<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number: 000-27567
HEALTHCENTRAL.COM
(Exact name of registrant as specified in its charter)
Delaware 94-3250851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HealthCentral.com
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (510) 250-2500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $84,855,473 as of February 29, 2000 based
upon the closing sale price on the Nasdaq National Market reported for such
date. Shares of Common Stock held by each officer and director and by each
person who owns 5% of more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 22,584,964 shares of the registrant's Common Stock issued and
outstanding as of February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders to be filed hereafter (incorporated into Part III hereof).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements. These forward-looking statements involve
risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including but not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors That May Affect Future Results and Market Price of
Stock." Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's opinions only as of the date
hereof. The Company undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements.
Item 1. 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 of websites. In addition, we enable healthcare
institutions to provide healthcare information to their patients and consumers
through our enterprise web 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 enterprise web 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, Joe and Theresa Graedon of The
Peoples' Pharmacy and Covert Bailey. 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 have an
agreement through December 15, 2002 with AltaVista under which we are the
exclusive healthcare content provider to its website, subject to conditions,
and we expect to launch an enhanced version of our co-branded health channel
in the second quarter of 2000. We also operate a 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. Our largest clients are Brown
and Toland, Scripps Clinic and Catholic Healthcare West.
1
<PAGE>
Industry Background
The Growth of the Internet and Electronic Commerce
The Internet has revolutionized the way in which people obtain and exchange
information and transact business. International Data Corporation, or IDC,
estimates that the number of Internet users will increase from 142 million at
the end of 1998 to 500 million by the end of 2003. The Internet has unique and
powerful characteristics that differentiate it from traditional channels of
retail distribution, which are often narrow in selection, inconvenient,
limited in product information and lacking in privacy. IDC estimates that
worldwide business-to-consumer sales over the Internet will increase from
approximately $11 billion in 1998 to approximately $93 billion by 2002.
The Growth of the Internet Healthcare Market
The Internet has become an increasingly popular source for healthcare
information and products. Consumer research conducted by Cyber Dialogue in
1999 found that 24.8 million U.S. adults search for health information on the
Internet, with the number of people retrieving health-related information
projected to grow to 30 million in 2000. This growth in demand for online
health information has been driven by consumers seeking to make better
personal health care decisions. Consumers are also increasingly purchasing
healthcare products online. Forrester Research estimates that almost one third
of a surveyed group of Internet users shopped for health and personal care
products online during the previous six months. According to Jupiter
Communications, the total online and offline market for health goods, which
includes over-the-counter as well as prescription drugs, is expected to grow
from $133.6 billion in 1998 to $205.2 billion in 2003, while the amount of
online consumer purchases of healthcare goods is expected to grow from $2.4
million in 1998 to $1.7 billion in 2003.
Healthcare Industry Trends
Consumers are taking it upon themselves to seek more information about
their healthcare needs for the following reasons:
. Patients' access to their physicians has become significantly reduced due
to managed care.
. Employers are increasingly shifting healthcare costs and decisions to
their employees.
. Insurance plans allow individuals greater choice in healthcare options,
at increased personal costs.
. Advances in medicine have broadened treatment options for many medical
conditions.
The advent of the Internet has provided a medium for consumers to seek such
information. Moreover, the Internet allows consumers to seek information on
sensitive or embarrassing health issues while maintaining anonymity and
confidentiality.
Payors and providers, who are faced with increasing economic pressures as
an outcome of managed care, are increasingly competing for consumers.
Physician groups compete to increase their patient bases to spread their
administrative costs and increase their negotiating leverage with payors. This
competition in the provider market is exacerbated by an oversupply of
specialist physicians in many markets and underutilization in many hospitals.
Due to this increased competition for members and patients, both payors and
providers are looking for ways to develop and maintain the loyalty of their
existing members and patients and attract new members and patients. Internet-
based services enable health plans and providers to differentiate their
services, decrease their customer support costs, and improve ties with their
members or patients.
The consumer has also become the marketing focus of commercial healthcare
enterprises, such as pharmaceutical and other healthcare products companies.
While pharmaceutical manufacturers have traditionally marketed their
prescription products to physicians, these companies have recognized that
consumers want to learn about and exercise greater control over their drug
therapies across an ever-widening list of conditions. Pharmaceutical companies
have thus begun advertising their products directly to consumers, most notably
2
<PAGE>
through television advertising. This direct-to-consumer, or DTC, advertising
is increasing rapidly. Jupiter Communications projects that overall health-
related advertising spending in all forms of media will increase to $10.8
billion by 2003, while DTC advertising for pharmaceutical products will grow
to almost $3.8 billion. Advertisers are also increasingly turning to the
Internet as a medium to deliver their message. Jupiter Communications projects
that overall online health and medical advertising spending, including online
DTC advertising, will increase to $356 million by 2003, up from $12.3 million
in 1998.
Internet Healthcare Market Opportunities
Although the Internet enables consumers to access healthcare information,
products and services, several Internet healthcare opportunities have yet to
be fully addressed. Despite approximately 15,000 healthcare websites, online
healthcare information is typically provided in a generic, impersonal and
sometimes misleading manner, with the line between editorial content and
advertising blurred. In addition, Internet services offered to healthcare
institutions typically offer no customization capabilities or branding
opportunity to these institutions.
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 of websites. In addition, we enable healthcare
institutions to provide healthcare information to their patients and consumers
through our enterprise web 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 also operate a Canadian co-
branded health channel on MediaLinx, our Canadian affiliate, and we plan to
launch an enhanced version of our AltaVista co-branded health channel in the
second quarter of 2000. We also have important affiliations with other online
promotional and portal companies. Our HealthCentral.com network of websites 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, Joe and Teresa Graedon, who host their own internationally syndicated
radio show and write The People's Pharmacy, a nationally syndicated newspaper
column, and Covert Bailey, a fitness and nutrition expert, author and
television personality.
3
<PAGE>
Online Prescription Pharmaceuticals and Other Health-Related Products.
HealthCentralRx.com offers approximately 23,000 SKUs, of which approximately
5,000 are prescription pharmaceuticals and approximately 18,000 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.
Enterprise Web 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, 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 several 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
4
<PAGE>
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 320 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 rush hour
traffic. We believe Dr. Edell reaches approximately 13 million radio
listeners weekly through his radio broadcast, based on data provided by
Arbitron. Dr. Edell also has a daily syndicated television report, which
is broadcast in over 55 markets, including four of the 10 largest
television markets in the United States. As of February 25, 1999,
television stations in 30 markets had agreed to promote the
healthcentral.com website and include the HealthCentral.com Report icon
on their local web pages.
. The People's Pharmacy. Teresa and Joe Graedon write The People's
Pharmacy, a newspaper column syndicated by King Features and published in
over 75 newspapers, including in markets such as New York, Baltimore, Los
Angeles, Boston and Chicago. The Graedons also host a weekly radio show
that is broadcast on over 700 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 operate a co-branded website,
PeoplesPharmacy.HealthCentral.com.
. Portal Relationships with AltaVista, America Online and MediaLinx. We
have an agreement with AltaVista under which we are the exclusive
healthcare content provider to its website, subject to conditions, and we
expect to launch an enhanced version of our co-branded health channel in
the second quarter of 2000. HealthCentralRx.com has an agreement with
America Online through August 2001, under which HealthCentralRx.com is
one of the five health-related anchor tenants on the America Online
HealthOnline Pharmacy Channel. We also operate 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 Microsoft, 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
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.
. 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.
. Enterprise Web 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 use 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 29 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.
5
<PAGE>
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 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;
. 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
. developing 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, Teresa
and Joe Graedon of The People's Pharmacy and Covert Bailey, 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.
