse, rewrite, edit, or rearrange the display of
HealthCentral Content, except as provided above and pursuant to this Agreement.
AltaVista may modify the font, font size, spacing or color of the Content so
long as it does not result in the content becoming misleading or inaccurate.
AltaVista may correct any spelling errors.
In such case as a photo or graphic accompanies a text article, AltaVista will
use its reasonable efforts to display the photo or graphic in close proximity to
that story and in sufficient resolution so that it is easily comprehensible.
AltaVista will use its reasonable efforts not re-purpose photos or graphics for
other uses.
34
<PAGE>
Schedule 8.2 - Performance Threshold
35
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
Performance
Threshold #1
<TABLE>
<CAPTION>
Total Total
Equity Guaranteed Cumulative Cumulative
Year Cash Grants Total Value Impressions Impressions* Visitors Warrants**
- ---- ------ ------ ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
* Total Impressions shall mean (i) for Performance Threshold #1, the
Guaranteed Impressions plus [*], and (ii) for Performance Threshold
#2 through #6, the Total Impressions of the preceding Performance
Threshold, plus [*].
** In the event Alta Vista delivers either the number of Total Cumulative
Impressions or the number of Total Cumulative Visitors set forth in each of
the six performance thresholds, HealthCentral shall issue the number of
Warrants set forth herein pursuant to the exercise price and terms and
conditions in Section 8.2 of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
1
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
Performance
Threshold #2
<TABLE>
<CAPTION>
Total Total
Equity Guaranteed Cumulative Cumulative
Year Cash Grants Total Value Impressions Impressions* Visitors Warrants**
- ---- ------ ------ ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
* Total Impressions shall mean (i) for Performance Threshold #1, the
Guaranteed Impressions plus [*], and (ii) for Performance Threshold
#2 through #6, the Total Impressions of the preceding Performance
Threshold, plus [*].
** In the event Alta Vista delivers either the number of Total Cumulative
Impressions or the number of Total Cumulative Visitors set forth in each of
the six performance thresholds, HealthCentral shall issue the number of
Warrants set forth herein pursuant to the exercise price and terms and
conditions in Section 8.2 of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
2
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
Performance
Threshold #3
<TABLE>
<CAPTION>
Total Total
Equity Guaranteed Cumulative Cumulative
Year Cash Grants Total Value Impressions Impressions* Visitors Warrants**
- ---- ------ ------ ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
* Total Impressions shall mean (i) for Performance Threshold #1, the
Guaranteed Impressions plus [*], and (ii) for Performance Threshold
#2 through #6, the Total Impressions of the preceding Performance
Threshold, plus [*].
** In the event Alta Vista delivers either the number of Total Cumulative
Impressions or the number of Total Cumulative Visitors set forth in each of
the six performance thresholds, HealthCentral shall issue the number of
Warrants set forth herein pursuant to the exercise price and terms and
conditions in Section 8.2 of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
3
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
Performance
Threshold #4
<TABLE>
<CAPTION>
Total Total
Equity Guaranteed Cumulative Cumulative
Year Cash Grants Total Value Impressions Impressions* Visitors Warrants**
- ---- ------ ------ ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
* Total Impressions shall mean (i) for Performance Threshold #1, the
Guaranteed Impressions plus [*], and (ii) for Performance Threshold
#2 through #6, the Total Impressions of the preceding Performance
Threshold, plus [*].
** In the event Alta Vista delivers either the number of Total Cumulative
Impressions or the number of Total Cumulative Visitors set forth in each of
the six performance thresholds, HealthCentral shall issue the number of
Warrants set forth herein pursuant to the exercise price and terms and
conditions in Section 8.2 of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
4
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
Performance
Threshold #5
<TABLE>
<CAPTION>
Total Total
Equity Guaranteed Cumulative Cumulative
Year Cash Grants Total Value Impressions Impressions* Visitors Warrants**
- ---- ------ ------ ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
* Total Impressions shall mean (i) for Performance Threshold #1, the
Guaranteed Impressions plus [*], and (ii) for Performance Threshold
#2 through #6, the Total Impressions of the preceding Performance
Threshold, plus [*].
** In the event Alta Vista delivers either the number of Total Cumulative
Impressions or the number of Total Cumulative Visitors set forth in each of
the six performance thresholds, HealthCentral shall issue the number of
Warrants set forth herein pursuant to the exercise price and terms and
conditions in Section 8.2 of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
5
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
Performance
Threshold #6
<TABLE>
<CAPTION>
Total Total
Equity Guaranteed Cumulative Cumulative
Year Cash Grants Total Value Impressions Impressions* Visitors Warrants**
- ---- ------ ------ ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
* Total Impressions shall mean (i) for Performance Threshold #1, the
Guaranteed Impressions plus [*], and (ii) for Performance Threshold
#2 through #6, the Total Impressions of the preceding Performance
Threshold, plus [*].
** In the event Alta Vista delivers either the number of Total Cumulative
Impressions or the number of Total Cumulative Visitors set forth in each of
the six performance thresholds, HealthCentral shall issue the number of
Warrants set forth herein pursuant to the exercise price and terms and
conditions in Section 8.2 of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
6
<PAGE>
PERFORMANCE THRESHOLD SCHEDULE
CUMULATIVE MAXIMUM NUMBER OF
<TABLE>
<CAPTION>
Equity
------
Year Cash Grants Total Value IMPRESSIONS VISITORS WARRANTS
- ---- ------ ------ ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 [*] [*] [*] [*] [*] [*]
2 [*] [*] [*] [*] [*] [*]
3 [*] [*] [*] [*] [*] [*]
TOTAL [*] [*] [*] [*]
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
7
<PAGE>
Schedule 11.2(f) - Capitalization Table
36
<PAGE>
Exhibit 8.3 - Investor Right's Agreement
37
<PAGE>
EXHIBIT 10.26
INDUSTRIAL LEASE
-GROSS-
1. FUNDAMENTAL LEASE PROVISIONS
1.1 PARTIES. This Lease Agreement, dated for reference purposes only, May
4, 1999 is made by and between H.S.P., A California Limited Partnership, Hollis
Street Project (herein called "Landlord") and ePills.com (herein called
"Tenant").
1.2 PREMISES. That certain real property situated in the city of
Emeryville, County of Alameda, State of California, commonly known as 5900
Hollis Street, Suite O and described as 6479 rentable and 6084 useable square
feet of office space which is approximately 3.4081% of the total square footage
of the complex of which the Premises are a part. (Exhibit A)
1.3 TERM. The term of this Lease shall be for ___ Three (3) ___ years,
commencing on July 1, 1999 ____________________________________________________,
and ending on __ June 30, 2002 ____________________________________________.
1.4 OPTION TO RENEW. Lease may be extended for ___ Three (3) years __,
commencing on July 1, 2002 ____________________________________________________,
and ending on ___ June 30, 2005 _______________________________________________.
Notice of intent to extend terms must be delivered to Landlord prior to January
1, 2002.
1.5 USE. The Premises shall be used and occupied only for General office,
software development, hardware maintenance and related activities.
1.6 RENT. Monthly rental shall be $_10,366.00 ___________________________.
1.7 RENT INCREASES. Rent increases for the term and option shall be as
follows: Effective July 1, 2000 rent shall increase to $10,690.00. Effective
July 1, 2001 rent shall increase to $11,014.00.
Effective on the Anniversary Date of each year of the Option Period, the
rent shall increase upwards in accordance with the Consumer Price Index, San
Francisco-Oakland-San Jose, All Urban Consumers, All Items (CPI) no less than
three (3%) percent and no more than seven (7%) percent per annum.
1.8 SECURITY DEPOSIT. $15,550.00 _________________________________________.
1.9 PARKING. Tenant shall have Twelve (12) reserved & designated parking
spaces.
1.10 BASE YEAR FOR PROPERTY TAXES & INSURANCE. __1999/00 _______________.
1.11 BROKERS. __AEGIS Reality - Matt Elmquist __________________________.
1.12 NOTICES. All notices shall be mailed or served personally to the
following addresses:
To Landlord at: Hollis Street Project
P.O. Box 8685
Emeryville, Ca. 94662-0685
To Tenant at: ePills.com
5900 Hollis Street, Suite O
Emeryville, CA 94608
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TABLE OF CONTENTS
Paragraph 1 Fundamental Lease Provisions
Paragraph 2 Premises
Paragraph 3 Term
Paragraph 4 Rent
Paragraph 5 Security Deposit
Paragraph 6 Use
Paragraph 7 Maintenance, Repairs and Alterations
Paragraph 8 Insurance Indemnity
Paragraph 9 Damage or Destruction
Paragraph 10 Real Property Taxes
Paragraph 11 Common Areas
Paragraph 12 Utilities and Services
Paragraph 13 Assignment and Subletting
Paragraph 14 Defaults: Remedies
Paragraph 15 Condemnation
Paragraph 16 General Provisions
Paragraph 17 Performance Bond
Paragraph 18 Brokers
Paragraph 19 Notices
EXHIBITS
Exhibit A Premises
Exhibit B Improvements
Exhibit C Disclosure Addendum
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2. PREMISES.
2.1 Premises. For and in consideration of the rent and the convenents and
agreements set forth in this Lease to be kept and performed by Tenant, Landlord
hereby leases to Tenant and Tenant leases from Landlord the Premises described
in Paragraph 1.2 hereof for the term, at the rent and subject to and upon all of
the terms, covenants, and agreements set forth herein.
2.2 Improvements & Alterations Prior to Occupancy. All obligations of
Landlord and Tenant to perform work, and supply labor and materials to prepare
the Premises for occupancy as shown in Exhibit A are set forth below, or in
Exhibit B. Both Landlord and Tenant shall expend all funds and do all acts
required of them and shall have the work performed promptly and diligently and
in a workmanlike manner.
2.3 Square Footage. Tenant's percent of the total square footage of the
Complex of which the Premises are a part is subject to change as the total
square footage of the Complex changes.
3. TERM
3.1 Term. The term of this Lease shall continue during the Lease term
specified in Paragraph 1.3 hereof, unless sooner terminated pursuant to any
provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if for
any reason Landlord cannot deliver possession of the Premises to Tenant on said
date, Landlord shall not be subject to any liability thereof, nor shall such
failure affect the validity of this Lease or the obligations of Tenant hereunder
or extend the term hereof. In such case Tenant shall not be obligated to pay
rent until possession of the Premises is tendered to Tenant. If Landlord shall
not have delivered possession of the Premises within ninety (90) days from said
commencement date, Tenant may, at Tenant's option, by notice in writing to
Landlord within ten (10) days thereafter, cancel this Lease. If Landlord shall
not have delivered possession of the Premises within one (1) year from said
commencement date, Landlord may, by notice in writing to the Tenant within ten
(10) days thereafter, cancel this Lease. If either party cancels as hereinabove
provided, Landlord shall return any monies previously deposited by Tenant within
fifteen (15) days without payment of interest or other increment for its use,
and the parties shall be discharged from all obligations hereinbefore.
3.3 Early Possession. In the event that Landlord shall permit Tenant to
occupy Premises prior to the commencement date of the term, such occupancy shall
be subject to all of the provisions of this Lease. Said early possession shall
not advance the termination date of this Lease.
3.4 Delivery of Possession. Tenant shall be deemed to have taken possession
of the Premises, if when necessary, Tenant has provided Landlord with a
Certificate of Occupancy granted by the proper government agency, and when
either of the following occurs:
(a) Landlord, Landlord's agent or property manager delivers possession
of the Premises to Tenant, or Tenant's Agent.
(b) Landlord, Landlord's agent or property manager gives notice to
Tenant or Tenant's Agent that the Premises are ready for Tenant to take
possession.
3.5 Option to Renew. Tenant shall have the right to extend the terms of
this Lease for a period specified in Paragraph 1.4, if Tenant shall not be in
default, by giving Landlord written notice prior to date specified in Paragraph
1.4. Notice shall be hand delivered by Tenant to management office or mailed,
postage prepaid, by certified mail to the address specified in Paragraph 1.12.
Upon receipt of such notice by Landlord within specified time, this Lease shall
be considered extended without the necessity for executing any further
instrument, upon same terms, conditions, covenants, and agreements as herein
contained. Once exercised, the Tenant shall not have the right to revoke his
election to exercise Option to Renew. In the event that the Option is not
exercised in writing within specified time, the Option shall expire, and the
Tenant shall not have the right to renew this Lease. Landlord shall have no
obligation to notify Tenant of Option to Renew.
4. INITIAL RENT. Tenant shall pay to Landlord as initial rent for the
Premises the sum set forth in Paragraph 1.6, in advance, on the FIRST day of
each month of the term hereof. Rent for any period during the term hereof, which
is for less than one month, shall be a prorate of the monthly installment based
upon a thirty (30) day month. Rent shall be payable without notice or demand and
without any deduction, offset, or abatement in lawful money of the United States
of America to Landlord at the address stated in Paragraph 1.12 or to such other
persona or at such other place as Landlord may designate in writing.
5. SECURITY DEPOSIT. Tenant shall deposit with Landlord prior to occupancy the
sum specified in Paragraph 1.8 as security for Tenant's faithful performance of
Tenant's obligations hereunder. If Tenant fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Landlord may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default, or for the payment of any other
sum to which Landlord may become obligated by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer hereby. If
Landlord so uses or applies all or any portion of said deposit, Tenant shall
within ten (10) days after written demand therefor deposit cash with Landlord in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Tenant's failure to do so shall be a breach of this Lease, and
Landlord may at his option terminate this Lease. Landlord shall not be required
to keep said deposit separate from its general accounts. If Tenant performs all
of Tenant's obligations hereunder, said deposit or so much thereof as had not
theretofore been applied by Landlord, shall be returned, without payment of
interest or other increment for its use, to Tenant (or, at Landlord's option, to
the last assignee, if any, of Tenant's interest hereunder) within thirty (30)
days after the expiration of the term hereof, or after Tenant has vacated the
Premises, whichever is later.
6. USE
6.1 Use. The Premises shall be used and occupied only as specified in
Paragraph 1.5 and for no other purposes. Under no circumstances shall Tenant or
Tenant's employees, agents, or invitees or anyone else occupy the Premises for
residential purposes. Tenant shall have unrestricted access of premises 24 hours
a day, seven days a week.
6.2 Compliance with Law. Tenant shall, at Tenant's expense, comply
promptly with all applicable statutes,
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ordinances, rules regulations, orders and requirement in effect during the term
or any part of the term hereof regulating the use by Tenant of the Premises.
Tenant shall not use or permit the use of the Premises in any manner that will
tend to create waste, or a nuisance, or, if there shall be more than one tenant
of the Complex containing the Premises, which shall tend to unreasonably disturb
such other tenants.
6.3 Condition of Premises. Tenant hereby accepts the Premises in their
condition existing as of the date of possession. Tenant's taking possession of
the Premises shall constitute Tenant's acknowledgment that the Premises are in
expected condition. Tenant acknowledges that neither Landlord, Landlord's agent
or Tenant's agent has made any representation or warranty as to the suitability
of the Premises for the conduct of Tenant's business.
6.4 Insurance Cancellation. Notwithstanding the provisions of Paragraph 6.1
hereinabove, no use shall be made or permitted to be made of the Premises nor
acts done which will cause the cancellation of any insurance policy covering
said Premises or the Complex of which the Premises may be a part. If Tenant's
use of the Premises causes an increase in said insurance rates, Tenant shall pay
any such increase as additional rent, together with Tenant's next rental
installment, after receipt by Tenant of a copy of the insurance costs statement
or other satisfactory evidence of the amount due.
6.5 Landlord's Rules and Regulations for the use of the Premises. Tenant
shall faithfully observe and comply with the rules and regulations that Landlord
shall from time to time promulgate for the use of the Premises. If Tenant,
Tenant's agents, employees, customers or invitees, fail to comply with said
rules and regulations, Landlord shall have the right to charge Tenant a fine for
nonperformance of the said rules and regulations. All fines shall be due and
payable, as additional rent, to Landlord together with Tenant's next rental
installment after Tenant has received notice from Landlord of violation and fine
amount. A copy of current rules and regulations is attached hereto. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules and regulations. All alterations and/or additions to the rules and
regulations shall be binding upon Tenant upon delivery of a copy of them to
Tenant. Landlord shall not be responsible to Tenant for the nonperformance of
any of the said rules and regulations by any other tenants, their agents,
employees, customers, or invitees. Landlord shall be fair and reasonable.
7. MAINTENANCE, REPAIRS & ALTERATIONS
7.1 Landlord's Obligations. Subject to the provisions of Paragraph 9 and
except for damage caused by any negligent or intentional act or omission of
Tenant, Tenant's agent, employees, or invitees, Landlord at Landlord's expense
shall keep in good order, condition and repair the foundations, exterior wells
and windows, exterior roof, skylights, and heating and air conditioning of the
Premises. Landlord shall not, however, be obligated to paint such exterior, nor
shall Landlord be required to maintain the interior surface of exterior walls,
windows, doors or plate glass damaged by vandalism. Landlord shall have no
obligations to make repairs under this Paragraph 7.1 until a reasonable time
after receipt of written notice of the need for such repairs.
7.2 Tenant's Obligations.
(a) Subject to the provisions of Paragraph 7.1 and Paragraph 9,
Tenant, at Tenant's expense, shall keep in good order, condition and repair the
Premises and every part thereof including, without limiting the generality of
the foregoing, all lighting facilities, electrical, plumbing, equipment,
fixtures, interior walls, ceilings. Windows, doors, and plate glass, located
within the Premises, or any wall of the Premises are also the responsibility of
the Tenant to repair or replace if damaged by negligence, whether by Tenant,
Tenant's agent, employees or invitees.
C.K. (b) Tenant acknowledges Tenant's responsibility to keep interior
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paint in good and chip-free condition.
(c) If Tenant fails to perform Tenant's obligations under this
Paragraph 7.2, Landlord may at Landlord's option enter upon the Premises after
ten (10) days prior written notice to Tenant and put the same in good order,
condition and repair at Tenant's expense. The cost of any such repairs shall be
due and payable, as additional rent, to Landlord together with Tenant's rental
installment after receipt of statement of charges from Landlord.
(d) On the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in good condition, broom clean,
ordinary wear and tear excepted. Tenant shall repair any damage to the Premises
occasioned by its use thereof or by the removal of its trade fixtures,
furnishings and equipment pursuant to Paragraph 7.3 (c), which repair shall
include but not be limited to the patching and filling of holes in walls,
ceilings and floors, repairs of structural damage, and cleaning and repairing of
windows and skylights.
7.3 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written consent, make
any alterations, improvements or additions, in, on or about the Premises. As a
condition to giving such consent, Landlord may require that Tenant agree to
remove any such alterations, improvements, additions or utility installations at
the expiration of the term and to restore the Premises to their prior condition.
After obtaining Landlord's consent, and before commencing construction, Tenant
must acquire all required City Building Permits. All construction shall be done
to State and Local Building Codes, and pass inspection by the City Building
Department.
(b) Before commencing any work relating to alterations, additions and
improvements affecting the Premises, Tenant shall notify Landlord, in writing,
of the expected date of commencement thereof, and provide Landlord with the
performance bond required by Paragraph 17. Landlord shall then have the right at
any time and from time to time to post and maintain on the Premises such notices
as Landlord reasonably deems necessary to protect the Premises and Landlord from
mechanics' liens, materialmens' lien or any other liens. In any event, Tenant
shall pay, When due, all claims for labor or materials furnished to or for
Tenant at or for use in the Premises. Tenant shall not permit any mechanics'
lien, or materialmens' lien to be levied against the Premises for any labor or
material furnished to Tenant or claimed to have been furnished to Tenant or to
Tenant's agents or contractors in connection with work of any character
performed or claimed to have been performed on the Premises at the direction of
Tenant.
(c) Unless Landlord requires their removal, as set forth in Paragraph
7.3 (a), all alterations, improvements or additions which may be made on the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term. Notwithstanding the
provisions of this Paragraph 7.3 (c), Tenant's machinery, equipment, and trade
fixtures, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Tenant and may be removed by Tenant subject to the provisions of Paragraph 7.2
(c).
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7.4 Signs & Window Coverings. All sign and window coverings visible from
the common areas or public areas shall be approved by the Landlord prior to any
installation. If Landlord institutes a common system of signs or window
coverings, the signs or window coverings that tenant installs shall conform to
that system, and Tenant shall, at Landlord's cost and expense, allow the
replacement of any signs or window covering previously installed, even though
they may have been approved previously by Landlord. Upon termination of this
Lease Tenant shall remove, at its cost, all signs and window coverings of which
the removal is required by Landlord.
8. INSURANCE INDEMNITY
8.1 Tenant's Obligation. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease, a policy of comprehensive and
public liability insurance insuring Landlord and Tenant against any liability
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be in an amount of not less
than $600,000 for injury to or death of one person in any one accident or
occurrence, and in an amount of not less than $1,000,000 for injury to or death
of more than one person in any one accident or occurrence. Such insurance shall
further insure Landlord and Tenant against liability for property damage of at
least $50,000. The limits of said insurance shall not, however, limit the
liability of Tenant hereunder. In the event that the Premises constitute a part
of a larger property, said insurance shall have a Landlord's Protective
Liability endorsement attached thereto. If Tenant shall fail to procure and
maintain said insurance, Landlord may, but shall not be required to, procure and
maintain the same, but at the expense of Tenant. The cost of said insurance
shall be due and payable, as additional rent, together with Tenant's next rental
installment after receipt by Tenant of a copy of the insurance costs statement
or other satisfactory evidence of the amount due.
8.2 Landlord's Obligation. Landlord may obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, and special extended perils
(all risk), and Liability. After the first year of this Lease, the Tenant shall
pay during the remaining term hereof, as additional rent, a proportionate share
of any increase in insurance costs over base year specified in Paragraph 1.10,
whether such increase shall be the result of the nature of Tenant's Occupancy,
any act or omission of Tenant, requirements of the holder of a mortgage or deed
of trust covering the Premises, or increased valuation of the Premises. After
receipt by Tenant of a copy of the insurance costs statement or other
satisfactory evidence of the amount due, Tenant shall pay any such increase in
insurance costs to Landlord together with Tenant's next rental installment, or
at Landlord's option twelve (12) monthly installments. Tenant's proportionate
share of the increase shall be the percentage of the total square footage of the
Complex as set forth in Paragraph 1.2. If an insurance cost increase comes
before the end of the first year of this Lease or, if the term of this Lease
shall not expire concurrently with the expiration of the period covered by such
insurance, Tenant shall pay a prorated portion of increase. The proceeds of any
such insurance shall be paid to Landlord.
8.3 Insurance policies. Tenant shall deliver to Landlord, prior to
possession, copies of policies of liability insurance required under Paragraph
8.1 or certificates evidencing the existence and amounts of such insurance with
loss payable clauses satisfactory to Landlord. No such policy shall be
cancelable or subject to reduction of coverage or other modifications except
after ten (10) days prior written notice to Landlord. Tenant shall, within, ten
(10) days prior to the expiration of such policies furnish Landlord with
renewals thereof, or Landlord may order such insurance and charge the cost to
Tenant, as additional rent, which amount shall be payable by Tenant together
with Tenant's next rental installment after receipt by Tenant of copy of the
insurance costs statement or other satisfactory evidence of the amount due.
Tenant shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in Paragraph 8.2.
8.4 Waiver of Subrogation. Tenant and Landlord each waives any and all
rights of recovery against the other, or against the officers, employees, agents
and representatives of the other, for loss of or damage to such waiving party or
its property or the property of others under its control, where such loss or
damage is insured against under any insurance policy in force at the time of
such loss or damage. Tenant and Landlord shall upon obtaining the policies of
insurance required hereunder, give notice to the insurance carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
8.5 Hold Harmless. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims arising from Tenant's use of the Premises or
from the conduct of its business or from any activity, work or things which may
be permitted or suffered by Tenant in or about the Premises. Tenant shall
further indemnify, defend and hold Landlord harmless from and against any and
all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the provisions of this Lease
or arising from any negligence of Tenant or any of its agents, contractors,
employees or invitees, and from any and all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon. Tenant hereby assumes all risk of damage to property
or injury to persons in or about the Premises from any cause, and Tenant hereby
Waives all claims in respect thereof against Landlord, excepting where said
damages arises out of negligence of Landlord.