HealthCentralRx.com
HealthCentralRx.com launched its website in September 1999.
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 an agreement with America Online through
August 2001 under which it is one of five health anchor tenants on the America
Online HealthOnline Pharmacy Channel.
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.
6
<PAGE>
. 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 Infant's Tylenol, 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.
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.
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 according to set preferences and past behavior.
. Rx Reminder--customizable shopping calendar for pre-order and re-
order/refill.
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 47 of the 50
states as well as Guam, Puerto Rico and the U.S. Virgin Islands. A
license to fill prescriptions is pending in Arkansas, Michigan and
Tennessee.
. Verifying Prescriptions. Medi-Mail's licensed pharmacists are required to
verify the validity and completeness of prescription drug orders.
7
<PAGE>
. 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. These orders are
currently delivered by UPS two-day air or three to five-day ground
transportation. By June 2000, we plan to offer U.S. mail as an additional
shipping option.
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 18,000 SKUs of health and
beauty aids and over-the-counter products on our sites. We offer a variety of
shipping options, including UPS three to five day ground service, UPS 2nd day
air and UPS Next Day Air. By June 2000, we plan to offer U.S. mail as an
additional shipping option.
Customers
Consumer
In January 2000, according to an audit completed by Nielsen I/PRO, the
HealthCentral.com network of websites experienced the following pageviews and
visits and, according to DoubleClick the following unique visitors:
<TABLE>
<CAPTION>
I/PRO I/PRO DoubleClick
January 2000 Pageviews Visits Unique Visitors
------------ ---------- --------- ---------------
<S> <C> <C> <C>
HealthCentral.com.................... 9,378,798 2,421,750 1,356,170
RxList............................... 3,942,596 917,649 540,061
HealthCentralRx...................... 2,726,468 557,675 N/A
HealthCentral.ca..................... 523,414 97,988 N/A
TOTAL................................ 16,571,276 N/A N/A
</TABLE>
Any aggregation of the figures in the above table may result in double-
counting of total visits and/or unique visits because one person may visit
more than one of our websites. Page views are the total number of complete
pages retrieved and viewed by visitors to each of the websites. Each single-
session use of any of the websites constitutes a visit, and a unique user is
an individual visitor to the HealthCentral.com or RxList.com website. We do
not have the ability to track unique visitors to HealthCentralRx.com or
MediaLinx.
8
<PAGE>
Institutional
The following is a list of our largest institutional customers, to whom we
are currently licensing applications or providing website development
services:
<TABLE>
<CAPTION>
Name Description
---- -----------
<S> <C>
Brown & Toland Medical Partnership of University of California at San
Group Francisco and California Pacific Medical Centers
with over 1,800 physicians
Catholic Healthcare West Network of 48 hospitals based in California,
Nevada and Arizona
Mills Peninsula Health Acute care hospital and health center affiliated
Services with Sutter Health
Palo Alto Medical Non-profit organization affiliated with Sutter
Foundation Health providing healthcare services, research
and education
Scripps Clinic Medical group and clinical research organization
with over 320 physicians based in San Diego,
California
</TABLE>
Strategic Relationships
We have the following strategic relationships:
Dr. Dean Edell. In May 1999, we entered into a 15-year agreement with
Dr. Edell, in which he granted us the exclusive right to the use of his
name in connection with our business and exclusive commercialization 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 expect to launch an expanded version of our co-branded
health channel in the second quarter of 2000. 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, of which $5 million had been paid as of March 1, 2000. 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 provides 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 18,000 SKUs. Our pharmacy
services fulfillment agreement is with Bergen Brunswig's mail order
pharmacy, Medi-Mail, has a term of five years and provides our customers
with access to over 5,000 prescription pharmaceutical SKUs. Our
relationship
9
<PAGE>
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 85 pharmacy benefit managers covering
approximately 80 million lives. Each of the PBMs has entered into an
agreement with Medi-Mail, pursuant to which it provides pharmacy benefits
for customers of approximately 2,000 individual pharmacies.
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 75 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 700 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. In November 1999, we launched our co-branded website with
MediaLinx, an Internet portal in Canada. MediaLinx manages Sympatico, the
largest Internet service provider in Canada. Canadian users accessing
MediaLinx have access to our co-branded channel offering Canadian-specific
health content and editorials.
Covert Bailey. In December 1999, we entered into a four-year license
agreement with Covert Bailey, a fitness and nutrition expert, author and
television host. We feature proprietary content from Covert Bailey,
including recipes, fitness and nutrition tips, diet and exercise logs, and
tools that measure body fat and caloric needs and answer site visitors'
questions. We make annual payments to Mr. Bailey over the life of the
agreement, issued him 6,250 shares of our common stock upon signing of the
contract and have granted him an option to purchase 30,000 shares of our
common stock which vests over the four year term of the agreement.
We also have promotional, content distribution and portal relationships
with Microsoft, Looksmart, NetPulse, Snap.com and Yahoo!.
Technology
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,
consisting of a user interface layer, an engine layer and a database layer,
which allows customization, updating and repair of each layer without
interfering with the operation of the other layers. 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.
10
<PAGE>
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
February 2000. 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 have been initially
designed to attract first-time customers. To induce customer loyalty, we
intend to employ frequency reward programs based upon repeat purchases. In the
first half of 2000, we plan to target healthy people and people who suffer
from chronic conditions by offering disease-specific information and building
communities around common health concerns and prevention and health management
topics.
Our online marketing efforts are focused on identifying and marketing to
early adopters of healthcare e-commerce, who are typically Internet users aged
35 to 54, with an emphasis on women. We intend to reach these groups through
co-marketing initiatives with affiliate websites targeting adults, 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.
Enterprise Web 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 enterprise web 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.
11
<PAGE>
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 Healtheon/WebMD.com (which has announced an
acquisition of OnHealth.com);
. online portal companies, such as America Online, Excite, Inc., The
GoNetwork, 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;
. 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 operates 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.
12
<PAGE>
Enterprise Web Services
In the market for enterprise web 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 enterprise web 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 have obtained federal trademark registrations for the
trademarks and logos "HealthCentral," "HealthCentralRx" and "RxList." We have
a 15-year agreement with Dr. Edell, in which he has granted us the exclusive
right to the use of his name in connection with our business and exclusive
commercialization rights to his services over the Internet, except for the
publication of radio transcripts and Internet broadcasts of his radio program.
Under this agreement, all content that Dr. Edell creates for our
HealthCentral.com network is owned by us. Windom Health developed some
elements of HealthView, the Personal Health Record and the general
architecture of the HealthCentral.com consumer website during its
participation in a project funded by a grant from the National Institute of
Standards and Technology. Under the terms of the grant, Windom Health owns the
intellectual property it developed for the project and granted a nonexclusive,
nontransferable license to the U.S. government of that intellectual property.
In addition, we have various other exclusive contractual rights. See "--
Strategic Relationships."
Our policy is to enter into confidentiality and invention assignment
agreements with all employees and consultants, and nondisclosure agreements
with all potential business partners. These protections, however, may not be
adequate to protect our intellectual property rights. In addition, we may be
sued by third parties alleging, with or without merit, that we have violated
their intellectual property rights. See "Risk Factors--Any failure 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 identify us
13
<PAGE>
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.
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; however, in some jurisdictions we may be
considered pharmacies and be required to register as a pharmacy within those
jurisdictions. While 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
considered a "pharmacy" under state regulations as well as being 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
14
<PAGE>
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. We rely exclusively on
Medi-Mail to meet the requirements imposed for verifying and filling
prescriptions received on-line and have structured our contracts with Medi-
Mail accordingly. However, because we may be considered a pharmacy in some
jurisdictions due to our interface directly with customers, we may become
regulated by any future laws which are enacted or enforcement efforts by the
federal government or states relating to our on-line pharmacy activities.
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, even though at this time we do not accept Medicare and
Medicaid prescriptions.
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 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 such changes in laws 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
15
<PAGE>
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 form
and in connection with prescription drug and other healthcare product orders.
We expect that our site will also contain information compiled by users for
their personal healthcare histories. While this information is not intended to
constitute or be treated as medical records, users or regulatory agencies may
seek to characterize this information as medical records and impose
requirements and/or sanctions upon us related to the maintenance and handling
of medical records. Maintaining this information could also expose us to
claims if unauthorized persons gain access to it notwithstanding our efforts
to maintain its security.
Federal and State Anti-Kickback Laws. Provisions of the Social Security Act
known as the Federal Anti-Kickback Law prohibit knowingly or willfully,
directly or indirectly, paying or offering to pay, or soliciting or receiving,
any remuneration in exchange for the referral of patients to a person
participating in, or for the order, purchase or recommendation of items or
services that are subject to reimbursement by, Medicare, Medicaid and similar
other federal or state healthcare programs. Violations may result in civil and
criminal sanctions and penalties. Civil penalties include exclusion from
government health programs. Criminal sanctions include imprisonment for up to
five years and fines of up to $25,000 or both, for each violation. Recent
federal legislation expanded the sanctions to include civil monetary penalties
up to $50,000 for each prohibited act and up to three times the total amount
of remuneration offered, paid, solicited or received, even in circumstances
where a portion of such remuneration is offered, paid, solicited or received
for a lawful purpose. Certain courts 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.
16
<PAGE>
In addition, most states have enacted anti-kickback, or illegal
remuneration, laws that are similar to the Federal Anti-Kickback laws. Some of
these state laws are very closely patterned on the Federal Anti-Kickback Law;
others, however, are broader and reach reimbursement by private payors, and
still others are more narrow, applying, for example, only to kickbacks paid or
received by providers. We have not conducted a survey of these laws in all
fifty states and therefore, our arrangements with our e-commerce affiliates
may result in investigation or prosecution by state regulators or attorneys
general.
If our activities were deemed to be inconsistent with the Federal Anti-
Kickback Law or with state anti-kickback or illegal remuneration laws, we
could face civil and criminal penalties or be barred from such activities, any
of which could harm our business. Further, we could be required to restructure
our existing or planned sponsorship compensation arrangements and e-commerce
activities in a manner that could harm our business.
Federal and State Self-Referral Prohibitions. The federal physician self-
referral statute, often identified as the Stark Law, generally forbids
payments, under Medicare or Medicaid, based on a physician referral for
"designated health services" to any entity with which the physician or an
immediate family member has a financial relationship. The financial
relationship can be direct or indirect. The financial relationship can take
the form of an ownership or investment interest or a compensation
relationship. A referral, under the Stark Law, can include prescribing or
requesting designated health services, and also establishing a plan of care
for the designated health services. The Stark Law applies to clinical
laboratory services and other designated health services, including outpatient
prescription drugs and durable medical equipment. Penalties for violating the
Stark Law include denial of payment from Medicare and Medicaid programs for
any services referred to an entity in violation of the Stark Law, civil
monetary penalties of up to $15,000 for each offense and exclusions from the
Medicare and Medicaid programs. Many states have adopted similar self-referral
laws, which may extend to governmental and third-party payors. We have not
conducted a survey of these laws in all fifty states.
We have attempted to structure our physician relationships and our
information delivered to customers so that we are not viewed as practicing
medicine, either directly or as a vehicle for the practice of medicine by an
affiliated physician. However, if we were deemed to be a vehicle for a
physician referral for services or equipment covered by federal or state self-
referral laws, the manner in which we are paid by the referral 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.
17
<PAGE>
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. There has been recently increased activity on privacy by foreign
and United States federal and state entities.
In November 1999, the Department of Health and Human Services issued
proposed regulations regarding standards to protect the privacy of
individually identifiable health information transmitted electronically. In
February 2000, the Federal Trade Commission proposed a rule which would
implement the financial privacy provisions of the Gramm-Leach-Bliley Act,
placing restrictions on when financial institutions may disclose nonpublic
personal information about consumers to nonaffiliated third parties, and
requiring that financial institutions disclose their privacy policies and
practices with respect to information sharing with both affiliates and
nonaffiliated third parties. Industry groups are also proposing various
privacy and ethics standards in an effort to maintain self-regulation.
Finally, even in the absence of regulations, the FTC has been recently active
in 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 certain privacy principles. In February 2000, the Federal Trade
Commission commenced an investigation of online ad server DoubleClick for
possible privacy violations. DoubleClick is the exclusive ad server for our
website and is also subject to several state attorney general and private
party lawsuits regarding privacy.
In addition, in January 2000, the California HealthCare Foundation issued a
Report on the Privacy Policies and Practices of Health Web Sites (the
"Report"). The Report surveyed 21 health-related web sites, including our
website, and for most surveyed websites, including our website, cited "areas
of concern" in privacy policies and practices. After the Report was issued,
the FTC contacted us requesting a meeting to discuss our privacy policies and
practices. In February 2000, we voluntarily met with the staff of the FTC to
discuss such policies and practices and provided supporting information to the
staff. The FTC may have follow-up questions for us regarding these issues.
Our website retains personally identifiable information about our users,
which we obtain with their consent. We have a stringent privacy policy
covering this information, and we only grant access to this information to
third party contractors who are also bound by a stringent privacy policy or,
as disclosed to our users, to third parties where it is necessary for the
delivery of goods or services ordered by the user. However, if third persons
were able to penetrate our network security and gain access to, or otherwise
misappropriate or misuse, 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 constitute or are
deemed to constitute patient health records, a breach of privacy could violate
federal law.
It is possible that the use of "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. Cookies do
not personally identify the user, unless the owner of the cookie also has
personally identifiable information about the user which can be linked to the
cookie numerical identifier. Both we and DoubleClick use cookies to
personalize the website and to target advertising. Most currently available
18
<PAGE>
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 our ability to personalize the website for the
user, and could limit the effectiveness of the targeting of advertisements,
both of which could impair our ability to generate advertising revenue.
Foreign countries and political entities, such as the European Union have
adopted legislation and regulatory requirements regarding notification of
Internet users about the use of information collected by them by website
usage, including notification that data may be used by both the website and
third party marketing entities. The EU has adopted a directive that imposes
restrictions on the collection and use of personal data. Under this EU
directive, persons in the EU 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 may not be allowed to send
personal information to countries that do not maintain standards of privacy
that are determined not to be equivalent to those of the EU. 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.
We will likely incur additional expenses regarding privacy practices and
policies. We continually review our policies to provide notice of the use of
information to users and to improve our practices and technology to maintain
confidentiality of user information. Any changes in policies and practices,
whether self-imposed or imposed by government regulation could affect the way
in which we conduct our business, especially those aspects that involve the
collection, use and access to personal identifying information, and could have
a material adverse effect on our business, financial condition and operating
results.
Data Protection. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information, such as stock quotes and sports scores. This kind of protection
already exists in the EU. If enacted, this legislation could result in an
increase in the price of services that provide data to websites. In addition,
this legislation could create potential liability for unauthorized use of this
data.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet, and some
states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further,
once this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation or other attempts at
regulating commerce over the Internet may substantially impair the growth of
commerce on the Internet and, as a result, adversely affect our opportunity to
derive financial benefit from these activities.
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.