8.6 Exemption of Landlord from Liability. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees, invitees, customers or any other person
in or about the Premises, nor, unless through its negligence shall Landlord be
liable for injury to the person of Tenant, Tenant's employees, agents or
contractors and invitees, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or from any other causes whether the said
damage or injury results from conditions arising upon the Premises or upon other
portions of the building of which the Premises are a part or from other sources
or places, and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible to Landlord or Tenant. Landlord
shall not be liable for any damages arising from any act or neglect of any other
tenant their employees, agents, contractors or invitees, if any, of the building
in which the Premises are located.
9. DAMAGE OR DESTRUCTION
9.1 Partial Damage - Insured. Subject to the provisions of Paragraph 9.4,
if the Premises are damaged and such damage was caused by a casualty covered
under any insurance policy that may be maintained pursuant to Paragraph 8.2.
Landlord shall, at Landlord's expense, repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect.
9.2 Partial Damage - Uninsured. In the event the Premises are damaged by a
casualty which is not covered by insurance carried by Landlord, then Landlord
shall restore same, except if the damage or destruction is to an extent greater
than ten (10%) per cent of the then replacement cost of improvements on the
Premises (exclusive of Tenant's trade fixtures and equipment and exclusive of
foundation), then Landlord may elect not to restore and to terminate this Lease.
Landlord
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must give Tenant written notice of its election not to restore within thirty 30
days from the date of damage and, if not given, Landlord shall he deemed to have
elected to restore and in such event shall commence restoration of damage as
soon as reasonably possible. In the event Landlord elects to give such notice of
Landlord's Intention to cancel and terminate this Lease, Tenant shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Landlord of Tenant's intention to repair such damage at Tenant's
expense, without reimbursement from Landlord or abatement of rent, in which
event this Lease shall continue in full force and effect, and Tenant shall
provide Landlord with the performance bond required by Paragraph 17, and proceed
to make such repairs as soon as reasonably possible. If Tenant does not give
such notice within ten (10) day period, this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.3 Abatement of Rent.
(a) If the Premises are partially destroyed or damaged and Landlord
repairs or restores them pursuant to the provisions of this Paragraph 9, the
rent payable hereunder shall be abated for the period during which repair or
restoration of such damage, continues in proportion to the degree to Which
Tenant's reasonable use of the Premises is impaired, Tenant shall continue to
pay to Landlord the total current monthly rent for the Premises when due while
repairs or restoration are in progress. Within ten (10) days after current rent
payment is made to Landlord, Landlord shall then pay to Tenant any rent
abatement based on an assessment of the degree to which Tenant's use of the
Premises has been impaired for the prior month. Except for abatement of rent, if
any, Tenant shall have no claim against Landlord for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Landlord is obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence such repair or
restoration within sixty (60) days after such obligations accrue, Tenant may at
Tenant's option cancel and terminate this Lease by giving Landlord written
notice of Tenant's election to do so at any time prior to the commencement of
such repair or restoration. In such event, this Lease shall terminate as of the
date of such notice. Any abatement of rent shall be computed as provided in
Paragraph 9.3 (a).
9.4 Total Destruction. If at any time during the term hereof the Premises
are totally destroyed from any cause whether or not covered by the insurance
that may be maintained by Landlord pursuant to Paragraph 8.3 this Lease shall
automatically terminate as of the date of such destruction.
9.5 Damage Near End of Term. If the Premises are partially destroyed during
the last six (6) months of the term of this Lease, Landlord may, at Landlord's
option, cancel and terminate this Lease as of the date of occurrence of such
damage by giving written notice to Tenant of Landlord's election to do so within
thirty (30) days after the date of occurrence of such damage.
9.6 Restoration. Landlord's obligation to restore shall not include the
restoration or replacement of Tenant's trade fixtures, equipment, merchandise or
any improvements or alterations made by Tenant to the Premises.
9.7 Prorations. Upon termination of this Lease pursuant to this Paragraph
9, an equitable prorate adjustment of rent based upon a thirty (30) day month
shall be made. Landlord shall, in addition, return to Tenant so much of Tenant's
security deposit as has not therefore been applied by Landlord.
10. REAL PROPERTY TAXES
10.1 Payment of Tax Increase. Landlord shall pay all real property taxes
applicable to the Premises; provided, however, that Tenant shall pay, as
additional rent, the amount, if any, by which real property taxes applicable to
the Premises increase over the base year specified in Paragraph 1.10. Such
payment shall be made by Tenant together with Tenant's next rental installment
or at Landlord's option twelve (12) monthly installments, after receipt of
Landlord's statement setting forth the amount of such increase and the
computation thereof. If the Tax increase comes before the end of the first year
of this Lease, or if the term of this lease shall not expire concurrently with
the expiration of the fiscal tax year, Tenant shall pay a prorated portion of
increase.
10.2 Definition of "Real Property" Taxes. As used herein, the term "real
property" shall include any form of assessment, advalorem tax, license fee, use
tax, fee title tax, rent tax, occupancy tax, parking tax, excise tax on rents,
gross receipts tax, and any tax which is a substitute for real property taxes,
and any tax upon any legal or equitable interest of Landlord in the Premises or
in the real property of which the Premises are a part, or upon Landlord's right
to rent, or upon any rental income from the Premises, or upon Landlord's
business of leasing the Premises. The term real property taxes shall not include
any net income taxes or any inheritance or estate taxes.
10.3 Joint Assessment. If the Premises are not separately assessed,
Tenant's liability shall be the percentage of the total square footage of the
Complex as set forth in Paragraph 1.2.
10.4 Personal Property Taxes.
(a) Tenant shall pay, prior to delinquency, all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or elsewhere. Tenant shall cause
said fixtures, furnishings, equipment and other personal property to be assessed
and billed separately from the real property of Landlord.
(b) If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay Landlord, as additional rent, the
taxes attributable to Tenant together with Tenant's next rental installment
after receipt of a written statement setting forth the taxes applicable to
Tenant's property.
10.5 Property Taxes on Improvements. Notwithstanding the provisions of
Paragraph 10 hereinabove, Tenant shall pay, as additional rent, any increase in
"real property taxes" resulting from any and all improvements of any kind
whatsoever placed on or in the Premises for the benefit of or at the request of
Tenant regardless of whether said improvements were installed or constructed
either by Landlord or Tenant, except those items included with the original
Premises. Payment shall be made to Landlord together with Tenant's next rental
installment after receipt of a written statement from Landlord setting forth the
amount of such increase.
11. COMMON AREAS When, in fact, there are Common Areas, then the following
shall apply:
11.1 Landlord's Rules and Regulations for the use of the Common Areas.
Tenant shall faithfully observe and
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comply with the rules and regulations, that Landlord shall from time to time
promulgate for the use of the common areas. If Tenant, Tenant's agents,
employees, customers or invitees, fail to comply with said rules and
regulations, Landlord shall have the right to charge Tenant a fine for
nonperformance of the said rules and regulations. All fines shall be due and
payable as additional rent to Landlord together with Tenant's next rental
installment after receipt from Landlord of fine amount. A copy of said rules and
regulations is attached hereto. Landlord reserves the right from time to time to
make all reasonable modifications to said rules and regulations. All such
modifications shall be binding upon Tenant upon delivery of a copy of them to
Tenant. Landlord shall not be responsible to Tenant for the nonperformance of
any of the said rules and regulations by any other tenants, their agents,
employees, customers or invitees. Landlord shall be fair and reasonable.
11.2 Definitions. The phrase "Common Areas" means all areas and
facilities outside the Premises that are provided and designated for general use
and convenience of Tenant and other tenants and their respective officers,
agents and employees, customers and invitees. Common Areas include (but are not
limited to) hallways, stairways, pedestrian sidewalks, landscaped areas,
driveways, fire lanes, loading zones, parking areas and railroad tracks, if any.
Landlord reserves the right from time to time to make changes in the shape,
size, location, and extent of the land and improvements constituting the Common
Areas.
11.3 Maintenance. During the term of this Lease, Landlord, at Landlord's
expense, shall operate, manage, and maintain the Common Area so that they are
clean and free from accumulations of debris, filth, rubbish, and garbage. The
manner in which such Common Area shall be so maintained, and the expenditures
for such maintenance, shall be at the sole discretion of Landlord.
11.4 Tenant's Rights and Obligations.
(a) Landlord hereby grants to Tenant, during the term of this Lease,
the license to use, for the benefit of Tenant and its officers, agents,
employees, customers, and invitees, in common with the others entitled to such
use, the Common Area as they from time to time exist, subject to the rights,
powers and privileges herein reserved to Landlord.
(b) Storage, either permanent or temporary, of any materials,
supplies, recycling or equipment in the Common Area is strictly prohibited.
Should Tenant violate this provision of this Lease, then in such event, Landlord
may, at his option either terminate this Lease, charge a fine and/or, without
notice to Tenant, remove said materials, supplies or equipment from the Common
Areas and place such items in storage, the fine and/or cost thereof to be
reimbursed by Tenant, as additional rent, together with Tenant's next rental
installment after receipt of a statement submitted by Landlord.
(c) Tenant shall be assigned parking spaces as specified in Paragraph
1.9. Tenant and its officers, agents, employees, customers and invitees shall
park their motor vehicles only in areas designated by Landlord for that purpose
from time to time. Tenant shall not at any time park or permit the parking of
motor vehicles, belonging to it or to others, so as to interfere with the
pedestrian sidewalks, driveways, fire lanes and loading zones or in any portion
of the parking areas not designed by Landlord for such use by Tenant.
(d) Tenant agrees that receiving and shipping of goods and merchandise
and all removal of refuse shall be made only by way of the loading areas
constituting part of the Premises.
(e) Tenant shall repair, at its cost, all deteriorations or damages
to the Common Areas; occasioned by Tenant's lack of ordinary care. If Tenant
fails to repair or commence repairs of such deteriorations or damages prior to
ten (10) days after receipt of written notice from Landlord, then in such event,
Landlord may, at his option, repair such deteriorations or damages at the sole
cost of the Tenant. Such costs to be reimbursed by Tenant as additional rent
together with tenant's next rental installment after receipt of statement of
costs from Landlord.
11.5 Construction. Landlord, while engaged in constructing improvements or
making repairs or alterations in or about the Premises or in their vicinity,
shall have the right to make reasonable use of the Common Areas.
12. UTILITIES AND SERVICES. Tenant shall pay as additional rent for all charges
for electric, gas, water, garbage, telephone, security alarms, security guards
and other utilities and services supplied to the Premises, together with any
taxes thereon. If any such utilities and services are not separately billed to
Tenant directly by supplier, Tenant shall pay a reasonable Proportion of
supplier's charges to Landlord. The Landlord will determine the method of
distributing the charges. Tenant shall make payment for such charges together
with Tenant's rental installment after receipt of statement of charges from
Landlord. Should Tenant fail to pay such charges when due, Landlord has the
option of discontinuing to provide such utilities and services to Tenant when
such failure to pay continues for a three (3) day period after written notice to
Tenant from Landlord that charges are due and unpaid.
13. ASSIGNMENT AND SUBLETTING
13.1 Landlord's Consent Required. Tenant shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet or otherwise transfer or
encumber all or any part of Tenant's interest in this Lease or in the Premises
without Landlord's prior written consent, which Landlord shall not unreasonably
withhold. Any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void and shall constitute a breech of
this Lease. Any transfer of Tenant's interest in this Lease or in the Premises
from Tenant by merger, consolidation or liquidation or by any subsequent change
of the ownership of fifty (50%) percent or more of the capital stock of Tenant
shall be deemed a prohibited assignment within the meaning of this Paragraph 13.
Unless the entity to which] the interest in the lease is being transferred has
the same financial stability and integrity, or better, than the original lease
holder.
13.2 Reasonable Consent.
(a) If Tenant complies with the following conditions, Landlord shall
not unreasonably withhold its consent to the assignment of the Lease or the
subletting of the Premises or any portion thereof. Tenant shall submit in
writing to Landlord:
(1) The names and legal composition of the proposed Assignee or
Sublessee.
(2) The nature of the proposed Assignee's or Sublessee's business
to be carried on in the Premises.
(3) The terms and provisions of the Proposed Assignment or
Sublease.
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(4) Such reasonable financial information as Landlord may request
concerning the proposed Assignee or Sublessee including, without limitation,
financial history, credit rating rind business expense.
(b) Tenant acknowledges that Landlord has entered into this Lease in
reliance on the particular skills, knowledge and experience of Tenant and/or the
principal officer of Tenant with respect to the conduct of business in the
Premises; Tenant recognizes that Landlord's substantial investment in the
Premises and the willingness of Landlord to put that investment at risk under
the terms of this Lease is based upon Landlord's judgmental considerations
regarding Tenant's abilities as set forth above. Without in any way limiting
Landlord's right to refuse to give such consent if in Landlord's reasonable
business judgment the quality of operation is or may be in any way adversely
affected during the Term of this Lease or the financial worth of the proposed
new Tenant is less than that of the Tenant executing this Lease or of the Tenant
and the Tenant's Guarantor as the case may be, or if investigation discloses
other information unsatisfactory to Landlord. Anything to the contrary
notwithstanding contained herein or elsewhere in this Lease, Landlord, as
additional consideration for approval of such assignment or subletting shall be
entitled:
(1) to receive any and all consideration payable in connection
therewith, including without limitation, any additional Rent or other charges or
any lump sum settlement; and/or
(2) to require increases in Rent payable to Landlord consistent
with the then current rent rate for a new lease for similar premises in the
Project; and/or
(3) to modifications in such other provisions of the Lease,
including without limitation, cancellation of any options to extend the term
granted hereunder, as Landlord shall deem advisable; and/or
(4) to cancel or terminate this Lease upon thirty (30) days
written notice to Tenant, provided that in such event, Tenant may elect by
written notice to Landlord within ten (10) days of delivery of notice of
cancellation or termination to retain the Premises for the balance of the term
of the Lease on the terms and conditions herein set forth.
13.3 No Release of Tenant.
(a) Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligation to pay the rent and to perform all
other obligations to be performed by Tenant hereunder for the term of this
Lease. The acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting.
(b) Tenant hereby irrevocably assigns to Landlord all Rent and other
sums from any subletting of the Premises, and agrees that Landlord as assignee
and as attorney-in-fact for Tenant, or a receiver for Tenant appointed upon
Landlord's application, may collect such rent and other sums and apply the same
as provided in Paragraph 14.2 upon Tenant's default; provided, however, that
until the occurrence of any act of default by Tenant or Subtenant, Tenant shall
have the right to collect such sums.
13.4 Assignment Fee. In the event that Landlord shall consent to a sublease
or assignment under Paragraph 13.1, Tenant shall pay Landlord a reasonable fees
to compensate Landlord for costs incurred in connection with giving such
consent.
13.5 Involuntary Assignment.
(a) No interest of Tenant in this Lease shall be assignable by
operation of law. Each of the following acts shall be considered an involuntary
assignment:
(1) If the Tenant is or becomes bankrupt or Insolvent, or
institutes a proceeding under the Bankruptcy Act in which Tenant is the
bankrupt; or, if Tenant is a partnership or consists of more then one person or
entity, if any partner of the partnership or other person or entity is or
becomes bankrupt or insolvent, or makes an assignment for the benefit of
creditors;
(2) If a writ of attachment or execution on levied on this Lease
and is not removed within thirty (30) days of the levy;
(3) If, in any proceeding or action to which Tenant is a party,
and Landlord shall have the right to elect to terminate this Lease, in which
case this Lease shall not be treated as an asset of Tenant.
13.6 Effect of Invalidity of Provisions of Paragraph 13.5 Specifically.
Specifically with reference to this Paragraph 13 and its subparagraphs, any
invalidity or unenforceability of any of its provisions shall not affect any
other provisions of this Lease.
14. DEFAULTS: REMEDIES
14.1 Defaults. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in Paragraph (b) above, where such failure shall continue
for a period of three (3) days after written notice thereof from Landlord to
Tenant; provided, however, that if the nature of Tenant's default is such that
more than three (3) days are reasonably required for its cure, then Tenant shall
not be deemed to be in default if Tenant commenced such cure within said three
(3) day period and thereafter diligently prosecutes such cure to completion.
(d) The making by Tenant of any general assignment, or general
arrangement for the benefit of creditors.
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(e) The appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease; where possession is not restored to Tenant within thirty
(30) days.
(f) The attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
14.2 Remedies in Default. In the event of any such default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises; reasonable attorney's fees
and any real estate commission paid; the worth at the time of award by the court
of the unpaid rent that had been earned at the time of termination of the Lease;
the worth at the time of award by the court of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
the loss of rent that Tenant proves could have been reasonable avoided; and that
portion of the leasing commission paid by Landlord applicable to the unexpired
term of this Lease, Unpaid installments of rent or other sums shall bear
interest from the due date at the rate of ten (10%) percent per annum. In the
event Tenant shall have abandoned the Premises, Landlord shall have the option
of either retaking possession of the Premises and recovering from Tenant the
amount specified in this Paragraph 14.2 (a) or proceeding under Paragraph 14.2
(b).
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder,
(c) Pursue any other remedy now or hereunder available to Landlord
under the laws or judicial decisions of the state in which the Premises are
located.
14.3 Default By Landlord. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord except when the nature of Landlord's obligation requires more than
thirty (30) days for performance. Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
14.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult and impractical to fix. Such costs include, but are not
limited to, processing and accounting charges, and late charges, which may be
imposed, on Landlord by the terms of any encumbrance and note secured by any
encumbrance covering the Premises. Accordingly, if any installment of rent or
any other sum clue from Tenant shall not be received by Landlord or Landlord's
designee within five (5) days of due date, then Tenant shall pay to Landlord as
additional rent an additional sum equal to ten (10%) percent of such overdue
amount or thirty-five ($35.00) dollars which ever is greater as a late charge.
Such sum shall be payable to Landlord together with Tenant's next rental
installment after notice is received from Landlord of late charge amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the cost Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, or prevent Landlord
from exercising any of the other rights and remedies available to Landlord.
14.5 Rights and Obligations under the Bankruptcy Code.
(a) Upon the filing of a petition by or against Tenant under the
United States Bankruptcy Code, Tenant, as debtor in possession, and any trustee
who may be appointed agree as follows:
(1) to perform each and every obligation of Tenant under this
Lease until such time as this Lease is either rejected or assumed by order of
the United States Bankruptcy Court; and
(2) to pay monthly in advance on the first day of each month a
reasonable compensation for use and occupancy of the Premises in an amount equal
to the Rent and other charges otherwise due pursuant to this Lease; and
(3) to reject or assume this Lease within sixty (60) days of the
filing of such petition under Chapter 7 of the Bankruptcy Code or within one
hundred twenty (120) days or such shorter term as Landlord, in its sole
discretion, may deem reasonable so long as notice of such period is given) of
the filing of a petition under any other Chapter; and
(4) to give Landlord at least forty-five (45) days prior written
notice of any abandonment of the Premises; and
(5) any such abandonment to be deemed a rejection of this Lease;
and
(6) to do all other things of benefit to Landlord otherwise
required under the Bankruptcy Code; and
(7) to be deemed to have rejected this Lease in the event of the
failure to comply with any of the above; and
(8) to have consented to the entry of an order by an appropriate
United States Bankruptcy Court providing all of the above; waiving notice and
hearing of the entry of same.
(b) Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event or assumption
and/or assignment are the following:
(1) the cure of any monetary defaults and the reimbursement of
pecuniary loss within not more
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than thirty (30) days of assumption and/or assignment; and
(2) the deposit of an additional sum equal to three (3) months
rent to be held pursuant to the terms of Paragraph 5 of this Lease; and
(3) the use of the Premises as set forth in Paragraph 6 of this
Lease; and
(4) the reorganized debtor or assignee of such debtor in
possession or of Tenant's trustee demonstrates in writing that it has sufficient
background including, but not limited to, financial ability and experience to
operating in the manner contemplated in this Lease and meets all other
reasonable criteria of Landlord as did Tenant upon execution of this Lease; and
(5) the prior written consent of any mortgagee to which this Lease
has been assigned as collateral security; and (6) the Premises, at all times,
remains a single location and no physical changes of any kind maybe made to the
Premises unless in compliance with the applicable provisions of this Lease.
15. CONDEMNATION
15.1 Termination of Lease. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold by Landlord under the threat of the
exercise of said power (all of which is herein referred to as "condemnation"),
this Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever occurs first. If more that
twenty-five (25%) percent of the square footage of the Premises, or more than
twenty-five (25%) percent of the land area of the Premises not covered With
buildings, is taken by condemnation, either Landlord or Tenant may terminate
this Lease as of the date of the condemning authority taking possession or, by
notice in writing of such election within twenty (20) days after Landlord shall
have notified Tenant of the taking or, in the absence of such notice, then
twenty (20) days after the condemning authority shall have taken possession.
15.2 Non Termination of Lease. If this Lease is not terminated by either
Landlord or Tenant then it shall remain in full force and effect as to the
portion of the Premises remaining provided the monthly rent shall be reduced in
proportion to the square footage taken as it bears to the total square footage
of the Premises. In the event this Lease is not so terminated, Landlord agrees,
at Landlord's sole cost, to as soon as reasonably possible restore the Premises
to a complete unit of like quality and character as existed prior to the
condemnation.
15.3 Awards. All awards for the taking of any part of the Premises or any
payment made under the threat of the exercise of power of eminent domain shall
be the property of Landlord, whether made as compensation for diminution of
value of the leasehold or for the taking of the fee or as severance damages;
provided, however, that Tenant shall be entitled to any award for loss of or
damage to Tenant's trade fixtures and removable personal property.
16. GENERAL PROVISIONS
16.1 Offset Statement.
(a) Tenant shall at any time upon not less than ten (10) days prior
written notice from Landlord execute, acknowledge and deliver to Landlord a
written offset statement. Such statement shall certify that this Lease is
unmodified or if modified, states the nature of such modifications. Such
statement shall certify that this Lease is in full force and effect, the date to
which the rent, security deposit and other charges are paid in advance, if at
all. Such statement shall acknowledge that there are not, to Tenant's knowledge,
any uncured defaults on the pert of Landlord hereunder, or specifying such
defaults, if any, which are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encmbrancer of the Premises.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord, that there are no uncured
defaults in Landlord's performance, and that not more then one (1) month's rent
has been paid in advance.
(c) If Landlord desires to finance or refinance the Premises, or any
part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of Tenant as may be reasonably required by
such lender. Such statements shall include the past three (3) years financial
statement of Tenant. All such financial statements shall be received by Landlord
in confidence and shall be used only for the purposes herein set forth.
16.2 Landlord's Interests. The term "Landlord" as used herein shall mean
only the owner or owners at the time in question of the fee title or a tenant's
interest in the ground lease of the Premises. In the event of any transfer of
such title or interest, and alter the date of such transfer, Landlord herein
named (and in case of any subsequent transfers the then grantor) shall be
relieved of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the then grantor
at the time of such transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assignees, only during their respective periods of ownerships.
16.3 Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
16.4 Interest on Past-Due Obligations. Except as expressly herein provided,
any amount due to Landlord not paid when due shall bear interest at ten (10%)
percent per annum from the date due. Payment of such interest shall not excuse
or cure any default by Tenant under this Lease. Interest shall be payable by
Tenant, as additional rent, together with next rental installment after Notice
has been given to Tenant of interest amount due.
16.5 Time of Essence. Time is of the essence.
16.6 Captions. Article and paragraph captions are not a part hereof.
16.7 Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification.
16.8 Waivers. No waiver by Landlord of any provision hereof shall be deemed
a waiver of any other provision
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hereof or of any subsequent breach by Tenant of the same or any other provision.
Landlord's consent to or approval of any act shall not be deemed to render
unnecessary the obtaining of Landlord's consent to or approval of any subsequent
act by Tenant. The acceptance of rent hereunder by Landlord shall not be a
waiver of any preceding breach by Tenant of any provision hereof, other than
the failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of
such rent.
16.9 Application of Payments. All payments made by Tenant to Landlord shall
be applied to the earliest charges to Tenant's account first.
16.10 Holding Over.
(a) If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof with the express written consent
of Landlord, such Occupancy shall be a tenancy from month-to-month at one
hundred fifty percent (150%) of the then existing rental amount or a rental
amount to be stated in a written notice from Landlord to Tenant thirty (30) days
prior to termination date of this Lease. Such occupancy shall be subject to all
other charges payable hereunder, and upon the terms hereof.
(b) Any holding over of the Premises by Tenant after the expiration of
the term hereof without the express written consent of Landlord shall not
constitute a renewal or extension and shall not give Tenant any rights on or to
the Premises or any part thereof.
16.11 Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive, but shall wherever possible, be cumulative with all other remedies at
law or in equity.
16.12 Covenants and Conditions. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
16.13 Binding Effect; Choice of Law. Subject to any provision hereof
restricting assignment or subletting by Tenant and subject to the provisions of
Paragraph 16.2, this Lease shall bind the parties, their personal
representatives, successors and assignees. This Lease shall be governed by the
laws of the state where the Premises are located.
16.14 Subordination.
(a) This Lease, at Landlord's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay the rent and all other charges, and observe and perform all of
the provisions of this Lease, unless this Lease is otherwise terminated pursuant
to its terms. If any mortgage, trustee or ground lessor shall elect to have this
Lease prior to the lien of its mortgage, deed of trust, or ground lease, and
shall give written notice thereof to Tenant, this Lease shall be deemed prior to
such mortgage, deed of trust, or ground lease, whether this Lease is dated prior
or subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof.
(b) Tenant agrees to execute any documents required to effectuate such
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be, and failing to do so within ten (10)
days after written demand, does hereby make, constitute and irrevocably appoint
Landlord as Tenant's attorney in fact and in Tenant's name, place and stead, to
do so.
16.15 Attorney's Fees. If Tenant or Landlord shall bring any action for any
relief against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay to the prevailing party a reasonable sum
for legal expenses which shall be deemed to have accrued on the commencement of
such action and shall be paid whether or not such action is prosecuted to
judgment or goes to court.
16.16 Landlord's access. Landlord and Landlord's agents shall have the
right to enter the Premises at reasonable times for the purpose of inspecting
the same; showing the same to prospective purchasers, lenders, inspectors, or
appraisers; and making such alterations, repairs, improvements or additions to
the Premises or to the building of which they are a part as Landlord may deem
necessary or desirable. Landlord will give Tenant at least Twenty-Four (24)
hours notice of intent to enter Premises, except in cases of emergency. Landlord
shall at all times have copies of all keys needed to enter Premises. If Tenant
changes locks or prevents access to Landlord in any way, it is a breach of this
Lease, and Landlord may take immediate steps to restore access at Tenant's
expense without prior notice to Tenant. Landlord may at any time place on or
about the Premises any ordinary "For Sale" signs and Landlord may at any time
during the last four (4) months of the term hereof place on or about the
Premises any ordinary "For Sale or Lease" signs, all without rebate of rent or
liability to Tenant.
16.17 Auctions. Tenant shall not place any auction sign upon the Premises
or conduct any auction thereon without Landlord's prior written consent.
16.18 Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
16.19 Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
16.20 Landlord's Liability. If Landlord is a Limited Partnership, the
liability of the Partners of the Landlord pursuant to this Lease shall be
limited to the assets of the partnership; and Tenant, its successors and assigns
hereby waive all rights to proceed against any of the partners, or the officers,
shareholders, or directors of any corporate partner of Landlord except to the
extent of their interest in the partnership.
16.21 Fair Interpretation. This Lease form was prepared by Landlord, but
the Parties agree that this Lease shall not be interpreted against the Landlord
for that reason. This Lease shall be interpreted fairly and in a balanced manner
to
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achieve a fair result and to carry out the fair intention of the Lease terms.
16.22 Nonrecordation of Lease. It is the intention or the Parties that this
Lease not be recorded, except that if either Party requests that other party to
do so, the Parties shall execute a memorandum of Lease in recordation form
containing only the name or the Parties, a description of the leased Premises
and a description of the Lease Term. However the Landlord shall not be required
to execute any such memorandum of Lease, nor shall Tenant record this Lease
without delivering to Landlord a Quit Claim Deed executed by Tenant in
recordable form showing Tenant as the Grantor, the Landlord as the Grantee and a
satisfactory description of the Leased Premises. In such case Landlord shall
hold said Quit Claim Deed until there is a breach of this Lease by Tenant, and
upon such breach, regardless of the materiality thereof, Landlord may record
said Quit Claim Deed.
17. PERFORMANCE BOND. At any time Tenant either desires to or is required to
make repairs, alterations, additions, improvements or utility installation
thereon, pursuant to Paragraphs 7.3 or 9.2 herein, or otherwise. Landlord may at
his sole option require Tenant, at Tenant's sole cost and expense, to obtain and
provide to Landlord a lien and completion bond in an amount equal to one and
one-half (1 1/2) times the estimated cost of such improvements, to insure
Landlord against liability for mechanics lien and materialmen's lien and to
insure completion of the work.
18. BROKERS. The parties hereto acknowledge that the Brokers Specified in
Paragraph 1.11 were the real estate brokers that represented the Parties herein,
and that no other commissions are due to any brokers whatsoever, other than the
above named brokers.
19. NOTICES. Whenever under This Lease provision is made for any demand,
notice or declaration of any kind, or where it is deemed desirable or necessary
by either party to give or serve any such notice, demand or declaration to the
other party, it shall be in writing and served either personally or sent by
United States mail, postage prepaid, addressed at the addresses set forth in
Paragraph 1.12. The Notice shall be effective upon personal service or seventy
two (72) hours after deposit in the United States Mail as stated above.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
Executed at: Emeryville, CA
-----------------------------
on: 5-6-99
-----------------------------
By: /s/ HSP
-----------------------------
"Landlord"
Executed at: Emeryville, CA
-------------------------------
on: May 6, 1999
-------------------------------
By: /s/ Christopher Kolb, President
-------------------------------
"Tenant"
If this Lease has been filled in, it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Lease or the transaction relating thereto.
12
<PAGE>
RULES & REGULATIONS
A: Parking.
- -----------
1. Tenants shall park only in their assigned parking spaces. Failure to park
in assigned spaces will result in a twenty five ($25.00) dollar parking fee
and/or ticketing and/or towing by the City Police Department.
2. Tenants shall restrict their use of the Loading Zones to the times when
they are loading or unloading. Parking in a Loading Zone will result in a twenty
five ($25.00) parking fee and/or ticketing and/or towing by the City Police
Department.
3. Tenants shall not park in the walkways, driveways or fire lanes. Parking in
any of these areas will result in a twenty five ($25.00) parking fee and/or
ticketing and/or towing by the City Police Department.
B. Trash and recycling.
- -----------------------
All Tenants who share in the Oakland Scavenger Trash Service are directed to
do the following:
1. If the dumpsters are full, pack down the trash making sure all trash is
kept under the lids, and the lids kept closed.
2. Do not leave trash next to the dumpsters. If the dumpsters are full, save
your trash until there is room in a dumpster after the next pickup.
3. Tenants with large volumes of rubbish for removal must make special
arrangements with the Scavenger Service.
4. Cardboard boxes should be flattened prior to disposal into recycling
dumpster.
C. Roof.
- --------
1. Tenants are not allowed access to the roof.
2. No personal property may be placed on the roof unless prior written
permission is obtained from Landlord.
D. Common Areas.
- ----------------
1. Personal Property is not to be stored in common areas.
2. Driveways, fire lanes and corridors are to be kept clear of all obstacles.
3. Landscaping is for the benefit and enjoyment of all Tenants. No cutting or
removal of flowers or trees is allowed.
4. Littering of Common areas is strictly prohibited. Repeat offenders will be
subject to a twenty five ($25.00) dollar fee.
Violations of the above rules and regulations will result in the Tenant being
charged an appropriate fee when not already specified after the Tenant has been
given one (1) Notice of violation.
Landlord is not responsible for any loss or damages to any vehicle or its
contents or any other personal property while said vehicle or property is being
towed or removed from parking lot or common areas while in violation of the
above rules and regulations.
Failure to comply with the above rules and regulations or pay fees with next
rental installment after written notice of fees is a breach of Lease.
13
<PAGE>
Exhibit A
Map of Hollis Street Project
Emeryville California
14
<PAGE>
Exhibit B
Landlord agrees to do the following at Landlord's expense.
1. Paint leased premises in the building standard paint.
2. Carpet the leased premises in the building standard carpet, color to be
chosen by tenant.
3. Landlord will allow tenant temporary space, known as 5900 Hollis Street,
Suite T2 which is approximately 2200 square feet for the monthly rent of
$2,200.00 for the period of time for the Tenant Improvements to be completed.
Upon completion of the Tenant Improvements in Suite O, Tenant shall vacate
Suite T2 as soon a possible thereafter.
15
<PAGE>
EXHIBIT C
TARGET INDUSTRIAL OFFICE RENTAL AGREEMENT
DISCLOSURE OF INFORMATION ON LEAD-BASED PAINT
AND LEAD-BASED PAINT HAZARDS
WARNING STATEMENT
Some building built prior to 1978 may contain lead-based paint. Lead from paint,
paint chips, levelor blinds and dust can pose health hazards if not taken care
of properly. Lead exposure is especially harmful to young children and pregnant
women. Before renting pre-1978 buildings, Landlords must disclose the presence
of known lead-based paint and lead-based paint hazards in the building. Tenants
must also receive a Federally approved pamphlet on lead poisoning prevention.
Landlord's Disclosure (please initial)
(a) Presence of lead-based paint or lead-based paint hazards
- --------
Known lead-based paint and/or lead-based paint hazards are present,
-----
explain below: ________________________________________________________________
_______________________________________________________________________________
XX Landlord has no knowledge of lead-based paint and/or lead-based paint
------
hazard in the building.
(b) Records and reports available to Landlord.
- --------
Landlord has provided the Tenant with all available records and reports
-----
pertaining to lead-based paint and/or lead-based paint hazards in the building.
(list documents below)
XX Landlord has no reports or records pertaining to lead-based paint
------
and/or lead-based paint hazards in the building.
Tenant's Acknowledgement (please initial)
C.K. (c) Tenant has received copies of all information listed above.
- --------
C.K. (d) Tenant has received the pamphlet Protect Your Family from Lead
- -------- in Your Home.
Broker/Agent Acknowledgement (initial when applicable)
(e) Broker/Agent has informed the Landlord or Landlord's obligation
- -------- under 42 U.S.C. 4852(d) and is aware of his/her responsibility to
ensure compliance.
Certification of Accuracy
The following parties have reviewed the information above and certify, to the
best of their knowledge, that the information provided by signatory is true and
accurate.
5-6-99 /s/ HSP
- ------ -------------------------------------------
Date Landlord
05-06-99 /s/ Christopher Kolb, President
- -------- -------------------------------------------
Date Tenant
5-12-99 /s/ Timothy Seng
- ------- --------------------------------------------
Date Tenant
- ------- --------------------------------------------
Date Broker/Agent
16
<PAGE>
EXHIBIT 10.27
MediaLinx File No. 952
CO-BRANDING CONTENT AGREEMENT
-----------------------------
THIS AGREEMENT made as of the 30th day of June 1999
BETWEEN:
MEDIALINX INTERACTIVE, L.P.,
represented herein by its general partner
MediaLinx Interactive Inc.
a corporation incorporated under the laws
of the Province of Ontario
20 Richmond Street East
Suite 600
Toronto, Ontario
M5C 3B5
(hereinafter called "MLX", or "Party")
- and -
HEALTHCENTRAL.COM INC.
a corporation incorporated under the
laws of the state of California
Marketplace Tower
6001 Shellmound Street, Suite 800
Emeryville, CA. 94608
(hereinafter called "HCI" or "Party")
(both MLX and HCI to be collectively referred to as the "Parties")
WHEREAS MLX owns, hosts, licenses, publishes and maintains an Internet service
in Canada that includes, but is not limited to the "Sympatico" web site which
includes inter alia, the HealthyWay web site on the World Wide Web (the "MLX
Internet Services");
AND WHEREAS HCI owns, hosts, licenses, publishes and maintains a health services
web site known as healthcentral.com on the World Wide Web (the "HCI Site);
NOW THEREFORE in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
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>
1. SERVICES & DEVELOPMENT
a) MLX and HCI have agreed to provide certain services and content to each
other in order to mutually develop and integrate content from the HCI Site
into the Sympatico health section, currently known as "HealthyWay", of the
Sympatico web site (the "Co-Branded Site").
b) The Parties have agreed that they will mutually approve the design of the
Co-Branded Site and that the launch date of the Co-Branded Site shall be
September 1st, 1999 unless mutually extended by the Parties as agreed to in
writing.
2. MLX'S OBLIGATIONS AND RESPONSIBILITIES
During the Term of this Agreement MLX shall:
a) continue to technically host and moderate all of the HealthyWay discussion
forums currently residing on the forums section of the Sympatico web site.
MediaLinx shall retain all right, title to and interest in the discussion
forums;
b) promote the Co-Branded Site as set out in Schedule "1" attached hereto;
c) grant to HCI, a non-exclusive and non-transferable right to use MediaLinx
images and certain content contained in the HealthyWay web site (the
"Sympatico Content") for the sole purpose of satisfying the requirements of
this Agreement. MediaLinx shall retain all right, title to and interest in
the Sympatico Content;
d) grant to HCI, to the extent that HCI requires access to MLX logos and
trademarks (collectively "MLX Marks") the use of certain MLX Marks as
necessary for the purposes of fulfilling its obligations under this
Agreement. HCI assures that the MLX marks are used in accordance with MLX's
logo usage guidelines as provided by MLX from time to time. Without
limiting the generality of the foregoing, HCI agrees:
(i) that MLX is the owner of the MLX Marks and the goodwill and
reputation associated therewith;
(ii) not to contest the validity of the MLX Marks or MLX's title
thereto;
(iii) that HCI acquires no right, title or interest in the MLX Marks, and
any and all goodwill associated with the MLX Marks enures
exclusively to the benefit of MLX;
(iv) to notify MLX promptly of any attempt by any third party to use MLX
Marks, or any variation or imitation thereof of which HCI becomes
aware;
(v) at MLX's expense, to fully co-operate with MLX and execute such
documents and at the request of MLX to do such acts and things as
may be reasonably necessary or desirable to restrain such use;
e) ensure that in the event that it enters into an electronic commerce
agreement with a third party for the sale of goods on the Co-Branded Site
that all agreements with the third parties shall ensure that such third
party shall be wholly responsible for all products and transactions that
may occur on the Co-Branded Site, that all such transactions shall comply
with all applicable Canadian and US laws and regulations, including privacy
laws and including compliance with MediaLinx's standards and guidelines,
and ensure that such third party
2
<PAGE>
provides a full indemnity to MediaLinx and HCI in respect of any and all
transactions and products that may be hosted on the Co-Branded Site;
f) ensure that in the event that user traffic to the Co-Branded Site falls
below the levels outlined in Schedule 2, that MediaLinx will use all
commercially reasonable efforts to increase promotion to the Co-Branded
Site until usage to the site increases to levels above the levels outlined
in Schedule 2; and
g) make a reasonable effort to explore the technical possibilities of sharing
with HCI the traffic on the home page of the Sympatico Health Section of
the Sympatico web site, subject to any legal and regulatory constraints.
3. HCI's OBLIGATIONS AND RESPONSIBILITIES
During the Term of this Agreement HCI shall:
a) use reasonable commercial efforts to provide industry accepted standards of
reliability of service and to make available the appropriate production
resources to build and maintain the Co-Branded Site;
b) integrate content contained in the HCI Site into the Co-Branded Site of the
Sympatico web site subject to the prior approval of MediaLinx;
c) update the "look and feel" of the Co-Branded Site upon Launch, subject to
the prior approval and consent of MediaLinx;
d) ensure that general terms and conditions on the Co-Branded Site are subject
to the prior approval of MediaLinx;
e) host, manage, update and maintain all aspects of the mutually approved Co-
Branded Site including technology, content, production, design, operations,
and customer relations save and except forums. Without limiting the
generality of the foregoing, HCI shall use all reasonable commercial
efforts to: 1) ensure that the hosting services provided in connection with
the Co-Branded Site are provided at the same standard as the hosting of the
Sympatico web site, and 2) ensure that the Co-Branded Site is available 7
days per week and 24 hours per day;
f) ensure that the level of Canadian content contained on the Co-Branded Site
is maintained at such levels as is found on the HealthyWay section of the
Sympatico web site on the Launch Date, and ensure that the level of
Canadian content is maintained in accordance with the attached Schedule
"3";
g) design the Co-Branded Site in such a manner so as to make prominent
Canadian content, Canadian context and Canadian activity, such as described
in Schedule "3";
h) make all reasonable efforts to suppress or remove all content from the HCI
Site which is to be integrated into the Co-Branded Site that is irrelevant
and inappropriate for the Canadian market and ensure that all content
contained in the Co-Branded Site continues to be relevant for the Canadian
market in accordance with Schedule "3";
i) provide MediaLinx with daily usage statistics for the Co-Branded Site in
accordance with the following format attached hereto as Schedule "4";
3
<PAGE>
j) have the option to provide and manage some discussion forum hosts referred
to in paragraph 2(a) of this Agreement;
k) ensure that it only utilizes communications related services and tools on
the Co-Branded Site which have been provided by MediaLinx's Canadian
telecommunication partners, including but not limited to webmail,
directories, address book, and ip telephony;
l) grant to MLX, to the extent that MLX requires access to HCI logos and
trademarks (collectively "HCI Marks") the use of certain HCI Marks as
necessary for the purposes of fulfilling its obligations under this
Agreement. MLX assures that the HCI Marks are used in accordance with HCI's
logo usage guidelines as provided by HCI from time to time. Without
limiting the generality of the foregoing, MLX agrees:
(i) that HCI is the owner of the HCI Marks and the goodwill and
reputation associated therewith;
(ii) not to contest the validity of the HCI Marks or HCI's title
thereto;
(iii) that MLX acquires no right, title or interest in the HCI Marks, and
any and all goodwill associated with the HCI Marks enures
exclusively to the benefit of HCI;
(iv) to notify HCI promptly of any attempt by any third party to use the
HCI marks, or any variation or imitation thereof of which MLX
becomes aware;
(v) at HCI's expense, to fully co-operate with HCI and execute such
documents and at the request of HCI to do such acts and things as
may be reasonably necessary or desirable to restrain such use; and
m) ensure that in the event that it enters into an electronic commerce
agreement with a third party for the sale of goods on the Co-Branded Site
that all agreements with the third parties shall ensure that such third
party shall be wholly responsible for all products and transactions that
may occur on the Co-Branded Site, that all such transactions shall comply
with all applicable Canadian and US laws and regulations, including privacy
laws and including compliance with MediaLinx's standards and guidelines,
and ensure that such third party provides a full indemnity to MediaLinx and
HCI in respect of any and all transactions and products that may be hosted
on the Co-Branded Site.
4. ADVERTISING
Subject to paragraph 6, MediaLinx shall be entitled to sell advertising and
sponsorships on all pages of the Co-Branded Site to Canadian advertisers (for
the purposes of this Agreement "Canadian advertisers" shall be advertisers with
substantial places of business in Canada) and HCI shall be entitled to sell
advertising and sponsorships on all pages of the Co-Branded Site to US
advertisers (for the purposes of this Agreement, US advertisers shall be
advertisers with substantial places of business in the United States). All
sponsorship and advertising package deals for the Co-Branded Site will be
mutually agreed upon by the parties and shall abide by MediaLinx's and HCI's
standard advertising agreement and Canadian and U.S. advertising regulations and
standards. Any excess inventory that has not been sold is available to be sold
by either party. Neither party shall permit advertising on the Co-Branded Site
from an entity which is a competitor to the other party. For the purposes of
this Agreement, a "competitor" to MediaLinx shall be an Internet portal web site
and/or an internet service provider. For the purposes of this Agreement, a
"competitor" to HCI shall be a consumer health based web site. The parties shall
define a plan in writing prior to the Launch setting out how the Parties shall
work together to jointly sell advertising, serve the advertising and track the
advertising inventory on the Co-Branded Site.
4
<PAGE>
5. E-COMMERCE
Subject to paragraph 6, MediaLinx and HCI shall be entitled to negotiate e-
commerce relationships which shall reside on the Co-Branded Site. In addition to
the terms and conditions detailed in paragraphs 2(e) and 3(m), both parties
acknowledge and agree that any e-Commerce offering must be able to offer pricing
in Canadian dollars and provide shipping across Canada, unless otherwise
mutually agreed to in writing. In addition, all products offered through the Co-
Branded Site must abide by all Canadian laws and regulations. The cost of
integrating any e-Commerce relationship will be borne by the entity that brought
the relationship. Any and all marketing activities and design of an e-Commerce
system shall be approved by both parties.
6. FINANCIALS
(a) HCI shall pay MLX a guaranteed fixed sum of [*] US per annum during the
Initial Term of this Agreement to be paid out as a monthly payment of [*]
US (the "Monthly Payment"). This Monthly Payment shall be due by the 10th
day of each month;
(b) HCI shall be entitled to all net revenue generated from advertising and e-
commerce transactions generated by Canadian companies that may take place
on the Co-Branded Site up to and including [*] US in any given year.
Thereafter, any net revenues exceeding [*] US shall be shared fifty-fifty
between the parties (50% MediaLinx--50% HCI). HCI shall be entitled to all
proceeds generated from US companies on the Co-Branded Site. "Net revenue"
is defined as revenue less: 1) third party expenses directly related to the
acquisition of the revenue; for example, advertising broker commissions and
advertising management services, and 2) internally paid commissions for
selling the advertisement and/or sponsorship;
(c) Both Parties shall keep true and accurate books and records of all revenue
generated as a result of the Co-Branded Site. Either Party shall have the
right from time to time to audit and make extracts of the books and records
of the other, insofar as said books or records pertain to the terms of this
Agreement. Any such audit shall take place upon not less than seven (7)
days advance written notice, during normal business hours of normal
business days and at reasonable intervals. Any such audit shall be at the
requesting Party's expense, unless the audit determines that the other
party has underpaid by 10% or more. In the event that the calculation of
payments herein is determined by a computer-based system, then the "books
and records" shall include, without limitation, the machine-sensible data
(e.g. punch cards, magnetic tapes, discs; and
(d) Both Parties shall provide the other with quarterly accounting reports as
necessary. The quarterly reporting periods end September 30th and
December 31st, 1999, March 31st, 2000, and June 30th, 2000.
Applicable remittances and accounting reports will follow under separate
cover within sixty (60) days of the end of each quarter.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
5
<PAGE>
7. CUSTOMER INFORMATION
Any and all customer data that is collected from the Co-Branded Site shall be
collected and used in accordance with Canadian federal and provincial laws and
U.S. Federal and State laws and both MediaLinx and HCI privacy guidelines and
MediaLinx and HCI shall each own an undivided interest in such data. MediaLinx
will not have access to the HCI Personal Health Records (being the longitudinal
repository of personal health information about users of the Co-Branded Site)
during or after the Term of this Agreement. During the Term of this Agreement
and for a period of six (6) months thereafter, MediaLinx shall not use or
publicly disclose the data collected from users of the Co-Branded Site if such
use is for the purpose of providing health information, advertisements, or
products that compete with those that reside on the Co-Branded Site. In other
instances, MediaLinx shall be entitled to use or publicly disclose the data
collected subject to privacy guidelines noted above.
In addition to the foregoing, HCI shall ensure that the Co-Branded Site is
integrated into the Sympatico site-wide registry in order for users to have a
single login access for all Sympatico.ca and Sympatico co-branded web sites.
8. PAGE VIEWS
Both MediaLinx and HCI shall be entitled to count the page views on the Co-
Branded Site. In the event that it becomes necessary to have only one party
count the number of page views on the Co-Branded Site, due to third party
reporting, regulatory and/or legal requirements, HCI shall be entitled to count
one hundred percent (100%) of the content page views of the Co-Branded Site and
MLX shall be entitled to count one hundred percent (100%) of the HealthyWay
discussion forum page views and one hundred percent (100%) of the page views on
the Sympatico Health home page.