19
<PAGE>
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 February 29, 2000, we had 120 employees, of which 24 were employed in
sales and marketing, 40 were employed in engineering, 29 were employed in
production, and 27 were employed in general management and administration.
None of our employees is covered by any collective bargaining agreement. We
believe that our relations with our employees is good.
Executive Officers
The following table sets forth information regarding our executive officers
as of February 29, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Albert L.
Greene......... 50 President, Chief Executive Officer and Director
C. Fred Toney... 34 Executive Vice President and Chief Financial Officer
Deryk Van Brunt. 40 Executive Vice President of Operations
Robert M. Cudd.. 45 Senior Vice President of Marketing
Marcos A.
Athanasoulis... 32 Vice President of Engineering
Ann-Marie
Buddrus........ 47 Vice President of Production
</TABLE>
Albert L. Greene has served as HealthCentral.com's 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 the HealthCentral.com's Executive Vice
President and Chief Financial Officer since January 2000 and served as
HealthCentral.com's Senior Vice President and Chief Financial Officer from
July 1999, when he joined HealthCentral.com, until January 2000. 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.
20
<PAGE>
Deryk Van Brunt has served as the HealthCentral.com's Executive Vice
President of Operations since January 2000 and served as HealthCentral.com's
Senior Vice President of Operations from August 1999, when HealthCentral.com
acquired Windom Health, until January 2000. 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.
Robert M. Cudd has served as the HealthCentral.com's Senior Vice President
of Marketing since January 2000 and served as HealthCentral.com's Vice
President of Marketing from October 1999, when he joined HealthCentral.com,
until January 2000. 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.
Marcos A. Athanasoulis has served as the Company's 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., a consulting company. He was also an
independent consultant in health information systems from June 1995 to June
1998. Mr. Athanasoulis received a B.A. in Social Science and an M.P.H. in
Epidemiology and Biostatistics from the University of California, Berkeley,
and is a doctoral fellow in Health Information Sciences at the University of
California Berkeley.
Ann-Marie Buddrus has served as the Company's 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 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.
Item 2. Properties
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. We believe
that our existing facilities are adequate for our needs through April 2000,
and we are currently in the process of negotiating a lease for additional
facilities. If we are unable to agree to lease terms for additional
facilities, we will need to secure alternative facilities, which may not be
available on commercially reasonable terms, if at all. We anticipate that
these facilities will be adequate for our needs through January 2001. We may
need additional space at that time, and yet none may be available on
commercially reasonable terms, if at all.
Item 3. Legal Proceedings
We have no pending legal proceedings, but we may become subject to lawsuits
from time to time.
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On November 11, 1999, we held our 1999 annual meeting of stockholders (the
"Annual Meeting"). Out of 12,220,641 shares outstanding as the Record Date
(September 30, 1999), 11,334,726 shares were represented by being present at
the Annual Meeting or by Proxy. The following summarizes the matters submitted
to a vote of our stockholders:
1. The election of the following nominees to serve as members of the
Board of Directors:
<TABLE>
<CAPTION>
Name of Director Nominee In Favor Withheld
------------------------ ---------- --------
<S> <C> <C>
James J. Hornthal................................... 11,334,726 0
Michael D. McDonald................................. 11,002,996 331,730
Albert L. Greene.................................... 11,334,726 0
Louis M. Andersen................................... 11,334,726 0
Sheryle J. Bolton................................... 11,334,726 0
Annette Campbell-White.............................. 11,334,726 0
Dean S. Edell....................................... 11,334,726 0
Wesley D. Sterman................................... 11,334,726 0
Robin Wolaner....................................... 11,334,726 0
</TABLE>
2. The amendment to our Certificate of Incorporation to effect a five-
for-four stock split of our then outstanding Common Stock and Preferred
Stock:
<TABLE>
<CAPTION>
In Favor Opposed
-------- -------
<S> <C>
11,334,726 0
</TABLE>
3. Our reincorporation from California to Delaware, which transaction
also contemplated the execution of indemnification agreements between us
and each of our officers and directors:
<TABLE>
<CAPTION>
In Favor Opposed
-------- -------
<S> <C>
11,334,726 0
</TABLE>
4. The adoption of our 1999 Directors' Stock Plan and the reservation of
312,500 shares of our Common Stock for issuance thereunder:
<TABLE>
<CAPTION>
In Favor Opposed
-------- -------
<S> <C>
11,334,726 0
</TABLE>
5. The adoption of our 1999 Employee Stock Purchase Plan and the
reservation of 1,250,000 shares of our Common Stock for issuance
thereunder, plus an automatic annual increase in shares in each of our
fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 of a maximum of
437,500 shares of our Common Stock for issuance thereunder:
<TABLE>
<CAPTION>
In Favor Opposed
-------- -------
<S> <C>
11,334,726 0
</TABLE>
6. The amendment to our 1999 Stock Plan, including amendments to (a)
increase the number of shares of Common Stock reserved for issuance
thereunder by 4,375,000 shares to an aggregate of 4,625,000, plus an
automatic annual increase in shares in each of the Company's fiscal years
beginning in 2001, 2002, 2003, 2004 and 2005 of a maximum of 787,500 shares
of the Company's Common Stock for issuance thereunder, and (b) set the
maximum number of shares subject to options or stock purchase rights that
may be issued to any one employee during a fiscal year equal to 2,000,000
shares:
<TABLE>
<CAPTION>
In Favor Opposed
-------- -------
<S> <C>
11,334,726 0
</TABLE>
7. The ratification of the appointment of PricewaterhouseCoopers LLP, as
independent auditors of the Company for the fiscal year ended December 31,
1999:
<TABLE>
<CAPTION>
In Favor Opposed
-------- -------
<S> <C>
11,334,726 0
</TABLE>
22
<PAGE>
In addition, we also submitted certain matters to a vote of our
stockholders during the fourth quarter of 1999. Out of 14,550,411 shares
outstanding, 9,924,003 shares approved the following matters by the written
consent of our stockholders on November 19, 1999:
A. The amendment of our Certificate of Incorporation to increase the
number of shares of Common Stock to 100,000,000 shares and to increase the
number of shares of Preferred Stock to 5,000,000 shares
B. The amendment of our Certificate of Incorporation to provide that any
action by stockholders of the Company must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.
C. The amendment of our Bylaws to include a provision restricting the
ability of stockholders to call meetings or take other actions, including
elimination of the ability of holders of 10% of the Company's stock to call
a special meeting.
D. The division of the Board of Directors, contigent on the closing of
our IPO, into three classes, designated as Class I, Class II and Class III,
respectively.
E. The amendment of our 1998 Stock Plan, to include, among other things,
language regarding the acceleration of certain unvested shares in the event
of a Change of Control, as set forth in the 1998 Stock Plan.
F. The amendment of our 1999 Stock Plan, to include, among other things,
language regarding the acceleration of certain unvested shares in the event
of a Change of Control, as set forth in the 1999 Stock Plan.
The above share amounts have been adjusted to reflect our five-for-four
stock split and the conversion of the outstanding Preferred Stock into Common
Stock upon completion of the initial public offering in December 1999.
PART II
Item 5. Market for Registrant's Common Equity And Related Stockholder Matters
Price Range of Common Stock
Our Common Stock has been listed for quotation on the Nasdaq National
Market under the symbol "HCEN" since our initial public offering on December
7, 1999. The following table shows the high and low sale price per share of
our Common Stock as reported by the Nasdaq National Market for the period
indicated.
<TABLE>
<CAPTION>
1999 High Low
---- ------ ------
<S> <C> <C>
From IPO date (December 7, 1999) to December 31, 1999....... 12.750 $6.875
</TABLE>
The closing sale price of our Common Stock as reported on the Nasdaq
National Market on February 29, 2000 was $5.81 per share. As of that date,
there were approximately 156 holders of record of the our Common Stock. This
does not include the number of persons whose stock is in nominee or in "street
name" accounts through brokers.
The market price of our Common Stock has been and may continue to be
subject to wide fluctuations in response to a number and events and factors,
such as quarterly variations in our operating results, announcements of
technological or competitive developments, changes in estimates of our
financial performance or changes in recommendations by securities analysts,
acquisitions or strategic alliances by us or our competitors, the operating
and stock performance of other companies that investors may deem comparable to
us, and news reports relating to trends in the markets. These fluctuations may
be exaggerated if the trading volume of our Common Stock is low. In addition,
the stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many high
technology and Internet-related companies that have often been unrelated or
disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of our common stock.
23
<PAGE>
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We
currently anticipate that we will retain all available funds to support
operations and to finance the growth and development of our business.
Therefore, we do not anticipate paying cash dividends for the foreseeable
future.
Unregistered Equity Securities Sold in 1999
Between January 1, 1999 and December 31, 1999, the Company sold and issued
the following unregistered securities:
. In May 1999, the Company issued a warrant to purchase 12,249 shares of
Series A Convertible Preferred Stock at a purchase price of $2.00 per
share to individuals affiliated with a lender in connection with a
financing transaction.
. In April 1999, the Company issued a warrant to purchase 73,896 shares of
Common Stock at a purchase price of $6.50 per share to a strategic
partner.
. In July 1999, the Company issued convertible promissory notes in the
aggregate principal amount of $600,000 to investors, the principal amount
of which was converted into shares of Series B Convertible Preferred
Stock in August 1999, and warrants to purchase an aggregate of 16,664
shares of common stock at a purchase price of $3.60 per share to
investors.
. In July 1999, the Company 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 Convertible Preferred Stock in
August 1999.
. In August 1999, the Company issued 2,104,770 shares of its common stock
to individuals in connection with an acquisition of a company.
. In August 1999, the Company issued promissory notes in the aggregate
principal amount of $300,000 and warrants to purchase 8,333 shares of
Series B Convertible Preferred Stock at a purchase price of $3.60 per
share to a stockholder. The principal amount of this note was converted
into shares of Series B Convertible Preferred Stock in August 1999.
. In August and September 1999, the Company issued and sold shares of
Series B Convertible 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. These shares were issued in a private placement
in which Hambrecht & Quist acted as placement agent, for which it
received a cash commission of $1,090,000 as well as the warrant described
below.
. In August 1999, the Company issued to Hambrecht & Quist LLC a warrant to
purchase 69,231 shares of Series B Convertible Preferred Stock at a
purchase price of $5.20 per shares.
. In October 1999, the Company 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.
. In October 1999, the Company issued 836,422 shares to individuals in
connection with an acquisition of a company.
. Under its 1998 Stock Plan during 1999, the Company granted stock options
to purchase 2,539,563 shares of the Company's Common Stock (net of
cancellations) to employees, directors and consultants at exercise prices
varying from $0.25 to $11.00 per share. From January 1, 1999 through
December 31, 1999, 376,250 shares of common stock were issued upon the
exercise of options.
. Under its 1999 Stock Plan during 1999, the Company granted stock options
to purchase 406,843 shares of the Company's Common Stock (net of
cancellations) to employees, directors and consultants at exercise prices
varying from $7.312 to $10.08 per share. No options were exercised under
the 1999 Plan during 1999.
24
<PAGE>
. On December 2, 1999, the Company effected a five-for-four split of its
outstanding common stock in which every outstanding share of common stock
was split into 1.25 shares of common stock.
. In December 1999, in connection with the Company's initial public
offering, 506,589 shares of common stock were issued in connection with
the exercise of outstanding warrants, and 5,050,955 shares of common
stock were issued in connection with the conversion of Preferred Stock.
There were no underwritten offerings employed in connection with any of the
transactions set forth above. All the foregoing information gives effect to
the five-for-four split of the Company's Common Stock that occurred in
December 1999. Other than the five-for-four split of the Company's Common
Stock and the conversion of Preferred Stock into Common Stock, the sales and
issuances of the unregistered securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule
701. The issuance of securities as a result of the five-for-four stock split
and the conversion of Preferred Stock into Common Stock in December 1999 were
exempt from registration under Section 2(3) of the Securities Act on the basis
that such transactions did not involve "sales" of securities. All shares of
preferred stock issued and outstanding were automatically converted, on a one-
to-one basis, into shares of common stock on the closing of our IPO. All
warrants to purchase shares of preferred stock that remained outstanding after
our IPO became automatically exercisable for shares of common stock on a one-
to-one basis. 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 Company.
Use of Proceeds from Sales of Registered Securities
On December 7, 1999, in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (File No. 333-88019) was
declared effective by the Securities and Exchange Commission, pursuant to
which 7,500,000 shares of the Company's Common Stock were offered and sold on
December 10, 1999 for the account of the Company at a price of $11.00 per
share, generating aggregate proceeds of $82.5 million. The managing
underwriters for the offering were Lehman Brothers, Hambrecht & Quist, Pacific
Growth Equities, Inc., Wit Capital Corporation and Fidelity Capital Markets.
After deducting approximately $7.85 million in expenses, of which $5.78
million represented underwriting discounts and commissions and the remaining
$2.07 million represented other offering-related expenses, the net proceeds of
the offering were approximately were $74.7 million. None of our offering-
related expenses represented direct or indirect payments to the Company's
directors, officers, persons owning more than 10 percent of any class of the
Company's equity securities, or affiliates. As of December 31, 1999, the
Company had not used any of the net proceeds of the offering. The net proceeds
were invested in short-term, investment-grade, interest bearing securities.
25
<PAGE>
Item 6. Selected Financial Data
The following selected statement of operations data for the years ended
December 31, 1999, 1998 and 1997 and the period from inception to December 31,
1999, 1998, 1997 and 1996 are derived from the consolidated financial
statements included elsewhere in the Form 10-K. The selected financial data
should be read in conjunction with the Company's consolidated financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in the Form
10-K.
<TABLE>
<CAPTION>
Period from
Years Ended December 31, Inception to
------------------------------------ December 31,
1999 1998 1997 1996
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
Advertising and eCommerce. $ 901,331 $ 15,259 $ -- $ --
Content subscription and
license.................. 287,422 -- -- --
------------ ---------- ---------- ----------
Total revenues.......... 1,188,753 15,259 -- --
------------ ---------- ---------- ----------
Operating and other
expenses:
Product, content and
product development...... 4,398,580 136,788 -- --
Sales and marketing....... 9,159,290 141,516 848 --
General and
administrative........... 2,045,795 78,549 300 86
Amortization of intangible
assets................... 3,333,961 -- -- --
Stock compensation........ 4,939,694 104,641 -- --
Acquired in-process
research and development. 804,525 -- -- --
------------ ---------- ---------- ----------
Total operating and
other expenses......... 24,681,845 461,494 1,148 86
------------ ---------- ---------- ----------
Loss from operations........ (23,493,092) (446,235) (1,148) (86)
Interest income, net........ 493,706 -- -- --
------------ ---------- ---------- ----------
Net loss.................... (22,999,386) (446,235) (1,148) (86)
Preferred stock dividend.... 11,388,000 -- -- --
Net loss attributable to
common stockholders........ $(34,387,386) $ (446,235) $ (1,148) $ (86)
============ ========== ========== ==========
Basic and diluted net loss
per share(1)............... $ (4.96) $ (0.10) $ -- $ --
============ ========== ========== ==========
Shares used in computing
basic and diluted net loss
per share(1)............... 6,926,485 4,669,628 4,610,000 3,855,486
============ ========== ========== ==========
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 1997 1996
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents... $ 77,654,947 $1,091,551 $ 6,773 $ 7,414
Working Capital............. 75,766,503 1,039,092 6,773 7,414
Total assets................ 118,143,101 1,670,281 6,773 7,414
Long-term obligations....... 292,010 -- -- --
Total stockholder's equity.. 112,173,104 1,602,633 6,773 7,414
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method employed to determine the number of shares used
to compute per share amounts.