9. EXCLUSIVITY
During the Term of the Agreement, and subject to the following requirements
respecting Canadian content levels as set out in paragraphs 3(f), (g) and (h),
HCI shall be the exclusive health content partner in the health section of the
Sympatico web site, provided however, that nothing contained herein shall
prevent MediaLinx from entering into an agreement with other parties for: i) a
health based web directory; or ii) other health related content whose content
does not compete with the content contained on the Co-Branded Site; which in no
event shall receive no more than one fifth (1/5th) of the promotion and which
shall constitute no more than one fifth (1/5th) of the total health related
content which resides on the home page of the Sympatico Health section. In the
event that MediaLinx obtains a web guide from a third party, MediaLinx and HCI
shall discuss how to present both web guides to the user, and make best effort
to agree to the kind of experience that the user shall have when utilizing the
new web guide. If, at any time during the Term of this Agreement, HCI fails to
meet the content requirements set out in paragraphs 3(f), (g) and (h), HCI shall
no longer be entitled to be the exclusive health content partner in the health
section of the Sympatico web site. HCI shall not either directly or indirectly
license or deliver content to or carry on or be engaged with any other Canadian
portal web site, being a Web site which aggregates and markets a variety of
content directed to multiple communities of interest and which offers products,
tools and services to a broad base of Canadian end users.
6
<PAGE>
10. BRANDING & COMMUNICATIONS
During the first six (6) months from the Launch date, the primary branding for
the Co-Branded Site shall remain HealthyWay. In addition to the foregoing and
subject to mutual design approval, a "Powered By HealthCentral" or such other
appropriate tag line shall appear on the Co-Branded Site and shall be
approximately 80% of the font size of the HealthyWay title and will be close to
the HealthyWay brand. Thereafter, the HealthyWay and Health Central trademarks
shall be co-branded in a mutually agreed upon method. The URL for the Co-Branded
Site shall remain healthyway.sympatico.ca. A separate redirect URL may be set up
for the Co-Branded Site, e.g. healthcentral.sympatico.ca.
All electronic communications to the users of the Co-Branded Site shall be
jointly developed, co-branded with each party's respective marks and shall be
mutually agreed upon.
11. TERM & TERMINATION
11.1 Term
The term of this Agreement shall be for a period of two (2) years (the "Term").
The effective date of the start of the Term will be from the Launch Date.
11.2 Termination
(a) Either Party may terminate this Agreement upon 30 days prior written notice
to the other Party if 1) such other Party breaches any material term of
this Agreement, unless such breach is cured within 30 days; or 2) if any of
the terms of this Agreement that require mutual approval are not mutually
agreed to;
(b) This Agreement may be terminated by a Party immediately, without notice:
(i) upon the institution by or against the other Party of insolvency,
receivership, or bankruptcy proceedings or any other proceedings
for the settlement of the other Party's debts, if such proceedings
are not dismissed within sixty (60) days;
(ii) upon the other Party making an assignment for the benefit of
creditors; or
(iii) upon the other Party's dissolution;
(c) Either party may terminate this Agreement upon 30 days written notice if
either Party's corporate structure has undergone a material ownership
change such that its corporate interests are then in conflict with the
corporate interests of the other Party; and
(d) Upon termination or expiration of this Agreement for any reason:
(i) the Parties shall immediately cease using the Marks of the other
Party;
(ii) the Parties shall immediately return to each other all property of
the other and cease using or distributing all advertising or
promotional materials, if any, containing references to the other
Party or the other Party's product;
(iii) the Parties shall remove all special links made pursuant to this
Agreement from their respective products of the other Party; and
(iv) each Party shall pay to the other Party all outstanding amounts
which have accrued and are properly owing, including without
limitation, any New Account customer commission payments or net
advertising revenue owed outstanding together with any appropriate
final reports.
7
<PAGE>
11.3 The exercise of a right of termination or other right or remedy in
connection with this Agreement shall be without prejudice to any other
right or remedy to which the terminating party may be entitled under this
Agreement or applicable law.
12. REPRESENTATIONS & WARRANTIES
(a) MLX's Representations and Warranties.
MLX represents and warrants that:
(i) it has full right, power and authority to enter into and be bound by the
terms and conditions of this Agreement and to perform its obligations
under this Agreement, without the approval or consent of any other
party;
(ii) it has sufficient right, title and interest in and to the rights granted
to HCI pursuant to this Agreement to enter and perform this Agreement
and to enable HCI to perform under this Agreement;
(iii) it owns all intellectual property in and to the MLX Marks and the
Sympatico Content, including but not limited to any and all creative
advertisement content, or has obtained all necessary licenses,
clearances, assignments and waivers in respect of any and all
intellectual property used in the Sympatico Content, including without
limitation waivers of moral rights necessary to publish, license and
distribute world-wide;
(iv) the use, reproduction, distribution or transmission of the Sympatico
Content will not violate any laws including criminal laws, commercial
laws, or any rights of any third parties including, but not limited to
such violations as infringement or misappropriation of copyright,
patent, trademark, trade defamation, invasion of privacy or rights of
celebrity, violation of any anti-discrimination law or regulation, or
any other right of any person or entity;
(v) it has all necessary skills and materials necessary to provide its
contributions to the Co-Branded Site as contemplated by this Agreement.
MLX shall perform the services described herein in a timely fashion with
all due skill, competence and diligence and the quality of the Co-
Branded Site shall meet both HCI's and MLX's standards of high quality
and excellence;
(vi) that the information contained in the MLX marks and the MLX content is
accurate, does not contain any material that is libelous, obscene,
misleading or otherwise harmful.
(b) HCI's Representations and Warranties.
HCI represents and warrants that:
(i) it has full right, power and authority to enter into and be bound by the
terms and conditions of this Agreement and to perform its obligations
under this Agreement, without the approval or consent of any other
party;
(ii) it has sufficient right, title and interest in and to the rights granted
to MLX pursuant to this Agreement to enter and perform this Agreement
and to enable MLX to perform under this Agreement;
(iii) it owns all intellectual property in and to the HCI Marks and all
content HCI contributes to the Co-Branded Site (the "HCI Content")
including but not limited to any and all creative
8
<PAGE>
advertisement content, or has obtained all necessary licenses,
clearances, assignments and waivers in respect of any and all
intellectual property used in the HCI Marks and the HCI Content,
including without limitation waivers of moral rights necessary to
publish, license and distribute world-wide;
(iv) the use, reproduction, distribution or transmission of the HCI Marks and
HCI Content will not violate any laws including criminal laws,
commercial laws, or any rights of any third parties including, but not
limited to such violations as infringement or misappropriation of
copyright, patent, trademark, trade defamation, invasion of privacy or
rights of celebrity, violation of any anti-discrimination law or
regulation, or any other right of any person or entity;
(v) the Co-Branded Site will function, operate and perform in all material
respects in accordance with the requirements described or incorporated
in the Agreement;
(vi) it has all necessary skills and materials necessary to provide its
contributions to the Co-Branded Site as contemplated by this Agreement.
HCI shall perform the services described herein in a timely fashion with
all due skill, competence and diligence and the quality of the Co-
Branded Site shall meet both HCI's and MLX's standards of high quality
and excellence;
(vii) that no advertisement submitted to MLX hereunder shall make use of any
subliminal technique and holds MLX and its affiliated and related
companies harmless against any loss or damage arising from the storage
and/or use of any and all advertising. HCI warrants that any and all
advertising that it submits complies with advertising standards in
Canada, including those of MLX and that the use, reproduction,
distribution, or transmission of such advertising will not violate any
criminal laws, commercial laws or any rights of any third parties,
including, but not limited to, such violations as infringement or
misappropriation of copyright, patent, trademark, trade secret, music,
image, video/full motion video or other proprietary or property right,
false advertising, unfair competition, defamation, invasion of privacy
or rights of celebrity, property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity,
violation of any anti-discrimination law or regulation, or any other
right of any person or entity;
(viii) that the Co-Branded Site will function, operate and perform in all
material respects in accordance with the requirements described in the
Agreement; and
(vix) that the information contained in the HCI Marks and the HCI Content is
accurate, does not contain any material that is libelous, obscene,
misleading or otherwise harmful.
13. NO ADDITIONAL WARRANTIES
a) Except as specifically provided herein or as agreed to in writing by the
Parties, the services provided under this Agreement are not guaranteed and
are provided "as is" and MLX gives no representations, warranties or
conditions of any kind, express or implied, including without limitation
warranties as to insertion, display or loading of any advertisement,
sponsorship or integrated branded search engine uninterrupted or error free
operation of the Sympatico Web Site, any advertisement, sponsorship,
integrated branded search engine or link, merchantability, quality or
fitness for a particular purpose and those arising by statute or otherwise,
or from a course of dealing or usage of trade; and
9
<PAGE>
b) Except as specifically provided herein or as agreed to in writing by the
parties: 1) the services provided under this Agreement are not guaranteed
and are provided "as is"; and 2) HCI gives no representations, warranties
or conditions of any kind, express or implied, including without limitation
warranties as to: insertion, display or loading of any advertisement,
sponsorship or integrated branded search engine uninterrupted or error free
operation of the co-branded Web Site, any advertisement, sponsorship,
integrated branded search engine or link, merchantability, quality or
fitness for a particular purpose and those arising by statute or otherwise,
or from a course of dealing or usage of trade.
14. INDEMNIFICATION
(a) By MLX: MLX agrees to indemnify and hold harmless HCI and its employees,
representatives, agents and affiliates from any and all liability, loss,
claims, damages or causes of action (each a "Claim"), including reasonable
legal fees and expenses that may be incurred by, arising out of or relating
to any claim that the MLX Marks or Sympatico Content or any MLX developed
advertising infringes in any manner any copyright, patent, trademark, trade
secret or any other intellectual property right of any third party;
(b) By HCI: HCI agrees to indemnify and hold harmless MLX and its employees,
representatives, agents and affiliates from any Claim including reasonable
legal fees and expenses that may be incurred by, arising out of or relating
to any third party claim that the HCI Marks or HCI Content or any HCI
developed advertising infringes in any manner any copyright, patent,
trademark, trade secret or any other intellectual property right of any
third party; and
(c) Procedure: All indemnification obligations under Section 14, shall be
subject to the following requirements:
(i) the indemnified party shall provide the indemnifying party with
prompt written notice of any Claim;
(ii) the indemnified party shall permit the indemnifying party to assume
and control the defense of any action upon the indemnifying party's
written acknowledgment of the obligation to indemnify; and
(iii) the indemnified party shall not enter into any settlement or
compromise of any Claim without the indemnifying party's prior
written consent, which shall not be unreasonably withheld.
In addition, the indemnified party may, at its own expense, participate in
its defense of any Claim. In the event that the indemnifying party assumes
the defense of any such claim, the indemnifying party shall have no
liability for legal fees and costs incurred by the indemnified party.
15. LIMITATION OF LIABILITY
EXCEPT WITH RESPECT TO THE INDEMNITY OBLIGATIONS IN SECTION 14, THE
CONFIDENTIALITY OBLIGATIONS UNDER SECTION 16, AND THE YEAR 2000 COMPLIANCE
OBLIGATIONS UNDER SECTION 20, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
IN THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE,
10
<PAGE>
STRICT LIABILITY, TORT OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT
LIMITATION, LOSS OF REVENUE OR GOODWILL OR ANTICIPATED PROFITS OR LOST
BUSINESS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
16. CONFIDENTIALITY
Each Party shall keep confidential any information, data and reports obtained in
connection with this Agreement, unless such information has been rightfully
obtained from a third party or is generally available to the public, or as must
be disclosed by law. Upon termination of this Agreement, each of the parties
(the "Receiving Party") shall return to the other party (the "Disclosing Party")
any records or copies thereof which it may have obtained from the Disclosing
Party in connection with its review of the Disclosing Party's business, other
than information otherwise rightfully obtained by Receiving Party, acting in
good faith, from someone other than the Disclosing Party or generally available
to the public. Each party shall hold the terms and provisions of this Agreement
confidential and shall not disclose its terms to any person except to its
management. Notwithstanding the foregoing, this Agreement and the LOI is subject
to the terms and conditions of the Confidentiality and Non-Disclosure Agreement
signed between the Parties dated May 3rd, 1999.
17. NO PUBLIC NOTICE
No public announcement of the proposed transaction will be made by either Party
unless the timing and content have been agreed upon in advance by both parties,
except as may otherwise be required by law. It is understood though that
MediaLinx may discuss this arrangement with its Sympatico Internet service
providers and affiliates to the extent necessary to meet the proposed time
lines.
18. COSTS
Unless agreed to otherwise, each party will pay for its own costs and expenses
in connection with this Agreement and the proposed activities contemplated
herein, without limitation, legal fees, brokers, accountants and other
professional advisors.
19. INDEPENDENT CONTRACTORS
It is the intention of MLX and HCI that MLX and HCI are, and shall be deemed to
be, independent contractors with respect to the subject matter of this
Agreement, and nothing contained in this Agreement shall be deemed or construed
in any manner whatsoever as creating any partnership, joint venture, employment,
agency, fiduciary or other similar relationship between MLX and HCI.
11
<PAGE>
20. YEAR 2000 COMPLIANCE
Both MLX and HCI represent and warrant that their contributions to the Co-
Branded Site are designed to be used prior to, during, and after the calendar
year 2000 AD and will operate during each such time period without error
relating to date data, specifically including any error relating to, or the
product of, date data which represents or references different centuries or more
than a century. Without limiting the generality of the foregoing, the Co-Branded
Site: (i) will not abnormally end or provide invalid or incorrect results as a
result of date data, specifically including date data which represents or
references different centuries or more than one century; (ii) has been designed
to ensure year 2000 compatibility, including, but not limited to, date data
century recognition, calculations which accommodate same century and multi-
century formulas and date values, and date data interface values that reflect
the century; and (iii) includes "Year 2000 Capabilities". For the purposes of
this Agreement, "Year 2000 Capabilities" means the Co-Branded Site (i) will
manage, calculate, sequence, compare and manipulate data involving dates,
including single century formulas and multi-century formulas, including leap
years and will not cause an abnormally ending scenario within the application or
generate incorrect values or invalid results involving such dates; (ii) provides
that all date-related user interface functionalities and data fields include the
indication of century; and (iii) provides that all date-related data interface
functionalities include the indication of century.
While HCI asserts that its code and scripts will execute properly, as described
above, and that HCI uses third party software that specifies Y2K compliance, we
can not guarantee that all third party software will perform as specified by the
manufacturer. Should a third party product fail to meet its Y2K compliance
policy, we will work with the vendor to remedy the problem in a timely fashion.
HCI will ensure that it complies with any third party recommendations that are
necessary for Y2K compliance.
21. GOVERNING LAW
This Agreement shall be governed by and interpreted and enforced in accordance
with the laws of the Province of Ontario and the Parties agree to abide by the
jurisdiction of the Courts of Ontario.
22. ENTIRE AGREEMENT
This Agreement, together with any and all attached exhibits and/or schedules,
represents the entire agreement between MLX and HCI with respect to the subject
matter herein and shall supercede all prior agreements, communications and
understanding of the Parties, oral and/or written.
23. LEGAL FEES
The prevailing Party in any legal action brought by one Party against the other
and arising out of this Agreement shall be entitled, in addition to any other
rights and remedies it may have, to reimbursement for its expenses, including
court and arbitration costs, as well as reasonable legal fees.
12
<PAGE>
24. SUCCESSORS AND ASSIGNS
Except as provided in this Section, neither Party may assign its rights or
obligations under this Agreement without the prior written consent of the other
Party, which shall not be unreasonably withheld. Notwithstanding the foregoing,
either party shall be permitted to assign this Agreement and any of its rights
and obligations hereunder to an affiliate or related company or to a purchaser
of all or substantially all of its Internet business, without obtaining the
prior written consent of the other party.
25. FORCE MAJEURE
Neither Party shall be liable for failure to perform or delay in performing any
obligation under this Agreement if such failure or delay is due to fire, flood,
earthquake, strike, war (declared or undeclared), embargo, blockade, legal
prohibition, governmental action, riot, insurrection, damage, destruction or any
other similar cause beyond the control of such Party.
26. NOTICES
All notices, requests, consents and other communications which are required or
permitted hereunder shall be in writing and shall be deemed given (a) when
delivered in person at the time of such delivery or by telecopy with confirmed
receipt of transmission at the date and time indicated on such receipt or (b)
when received if given by an internationally recognized express courier service
to the address specified below. Notice of change of address shall be given in
the same manner as other communications.
If to HCI: If to MediaLinx:
- ---------- ----------------
HealthCentral.com Inc. MediaLinx Interactive, L.P.
2600 Tenth Street 20 Richmond Street East, Suite 600
Berkeley, CA Toronto, Ontario, M5C 3B5
94710 Attn: Director of Content
Fax: (416) 350-1516
with a copy to Legal Department:
Fax No.: (416) 350-5212
27. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which, taken together, shall constitute one and
the same instrument.
28. HEADINGS
The section and article headings contained in this Agreement are included for
convenience only, and shall not limit or otherwise affect the terms of this
Agreement.
13
<PAGE>
Schedule "1"
MLX will run [*] advertising banners, promoting the Co-Branded Site each
month, which shall run throughout the Sympatico.ca Site.
MLX will promote the Co-Branded Site on the Sympatico.ca homepage in a frequent
and timely fashion.
MLX will promote the Sympatico Health Site through Sympatico.ca house
advertising, from time to time.
MLX will provide contextual integration of Health content into other areas of
Sympatico.ca, as appropriate.
MLX will provide a persistent link, in fold, from the Sympatico Health Site home
page to the Co-Branded Site.
MLX will provide a link to the Sympatico Health Site home page from the
Sympatico.ca home page.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
14
<PAGE>
Schedule "2"
MLX will use all commercially reasonable efforts to maintain the user traffic at
a monthly minimum of:
. [*] page views three (3) months after the launch of the Co-Branded Site;
. [*] page views six (6) months after the launch of the Co-Branded Site; and
. [*] page views twelve (12) months after the launch of the Co-Branded Site.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
15
<PAGE>
Schedule "3"
HCI shall ensure that Canadian content and context is promoted and maintained
within the Co-Branded Site in accordance with the following:
Ensure that Canadian spelling is used throughout the site where possible.
Ensure that non-relevant or inappropriate information is either removed or put
into context for a Canadian user.
Ensure that Canadian health information sourced from Canadian content providers
is added to the site, where possible.
Issues related to access to services:
Canadian public health care system
There is little notion of "managed care" in Canada
Inclusion of Canadian "self help" resources
Health related law & policy:
Federal and provincial government funding of healthcare and the existence of a
social safety net in Canada
Allowed distribution of drugs
Different roles related to pharmaceutical advertising
Societal context of Canada:
Canada's multicultural make up (e.g. Less Hispanics, more Asians)
Likelihood of different health risk factors for Canadians
Different behaviour of the Canadian population (e.g. travelling south for the
winter, "snowbirds")
Different health events e.g. "Heart month"
Technicalities:
Differences in drug names
Canadian currency
Metric system for measurement
The Canadian voice:
Important to highlight Canadian health experts e.g. Canadian health
professionals, researchers, companies
"local" events e.g. hospital closures, labour issues
16
<PAGE>
Schedule "4"
HCI will provide MLX with usage statistics in the following 2 formats:
1) access to real time online statistics through a web browser including a
number of preprogrammed usage reports, and
2) a format mutually agreed to by HCI and MLX
17
<PAGE>
Exhibit 10.28
AOL ADVERTISING INSERTION ORDER
Contract#: 19054
------------------------------
AOL Salesperson: Brandon Bergmark
------------------------
Sales Coordinator: Alex Thiesen [_] Credit approval received
----------------------
Date: August 20, 1999
-----------------------------------
<TABLE>
<CAPTION>
Advertiser Advertising Agency
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Contact Person Christopher Kolb, PhD
- ----------------------------------------------------------------------------------------------------
Company Name ePills
- ----------------------------------------------------------------------------------------------------
Address - Line 1 5900 Hollis Street, Suit O
- ----------------------------------------------------------------------------------------------------
Address - Line 2 Emeryville, CA 94608
- ----------------------------------------------------------------------------------------------------
Phone # 510-594-8197
- ----------------------------------------------------------------------------------------------------
Fax # 510-547-6689
- ----------------------------------------------------------------------------------------------------
Email [email protected]
- ----------------------------------------------------------------------------------------------------
SIC Code
- ----------------------------------------------------------------------------------------------------
Advertiser IAB Category
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Billing Information
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Send invoices to (choose one): [_] Advertiser [_] Agency
- ----------------------------------------------------------------------------------------------------
Advertiser or Agency Billing Christopher Kolb, PhD
Contact Person
- ----------------------------------------------------------------------------------------------------
Company Name ePills
- ----------------------------------------------------------------------------------------------------
Billing Address - Line 1 5900 Hollis Street, Suit O
- ----------------------------------------------------------------------------------------------------
Billing Address - Line 2 Emeryville, CA 94608
- ----------------------------------------------------------------------------------------------------
Billing Phone # 510-594-8197
- ----------------------------------------------------------------------------------------------------
Billing Fax # 510-547-6689
- ----------------------------------------------------------------------------------------------------
Billing Email [email protected]
- ----------------------------------------------------------------------------------------------------
P.O. #, if applicable
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Inventory Type (choose one): [_] AOL Service only [_]AOL Affiliate only (e.g., AOL.com)
[_] AOL Service & AOL Affiliate
- -----------------------------------------------------------------------------------------------------
</TABLE>
AOL Service
- --------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
AOL Service
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
AOL Inventory/Demographic* Purchased Display Display Ad Type # of Ad Slots Total Gross Price Total Impressions
Start Date Stop Date Purchased
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
See Exhibit D
- ------------------------------------------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
*Attach completed AOL Demographic Totals:
Profile Worksheet
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Art
- ------------------------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
- ---------------------------------------------------------------------------------------------------------------------------------
[ ] 234x60 IAB Standard/7k Max [ ] 120X60 Shopping/5k Max [ ] 175x45 Chat/Mail in-box/5k Max
[ ] Special
-----------
*Animation is only available on selected screens. Please contact your AOL Salesperson for additional information.
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be: http://www.epills.com (must be filled in)
Please send artwork and URL to (choose one):
[ ] [email protected] [ ] [email protected] [ ] [email protected]
------------------ ------------------ ------------------
AOL reserves the right to immediately cancel any advertising flight in the event of a materiel change to the nature or content of
the site linked to the Advertisement.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AOL Affiliate (e.g. AOL.com)
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
AOL Inventory/Demographic* Purchased Display Display Ad Type # of Ad Slots Total Gross Price Total Impressions
Start Date Stop Date Purchased
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
See Exhibit D
- ------------------------------------------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
*See attached package description for Totals:
any AOL.com package purchases
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Art
- ------------------------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
---------------------------------------
[ ] 458x80 NF Reviews, Search Terms, My News and Hometown/12k Max/animation OK
[ ] 100x70 AOL.com Home Page/3k Max/No animation [ ] 120x60 NF Home Page/2k Max/No animation
[ ] 234x60 NF Kids Only & Hometown/5k Max/animation OK [ ] 120x60 Instant Messenger/7.5k Max/animation OK
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be: http://www.epills.com (must be filled in)
Please send artwork and URL to (choose one):
[ ] [email protected] [ ] [email protected] [ ] [email protected]
------------------ ------------------ ------------------
AOL reserves the right to immediately cancel any advertising flight in the event of a materiel change to the nature or content of
the site linked to the Advertisement
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Advertising Purchase Summary
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Price Total Impressions CPM
- -----------------------------------------------------------------------------------------------------------------
AOL Networks See Exhibit D
- -----------------------------------------------------------------------------------------------------------------
AOL Affiliate See Exhibit D
- -----------------------------------------------------------------------------------------------------------------
Total Purchase Price
- -----------------------------------------------------------------------------------------------------------------
(Less Agency Discount)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net Purchase Price Total Impressions
[*] [*]
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The products and/or services to be offered or promoted by Advertiser in the
Advertisements are as follows: Prescription and Non-prescription drugs, health
and health-related products and services, medications, home beauty products,
personal care products and related information and services (the "Products" or
"Advertiser Products").
Impressions Commitment. In the event AOL Delivers the impression commitment
- ----------------------
provided for hereunder prior to the Display Stop Date, AOL may, at its option,
discontinue display at such earlier time. Any guarantees are to impressions (as
measured by AOL in accordance with its standard methodologies and protocols),
not "click-throughs." In the event there is (or will be in AOL's reasonable
judgment) a shortfall in impressions as of the end of a display period (a
"Shortfall"), such Shortfall shall not be considered a breach of the Agreement
by AOL: instead, AOL will provide Advertiser, as its sole remedy, with
"makegood" impressions through "run of service" advertisement placements on the
AOL Network which have a total value, based on AOL's then-current advertising
rate card, equal to the value of the Shortfall. To the extent impressions
commitments are identified without regard to specific placements, such
placements will be as mutually agreed upon by AOL and Advertiser during the
course of the display period. AOL reserves the right to alter Advertiser flight
dates to accommodate trafficking needs or other operational needs. In such
cases, AOL will make available to Advertiser reasonably equivalent flight(s).