26
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's consolidated financial statements
and notes thereto included elsewhere in this Form 10-K. Except for the
historical information contained herein, the discussion in this Report
contains certain statements of the Company's plans, objectives, expectations
and intentions. These forward-looking statements are based on the current
expectations of the Company, and the Company assumes no obligation to update
this information. The cautionary statements made in this Report should be read
as being applicable to all related forward-looking statements wherever they
appear in this Report. The Company's actual results could differ materially
from those discussed here.
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, HealthCentral.com has 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, HealthCentral.com
acquired Windom Health, and in October 1999 HealthCentral.com acquired
HealthCentralRx.com, an online drug store, and RxList.com, an online
pharmaceutical database company.
HealthCentral.com has historically derived revenues from advertising
activities consisting of short-term banner advertisements. As of December 31,
1999 HealthCentral.com had not entered into any barter arrangements.
HealthCentral.com records advertising revenues in the period the advertising
impressions are delivered to customers. The Company currently uses an outside
vendor, DoubleClick, to solicit potential advertisers, to serve the ads to
HealthCentral.com's website and to bill and collect for these services. This
outside vendor provides monthly reports indicating impressions delivered, the
amount billed for advertising services and the related administrative fee. The
Company records advertising revenues, as reported by the outside vendor, net
of this administrative fee because HealthCentral.com 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.
HealthCentral.com enters into exclusive sponsorship agreements and in the
future intends to provide customers with enhanced promotional opportunities
and customized co-branded web pages. HealthCentral.com recognizes sponsorship
revenues ratably over the term of the sponsorship agreement. Costs incurred in
connection with sponsorship agreements will be included in production, content
and product development expense.
HealthCentral.com also acts as an application service provider, which means
that HealthCentral.com designs, hosts and maintains private label websites for
healthcare institutions. Revenues derived from the Company's application
service contracts principally consist of license fees for website development
applications, consulting fees from custom website development and hosting, and
website maintenance fees. The Company's 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 September 1999, the Company entered into an agreement with the People's
Pharmacy in which a co-branded website was developed. The Company is entitled
to all advertising revenues from the co-branded website in exchange for a cash
payment of $50,000 per annum. The Company also granted options to the
principals of the People's Pharmacy to purchase up to 250,000 shares of the
Company's common stock at an exercise price of $1.28 per share.
27
<PAGE>
In order to implement the Company's e-commerce strategy, HealthCentral.com
acquired HealthCentralRx.com in October 1999 in exchange for 1,579,065 shares
of common stock, including 86,969 shares reserved for issuance pursuant to the
assumption of options held by HealthCentralRx.com stockholders, and the
assumption of liabilities, representing a total purchase price of
approximately $15.9 million. This acquisition was accounted for using the
purchase method of accounting. HealthCentral.com recorded intangibles and
goodwill of approximately $14.5 million, which will be amortized on a straight
line basis over two to three years. HealthCentral.com also recorded a charge
for acquired in-process research and development of $250,000.
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
HealthCentral.com's website for healthcare products as well as access to the
PlusCare Provider Network of pharmacy benefit managers. Under these
agreements, Bergen Brunswig will be HealthCentral.com's exclusive fulfillment
provider for over-the-counter and health and beauty aid products and Medi-Mail
will be the exclusive fulfillment provider for most prescription drug orders.
The Company recognizes revenues for sales of over-the-counter and health and
beauty aid products and prescription drugs, net of discounts, when products
are shipped to customers. Further, HealthCentral.com recognizes commissions
for the use of its website from sales made by Medi-Mail for all prescription
drugs. HealthCentralRx.com is responsible for all refunds relating to sales
where a customer is not satisfied with the products received. The Company
provides an allowance for such returns in the period when the sales are made.
HealthCentralRx.com retains the ultimate credit risk for all sales made by
Bergen Brunswig and Medi-Mail.
In October 1999, HealthCentral.com 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.
HealthCentral.com recorded intangibles and goodwill of approximately $11.2
million that will be amortized on a straight line basis over two to three
years.
HealthCentral.com incurred net losses of approximately $1,000 in 1997,
$446,000 in 1998 and $34.4 million for the year ended December 31, 1999.
HealthCentral.com anticipates additional operating losses for the foreseeable
future.
Results of Operations
Years Ended December 31, 1999, 1998 and 1997
Revenues. Revenues consist of advertising revenues from short-term banner
advertisements, institutional sales revenues derived from designing, hosting
and maintaining private label websites for healthcare institutions and
eCommerce revenue. Total revenues were $1,189,000 for the year ended December
31, 1999 compared to $15,000 for the year ended December 31, 1998. Revenue in
1999 consisted of $901,000 in advertising revenues and eCommerce revenues and
$287,000 in institutional sales revenues. In 1998 revenue consisted solely of
advertising. HealthCentral.com had no revenues in 1997.
Production, Content and Product Development. Production, content and
product development expenses consist primarily of personnel costs for
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 $4.4 million for the year ended December 31,
1999 compared to $137,000 for 1998 and zero for 1997. During 1999 the increase
was primarily attributable to $3.8 million in production and engineering staff
costs and $455,000 of amortization expense related to warrants issued in
connection with content licensing agreements. Production, content and product
development expenses in 1998 were attributable to personnel costs associated
with the development of the
28
<PAGE>
HealthCentral.com website. HealthCentral.com expects production, content and
product development expenses to increase substantially in the future as
HealthCentral.com enhances its websites by developing and licensing additional
content.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising, public relations and personnel expenses. Sales and marketing
expenses were $9.2 million for the year ended December 31, 1999 compared to
$142,000 for the year ended December 31, 1998 and $1,000 for 1997. The
increase in 1999 was primarily attributable to $7.9 million in advertising and
public relations expenses and $1.2 million in sales staff costs. In 1998
expenses consisted primarily of $38,000 in sales and marketing personnel
expenses and $103,000 in public relations expenses. HealthCentral.com expects
that sales and marketing expenses will increase in absolute dollars for the
foreseeable future, as the Company increases expenditures for branding,
promotion and marketing, enters into new promotional agreements, and expands
the 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 fees for legal, audit
and other professional services. General and administrative expenses increased
to $2.0 million for the year ended December 31, 1999 from $79,000 for the year
ended December 31, 1998. The increase in 1999 was due to $1.7 million in
personnel-related costs and $336,000 in legal and accounting expenses incurred
to support the growth of the Company's business. General and administrative
expenses in 1998 consisted primarily of $67,000 in personnel expenses and
$6,000 in professional services fees. In 1997 general and administrative
expenses were $300. HealthCentral.com expects general and administrative
expenses to increase in the future as the Company hires additional personnel
and incurs additional costs related to the growth and operations as a public
company. In addition, HealthCentral.com expects to expand facilities and incur
associated expenses to support its 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 year ended December 31,
1999, HealthCentral.com recorded $9.7 million of deferred stock compensation
and amortized $4.9 million in stock compensation expense. Through December 31,
1998, HealthCentral.com had recorded a total of $389,000 of deferred stock
compensation. HealthCentral.com recognized amortization of stock compensation
of $105,000 for the year ended December 31, 1998. Deferred stock compensation
is being amortized over the respective vesting periods of the outstanding
options, generally four years.