Navigation. Advertiser shall provide continuous navigational ability for AOL or
- ----------
users to return to an agreed-upon point on the AOL Network (for which AOL shall
supply the proper address) from the Affiliated Advertiser Site (e.g. the point
on the AOL Network from which the Affiliated Advertiser Site is linked), which,
at AOL's option, may be satisfied through the use of a hybrid browser format.
Advertiser will ensure that navigation back to the AOL Network, whether through
a particular pointer or link, the "back" button on an Internet browser, the
closing of an active window, or any other return mechanism, shall not be
interrupted by Advertiser through the use of any intermediate screen or other
device not specifically requested by the user, including without limitation
through the use of any html popup window or any other similar device.
Additionally, in cases where an AOL user performs a search for Advertiser or any
Advertiser product through any search or navigational tool or mechanism that is
accessible or available through the AOL network (e.g., promotions, keyword
search terms, or any other promotions or navigational tools), AOL shall have the
right to direct such AOL user to the Affiliated Advertiser Site.
Standard Terms and Conditions. This Insertion Order incorporates by reference
- -----------------------------
AOL's standard advertising terms and conditions (the "Standard Terms"),
including terms related to advertising material, payment modifications,
cancellation rights, usage data, limitations of liability, disclaimers,
indemnifications, use of AOL member information and miscellaneous legal terms.
Among other things, the Standard Terms provide AOL the right to cancel this
Insertion Order on thirty days notice to Advertiser (or upon such shorter notice
as may be designated by AOL in the event that AOL believes that further display
of the Advertisement will expose AOL to liability or other adverse
consequences), in which case Advertiser shall only be responsible for the pro-
rata portion of payments attributable to the period preceding such termination.
The Standard Ad Terms appear at keyword "Standard Ad Terms4" on the U.S.-based
America Online brand service and at "http://mediaspace.aol.com/adterms4.html." A
hard copy of the Standard Ad Terms will be provided to advertiser upon request.
Advertiser acknowledges that it has been provided an opportunity to review the
Standard Terms and agrees to be bound by them.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order, their duly authorized
representatives have signed their names below on the dates indicated. This
Agreement (including (i) the Standard Terms, (ii) the additional terms and
conditions on Exhibit A attached hereto, (iii) the definitions on Exhibit B
attached hereto, the operational provisions on Exhibit C attached hereto and the
Carriage Plan on Exhibit D attached hereto, each incorporated herein by
reference and made a part hereof) shall be binding on both parties when signed
on behalf of each party and delivered to the other party (which delivery may be
accomplished by facsimile transmission of the signature pages hereto)).
AMERICA ONLINE, INC. ADVERTISER
By: /s/ Erik L. Kadlow By: /s/ F. Christopher Kolb
---------------------- -------------------------
Print Name: Erik L. Kadlow Print Name: F. CHRISTOPHER KOLB
-------------------- --------------------
Title: Vice President, Business Affairs Title: PRESIDENT, EPILLS, INC.
-------------------------------- -----------------------
Date: 8-20-99 Date: 08-20-99
------- --------
<PAGE>
EXHIBIT A
---------
Additional Terms
----------------
1. Payments; Late Payments; Wired Payments. Subject to the terms of this
---------------------------------------
Agreement, Advertiser shall pay AOL a non-refundable guaranteed payment of
[*], payable as follows:
(a) upon the execution of this Agreement (not later than the Effective
Date), [*];
(b) on August 31, 1999, [*];
(c) on September 30, 1999, [*];
(d) exactly three (3) months after the Effective Date, [*];
(e) exactly six (6) months after the Effective Date, [*];
(f) exactly nine (9) months after the Effective Date, [*];
(g) exactly twelve (12) months after the Effective Date, [*];
(h) exactly fifteen (15) months after the Effective Date, [*];
(i) exactly eighteen (18) months after the Effective Date, [*];
(j) exactly twenty-one (21) months after the Effective Date, [*];
All amounts owed under this Agreement not paid when due and payable will
bear interest from the date such amounts are due and payable at the prime
rate in effect at such time. All payments required hereunder will be paid
in immediately available, non-refundable U.S. funds wired to the "America
Online" account, Account Number [*] at The Chase Manhattan Bank, 1 Chase
Manhattan Plaza, New York, NY 10081 (ABA: 021000021). In the event of
nonpayment, AOL reserves the right to immediately terminate this Agreement
with written notice to Advertiser.
2. Content of Affiliated Site. The Advertisements will only promote the
---------------------------
Advertiser's Products and, except for prescription and non-prescription
drugs and related products, which AOL acknowledges may be promoted on the
AOL Network in accordance with Exhibit D hereof, the promotion of products
---------
on the AOL Network. Additionally, the Affiliated Advertiser Site will only
offer the Advertiser's Products and content related thereto (except to the
extent otherwise mutually agreed upon by the parties). Advertiser will
ensure that the prices, terms and conditions for the Products in the
Affiliated Advertiser Site are no less favorable, taken as a whole, than
the prices, terms and conditions on which the Products or substantially
similar products are offered by or on behalf of Advertiser through any
other distribution channels. All sales of Advertiser's Products through the
Affiliated Advertiser Site will be conducted through a direct sales format:
Advertiser will not promote, sell, offer or otherwise distribute any
products through any format other than a direct sales format (e.g. through
auctions or clubs) without the prior written consent of AOL.
3. Third Party Advertisements Within the Affiliated Site. As soon as
------------------------------------------------------
reasonably practical following the Effective Date, the parties will
mutually agree upon a written advertising program (the "Ad Program")
whereby both AOL and Advertiser will in coordination with each other,
establish advertising inventory space within and sell promotions,
advertisements, links, pointers or similar services or rights through the
Affiliated Advertiser Site to Advertiser's vendors ("Advertisements"). All
sales of Advertisements by Advertiser will be subject to AOL's then-
applicable advertising policies, AOL's third party relationships and
exclusives. All revenues from any Advertisements will be shared evenly
between the parties. No Interactive Service (other than AOL or its
affiliates) will be promoted in the Affiliated Advertiser Site.
4. Special Offers/Member Benefits. Advertiser will generally promote through
-------------------------------
the Affiliated Advertiser Site any special or promotional offers made
available by or on behalf of Advertiser through any other distribution
channels. In addition, Advertiser shall promote through the Affiliated
Advertiser Site on a
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
regular and consistent basis, special offers exclusively available to AOL
Users (the "AOL Special Offers"). AOL Special Offers made available by
Advertiser shall provide a meaningful benefit to AOL users, either by
virtue of a meaningful price discount, product enhancement, unique service
benefit or other special feature. Advertisers will provide AOL with
reasonable prior notice of AOL Special Offers so that AOL can market the
availability of such AOL Special Offers in the manner AOL deems appropriate
in its editorial discretion. Notwithstanding the foregoing, in the event
that AOL fails to promote such AOL Special Offers, Advertiser shall be
relieved from its obligations under this Section 4.
5. AOL Quick Checkout. Advertiser will take all reasonable steps necessary to
-------------------
conform its promotion and sale of products through the Advertiser Site to
the then-existing commerce technologies made available to Advertiser by
AOL, including without limitation AOL's "quick checkout" tool which allows
AOL users to enter payment and shipping information which is then passed
from AOL's centralized server unit to Advertiser for order fulfillment
("AOL Quick Checkout"). AOL will make all reasonable efforts to provide on
a royalty free basis the tools for the Advertiser to enable the Advertiser
Site with the AOL Quick Checkout technology and functionality. Collection,
storage and disclosure of information which Advertiser provides to AOL,
will be subject to AOL's privacy policy and all confidentiality
requirements hereunder. To the extent that the Advertiser Site includes
AOL's Quick Checkout, Advertiser will ensure that the AOL Quick Checkout is
of equal placement and promotion prominence to other available payment
options.
6. Merchant Certification Program. Advertiser will participate in any
-------------------------------
generally applicable "Certified Merchant" program operated by AOL or its
authorized agents or contractors. Such program may require Advertiser
participants on the Shopping Channel on an ongoing basis to meet certain
reasonable standards relating to provision of electronic commerce through
the AOL Service, AOL.com and the CompuServe Service and may also require
the payment of certain reasonable certification fees to AOL or its
authorized agents or contractors operating the program
7. BizRate Survey. Advertiser agrees to (i) participate in the BizRate(R)
---------------
Program, a service offered by Binary Compass Enterprises, Inc. (BCE), which
provides opt-in satisfaction surveys to Users who purchase products through
such Advertiser Site or such other provider of such services as AOL may
designate or approve from time to time, and (ii) provide a link to
BizRate's then-current standard survey forms, or such other survey forms
offered by any other party that AOL may designate or approve from time to
time. Advertiser's participation shall be based upon a separate written
agreement which Advertiser will enter into with BCE, or other such party
reasonably designated or approved by AOL. Advertiser hereby authorizes BCE
to provide to AOL any and all reports provided to Advertiser by BCE, or
other third party providing such services, and agrees to provide written
notice of such authorization to BCE, or such other third party.
8. Specific Customer Service Requirements. Advertiser will receive all emails
---------------------------------------
from Customers via a computer available to Advertiser's customer service
staff and generally respond to such emails within one business day of
receipt. Advertiser will receive all orders electronically and generally
process all orders within one business day of receipt, provided products
ordered are not advance order items. Advertiser will ensure that all orders
of products are received, processed, fulfilled and delivered on a timely
and professional basis. Advertiser will offer AOL users who purchase
products through such the Advertiser Site a money-back satisfaction
guarantee. Advertiser will bear all responsibility for compliance with
federal, state and local laws in the event that products are out of stock
or are no longer available at the time an order is received. Advertiser
will also comply with the requirements of any federal, state or local
consumer protection or disclosure law. Payment for products will be
collected by Advertiser directly from customers. Advertiser's order
fulfillment operation will be subject to AOL's reasonable review.
9. Reports to AOL. Advertiser will provide AOL with monthly reports, in a form
---------------
reasonably satisfactory to AOL which detail the number of daily items,
orders and gross sales through the Affiliated Advertiser Site on the AOL
Service, AOL.com and NetCenter (as applicable).
10. Navigation. Advertiser shall provide continuous navigational ability for
-----------
AOL or users to return to an agreed-upon point on the AOL Network (for
which AOL shall supply the proper address) from the Affiliated Advertiser
Site (e.g., the point on the AOL Service from which the Affiliated
Advertiser Site is linked), which, at AOL's option, may be satisfied
through the use of a hybrid browser format. Additionally, in cases where an
AOL User performs a search for Advertiser through any search or
<PAGE>
navigational tool or mechanism that is accessible or available through the
AOL Network (including without limitation Advertisements, AOL Service
"Keywords", AOL.com "Search Terms", CompuServe "Go Words" or any other
similar promotions or navigational tools), AOL shall have the right to
direct such AOL User to the Affiliated Advertiser Site.
11. Auditing Rights. Advertiser will maintain complete, clear and accurate
----------------
records of all expenses, revenues and fees in connection with the
performance of this Agreement. For the sole purpose of ensuring compliance
with this Agreement, AOL (or its representative) will have the right to
conduct a reasonable and necessary inspection of portions of the books and
records of Advertiser which are relevant to Advertiser's performance
pursuant to this Agreement. Any such audit may be conducted after twenty
(20) business days prior written notice to Advertiser. AOL shall bear the
expense of any audit conducted pursuant to this Agreement unless such audit
shows an error in AOL's favor amounting to a deficiency to AOL in excess of
five percent (5%) of the actual amounts paid and/or payable to AOL
hereunder, in which event Advertiser shall bear the reasonable expenses of
the audit. Advertiser shall pay AOL the amount of any deficiency discovered
by AOL within thirty (30) days after receipt of notice thereof from AOL.
12. Taxes. Advertiser will collect and pay and indemnify and hold AOL harmless
------
from, any sales, use, excise, import or export value added or similar tax
or duty not based on AOL's net income and payable in connection with sale
of the Advertiser Products, including any penalties and interest, as well
as any costs associated with the collection or withholding thereof,
including attorneys' fees.
13. Sales Reports. Advertiser will provide AOL in an automated manner with a
--------------
monthly report in an AOL-designated format, detailing the following
activity in such period (and any other information mutually agreed upon by
the parties or reasonably required for measuring revenue activity by
Advertiser through the Affiliated Advertiser Site): (i) summary sales
information by day (date, number of products sold, number of orders, total
Transaction Revenues); and (ii) detailed sales information order
date/timestamp (if technically feasible), purchaser name and screenname,
SKU or product description) (the information in clauses (i) and (ii),
"Sales Reports"). More generally, each payment to be made by Advertiser
pursuant to the revenue sharing provisions hereof, will be accompanied by a
report containing information which supports the payment, including
information identifying (i) gross Transaction Revenues and all items
deducted or excluded from gross Transaction Revenues to produce Transaction
Revenues and (ii) any applicable Advertising Revenues.
14. Solicitation of AOL Users. During the term of the Agreement and for a two
--------------------------
year period thereafter, Advertiser will not use the AOL Network (including,
without limitation, the e-mail network contained therein) to solicit AOL
Users on behalf of another interactive Service. More generally, Advertiser
will not send unsolicited, commercial e-mail (i.e., "spam" through or into
AOL's products or services, absent a Prior Business Relationship. For
purposes of this Agreement, a "Prior Business Relationship" will mean that
the AOL User to whom commercial e-mail is being sent has voluntarily either
(i) engaged in a transaction with Advertiser or (ii) provided information
to the Advertiser through a contest, registration, or other communication,
which included clear notice to the AOL User that the information provided
could result in commercial e-mail being sent to that AOL User by Advertiser
or its agents. Any commercial e-mail communications to AOL Users which are
otherwise permitted hereunder, will (a) include a prominent and easy means
to "opt-out" of receiving any future commercial e-mail communications from
Advertiser, and (b) shall also be subject to AOL's then-standard
restrictions on distribution of bulk e-mail (e.g. related to the time and
manner in which such e-mail can be distributed through or into the AOL
product or service in question).
15. Collection and use of User information. Advertiser shall endure that its
---------------------------------------
collection, use and disclosure of information obtained from AOL Users under
this Agreement ("Member Information") complies with (i) all applicable laws
and regulations and (ii) AOL's standard privacy policies, available on the
AOL Service at the keyword term "Privacy" (or, in the case of the
Affiliated Advertiser Site, Advertiser's standard privacy policies so long
as such policies are prominently published on the site and provide adequate
notice, disclosure and choice to users regarding Advertiser's collection,
use and disclosure of user information). Other than in connection with any
change of control of Advertiser in which another entity agrees to be bound
by Advertiser's obligations hereunder, Advertiser will not disclose Member
information collected hereunder to any third party in a manner that
identifies AOL Users as end users of an AOL product or service or use
Member information collected under this Agreement to market another
Interactive Service.
<PAGE>
16. AOL Look and Feel. Advertiser acknowledges and agrees that AOL will own all
------------------
right, title and interest in and to the AOL Look and Feel (subject only to
Advertiser's ownership rights in any Advertiser trademarks or copyrighted
material within the Affiliated Advertiser Site).
17. Management of the Affiliated Advertiser Site. Advertiser will manage,
---------------------------------------------
review, delete, edit, create, update and otherwise manage all Content
available on or through the Affiliated Advertiser Site, in a timely and
professional manner and in accordance with the terms of this Agreement.
Advertiser will ensure that the Affiliated Advertiser Site is current,
accurate and well-organized at all times. Advertiser warrants that the
Licensed Content: (i) will not infringe on or violate any copyright,
trademark, U.S. patent or any other third party right: (ii) will not
violate AOL's then-applicable Terms of Service; and (iii) will not violate
any applicable law or regulation (federal, state, or otherwise), including
without limitation those relating to taxes, advertising, or contests,
sweepstakes or similar promotions. Additionally, Advertiser represents and
warrants that it owns or has a valid license to all rights to any Licensed
Content used in AOL "slideshow" or other formats embodying elements such as
graphics, animation and sound, free and clear of all encumbrances and
without violating the rights of any other person or entity. Advertiser also
warrants that a reasonable basis exists for all Product performance or
comparison claims appearing through the Affiliated Advertiser Site.
Advertiser shall not in any manner, including, without limitation in any
Advertisement, the Licensed Content, or any Materials (defined below),
state or imply that AOL recommends or endorses Advertiser or Advertiser's
Services (e.g. no statements that Advertiser is an "official or "preferred"
provider of products or services for AOL). AOL will have no obligations
with respect to the Products available on or through the Affiliated
Advertiser Site, including, but not limited to, any duty to review or
monitor any such Products.
18. Duty to Inform. Each party will promptly inform the other party of any
---------------
information related to the Affiliated Advertiser Site or the AOL Service
which could reasonably lead to a claim, demand, or liability of or against
the other party and/or its affiliates by any third party.
19. Promotional Materials/Press Releases. Each Party will submit to the other
-------------------------------------
Party, for its prior written approval, which will not be unreasonably
withheld or delayed, any marketing, advertising, press releases, and all
other promotional materials related to the Affiliated Advertiser Site
and/or referencing the other Party and/or its trade names, trademarks, and
service marks (the "Materials"); provided, however, that either Party's use
of screen shots of the Affiliated Advertiser Site for promotional purposes
will not require the approval of the other Party so long as America
Online(R) is clearly identified as the source of such screen shots; and
provided further, however, that, following the initial public announcement
of the business relationship between the Parties in accordance with the
approval and other requirements contained herein, either Party's subsequent
factual reference to the existence of a business relationship between the
Parties will not require the approval of the other Party. Each Party will
solicit and reasonably consider the views of the other Party in designing
and implementing such Materials. Once approved, the Materials may be used
by a Party and its affiliates for the purposes of promoting the Affiliated
Advertiser Site and the content contained therein and reused for such
purpose until such approval is withdrawn with reasonable prior notice. In
the event such approval is withdrawn, existing inventories of Materials may
be depleted. Notwithstanding the foregoing, either Party may issue press
releases and other disclosures as required by law or as reasonably advised
by legal counsel without the consent of the other Party and in such event,
the disclosing Party will provide at lease five (5) business days prior
written notice of such disclosure. The provisions of this Section 19 shall
supercede in the entirety the provisions of Section 8 of the Standard
Terms.
20. Term. The effective term (the "Term") hereof shall begin on the Effective
-----
Date hereof and end on the second anniversary thereof, unless otherwise
terminated prior thereto.
21. Cross-Promotion.
----------------
(a) Online. Within Advertiser's web sites on the World Wide Web portion
-------
of the Internet (each an "Advertiser Web Site"), Advertiser shall
include the following (collectively, the "AOL Promos"): (i) a
prominent promotional banner or button (at least 90 x 30 pixels or 70
x 70 pixels in size) appearing "above the field" on the first screen
of the Advertiser Web Site, to promote such AOL products or services
as AOL may designate (for example, the America Online(R) brand
service, the CompuServe(R) brand service, the AOL.com(R) site, any of
the Digital City services or the AOL Instant Messenger(TM) service);
and (ii) a prominent "Try AOL"
<PAGE>
feature (at least 90 x 30 pixels or 70 x 70 pixels in size) through
which users can obtain promotional information about AOL products or
services designated by AOL and, at AOL's option, download or order
this then-current version of client software for such AOL products or
services. AOL will provide the creative content to be used in the AOL
Promos (including designation of links from such content to other
content pages). Advertiser shall post (or update, as the case may be)
the creative content supplied by AOL within the spaces for the AOL
Promos within five days of its receipt of such content from AOL.
Without limiting any other reporting obligations of the Parties
contained herein, Advertiser shall provide AOL Promos to the
Advertiser Web Site from an ad server controlled by AOL or its agent,
Advertiser shall take all reasonable operational steps necessary to
facilitate such ad serving arrangement including, without limitation,
inserting HTML code designated by AOL on the pages of the Advertiser
Web Site on which the AOL Promos will appear. In addition, within each
Advertiser Web Site, Advertiser shall provide prominent promotion for
the keywords granted to Advertiser hereunder (if any).
(b) Offline. In Advertiser's television, radio, print and "out of home"
--------
(e.g., buses and billboards) advertisements and in any publications,
programs, features or other forms of media over which Advertiser
exercises at least partial editorial control, Advertiser will include
specific references or mentions (verbally where possible) of the
availability of the Affiliated Advertiser Site through AOL Service,
which are at least as prominent as any references that Advertiser
makes to any Advertiser Web Site (by way of site name, related company
name, URL or otherwise). Without limiting the generality of the
foregoing, Advertiser's listing of the "URL" for any Advertiser Web
Site will be accompanied by an equally prominent listing of the
"keyword" term on AOL for the Affiliated Advertiser Site. Advertiser
will not implement or authorize any cross-promotion greater in scope,
purpose, amount and prominence than the cross-promotion required or
provided pursuant to this Agreement for any other Interactive Service.
22. Continued Link. Upon conclusion of the Term of this Agreement, AOL may, at
---------------
its discretion, continue to promote one or more "pointers" or links from
the AOL Network to the Affiliated Advertiser Site (or, if the Affiliated
Advertiser Site no longer exists, to any Advertiser Interactive Site) and
continue to use Advertiser's trade names, trade marks and service marks in
connection therewith (collectively, a "Continued Link". After the Term,
regardless of any Continued Link, the following obligations of the Parties
will cease: (i) Advertiser will not be required to pay any guaranteed,
fixed payment, maintain the Affiliated Advertiser Site nor perform any of
the cross-promotional obligations contained herein (except as set forth
below); and (ii) AOL will not be required to undertake any minimum
promotional/placement obligations. However, so long as AOL maintains a
Continued Link, the following obligations shall survive the Term of this
Agreement; (i) Advertiser shall pay to AOL fifteen percent (15%) of all
Transaction Revenues (without respect to any revenue thresholds or hurdles,
payable on a quarterly basis within thirty (30) days following the end of
the quarter in which the applicable Transaction Revenues were generated);
and (ii) the Standard Terms shall survive, together with any provisions
necessary if and to the extent required for the express purposes of this
paragraph. For purposes hereof, "Transaction Revenues" shall mean aggregate
amounts paid by AOL Purchasers who entered the Affiliated Advertiser Site
in that session from the AOL Network in connection with the sale,
licensing, distribution or provision of any Advertiser's Products in the
Affiliated Advertiser Site or any Advertiser Interactive Site, including,
in each case, handling, shipping, service charges, and excluding, in each
case, (a) amounts collected for sales or use taxes or duties and (b)
credits and chargebacks for returned or canceled goods or services, but not
excluding cost of goods sold or any similar cost.
23. Health Online Pharmacy. During the Term hereof, AOL hereby agrees that the
----------------------
main page of the Health Online Pharmacy area of the Health Channel of the
AOL Service (the "AOL Health Online Pharmacy") shall not have any more than
five (5) permanent, full time, dedicated, drug or vitamin anchor tenants
(provided that this shall not restrict, in addition to such five (5) anchor
tenants, the number of additional rotating, non-permanent buttons, banners,
etc.). For purposes hereof, an "Online Pharmacy" shall mean any aggregated
drugstore or pharmacy content channel primarily engaged in the offer and
sale of the Products and which is substantially similar overall to the AOL
Health Online Pharmacy.
<PAGE>
24. Regulatory.
----------
(a) Promo Content: Regulatory Compliance. Advertiser hereby represents and
------------------------------------
warrants that the specific content (the "Promo Content") to be
contained within the promotions set forth herein (including without
limitation buttons, banners and contextual promotion, if any) (the
"Promotions") will comply with all applicable federal, state and local
laws pertaining to the advertising of prescription drugs. In
connection with the foregoing, Advertiser represents that (i) it has
conducted an evaluation of its online sale of prescription drugs and
that entering into this Agreement will not violate any federal, state
or local laws, rules or regulations and (ii) in order to ensure
continued compliance with any federal, state or local laws, rules or
regulations, prior to posting the Promo Content on the AOL Network,
the Promo Content will be reviewed by Advertiser's medical and
regulatory affairs counsel.