Preferred Stock Dividend. In August 1999 the Company sold 4,038,455 shares
of Series B convertible preferred stock at $5.20 per share, for total cash
proceeds to the Company of approximately $21 million. The difference between
the sales price and the deemed value per share of the common stock on the
transaction date resulted in a beneficial conversion feature in the amount of
$11.4 million. The beneficial conversion feature has been reflected as a
preferred stock dividend in the statement of operations in the year ended
December 31, 1999.
Income Taxes. No provision for federal and state income taxes has been
recorded as HealthCentral.com has incurred net operating losses through
December 31, 1999. As of December 31, 1999, HealthCentral.com had
approximately $13.6 million of federal and state net operating loss
carryforwards available to offset future taxable income. Due to the change in
ownership interests in connection with its IPO and prior sales of equity
securities, the Company's use of these federal and state net operating loss
carryforwards will be subject to annual limitations.
Liquidity and Capital Resources
Since inception, HealthCentral.com has financed operations primarily
through its initial public offering, the sale of preferred stock and the
issuance of notes payable. As of December 31, 1999, HealthCentral.com had
$77.7 million in cash and cash equivalents. Net cash provided by financing
activities was $95 million in 1999. In August and September 1999,
HealthCentral.com sold 4,038,455 shares of Series B preferred stock resulting
in net cash proceeds of approximately $18.3 million. In 1999 HealthCentral.com
also issued notes payable in the amount of $1.5 million which were
subsequently converted into shares of Series B convertible preferred stock.
29
<PAGE>
On December 7, 1999 HealthCentral.com issued 7,500,000 shares of common stock
for its initial public offering and raised $74.7 million in cash, net of
underwriting fees and IPO expenses. Net cash provided by financing activities
was $1.9 million in 1998, which was the result of the preferred stock
financing in December 1998. There was no net cash provided by financing
activities in 1997.
Net cash used in operating activities was $14.6 million in the year ended
December 31, 1999 and $287,000 in 1998. Net cash used in operating activities
in 1999 was comprised primarily of a $23 million net operating loss and a $2.0
million increase in prepaid expenses. This was partially reduced by $4.9
million in non-cash stock compensation expense, $3.5 million in depreciation
and amortization of fixed and intangible assets, $971,000 increase in accounts
payables and $374,000 in amortization of a prepaid license. Net cash used in
operating activities in 1998 was comprised primarily of a $446,000 net
operating loss reduced by stock compensation expense of $105,000, and a
decrease in accounts payable and accrued liabilities of $68,000. Net cash used
in operating activities was $1,000 in 1997 which was the result of net
operating losses.
Net cash used in investing activities was $4.1 million for the year ended
December 31, 1999 and $564,000 in 1998. Cash used in investing activities in
1999 was primarily attributable to cash paid related to the acquisition of
Windom Health Enterprises, HealthCentralRx.com and RxList. In addition,
HealthCentral.com purchased $1.2 million in property and equipment during
1999. Cash used in 1998 was related to bridge loans made to Windom Health.
Although HealthCentral.com has no material commitments for capital
expenditures, HealthCentral.com anticipates substantial increases in capital
expenditures, minimum advertising payments and lease commitments consistent
with anticipated growth in operations, infrastructure and personnel.
In September 1999, the HealthCentral.com entered into a three-year
agreement with AltaVista to develop a co-branded health channel. The agreement
states 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, of which $5
million had been paid as of March 1, 2000. In addition, if AltaVista meets
given performance thresholds based on the number of impressions delivered in
excess of guaranteed minimum amounts, the Company will issue to AltaVista
warrants to purchase 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 Emerging Issues Task Force 96-18, "Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
conjunction with Selling, Goods or Services," and the warrants will be valued
using the Black-Scholes option pricing model in accordance with Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The fair value of the warrants will be expensed immediately and
included in sales and marketing expense.
In 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. As of March 1, 2000, $5.2 million had been paid under this
agreement.
HealthCentral.com's capital requirements depend on numerous factors,
including market acceptance of the HealthCentral.com network, and the
resources HealthCentral.com allocates to building the network, marketing,
selling products and services and promoting the HealthCentral.com brand name.
HealthCentral.com has experienced substantial increases in expenditures since
inception, consistent with growth in operations and personnel, and
HealthCentral.com anticipates that expenditures will continue to increase for
the foreseeable future. HealthCentral.com currently expects to use its
existing cash balances to fund working capital and sales and marketing, to
make cash payments of $30.5 million and $10.6 million over the next two years
to AltaVista and America Online, and to fund website, content development,
infrastructure improvements and operating losses. Additionally,
HealthCentral.com is continuing to evaluate possible acquisitions of its
investments in complementary businesses, technologies, services or products.
HealthCentral.com currently believes that its
30
<PAGE>
available cash and cash equivalents at December 31, 1999 will be sufficient to
meet anticipated needs for working capital and capital expenditures until
approximately January 2001. HealthCentral.com may need to raise additional
capital in order to fund a more rapid expansion including significant
increases in personnel and office facilities; to develop new or enhanced
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
long term liquidity needs, HealthCentral.com may need to raise additional
funds, establish a credit facility or seek other financing arrangements,
although additional funding may not be available on favorable terms or at all.
Recent 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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or result of operations of the Company.
Year 2000 Compliance
HealthCentral.com has completed its Year 2000 project as scheduled,
including addressing leap year calendar date calculation concerns. The
possibility of significant interruptions of normal operations has been
reduced. As of February 9, 2000, the Company has operated without Y2K related
problems. The company believes that all its critical systems are Y2K ready.
HealthCentral.com is heavily dependent on a significant number of third
party vendors to provide both network services and equipment. A significant
year 2000-related disruption of service or equipment that third party vendors
provide to the Company could cause the Company's users, advertisers, or
sponsors to consider seeking alternate content providers or cause an
unmanageable burden on its technical support, which in turn could harm the
Company's business. The Company is not aware that any of its major customers
or third party suppliers have experienced significant Y2K related problems.
To date, the Company has spent a minimal amount on Y2K issues because a
majority of its equipment was purchased in 1999. All of the Company's expenses
relate to the operating costs associated with time spent by employees and
consultants in the evaluation process for year 2000 readiness matters.
31
<PAGE>
Risk Factors That May Affect Future Results and Market Price of Stock.
You should carefully consider the following risk factors, in addition to
the other information in this Report. We believe the following risks and
uncertainties are material to our business and our industry.
We only launched our HealthCentral.com website in November 1998 and our
HealthCentralRx.com website in September 1999, and thus have a limited
operating history .
We have a limited operating history and are subject to 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 Healtheon/WebMD (which has announced an acquisition of
OnHealth.com), drkoop.com, OnHealth.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 enterprise web services business;
. develop and upgrade our technology; and
. attract, retain and motivate qualified personnel.
We had an accumulated deficit of $34.8 million at December 31, 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 health-related content, technologies or other
complementary businesses;
. 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 Healtheon/WebMD (which has announced an
acquisition of OnHealth.com), drkoop.com, drugstore.com and planetRx have much
stronger name recognition than we do. The increasing competition in our
markets makes building a brand more expensive and difficult than it otherwise
would be. To increase brand recognition, we will need to increase
substantially our sales and marketing efforts, our third party alliances, and
our content, product and service offerings, all of which are expensive.
32
<PAGE>
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.
Consumer protection privacy concerns may result in a decrease in traffic or
decrease in revenues.