(b) Provision of Other Content and Services. Advertiser shall ensure that
---------------------------------------
its provision of Products and content as contemplated herein shall not
constitute the practice of medicine, nor shall Advertiser engage in
the practice of medicine through the Affiliated Advertiser Site. To
the extent that the Affiliated Advertiser Site provides information
and services concerning health care and/or general medical advice, the
Parties expressly acknowledge that such services are provided by
Advertiser, and AOL shall in no way be responsible for, or associated
with the provision of such information. Additionally, in the event
that AOL notifies Advertiser that (i) as reasonably determined by AOL,
any content within the Affiliated Advertiser Site violates AOL's then-
standard Terms of Service (as set forth on the America Online(R) brand
service at Keyword term "TOS"), the terms of this Agreement or any
other standard, written AOL policy or (ii) AOL reasonably objects to
the inclusion of any Content within the Affiliated Advertiser Site
(other than any specific items of Content which may be expressly
identified in this Agreement), then Advertiser will take commercially
reasonable steps to block access by AOL Users to such content using
Advertiser's then-available technology. In the event that Advertiser
cannot, through its commercially reasonable efforts, block access by
AOL Users to the content in question, then Advertiser will provide AOL
promptly written notice of such fact. AOL may then, at its option,
restrict access from the AOL Network to the content in question using
technology available to AOL. Advertiser will cooperate with AOL's
reasonable requests to the extent AOL elects to implement any such
access restrictions.
(c) Sale of Products. It is the sole responsibility of Advertiser to
----------------
provide the Products in the Affiliated Advertiser Site, and AOL will
have no obligations with respect to the Products available on or
through the Affiliated Advertiser Site, including, but not limited to,
any duty to review or monitor any such Products. Additionally,
Advertiser shall provide customer service to all persons or entities
purchasing Products through the Affiliated Advertiser Site
("Customers"). Advertiser will bear full responsibility for all
customer service, including without limitation, order processing,
billing, fulfillment, shipment, retention and maintenance of all
prescription records (electronic or otherwise), any required pharmacy
counseling, collection and other customer service associated with any
Products offered, sold or licensed through the Affiliated Advertiser
Site, and AOL will have no obligations whatsoever with respect
thereto. To the extent that Advertiser is required by law, rule,
regulation or otherwise, to fulfill any paper record keeping
requirements in connection with the Products, Advertiser shall be
responsible for fulfilling such requirements and creating and
maintaining any systems associated with compliance with any such law,
rule, or regulation. Advertiser will bear all responsibility for
compliance with all federal, state and local laws in the event that
Products are out of stock or are no longer available at the time an
order is received. Advertiser will also comply with the requirements
of any federal, state or local consumer protection or disclosure law,
or any laws associated with the practice of pharmacy, the sale of
prescription drugs, or the sale of "over-the-counter" drugs. Payment
for Products will be collected by Advertiser directly from customers.
Advertiser's order fulfillment operation will be subject to AOL's
reasonable review.
(d) International Sale of the Products. Unless otherwise mutually agreed
----------------------------------
by the Parties as set forth below, Advertiser shall not engage in the
sale of the Products through the Affiliated Advertiser Site in any
jurisdiction other than the United States of America and its
territories. In connection herewith, Advertiser hereby represents and
warrants that it does not currently sell, distribute or ship the
Products in, or to, any jurisdiction other than the United States of
America and its territories, nor does it intend to sell, distribute or
ship the Products through the Affiliated Site during the Term hereof.
To the extent that international users of the AOL Network access
<PAGE>
the Affiliated Advertiser Site, Advertiser shall prominently post and
display the notice required pursuant to the following paragraph and,
to the extent technically feasible, Advertiser shall block such users
from making any purchases through the Affiliated Advertiser Site. If
Advertiser wishes to use the Affiliated Advertiser Site to sell any
Product outside the US, the Parties shall negotiate in good faith an
amendment to this agreement providing for the terms by which
Advertiser shall be able to do so (including, without limitation
Advertiser's demonstration to AOL's satisfaction that Advertiser will
be able to comply with all applicable international laws, rules and
regulations and, similar to the terms hereof, that all such compliance
shall be Advertiser's responsibility, not AOL's).
(e) Disclaimers and Notices. Upon AOL's request, Advertiser agrees to
-----------------------
include within the Affiliated Advertiser Site the following
disclaimers (the specific form and substance to be mutually agreed
upon by the Parties): (i) a product disclaimer indicating that
transactions are solely between Advertiser and AOL Users purchasing
Products from Advertiser; (ii) to the extent that Advertiser intends
to use any private information obtained from AOL Users in connection
with a prescription, a notice indicating that Advertiser will be using
such information in the manner intended by Advertiser, and a
disclaimer indicating that such information will be used by Advertiser
and not by AOL; (ii) a prominent notice indicating that all customer
service requests, and any required pharmacy counseling associated with
purchase of the Products is the responsibility of Advertiser and not
of AOL, (iv) a prominent notice indicating that the sale of the
Products is for the express purpose of United States residents only.
(f) Representations and Warranties. Advertiser hereby represents and
------------------------------
warrants that (a) it possesses all authorizations, approvals,
consents, licenses, permits, certificates or other rights and
permissions necessary to sell the Products in the state in which it
currently resides, and (b) it possesses all authorizations, approvals,
consents, licenses, permits, certificates or other rights and
permissions to sell the Products in each other state in which
Advertiser sells the Products.
25. Assignment; Branding and Advertising on Other Sites.
---------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, (i) Advertiser
may assign this Agreement, upon thirty (30) days prior written notice to
AOL, to a corporation or limited liability company which meets the
following criteria: (a) such entity is not a competitor, or controlled by a
competitor, of AOL, (b) such entity will conduct the business conducted by
Advertiser prior to the assignment, and (c) such entity is of equal or
superior creditworthiness to Advertiser, as determined by AOL in its
reasonable discretion, (ii) Advertiser may change its marks and branding
and those on the Affiliated Advertiser Site at any time, but shall provide
AOL with replacement artwork (which shall comply with AOL's generally
applicable advertising policies) and URL's at least five (5) business days
prior the date it wishes any change to be implemented on the AOL Service or
AOL Network (or any site/location listed on the Carriage Plan on Exhibit D
attached hereto) and (iii) this Agreement does not restrict Advertiser from
advertising and promoting the Affiliated Advertiser Site, Advertiser and
its affiliated sites on any site, location, interactive Service or
otherwise. In the event that AOL elects to terminate this Agreement as a
result of a change of control of Advertiser as herein permitted, AOL agrees
and acknowledges that Advertiser shall not be liable for any payments under
Section 1 which are due and payable after the date of such termination.
26. Indemnification from AOL. AOL hereby agrees to indemnify, defend and hold
------------------------
harmless Advertiser and the officers, directors, agents, affiliates,
distributors, franchises and employees of Advertiser from and against all
claims, actions, liabilities, losses, expenses, damages and costs
(including, without limitation, reasonable attorneys' fees) that may at any
time be incurred by any of them by reason of any claims, suits or
proceedings arising out of any material breach by AOL of any duty,
representation or warranty under this Agreement.
<PAGE>
Exhibit B
Definitions
-----------
Advertising Revenues. Aggregate amounts collected plus the fair market value of
- --------------------
any other compensation received (such as barter advertising by Advertiser, AOL
or either Party's agents, as the case may be, arising from the license or sale
of Advertisements, promotions, links or sponsorships that appear within any
pages of the Affiliated Advertiser Site, less applicable advertising sales
commissions. Advertising Revenues does not include amounts arising from
Advertisements on any screens or forms preceding, framing or otherwise directly
associated with the Affiliated Advertiser Site, which will be sold exclusively
by AOL.
Affiliated Advertiser Site. The specific area to be promoted and distributed by
- --------------------------
AOL hereunder through which Advertiser can market and complete transactions
regarding its permitted Services.
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
- ----------
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe, (iv) Digital
- -----------
City, (v) Netcenter, and (vi) any other product or service owned, operated,
distributed or authorized to be distributed by or through AOL or its affiliates
worldwide (and including those properties excluded from the definitions of the
AOL Service or AOL.com). It is understood and agreed that the rights of
Advertiser relate only to the AOL Service and AOL.com and not generally to the
AOL Network.
AOL Purchaser. (i) Any person or entity who enters the Affiliated Advertiser
- -------------
Site from the AOL Network including, without limitation, from any third party
area therein (to the extent entry from such third party area is traceable
through both Parties' commercially reasonable efforts), and generates
Transaction Revenues (regardless of whether such person or entity provides an e-
mail address during registration or entrance to the Affiliated Advertiser Site
which includes a domain other than an "AOL.com" domain); and (ii) any other
person or entity who, when purchasing a product, good or service through an
Advertiser Interactive Site, provides an AOL.com domain name or a Compuserve.com
domain name as part of such person or entity's e-mail address and provided that
any person or entity who has previously satisfied the definition of AOL
Purchaser will remain an AOL Purchaser, but does not include any subsequent
purchases by such person or entity (e.g., as a result of e-mail solicitations or
any off-line means for receiving orders requiring purchasers to reference a
specific promotional identifier or tracking code).
AOL Service. The standard narrow-band U.S. version of the America Online(R)
- -----------
brand service, specifically excluding (a) AOL.com, Netcenter or any other AOL
Interactive Site, (b) the International versions of an America Online service
(e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe
products or services (d) "Driveway," "ICQ," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "Digital City," "NetMail(TM)," "Electra," "Thrive," "Real Fans,"
"Love@AOL," "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by, through or
with the U.S. version of the America Online(R) brand service, (e) any
programming or Content area offered by or through the U.S. versions of the
America Online(R) brand service over which AOL does not exercise complete
operational control (including, without limitation, Content areas controlled by
other parties and member-created Content areas), (f) any yellow pages, white
pages, classifieds or other search, directory or review services or Content
offered by or through the U.S. version of the America Online(R) brand. (g) any
property, feature, product or service which AOL or its affiliates may acquire
subsequent to the Effective Date and (h) any other version of an America Online
service which is materially different from the standard narrow-band U.S. version
of the America Online brand service, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any co-
branded version of the service or any version distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer.
AOL Look and Feel. The elements of graphics, design, organization, presentation,
- -----------------
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with interactive
sites within the AOL Network.
AOL User. Any user of the AOL Service, AOL.com, CompuServe, Digital City,
- --------
Netcenter, or the AOL Network.
<PAGE>
AOL.com. AOL's primary internet-based Interactive Site marketed under the
- -------
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) Netcenter,
(c) any international versions of such site, (d) "ICQ," "AOL NetFind(TM)," "AOL
Instant Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My News" or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (e) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any programming or Content area offered by or through such
site which was operated, maintained or controlled by the former AOL Studios
division (e.g., Electra), (g) any yellow pages, white pages, classifieds or
other search, directory or review services or Content offered by or through such
site or any other AOL Interactive Site, (h) any property, feature, product or
service which AOL or its affiliates may acquire subsequent to the Effective Date
and (i) any other version of an America Online Interactive Site which is
materially different from AOL's primary Internet-based Interactive Site marketed
under the "AOL.COM(TM)" brand, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any co-
branded versions or any version distributed through any broadband distribution
platform or through any platform or device other than a desktop personal
computer.
Advertiser Interactive Site. Any Interactive Site (other than the Affiliated
- ---------------------------
Advertiser Site) which is managed, maintained, owned or controlled by Advertiser
or its agents.
CompuServe. The standard narrow-band U.S. version of the CompuServe brand
- ----------
service, specifically excluding (a) any international versions of such service,
(b) any web-based service including "compuserve.com", "cserve.com" and "cs.com",
or any similar product or service offered by or through the U.S. version of the
CompuServe brand service, (c) Content areas owned, maintained or controlled by
Compuserve affiliates or any similar "sub-service," (d) any programming or
Content area offered by or through the U.S. version of the CompuServe brand
service over which CompuServe does not exercise complete or substantially
complete operational control (e.g., third-party Content areas), (e) any yellow
pages, white pages, classifieds or other search, directory or review services or
Content and (f) any co-branded or private label branded version of the U.S.
version of the CompuServe brand service, (g) any version of the U.S. version of
the CompuServe brand service which offers Content, distribution, services and/or
functionality materially different from the Content, distribution, services
and/or functionality associated with the standard, narrow-band U.S. version of
the CompuServe brand service, including, without limitation, any version of such
service distributed through any platform or device other than a desktop personal
computer and (h) any property, feature, product or service which CompuServe or
its affiliates may acquire subsequent to the Effective Date.
Confidential Information. Any information relating to or disclosed in the course
- ------------------------
of the Agreement, which is or should be reasonably understood to be confidential
or proprietary to the disclosing Party, including, but not limited to, the
material terms of this Agreement, information about AOL members, AOL Users, AOL
Purchasers and Advertiser customers, technical processes and formulas, source
codes, product designs, sales, cost and other unpublished financial information,
product and business plans, projections and marketing data. "Confidential
Information" will not include information (a) already lawfully known to or
independently developed by the receiving Party, (b) disclosed in published
materials, (c) generally known to the public, or (d) lawfully obtained from any
third party.
Content. Text, images, video, audio (including, without limitation, music used
- -------
in synchronism or timed relation with visual displays) and other data, Services,
advertisements, promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
Digital City. The standard, narrow-band U.S. version of Digital City's local
- ------------
content offerings marketed under the Digital City(R) brand name, specifically
excluding (a) the AOL Service, AOL.com, Netcenter or any other AOL Interactive
Site, (b) any international versions of such local content offerings, (c)
CompuServe(R) brand service and any other CompuServe products or services (d)
"Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital
City," "NetMail(TM)," "Electra," "Thrive," "Real Fans," "Love@AOL,"
"Entertainment Asylum," "AOL Hometown," "My News" or any similar independent
product, service or property which may be offered by, though or with the
standard narrow band version of Digital City's local content offerings, (e) any
programming or Content area offered by or through such local content offerings
over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any yellow pages, white pages, classifieds or other search,
directory or review services or Content offered by or through such local content
offerings, (g) any property, feature, product or service which AOL or its
affiliates may acquire subsequent to the Effective Date, (h) any other version
of a Digital City local content offering
<PAGE>
which is materially different from the narrow-band U.S. version of Digital
City's local content offerings marketed under the Digital City(R) brand name, by
virtue of its branding, distribution, functionality, Content or services,
including, without limitation, any co-branded version of the offerings or any
version distributed through any broadband distribution platform or through any
platform device other than a desktop personal computer, and (i) Digital City-
branded offerings in an local area where such offerings are not owned or
operationally controlled by America Online, Inc. or DCI (e.g., Chicago, Orlando,
South Florida and Hampton Roads).
Effective Date. August 20, 1999.
- --------------
Impression. User exposure to the applicable Promotion, as such exposure may be
- ----------
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
Interactive Service. An entity offering one or more of the following: (i) online
- -------------------
or internet connectivity services (e.g., an Internet service provider); (ii) a
Major interactive site or Major service featuring a broad selection of
aggregated third party (as opposed to a www.cnn.com which is not third-party
content) interactive content (or navigation thereto) (e.g., a Major online
service or search and directory service) and/or marketing a broad selection of
products and/or services across numerous interactive commerce categories (e.g.,
an online mall or an online retailer which sells several varying categories of
goods such as electronics, books, videos, toys and music all on the same site,
but specifically not including an online retailer who offers limited categories
of products and related products, such as an apparel retailer that offers
numerous lines of clothing and other fashion-related products and services); and
(iii) communications software capable of serving as the principal means through
which a user creates, sends and receives electronic mail or real time online
messages. "Major" shall mean a site or service with a monthly unique visitor
count at that time (based on the average of the prior 3 months then available
from and as measured by Media Metrix) of at least 3.5 million per month.
Interactive Site. Any interactive site or area, including, by way of example and
- ----------------
without limitation, (i) a Advertiser site on the World Wide Web portion of the
Internet or (ii) a channel or area delivered through a "push" product such as
the Pointcast Network, interactive environment such as Microsoft's Active
Desktop or interactive television service such as WebTV.
Licensed Content. All Content offered through the Affiliated Advertiser Site to
- ----------------
this Agreement or otherwise provided by Advertiser or its agents in connection
herewith (e.g., offline or online promotional Content, Promotions, AOL
"slideshows", etc.) including in each case, any modifications, upgrades,
updates, enhancements, and related documentation.
Netcenter. Netscape Communications Corporation's primary Internet-based
- ---------
Interactive Site marketed under the "Netscape Netcenter(TM)" brand, specifically
excluding (a) the AOL Service, (b) AOL.com, (c) any international versions of
such site, (d) "ICQ," "AOL Netfind," "AOL Instant Messenger(TM)," "NetMail(TM),"
"AOL Hometown," "My News," "Digital City(TM)," or any similar independent
product or service offered by or through such site or any other AOL Interactive
Site, (e) any programming or Content area offered by or through such site over
which AOL does not exercise complete operational control (including, without
limitation, Content areas controlled by other parties and member-created Content
areas), (f) any programming or Content area offered by or through the U.S.
version of the America Online(R) brand service which was operated, maintained or
controlled by the former AOL Studios division (e.g., Electra), (g) any yellow
pages, white pages, classifieds or other search, directory or review services or
Content offered by or through such site or any other AOL Interactive, (h) any
property, feature, product or service which AOL or its affiliates may acquire
subsequent to the Effective Date and (i) any other version of an AOL or Netscape
Communications Corporation Interactive Site which is materially different from
Netscape Communications Corporation's primary Internet-based Interactive Site
marketed under the "Netscape Netcenter(TM)" brand, by virtue of its branding,
distribution, functionality, Content or services, including, without limitation,
any co-branded versions and any version distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer (e.g. Custom NetCenters built specifically for third parties).
Search Term or searchterm. The online term or terms made available on AOL.com
- ----------- ----------
only for use by AOL.com users using the NetFind brand search engine thereon (the
results of which such search are non-exclusive, and result in references to many
entities).
<PAGE>
Exhibit C
Operations
----------
1. Affiliated Advertiser Site Infrastructure. Advertiser will be responsible
-----------------------------------------
for all communications, hosting and connectivity costs and expenses
associated with the Affiliated Advertiser Site. Advertiser will provide
all hardware, software, telecommunications lines and other infrastructure
necessary to meet traffic demands on the Affiliated Advertiser Site from
the AOL Network. Advertiser will design and implement the network between
the AOL Service and Affiliated Advertiser Site such that (i) no single
component failure will have a materially adverse impact on AOL Members
seeking to reach the Affiliated Advertiser Site from the AOL Network and
(ii) no single line will run at more than 70% average utilization for a 5-
minute peak in a daily period. In this regard, Advertiser will provide
AOL, upon request, with a detailed network diagram regarding the network
Infrastructure supporting the Affiliated Advertiser Site. In the event
that Advertiser elects to create a custom version of the Affiliated
Advertiser Site in order to comply with the terms of this Agreement,
Advertiser will bear responsibility for all aspects of the implementation,
management and cost of such customized site.
2. Optimization; Speed. Advertiser will use commercially reasonable efforts
-------------------
to ensure that: (a) the functionality and features within the Affiliated
Advertiser Site are optimized for the client software then in use by AOL
members; and (b) the Affiliated Advertiser Site is designed and populated
in a manner that minimizes delays when AOL Members attempt to access such
site. At a minimum, Advertiser will ensure that the Affiliated Advertiser
Site's data transfers initiate within fewer than fifteen (15) seconds on
average. Prior to commercial launch of any material promotions described
herein, Advertiser will permit AOL to conduct performance and loading
testing of the Affiliated Advertiser Site (In person or through remote
communications), with such commercial launch not to commence until such
time as AOL is reasonably satisfied with the results of any such testing.
3. User Interface. Advertiser will maintain a graphical user interface within
--------------
the Affiliated Advertiser Site that is competitive in all material respects
with interfaces of other similar sites based on similar form technology.
AOL reserves the right to review and approve the user interface and site
design prior to launch of the Promotions and to conduct focus group testing
to assess compliance with respect to such consultation and with respect to
Advertiser's compliance with the preceding sentence.
4. Technical Problems. Advertiser agrees to use commercially reasonable
------------------
efforts to address material technical problems (over which Advertiser
exercises control) affecting use by AOL Members of the Affiliated
Advertiser Site (a "Advertiser Technical Problem") promptly following
notice thereof. In the event that Advertiser is unable to promptly resolve
a Advertiser Technical Problem following notice thereof from AOL
(including, without limitation, infrastructure deficiencies producing user
delays), AOL will have the right to regulate the promotions it provides to
Advertiser hereunder until such time as Advertiser corrects the Advertiser
Technical Problem at issue.
5. Monitoring. Advertiser will ensure that the performance and availability of
----------
the Affiliated Advertiser Site is monitored on a continuous basis.
Advertiser will provide AOL with contact information (including e-mail,
phone, pager and fax information, as applicable, for both during and after
business hours) for Advertiser's principal business and technical
representatives, for use in cases when issues or problems arise with
respect to the Affiliated Advertiser Site.
6. Telecommunications. The Parties agree to explore encryption methodology to
------------------
secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component
failure will significantly impact AOL Users. The network will be sized
such that no single time runs at more than 70% average utilization for a 5-
minute peak in a daily period.
7. Security. Advertiser will utilize Internet standard encryption
--------
technologies (e.g., Secure Socket Layer-SSL) to provide a secure
environment for conducting transactions and/or transferring private member
information (e.g. credit card numbers, banking/financial information, and
member address information) to and from the Affiliated Advertiser Site.
Advertiser will facilitate periodic reviews of the Affiliated Advertiser
Site by AOL in order to evaluate the security risks of such site.
Advertiser will
<PAGE>
promptly remedy any security risks or breaches of security as may be
identified by AOL's Operations Security team.
8. Technical Performance.
---------------------
i. Advertiser will design the Affiliated Advertiser Site to support the
AOL-client embedded versions of the Microsoft Internet Explorer 3.0 and 4.0
browsers (Windows and Macintosh), the Macintosh version of the Microsoft
Internet Explorer 3.0, and make commercially reasonable efforts to support
all other AOL browsers listed at:
"http://webmaster.info.aol.com/BrowTable.html."
ii. To the extent Advertiser creates customized pages on the Affiliated
Advertiser Site for AOL Members, Advertiser will configure the server from
which it serves the site to examine the HTTP User-Agent field in order to
identify the "AOL Member-Agents" listed at:
"http://webmaster.info.aol.com/BrowzText.html.
iii. Advertiser will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
------------------------------
iv. Advertiser will design its site to support HTTP 1.0 or later
protocol as defined in RFC 1945 and to adhere to AOL's parameters for
refreshing cached information listed at http://webmaster.info.aol.com.
------------------------------
v. Prior to releasing material, new functionality or features through
-- ------------------------------------------------------------------
the Affiliated Advertiser Site ("New Functionality"), Advertiser will use
-------------------------------------------------------------------------
commercially reasonable efforts to either (i) test the New Functionality to
---------------------------------------------------------------------------
confirm its compatibility with AOL Service Client software or (ii) provide
--------------------------------------------------------------------------
AOL with written notice of the New Functionality so that AOL can perform
------------------------------------------------------------------------
tests of the New Functionality to confirm its compatibility with the AOL
------------------------------------------------------------------------
Service client software.
------------------------
9. AOL Internet Services Advertiser Support. AOL will provide Advertiser with
----------------------------------------
access to the standard online resources, standards and guidelines
documentation, technical phone support, monitoring and after-hours
assistance that AOL makes generally available to similarly situated web-
based partners. AOL support will not, in any case, be involved with
content creations on behalf of Advertiser or support for any technologies,
databases, software or other applications which are not supported by AOL or
are related to any Advertiser area other than the Affiliated Advertiser
Site. Support to be provided by AOL is contingent on Advertiser providing
to AOL demo account information (where applicable), a detailed description
of the Affiliated Advertiser Site's software, hardware and network
architecture and access to the Affiliated Advertiser Site for purposes of
such performance and lead testing as AOL elects to conduct.
<PAGE>
Exhibit D
Carriage Plan
-------------
Client: e-Pills
Flight: 8/24/99-7/31/01
<TABLE>
<CAPTION>
AOL Service FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END XX XX XX
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HRC-Online Pharmacy 234X60 8/24/99 7/31/01 [*] [*] [*]
Health Channel-ROS 234X60 8/24/99 7/31/01 [*] [*] [*]
Women's Advertising Package 234X60 8/24/99 7/31/01 [*] [*] [*]
Demographic Targeting Women 18+ and 234X60 8/24/99 7/31/01 [*] [*] [*]
Seniors
Network ROS 234X60 8/24/99 7/31/01 [*] [*] [*]
[*] [*] [*]
- -------------------------------------------------------------------------------------------------
[*] [*] [*]
AOL.com FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END [*] [*] [*]
- -------------------------------------------------------------------------------------------------
Targeted Health package 468x60 8/24/99 7/31/01 [*] [*] [*]
Premium Health Search terms package 468x60 8/24/99 7/31/01 [*] [*] [*]
Health Search Terms ROS package 468x60 8/24/99 7/31/01 [*] [*] [*]
Netfind Home Page 468x60 8/24/99 7/31/01 [*] [*] [*]
Netfind ROS 468x60 8/24/99 7/31/01 [*] [*] [*]
[*] [*] [*]
- -------------------------------------------------------------------------------------------------
[*] [*] [*]
DCI FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END [*] [*] [*]
- -------------------------------------------------------------------------------------------------
Placement in Local DCI pharmacies 234x60 8/24/99 7/31/01 [*] [*] [*]
DCI ROS 175x45 8/24/99 7/31/01 [*] [*] [*]
[*] [*] [*]
- -------------------------------------------------------------------------------------------------
[*] [*] [*]
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
Netscape Netcenter FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END [*] [*] [*]
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Run of Health 468x60 8/24/99 7/31/01 [*] [*] [*]
[*] [*] [*]
- -------------------------------------------------------------------------------------------------
[*] [*] [*]
Compuserve FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END [*] [*] [*]
- -------------------------------------------------------------------------------------------------
Health and Fitness Package 234 8/24/99 7/31/01
and
468s [*] [*] [*]
Network ROS 234 8/24/99 7/31/01
and
468s [*] [*] [*]
- -------------------------------------------------------------------------------------------------
[*] [*] [*]
Partner FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END [*] [*] [*]
- -------------------------------------------------------------------------------------------------
Oxygen-ROS 8/24/99 7/31/01
[*] [*] [*]
Dr. Koop 8/24/99 7/31/01
- -------------------------------------------------------------------------------------------------
[*] [*] [*]
Shop @ AOL FLIGHTS Year 1 Year 2 TOTALS
COPY SIZE START END [*] [*] [*]
- -------------------------------------------------------------------------------------------------
Beauty and Fragrance-GOLD 9/13/99 7/31/01
[*] [*] [*]
Drugstore and Pharmacy-ANCHOR 9/13/99 7/31/01
[*] [*] [*]
Diet and Weight Loss-GOLD 9/13/99 7/31/01
- -------------------------------------------------------------------------------------------------
TOTALS [*] [*] [*]
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Description of Specific Promotions
----------------------------------
ANCHOR PROMOTION
Principal Exposure on the AOL Service, AOL.com, the Compuserve Service and the
Netscape Netcenter:
. One continuous (24/7) 143 x 245 pixels promotional space with corporate brand
or logo, product offering graphic and product offering two-line text field on
the department front screen.
Additional Promotion on the AOL Service Shopping Channel:
. Rotation with other Anchor Tenants of the Commerce Center on the Commerce
Center front screen of the AOL Service on two promotional spaces with
corporate brand or logo, product offering graphic. These promotional space
rotations are reserved for the Anchor Tenant's of each Commerce Center and
will be divided proportionately among them.
. Product listing availability through the AOL Product Search, subject to
Advertiser's participation and AOL's standard policies, terms and conditions.
. Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping channel
merchants.
. Up to three (3) AOL Keywords(TM) for use from the AOL Service, for registered
Advertiser trade name or trademark (subject to the AOL standard policies,
terms and conditions).
. Fifteen percent (15%) discount from the then-current rate card on purchases
of additional advertising banners or buttons on the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter, subject to availability for
the period requested (with such purchases to be made in accordance with the
then-applicable Standard Advertising Insertion Order for the property in
question). Sponsorships are not entitled to the aforementioned discount.
. Eligibility to participate in the following AOL Shopping promotional programs
(the "Program Areas") subject to AOL standard policies, terms, and
conditions;
. Quick Gifts
. Standard Seasonal Catalogs or Special Event Merchandising areas (e.g.,
Christmas Shop), subject to Advertiser's participation in AOL's Quick
Checkout and AOL's Search Product.
. Premier-level Seasonal Catalogs or Special Event Merchandising areas (e.g.,
Golf Outings), subject to Advertiser's participation AOL's Quick Checkout and
AOL's Search Product.
. Gift Reminder
. Newsletters
All additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL Network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard Promotions to be provided to the Advertiser within the Shopping areas
on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter
will be comparable in nature to the additional, standard Promotions provided to
other similarly situated Advertisers in the same category (i.e., Anchor Tenant,
Gold Tenant or Silver Tenant).
GOLD TENANT PROMOTION
Principal Exposure on the AOL Service, AOL.com, The Compuserve Service, and the
Netscape Netcenter:
. One continuous (24/7) 143 x 30 pixels button with corporate brand or logo on
the department front screen.
Additional Promotion on the AOL Service:
. Rotation with other Gold Tenants in the department on a promotional banner
with text and branded art promotion on the department front screen. These
banner rotations are reserved for the Gold Tenant's on the department screen
and will be divided proportionately among them.
. Product listing availability through the AOL Product Search, subject to
Advertiser's participation and AOL's standard policies, terms and conditions.
. Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping channel
merchants.
. Up to three (3) AOL Keywords(TM) for use from the AOL Service, for registered
Advertiser's trade name or trademark (subject to the AOL standard policies,
terms and conditions).
. Fifteen percent (15%) discount from the then-current rate card on purchases
of additional advertising banners or buttons on the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter, subject to availability for
the period requested (with such purchases to be made in accordance with the
then-applicable Standard Advertising Insertion Order for the property in
question). Sponsorships are not entitled to the aforementioned discount.
. Eligibility to participate in the following AOL Shopping promotional programs
(the "Program Areas") subject to AOL standard policies, terms, and
conditions:
. Quick Gifts
<PAGE>
. Standard Seasonal Catalogs or Special Event Merchandising areas (e.g.,
Christmas Shop), subject to Advertiser's participation in AOL's Quick
Checkout and AOL's Search Product.
. Premier-level Seasonal Catalogs or Special Event Merchandising areas (e.g.,
Golf Outings), subject to Advertiser's participation AOL's Quick Checkout and
AOL's Search Product.
. Gift Reminder
. Newsletters
All additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL Network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard Promotions to be provided to the MERCHANT within the Shopping areas on
the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will
be comparable in nature to the additional, standard Promotions provided to other
similarly situated Advertisers in the same category (i.e., Anchor Tenant, Gold
Tenant or Silver Tenant).
SILVER TENANT PROMOTION
Principal Exposure;
. One continuous (24/7) listing in the Silver Tenant area in a department
specified above on the AOL Service, AOL.com, the CompuServe Service, and the
Netscape Netcenter.
. Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping channel
merchants.
. One (1) AOL Keywords(TM) for use from the AOL Service, for registered
Advertiser's trade name or trademark (subject to the other provisions
contained herein).
All additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL Network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard Promotions to be provided to the Advertiser within the Shopping areas
on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter
will be comparable in nature to the additional, standard Promotions provided to
other similarly situated Advertisers in the same category (i.e., Anchor Tenant,
Gold Tenant or Silver Tenant).
<PAGE>
Page 1 of 5
- --------------------------------------------------------------------------------
[LOGO] connecting to your customer America Online 99 MEDIASPACE
- --------------------------------------------------------------------------------
PRODUCTS RESEARCH/DEMOS AOL.COM INFO
CLIENT STORIES SALES CONTACTS AOL CHANNEL INFO COMPUSERVE INFO WHAT'S NEW
Home
Contact Us
Glossary
AOL Advertising Standard Terms and Conditions (v.4)
1. Advertising Material/Display. Advertiser acknowledges that the sole
obligation of America Online, Inc. and its affiliates, including, without
limitation, Netscape Communications Corporations, Inc., CompuServe Interactive
Services, Inc., Digital City, Inc., ICQ, Inc and MovieFone, Inc. (collectively
"AOL") is to display an advertisement (the "Advertisement") from Advertiser
which conforms to the specifications set forth in the applicable Insertion Order
Agreement which has been executed by AOL and Advertiser (the "Insertion Order,"
and, collectively with these Standard Terms and Conditions, the "Agreement")
through the standard narrowband U.S.-based America Online(R) brand service
(excluding any sub-products, sub-services or third party areas which may be
offered therein) (the "AOL Service) or such other U.S.-based AOL property (each
a "Designated Service") as may be expressly described as the site for placement
in the Insertion Order (collectively the "AOL Network"). Subject to Advertiser's
reasonable approval, AOL will have the right to fulfill its promotional
commitments with respect to the Advertisements by providing Advertiser with
comparable placements of the Advertisements in alternative areas of the AOL
Network. Except as expressly provided in the Insertion Order, the specific
nature and positioning of the Advertisement will be as determined by AOL in its
editorial discretion. Advertiser agrees that (i) AOL has the right to market,
display, perform, transmit and promote the Advertisement through the AOL Network
(including, without limitation, for any marketing research and testing) and (ii)
users of the AOL Network have the right to access and use the Advertisement
together with any content or materials linked to the Advertisement (the
"Advertiser Content"). The Advertiser Content (i) shall not offer or promote any
other products and/or services other than those expressly provided for in the
relevant Insertion Order, (ii) will link only to the site specified on the
Insertion Order and (iii) shall not (a) disparage AOL; (b) promote any product
or service which is reasonably competitive with one or more of the principal
products or services offered through AOL's products and services ("Competitive
Products"); (c) be in contravention of AOL's generally applicable advertising
standards and practices for the AOL or Designated Service, as such may be
modified by AOL from time to time; or (d) violate any applicable law, regulation
or third party right (including, without limitation, any copyright, trademark,
patent or other proprietary right). Additionally, Advertiser shall consistently
update the Advertiser Content and will review, delete, edit, create, update and
otherwise manage such content in accordance with the terms of this Agreement. In
no event shall the Advertisement or the linked area state or imply that (i) the
Advertisement was placed by AOL or (ii) that AOL endorses Advertiser's products
or services. To the extent AOL notifies Advertiser of reasonable complaints or
concerns (e.g., from a member of the AOL Service or user of the AOL Network
("AOL User") regarding the Advertiser Content or any other content or materials
linked thereto or associated therewith ("Objectionable Content"), Advertiser
will, to the extent such Objectionable Content is within Advertiser's control,
use commercially reasonable efforts to respond in good faith to such complaints
or concerns. AOL may alter or shorten the flight dates set forth in the
Insertion Order if advertising materials required per the Insertion Order are
not provided in a timely manner, and Advertiser shall not be entitled to any
refund or proration for delays caused by Advertiser's failure to deliver such
materials.
2. Operations. Unless expressly provided for elsewhere in this Agreement, AOL
will have no obligation to provide any creative, design, technical or production
services to Advertiser ("Services"). Delivery by AOL of any such Services shall
be subject to (i) AOL's availability to perform the requested work, (ii)
execution by both parties of a separate work order specifically outlining the
Services to be provided and the fees to be paid by Advertiser for such Services
and (iii) payment in advance by Advertiser of such fees. Advertiser will ensure
that the Advertiser Content and the site linked to the Advertiser Content are in
compliance with AOL's then-current, generally applicable
<PAGE>
Page 2 of 5
technical standards for the AOL or Designated Service and will take all
reasonable steps necessary to conform its promotion and sale of products through
its site to the then-existing technologies identified by AOL which are optimized
for the AOL Network (including, without limitation, AOL's Quick Checkout tool
which facilitates the purchase of products by AOL Users). In the event that the
Advertiser Content or the site linked to the Advertiser Content fails to comply
with AOL's generally applicable technical standards for the AOL or Designated
Service, AOL shall have the right to cease or decrease the placement of the
Advertisements, and if Advertiser is unable to cure such non-compliance within
five business days after notice from AOL, AOL shall have the right to terminate
the Agreement. Additionally, AOL will be entitled to discontinue links to
Advertiser Content to the extent such Advertiser Content will, in AOL's good
faith judgment, adversely affect the operations of the AOL Network. In the event
that AOL points to the Advertiser site linked to the Advertiser Content or to
any other Advertiser site or otherwise delivers traffic to such site hereunder,
Advertiser will ensure that navigation back to the AOL Network from such site,
whether through a particular pointer or link, the "back" button on an Internet
browser, the closing of an active window, or any other return mechanism, shall
not be interrupted by Advertiser through the use of any intermediate screen or
other device not specifically requested by the user, including without
limitation through the use of any html pop-up window or any other similar
device. Rather, such AOL traffic shall be pointed directly back to the AOL
Network as designated by AOL. Advertiser will bear full responsibility for all
customer service, including without limitation, order processing, billing,
fulfillment, shipment, collection and other customer support associated with any
products or services offered, sold or licensed through Advertiser's site, and
AOL will have no obligations whatsoever with respect thereto. Advertiser will
take all steps necessary to ensure that any contest, sweepstakes or similar
promotion conducted or promoted through the Advertiser Content complies with all
applicable federal, state and local laws and regulations.
3. Search Terms/Keywords. To the extent Advertiser is purchasing an
Advertisement related to a "search" term, Advertiser represents and warrants
that Advertiser has the legal rights necessary to utilize such search term in
connection with the Advertisement. Any "keyword" terms for navigation from
within the proprietary America Online brand service or "go word" terms for
navigation from within the proprietary CompuServe brand service ("AOL Keyword
Terms") (as contrasted to search terms) which may be made available to
Advertiser shall be (i) subject to availability and (ii) limited to the
combination of the "keyword" or "go word" modifier combined with a registered
trademark of Advertiser. AOL reserves the right to revoke at any time
Advertiser's use of any AOL Keyword Terms which do not incorporate registered
trademarks of Advertiser. Advertiser acknowledges that its utilization of any
AOL Keyword Term will not create in it, nor will it represent it has, any right,
title or interest in or to such AOL Keyword Term, other than the right, title
and interest Advertiser holds in Advertiser's registered trademark independent
of the AOL Keyword Term. Advertiser will not: (i) attempt to register or
otherwise obtain trademark or copyright protection in the AOL Keyword Term; or
(ii) use the AOL Keyword Term, except for the purposes expressly required or
permitted under this Agreement. This section will survive the completion,
expiration, termination or cancellation of this Agreement.
4. Payment; Cancellation. Advertiser agrees to pay AOL for all advertising
displayed in accordance with the agreed upon amounts and billing schedule shown
on the relevant Insertion Order. Advertising packages are nonrefundable or
proratable except to the extent otherwise expressly contemplated hereunder.
Should AOL fail to display the Advertisements in accordance with the Insertion
Order due to Advertiser's failure to comply with any requirement of the
Insertion Order or this Agreement, Advertiser will remain liable for the full
amount indicated on the Insertion Order. AOL reserves the right to redesign or
modify the organization, structure, "look and feel" and other elements of the
AOL Network at its sole discretion at any time without prior notice. In the
event such modifications will materially and adversely affect the placement of
the Advertisement, AOL will work with Advertiser to display the Advertisement in
a comparable location and manner that is reasonably satisfactory to Advertiser.
If AOL and Advertiser cannot reach agreement on a substitute placement,
Advertiser shall have the right to cancel the Advertisement, upon thirty (30)
days advance written notice to AOL. In such case, Advertiser will only be
responsible for the pro-rata portion of payments attributable to the period from
the commencement of the Agreement through the effectiveness of such cancellation
(the "Pro Rata Payments"). AOL reserves the right to cancel and remove at any
time any Advertisement for any reason upon thirty (30) days advance written
notice to Advertiser (or upon such shorter notice as may be designated by AOL in
the event that AOL believes in good faith that further display of the
Advertisement will expose
<PAGE>
Page 3 of 5
AOL to liability or other adverse consequences). In the event of such a
cancellation, Advertiser will only be responsible for the Pro-Rata Payments.
Advertiser may not resell, trade, exchange, barter or broker to any third-party
any advertising space which is the subject of this Agreement.
5. Usage Data. AOL will provide Advertiser with usage information related to
the Advertisement in substance and form determined by AOL, consistent with its
then-standard reporting practices. Advertiser may not distribute or disclose
usage information to any third party without AOL's prior written consent.
6. Limitation of Liability; Disclaimer; Indemnification. (A) SUBJECT TO SECTION
6(C) BELOW, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM ANY ASPECT OF THE ADVERTISING RELATIONSHIP PROVIDED FOR HEREIN. AOL
SHALL NOT IN ANY EVENT BE LIABLE TO ADVERTISER UNDER THIS AGREEMENT FOR MORE
THAN THE AMOUNT TO BE PAID BY ADVERTISER DURING THE YEAR IN WHICH THE LIABILITY
ACCRUES. (B) AOL MAKES NO AND HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK OR ANY PORTION
THEREOF, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE NUMBER OF PERSONS WHO WILL
ACCESS THE ADVERTISER CONTENT OR "CLICK-THROUGH" THE ADVERTISEMENTS, (II) ANY
BENEFIT ADVERTISER MIGHT OBTAIN FROM INCLUDING THE ADVERTISEMENT WITHIN THE AOL
NETWORK AND (III) THE FUNCTIONALITY, PERFORMANCE OR OPERATION OF THE AOL NETWORK
WITH RESPECT TO THE ADVERTISEMENTS. (C) Advertiser hereby agrees to indemnify,
defend and hold harmless AOL and the officers, directors, agents, affiliates,
distributors, franchises and employees of AOL from and against all claims,
actions, liabilities, losses, expenses, damages and costs (including, without
limitation, reasonable attorneys' fees) that may at any time be incurred by any
of them by reason of any claims, suits or proceedings: (a) for libel,
defamation, violation of right of privacy or publicity, copyright infringement,
trademark infringement or other infringement of any third party right, fraud,
false advertising, misrepresentation, product liability or violation of any law,
statute, ordinance, rule or regulation throughout the world in connection with
the Advertisements or Advertiser Content; (b) arising out of any material breach
by Advertiser of any duty, representation or warranty under this Agreement; or
(c) relating to any contaminated file, virus, worm or Trojan horse originating
from the Advertisements or Advertiser Content. AOL will notify Advertiser of any
claim, action or demand (an "Action") for which indemnity is claimed.
Advertiser's counsel defending such Action shall be subject to AOL's prior
written approval. AOL reserves the right to participate fully in and assume
joint control of the defense of any Action. Settlement of any Action shall be
subject to AOL's prior written approval. This section will survive the
completion, expiration, termination or cancellation of this Agreement.
7. Solicitation. (a) Advertiser will not send unsolicited, commercial e-mail
(i.e., "spam") through or into AOL's products or services, absent a prior
business relationship, and will comply with any other standard AOL policies and
limitations relating to distribution of bulk e-mail solicitations or
communications through or into AOL's products or services (including, without
limitation, the requirement that Advertiser provide a prominent and easy means
for the recipient to "opt-out" of receiving any future commercial e-mail
communications from Advertiser. Advertiser will not use the Advertisement or any
other aspect of AOL's products or services to promote or solicit on behalf of a
Competitive Product. (b) Advertiser shall ensure that its collection, use and
disclosure of information obtained from AOL Users of the AOL Network under this
Agreement ("User Information") complies with (i) all applicable laws and
regulations and (ii) AOL's standard privacy policies or the privacy policy of
the applicable Designated Service (or, in the case of Advertiser's site,
Advertiser's standard privacy policies so long as such policies are prominently
published on the site and provide adequate notice, disclosure and choice to
users regarding Advertiser's collection, use and disclosure of user
information). (c) Each request for information from an AOL User ("Information
Request") shall clearly and conspicuously specify to the AOL Users at issue the
purpose for which specific information related to User Information collected by
Advertiser shall be used
<PAGE>
Page 4 of 5
(the "Specified Purpose"). Advertiser shall limit use of the User Information
collected through an Information Request to the Specified Purpose. In the case
of AOL Users who purchase products or services from Advertiser, Advertiser will
be entitled to incorporate such members into Advertiser's aggregate lists of
customers; provided that Advertiser shall in no way: (i) disclose User
Information in a manner that identifies AOL Users as end-users of an AOL product
or service (or in any other manner that could reasonably be expected to
facilitate use of such information by or on behalf of a Competitive Product); or
(ii) otherwise use such User Information in connection with marketing of a
Competitive Product. This section shall survive the completion, expiration,
termination or cancellation of this Agreement.
8. Press Releases. ADVERTISER SHALL NOT ISSUE ANY PRESS RELEASES OR PUBLIC
STATEMENTS CONCERNING THE EXISTENCE OR TERMS OF THIS AGREEMENT AND THE FAILURE
OF ADVERTISER TO OBTAIN THE PRIOR WRITTEN APPROVAL OF AOL WILL BE DEEMED A
MATERIAL BREACH OF THIS AGREEMENT. BECAUSE IT WOULD BE DIFFICULT TO PRECISELY
ASCERTAIN THE EXTENT OF THE INJURY CAUSED TO AOL, IN THE EVENT OF SUCH A
MATERIAL BREACH, (I) AOL MAY TERMINATE THIS AGREEMENT IMMEDIATELY FOLLOWING
WRITTEN NOTICE TO ADVERTISER PARTY, AND THE CURE PROVISION OF PROVIDED HEREIN
THIS SECTION 9 SHALL NOT APPLY; OR (II) AS LIQUIDATED DAMAGES, AOL SHALL BE
ENTITLED TO REDUCE THE OVERALL IMPRESSIONS BY UP TO FIFTEEN (15%) PERCENT OF THE
GUARANTEED IMPRESSIONS COMMITMENT AS SET FORTH ON THE INSERTION ORDER. THE
PARTIES AGREE THAT THE LIQUIDATED DAMAGES SET FORTH ARE A REASONABLE
APPROXIMATION OF THE INJURY THAT WOULD BE SUFFERED BY AOL.
9. Miscellaneous. The parties to this Agreement are independent contractors.
Neither party is an agent, representative or partner of the other party. Neither
party shall have any right, power or authority to enter into any agreement for
or on behalf of, or incur any obligation or liability of, or to otherwise bind,
the other party. The failure of either party to insist upon or enforce strict
performance by the other party of any provision of this Agreement or to exercise
any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance. Except where otherwise
specified herein or in the Insertion Order, the rights and remedies granted to a
party under this Agreement are cumulative and in addition to, and not in lieu
of, any other rights or remedies which the party may possess at law or in
equity. Advertiser shall not use, display or modify AOL's trademarks in any
manner absent AOL's express prior written approval. Either party may terminate
this Agreement (a) at any time with written notice to the other party in the
event of a material breach of this Agreement by the other party, which remains
uncured after thirty days written notice thereof; provided that AOL shall not be
required to provide notice to Advertiser or any cure period in connection with
Advertiser's failure to make any payment to AOL required in the Insertion Order,
and in the event of nonpayment, AOL reserves the right to terminate the
Agreement immediately with written notice to Advertiser and (b) immediately
following written notice to the other party if the other party (1) ceases to do
business in the normal course, (2) becomes or is declared insolvent or bankrupt,
(3) is the subject of any proceeding related to its liquidation or insolvency
(whether voluntary or involuntary) which is not dismissed within ninety (90)
calendar days or (4) makes an assignment for the benefit of creditors.
Additionally, in the event of a change of control of Advertiser, AOL may
terminate this Agreement by providing thirty (30) days prior written notice of
such intent to terminate. This Agreement sets forth the entire agreement between
Advertiser and AOL, and supersedes any and all prior agreements of AOL or
Advertiser with respect to the transactions set forth herein. No change,
amendment or modification of any provision of this Agreement shall be valid
unless set forth in a written instrument signed by the party subject to
enforcement of such amendment. Advertiser shall not assign this Agreement or any
right, interest or benefit under this Agreement without the prior written
consent of AOL. Assumption of the Agreement by any successor to Advertiser
(including, without limitation, by way of merger or consolidation) shall be
subject to AOL's prior written approval. Subject to the foregoing, this
Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
In the event that any provision of this Agreement is held invalid by a court
with jurisdiction over the Parties to this Agreement, (i) such provision shall
be deemed to be restated to reflect as nearly as possible the original
intentions of the Parties in accordance with applicable law and (ii) the
remaining terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and
<PAGE>
Page 5 of 5
effect. This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
document. This Agreement shall be interpreted, construed and enforced in all
respects in accordance with the laws of the Commonwealth of Virginia, except for
its conflicts of laws principles. Advertiser hereby irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia in connection with any
action arising under this Agreement.
PRODUCTS RESEARCH/DEMOS AOL.COM INFO
CLIENT STORIES SALES CONTACTS AOL CHANNEL INFO COMPUSERVE INFO WHAT'S NEW
<PAGE>
Exhibit 10.29
ePILLS, INC.
1999 STOCK OPTION PLAN
1. Purpose
-------
The purpose of this plan (the "Plan") is to secure for ePills, Inc.
(the "Company") and its stockholders the benefits arising from capital stock
ownership by employees, officers, directors and consultants of the Company and
its subsidiary corporations who are expected to contribute to the Company's
future growth and success. Those provisions of the Plan which make express
reference to Section 422 of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"), shall apply only to Incentive Stock
Options (as that term is defined in the Plan). If the Company registers its
Common Stock under the provisions of the Securities Act of 1934 (the "1934
Exchange Act"), the Company will use its best efforts to have the Plan comply
with Rule 16b-3 promulgated under the 1934 Exchange Act.
2. Type of Options and Administration
----------------------------------
(a) Types of Options. Options granted pursuant to the Plan shall be
----------------
authorized by action of the Board of Directors (the "Board") of the Company (or
a committee designated by the Board) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board or by a
--------------
committee consisting of two or more directors (the "Committee") appointed by the
Board of the Company in each case whose construction and interpretation of the
terms and provisions of the Plan shall be final and conclusive. The Board or
Committee may in its sole discretion grant options to purchase shares of the
Company's Common Stock, without par value ("Common Stock"), and issue shares
upon exercise of such options as provided in the Plan. The Board or Committee
shall have authority, subject to the express provisions of the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the respective option agreements, which
need not be identical; to construe the respective option agreements and the
Plan; and to make all other determinations in the judgment of the Board or
Committee necessary or desirable for the administration of the Plan. The Board
or Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board shall be liable for any action or
determination under the Plan made in good faith.
3. Eligibility
-----------
Options may be granted to persons who are, at the time of grant,
employees, officers, directors or consultants of the Company or any parent or
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Code, provided, that Incentive Stock Options may only be granted
<PAGE>
to individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board or Committee
shall so determine.
4. Stock Subject to Plan
---------------------
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 240,000. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the Plan
by the Board in its sole discretion.
5. Forms of Option Agreements
--------------------------
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board or the Committee.
Such option agreements may differ among recipients.
6. Purchase Price
--------------
(a) General. The purchase price per share of stock issuable upon
-------
the exercise of an option shall be determined by the Board or the Committee at
the time of grant of such option, provided, however, that in the case of an
-------- -------
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Market Value (as hereinafter defined) of such stock at the time of grant of
such option, or not less than 110% of such Fair Market Value in the case of
options described in Section 11(b). "Fair Market Value" of a share of Common
Stock of the Company as of a specified date for the purposes of the Plan shall
be determined in the event the Common Stock is traded, on a securities exchange
or in the over-the-counter market, by any reasonable method using market
quotations on the principal securities exchange (including The Nasdaq SmallCap
Market or The Nasdaq National Market) or in the over-the-counter market on which
such shares are traded on the day immediately preceding the date as of which
Fair Market Value is being determined, or on the next preceding date on which
such shares are traded if no shares were traded on such immediately preceding
day. If the shares are not publicly traded either on a securities exchange or in
the over-the counter market, Fair Market Value of a share of Common Stock
(including, in the case of any repurchase of shares, any distributions with
respect thereto which would be repurchased with the shares) shall be determined
in good faith by the Board. In no case shall Fair Market Value be determined
with regard to restrictions other than restrictions which, by their terms, will
never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may
-------------------------
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or by any other means which the Board or the Committee determines are
consistent with the purposes of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 of the
1934 Exchange Act).
2
<PAGE>
7. Exercise Option Period
----------------------
Subject to earlier termination as provided in the Plan, each option
and all rights thereunder shall expire on such date as determined by the Board
or the Committee and set forth in the applicable option agreement, provided,
--------
that such date shall not be later than ten (10) years after the date on which
the option is granted.
8. Exercise of Options
-------------------
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. Subject to the requirements in the immediately preceding sentence,
if an option is not at the time of grant immediately exercisable, the Board may
(i) in the agreement evidencing such option, provide for the acceleration of the
exercise date or dates of the subject option upon the occurrence of specified
events, and/or (ii) at any time prior to the complete termination of an option,
accelerate the exercise date or dates of such option.
9. Nontransferability of Options
-----------------------------
Except as otherwise determined by the Board or the Committee at the
date of grant of an option, no option granted under this Plan shall be
assignable or otherwise transferable by the optionee, except by will or by the
laws of descent and distribution. An option may be exercised during the lifetime
of the optionee only by the optionee. In the event an optionee dies during his
employment with the Company or any of its subsidiaries, his option shall
thereafter be exercisable within the period prescribed in Section 10 hereof, by
his executors or administrators to the full extent to which such option was
exercisable by the optionee at the time of his death during the period set forth
in Section 10.
10. Effect of Termination of Employment or Other Relationship
---------------------------------------------------------
Except as otherwise determined by the Board or Committee at the date
of grant of an option, and subject to the provisions of the Plan, an optionee
may exercise an option at any time within one (1) year (or within such lesser
period as may be specified in the applicable option agreement) following
termination of the optionee's employment or other relationship with the Company
to the extent the option was exercisable at the time of such termination, if
such termination was due to the death or disability (as such term is defined in
Section 22(e) of the Code or any successor provisions thereto) of the optionee
but in no event later than the expiration date of the option. Except as
otherwise determined by the Board or Committee at the date of grant of an
option, if the termination of the optionee's employment is for any other reason
(other than termination for cause or a termination that is otherwise
attributable to a breach by the optionee of an employment or confidentiality or
non-disclosure agreement) an optionee may exercise an option to the extent the
option was exercisable at the time of such termination, at any time within three
(3) months following the termination of the optionee's employment or other
relationship with the Company. Except as otherwise determined by the Board or
Committee at the date of grant of an option, if the termination of the
optionee's employment is for cause, or is otherwise attributable to a
3
<PAGE>
breach by the optionee of an employment or confidentiality or non-disclosure
agreement, the option shall expire immediately upon such termination. The Board
shall have the power to determine what constitutes a termination for cause or a
breach of an employment or confidentiality or non-disclosure agreement, whether
an optionee had been terminated for cause or breach occurs. Any such
determination shall be final and conclusive and binding upon the optionee. For
all purposes of the Plan and any option granted hereunder, "employment" shall be
defined in accordance with the provisions of Section 1.421-7(h) of the Income
Tax Regulations (or any successor regulations).
11. Incentive Stock Options
-----------------------
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under
-------------------
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock
---------------
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) the purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair Market Value
of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five (5) years
from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
-----------------
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000 (the "$100,000
Limitation"). In the event the $100,000 Limitation is exceeded as a result of an
acceleration of vesting or otherwise, the Option shall be deemed to be two
options. The first Option shall be for the maximum number of shares subject to
the Option that can comply with the $100,000 Limitation without causing the
Option to be unexercisable as to vested shares. The second Option, which shall
not be treated as an Incentive Stock Option, shall be for the balance of the
shares subject to the Option and shall be exercised on the same terms and at the
same time as set forth in the applicable option agreement. Unless the optionee
specifically elects to the contrary in his or her written notice of exercise,
the first option shall be deemed to be exercised first to the maximum possible
extent and then the second option shall be deemed to be exercised.
4
<PAGE>
12. Additional Provisions
---------------------
(a) Additional Option Provisions. The Board or the Committee may,
----------------------------
in its sole discretion, include additional provisions in option agreements
covering options granted under the Plan, including without limitation,
restrictions on transfer, repurchase rights, rights of first refusal,
commitments to pay cash bonuses or to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board or the Committee, provided, that
--------
such additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board or the Committee may,
----------------------------
in its sole discretion (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised, or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised, provided, however that no such extension
--------
shall be permitted if it would cause the Plan to fail to comply with Section 422
of the Code or with Rule 16b-3 of the 1934 Exchange Act (if applicable to such
option).
13. General Restrictions
--------------------
(a) Investment Representations. The Company may require any person
--------------------------
to whom an option is granted, as a condition of exercising such option or award,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the option
or award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock, including any "lock-up" or other restriction on
transferability.
(b) Compliance With Securities Law. Each option shall be subject
------------------------------
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option or award upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition, is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, such option or
award may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval or satisfaction of such
condition shall have been effected or obtained on conditions acceptable to the
Board or the Committee. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
5
<PAGE>
14. Rights as a Stockholder
-----------------------
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
right to vote or to receive dividends or non-cash distributions with respect to
such shares) until the effective date of exercise of such option and then only
to the extent of the shares of Common Stock so purchased. No adjustment shall
be made for dividends or other rights for which the record date is prior to the
date of exercise.
15. Adjustment Provisions for Recapitalizations,
Reorganizations and Related Transactions
----------------------------------------
(a) Recapitalizations and Related Transactions. If, through or as
------------------------------------------
a result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under or otherwise referred to in the Plan, (y) the
number and kind of shares or other securities subject to any then-outstanding
options under the Plan, and (z) the price for each share subject to any then-
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (A) would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 of the 1934 Exchange Act (if applicable to such option),
or (B) would be considered as the adoption of a new plan requiring stockholder
approval.
(b) Board Authority to Make Adjustments. Any adjustments under
-----------------------------------
this Section 15 will be made by the Board or the Committee, whose determination
as to what adjustments, if any, will be made and the extent thereof will be
final, binding and conclusive. No fractional shares will be issued under the
Plan on account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc
---------------------------------------------------
(a) General. Except as otherwise determined by the Board or the
-------
Committee at the date of grant of an option, in the event of any merger,
transfer or acquisition of the Company or substantially all of the assets of the
Company or in the event there is a sale, transfer or acquisition of
substantially all the assets of the Company, then any or all outstanding options
under the Plan shall accelerate and become exercisable in full immediately prior
to such event.
(b) Substitute Options. The Company may grant options under the
------------------
Plan in substitution for options held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing
6
<PAGE>
corporation. The Company may direct that substitute options be granted on such
terms and conditions as the Board considers appropriate in the circumstances.
17. No Special Employment Rights
----------------------------
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits
-----------------------
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board.
19. Amendment, Modification or Termination of the Plan
--------------------------------------------------
(a) The Board may at any time modify, amend or terminate the Plan
provided, however, that if at any time the approval of the stockholders of the
- -------- -------
Company is required under Section 422 of the Code or any successor provision
with respect to Incentive Stock Options, or under Rule 16b-3 of the 1934
Exchange Act, the Board may not effect such modification or amendment without
such approval.
(b) The modification, amendment or termination of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board or the Committee may amend or modify outstanding option agreements in a
manner not inconsistent with the Plan. The Board shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code, and (ii) the terms and provisions
of the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3 of the 1934 Exchange Act.
20. Withholding
-----------
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part (i) by causing
7
<PAGE>
the Company to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option, or (ii) by delivering to the Company shares of Common
Stock already owned by the optionee. The shares so delivered or withheld shall
have a Fair Market Value equal to such withholding obligation as of the date
that the amount of tax to be withheld is to be determined. An optionee who has
made an election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to any
forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within one (1) year from the date the shares were issued to the optionee
pursuant to the exercise of the option, and (ii) if required by law, to remit to
the Company, at the time of and in the case of any such disposition, an amount
sufficient to satisfy the Company's federal, state and local withholding tax
obligations with respect to such disposition, whether or not, as to both (i) and
(ii), the optionee is in the employ of the Company or any Subsidiary at the time
of such disposition.
21. Cancellation and New Grant of Options, Etc.
-------------------------------------------
The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options, or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan
---------------------------------------
(a) Effective Date. The Plan shall become effective when adopted
--------------
by the Board, but no Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring stockholder approval shall become effective when adopted by the Board
and amendments requiring stockholder approval (as provided in Section 19) shall
become effective when adopted by the Board, but no Incentive Stock Option
granted after the date of such amendment shall become exercisable (to the extent
that such amendment to the Plan was required to enable the Company to grant such
Incentive Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve (12) months of the Board's adoption of
such amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the
8
<PAGE>
Company to grant such option to a particular optionee. Subject to this
limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated by the Board, the Plan
-----------
shall terminate upon the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board. After termination of the
Plan, no further options may be granted under the Plan; provided however, that
-------- -------
such termination will not affect any options granted prior to termination of the
Plan.
23. Governing Law
-------------
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
9
<PAGE>
ePills, Inc.
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
STOCK OPTION AGREEMENT (the "Agreement"), dated as of ____________,
---------
between ePills, Inc., a Delaware corporation (the "Company"), having an address
-------
at 5900 Hollis, Emeryville, California 94608 and _____________, having an
address at ________________(the "Grantee").
-------
In accordance with the ePills, Inc. 1999 Stock Option Plan (the
"Plan"), the Company hereby grants to the Grantee an incentive stock option (the
----
"Option") to purchase all or any part of an aggregate of _______ shares of the
------
Company's common stock (the "Shares"). This Option is intended to be an
------
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), but the Company does not represent or warrant that the
----
Option qualifies as such.
To evidence the Option and to set forth its terms, the Company and the
Grantee agree as follows:
1. Confirmation of Grant. The Company hereby evidences and
---------------------
confirms its grant of the Option to the Grantee on the date of this Agreement.
2. Number of Shares. This Option shall be for an aggregate of
----------------
______Shares.
3. Exercise Price. The exercise price shall be $_______ per share
--------------
for a total of $__________ (the "Exercise Price").
--------------
4. Medium and Time of Payment. The Option shall be exercised by a
--------------------------
written notice signed by the Grantee which identifies this Agreement and states
the number of Shares then being purchased (the "Exercise Notice"), delivered to
---------------
the attention of the Company's Secretary at the Company's principal office in
California. The exercise date shall be the date such notice is received by the
Company. Such notice shall be accompanied by (i) cash payment or certified
check equal to the Exercise Price; or (ii) a certificate representing Company
stock owned by the Grantee, if not subject to any restrictions, with a Fair
Market Value (as such term is defined in the Plan) equal to the Exercise Price;
or (iii) instructions for the Company to withhold from the purchased shares that
amount of purchased shares with a Fair Market Value equal to the Exercise Price.
Upon acceptance of the Exercise Notice and receipt of payment in full,
the Company shall cause to be issued a certificate representing the shares of
common stock so purchased.
5. Term and Exercise of the Option. (a) The Option shall expire ten
-------------------------------
years from the date of this Agreement (the "Expiration Date") and may be
---------------
exercised in whole or in increments in accordance with the following schedule:
<PAGE>
(a) Notwithstanding the foregoing, in the event that the Company
consummates a sale of substantially all of its assets or outstanding stock or a
merger or consolidation with another company, the Option shall vest in full and
be exercisable immediately prior to such transaction.
2. Nontransferability. The Option may be transferred only by will or
------------------
the laws of descent and distribution, and the Option may be exercised during the
Grantee's lifetime only by the Grantee (or by the Grantee's legal representative
under the circumstances described in Section 7 hereof).
3. Rights in the Event of the Grantee's Disability. If the Grantee's
-----------------------------------------------
employment with the Company and any parent or subsidiary corporation (within the
meaning of Section 424(e) and (f) of the Code (each an "Affiliate")) is
---------
terminated on account of Disability (as such term is defined in the Plan), the
Grantee or the Grantee's legal representative (or the Grantee's estate if the
Grantee dies after termination of employment) may exercise the Option, to the
extent exercisable on the date of the Grantee's termination of employment, at
any time within one year after termination of employment but in no event after
the expiration of the term of the Option. The Grantee's "estate" means the
------
Grantee's legal representative or any person who acquires the right to exercise
the Option by reason of the Grantee's death.
4. Rights in the Event of the Grantee's Death. If the Grantee dies
------------------------------------------
while an employee of the Company or any affiliate or within three months after
terminating such employment, but in either event while he still has the right
exercise this Option, his estate may exercise the Option, to the extent
exercisable at the date of the Grantee's death, any time within one year after
the Grantee's death, but in no event after the expiration of the term of the
Option.
5. Rights in the Event of Termination of Employment. If Grantee's
------------------------------------------------
employment with the Company or any Affiliate is terminated (i) involuntarily for
cause or is otherwise attributable to a breach by the Grantee of an employment
or confidentiality or non-disclosure agreement or (ii) voluntarily by the
Grantee, the Grantee's Option shall expire as of the date of termination of
employment. The Board of Directors (the "Board") of the Company or the Committee
-----
(as such term is defined in the Plan) shall have the power to determine, in its
sole discretion, what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether Grantee has
been terminated for cause or has breached such an agreement, and the date upon
which such termination for cause or breach occurs. Any such determination shall
be final and conclusive and binding upon the Grantee and all other persons
interested or claiming interest under this Agreement or the Plan. If the
Grantee's employment is terminated for any reason other than death, Disability,
or as described in the preceding sentences of this Section, the Grantee may
exercise the Option, to the extent exercisable before the termination, within
three months after the termination, but in no event after the expiration of the
term of the Option.
-2-
<PAGE>
6. Extension If Grantee Subject to Section 16(b) of the 1934 Act.
-------------------------------------------------------------
Notwithstanding the foregoing paragraphs 7, 8 and 9, if the exercise of the
Option within the applicable time periods set forth above would subject the
Optionee to suit under Section 16(b) of the Securities Act of 1934, as amended,
the Option shall remain exercisable to the extent permitted by law until the
earliest to occur of (i) the 10th day following the date on which the Grantee
would no longer be subject to such suit; (ii) the 190th day after the Grantee's
termination of employment; provided such termination was not for cause or
otherwise attributable to a breach by the Grantee of an employment or
confidentiality or non-disclosure agreement; or (iii) the Expiration Date;
provided that no additional vesting of the Option shall occur during such
periods. Any such extension of the period in which the Option may be exercised
may result in the Option ceasing to qualify as an Incentive Stock Option and the
Company makes no representation as to the tax consequences of any such delayed
exercise. The Grantee agrees to consult with the Grantee's own tax advisors as
to the tax consequences to the Grantee of any such delayed exercise.
7. Representations and Warranties of Grantee.
-----------------------------------------
(a) Grantee represents and warrants that this Option is being
acquired by Grantee for Grantee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Grantee acknowledges that the Company may issue Shares upon
the exercise of the Option without registering such Shares under the Securities
Act of 1933, as amended (the "1933 Act"), on the basis of certain exemptions
--------
from such registration requirement. Accordingly, Grantee agrees that his or her
exercise of the Option may be expressly conditioned upon his or her delivery to
the Company of an investment certificate including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including a representation that Grantee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing thereof and an agreement by Grantee that the certificates
evidencing the Shares may bear a legend indicating such non-registration under
the 1933 Act and the resulting restrictions on transfer. Grantee acknowledges
that, because Shares received upon exercise of an Option may be unregistered,
Grantee may be required to hold the Shares indefinitely unless they are
subsequently registered for resale under the 1933 Act or an exemption from such
registration is available.
(c) Grantee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan. Grantee hereby agrees to accept as
binding, conclusive and final all decisions of the Board or the Committee, upon
any questions arising under the Plan.
(d) Grantee hereby acknowledges that, in addition to certain
restrictive legends that the securities laws of the state in which Optionee
resides may require, each certificate representing the Shares may be endorsed
with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER
-3-
<PAGE>
THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED
BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAW
OF RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER THAT REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS NOT
REQUIRED.
8. Adjustment in the Shares. If the Shares, as presently constituted,
------------------------
shall be changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares, or otherwise) or if the number of Shares shall be
increased through the payment of a share dividend, the Grantee shall receive
upon exercise of the Option the number and kind of shares or other securities
into which each outstanding Share shall be so changed, or for which each such
Share shall be exchanged, or to which each such Share shall be entitled, as the
case may be. The exercise price and other terms of the Option shall be
appropriately amended in the manner provided for in the Plan. If there shall be
any other change in the number or kind of the outstanding Shares, or of any
shares or other securities into which the Shares shall have been changed, or for
which the Shares shall have been exchanged, then, if the Board of Directors
shall, in its sole discretion, determine that such change equitably requires an
adjustment in the Option, such adjustment shall be made in accordance with that
determination. Notice of any adjustment shall be given by the Company to the
Grantee.
9. Stop-Transfer Notices. Grantee understands and 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.
10. Effect of Termination or Amendment of Plan. No suspension,
------------------------------------------
termination, modification, or amendment of the Plan may, without the express
written consent of the Grantee, adversely affect the rights of the Grantee under
this Option.
11. No Limitation on Rights of the Company. The grant of this Option
--------------------------------------
shall not in any way affect the right or power of the Company to make
adjustments, reclassifications, or changes in its capital or business structure
or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part
of its business or assets.
12. Rights as a Shareholder. The Grantee shall have the rights of a
-----------------------
shareholder with respect to the Shares covered by the Option only upon becoming
the holder of record of those Shares.
-4-
<PAGE>
13. Compliance with Applicable Law. Notwithstanding anything herein to
------------------------------
the contrary, the Company shall not be obligated to cause to be issued or
delivered any certificates for Shares pursuant to the exercise of the Option,
unless and until the Company is advised by its counsel that the issuance and
delivery of such certificates is in compliance with all applicable laws,
regulations of governmental authority, and the requirements of any exchange upon
which Shares are traded. The Company shall in no event be obligated to register
any securities pursuant to the 1933 Act (as now in effect or as hereafter
amended) or to take any other action in order to cause the issuance and delivery
of such certificates to comply with any such law, regulation or requirement.
The Board may require, as a condition of the issuance and delivery of such
certificates and in order to ensure compliance with such laws, regulations, and
requirements, that the Grantee make such covenants, agreements, and
representations as the Board, in its sole discretion, considers necessary or
desirable.
14. No Obligation to Exercise Option. The granting of the Option shall
--------------------------------
impose no obligation upon the Grantee to exercise the Option.
15. Agreement Not a Contract of Employment. This Agreement is not a
--------------------------------------
contract of employment, and the terms of employment of the Grantee or the
relationship of the Grantee with the Company or any Affiliate shall not be
affected in any way by this Agreement except as specifically provided herein.
The execution of this Agreement shall not be construed as conferring any legal
rights upon the Grantee for a continuation of employment or relationship with
the Company or any Affiliate, nor shall it interfere with the right of the
Company or any subsidiary thereof to discharge the Grantee and to treat him
without regard to the effect which that treatment might have upon him as a
Grantee.
16. Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally or sent by
certified, registered, or express mail, postage prepaid. Any such notice shall
be deemed given when so delivered personally or, if mailed, four days after the
date of deposit in the United States mails, to each party at its address set
forth above or to such other address as may be designated in a notice given in
accordance with this Section.
17. Governing Law. Except to the extent preempted by Federal law, this
-------------
Agreement shall be construed and enforced in accordance with, and governed by,
Delaware law.
18. Attorneys' Fees. In the event any litigation concerning any
---------------
controversy, claim or dispute between the parties hereto, arising out or
relating to this Agreement or the breach hereof, or the interpretation hereof,
the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees and costs incurred therein or in the
enforcement or collection of any judgement or award rendered therein. The
"prevailing party" means the party determined by the court to have most nearly
prevailed, even if such party did not prevail in all matters, not necessarily
the one in whose favor a judgement in rendered.
19. Entire Agreement. This Agreement and the Plan contain all of the
----------------
understandings and agreements between the Company and its Affiliates, and the
Grantee concerning this Option and supersedes all earlier negotiations and
understandings, written or
-5-
<PAGE>
oral, between the parties with respect thereto. The Company, its Affiliates and
the Grantee have made no promises, agreements, conditions or understandings
either orally or in writing, that are not included in the Agreement or the Plan.
20. Headings. The headings of Sections and subsections herein are
--------
included solely for convenience of reference and shall not affect the meaning of
any of the provisions of the Agreement.
21. Amendments. Subject to the provisions of the Plan, the Agreement
----------
maybe amended or modified at any time by an instrument in writing signed by the
parties hereto.
IN WITNESS WHEREOF, the Company and the Grantee have duly executed
this Agreement as of the date first written above.
ePills, Inc.
__________________________ By:___________________________
Witness
__________________________ ______________________________
Witness
-6-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Windom Health Enterprises, Inc.
- -------------------------------
HealthCentralRx.com (formerly ePills Inc.)
- ------------------------------------------
HealthCentral.ca
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 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. 3 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 8, 1999
<PAGE>
EXHIBIT 23.1c
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 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 8, 1999