Our network of websites captures information regarding our users in order
to personalize our websites for them and to assist advertisers in targeting
their advertising campaigns to particular demographic groups. Any changes in
privacy policies and practices, whether self-imposed or imposed by government
regulation, could affect the way in which we conduct our business, especially
those aspects that involve the collection, use and access to personal
identifying information. For example, limitations on or elimination of the use
of cookies could limit our ability to personalize our website for the user,
and could limit the effectiveness of the targeting of advertisements, both of
which could impair our ability to generate advertising revenue. Any perception
of security and privacy concerns by the public, whether or not valid, could
inhibit market acceptance of our network of websites. Privacy concerns may
cause users not to visit our websites or, if they visit, not to provide the
personal data necessary to target our content and advertising.
In response to a verbal request by the FTC, in February 2000 we voluntarily
met with the staff of the FTC and discussed privacy policies and practices.
The FTC may have follow-up questions for us regarding these issues. There can
be no assurance that either we, any other ehealth company or the ehealth
industry in general will not become either a target of or a witness in, a
formal FTC investigation or state agency or private party claim regarding
privacy issues, any of which could be expensive and time-consuming, could
divert the attention of senior management from our core business and could
harm our business.
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
Healtheon/WebMD (which has announced an acquisition of OnHealth), drkoop.com,
OnHealth, 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."
33
<PAGE>
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.
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 enterprise web 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--Enterprise Web 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;
34
<PAGE>
. 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;
. 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.
Our HealthCentralRx.com website was launched 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 could 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. 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, Bergen Brunswig may 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."
35
<PAGE>
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 existing cash and cash equivalents to fund our operations until
approximately January 2001. We do not expect a significant improvement in cash
flows from operations over this period, and we need to make substantial
investments in our marketing and sales, our e-commerce capability and our
technology and other operations infrastructure. Moreover, we are contractually
obligated to pay AltaVista $30.5 million over the next two years and America
Online $10.6 million over the next two years. 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 an agreement with AltaVista through December 15, 2002 to develop a
co-branded health channel and an agreement with America Online through August
2001 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, of which $10.2
million had been paid to these two companies as of March 1, 2000. 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. 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.
Prescription orders are currently 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
36
<PAGE>
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, 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:
. storage, transmission and disclosure of medical information and
healthcare records;
. 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; 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 depends on our
being a trusted source of independent health-related information. There has
been recent press
37
<PAGE>
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 Microsoft,
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 could be expensive
and difficult to do.
Our business model relies on developing and hosting websites for institutional
clients in the healthcare industry; this institutional market is new and
unproven and the institutions may not accept our Internet solutions.
We expect to derive a substantial amount of our revenues from license and
development fees related to the designing, hosting and maintenance of private
label websites for our institutional clients. To date, the healthcare industry
has resisted adopting new information technology solutions. Healthcare payors
and providers may determine that our solutions are too costly to implement or
unnecessary to manage their relationships with consumers. Moreover, these
healthcare industry participants may be unwilling to allow sensitive
information to be stored in our databases.
38
<PAGE>
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;
. 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.
39
<PAGE>
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, we 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 engineering, sales and marketing, production, research and
development, customer service and administration. Approximately six engineers
have ceased employment with us over the past few months. 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 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.
40
<PAGE>
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. 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, several key HealthCentralRx.com employees have ceased employment
with us, and additional 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
integration risks as discussed above with respect to the integration of the
business of HealthCentralRx.com. In addition, we may face additional risks,
including but not limited to:
. expenses related to funding the operation, development and/or integration
of complementary businesses;
. expenses associated with the transactions;
. additional expenses associated with amortization of acquired intangible
assets;
. the difficulty of maintaining uniform standards, controls, procedures and
policies;
. the impairment of relationships with employees and customers as a result
of any integration of new management personnel;
. the potential unknown liabilities associated with acquired businesses;
and
. the issuance of convertible debt or equity securities, which could be
dilutive to our existing stockholders.
Our failure to adequately address these issues could harm our business.
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.
41
<PAGE>
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 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.
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 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.
Our executive officers and directors, and their respective affiliates own
approximately 34.5% of our outstanding common stock, based on shares
outstanding as of February 29, 2000. 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.
42
<PAGE>
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 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.
43
<PAGE>
Our stock price, like that of many companies in the Internet industry, may be
volatile.
We expect that the market price of our common stock will fluctuate as a
result of variations in our quarterly operating results. These fluctuations
may be exaggerated if the trading volume of our common stock is low. In
addition, due to the technology-intensive and emerging nature of our business,
the market price of our common stock may rise and fall in response to:
. announcements of technological or competitive developments;
. acquisitions or strategic alliances by us or our competitors; and
. the gain or loss of a significant strategic partner or media personality
to our network; and
. changes in estimates of our financial performance or changes in
recommendations by securities analysts.
In the past, securities class action litigation has often been brought
against a company after a period of volatility in the market price of its
stock. Any securities litigation claims brought against us could result in
substantial expense and the diversion of management's attention from our core
business.
Future sales of shares by existing stockholders could affect our stock price.
All of the 7,500,000 shares of common stock sold in the initial public
offering on December 7, 1999 are freely tradeable. The remaining 15,084,964
shares of our common stock, based on shares outstanding as of February 29,
2000, are subject to lock-up agreements of varying lengths with Lehman
Brothers Inc or us and may only be sold upon the expiration of these lock-up
agreements . All such shares are "restricted securities" within the meaning of
Rule 144, which means that they may only be sold in the public market if
registered or if they qualify for an exemption from registration promulgated
under the Securities Act. Subject to restrictions with respect to the amount
of shares that may be sold by any one person, the manner in which such shares
may be sold, notice and public information limitations, approximately half of
these restricted securities will be eligible for sale in June 2000, and the
remaining restricted securities will be eligible for sale at various times
between June and December 2000. In addition, beginning in June 2000, some
stockholders have the right, subject to limitations, to require us to register
their shares for sale on the public market. Should our stockholders sell
substantial amounts of our common stock in the public market, 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.
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 and bylaws and Delaware law
may discourage, delay or prevent a merger or acquisition that a stockholder
may consider favorable. These provisions include the following:
. establishing a classified board in which only a portion of the total
board members will be elected at each annual meeting;
. authorizing the board to issue preferred stock;
. prohibiting cumulative voting in the election of directors;
. establishing advance notice requirements for nominations for election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Management has broad discretion over how the proceeds of our initial public
offering are being used.
Our management has broad discretion with respect to the use of the net
proceeds from our initial public offering. Presently, anticipated uses of the
proceeds of our initial public offering include making substantial cash
payments under various contractual commitments and funding working capital,
sales and marketing, website and content development, infrastructure
improvements, operating losses, and potential acquisitions and strategic
alliances.
44
<PAGE>
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.
If an active trading market does not develop for our stock, 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 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.
Some shares in our initial public offering may have been offered in violation
of the Securities Act of 1933, which could give purchasers of these shares the
right to seek refunds or damages.
Prior to the effectiveness of our registration statement for our initial
public offering, Lehman Brothers sent a letter and other written materials,
accompanied by a preliminary prospectus, to approximately 114 employees,
consultants and directors of HealthCentral.com whom we had designated as
potential purchasers of up to 90,900 shares of common stock in a directed
share program in connection with the initial public offering. We then sent a
follow-up email to this group of people regarding the directed share program,
which did not contain a legend delineated under Rule 134 of the Securities
Act, and which thus may have constituted a prospectus that does not meet the
requirements of the Securities Act. If this follow-up email did constitute a
violation of the Securities Act of 1933, the recipients of the email who
purchased common stock in the initial public offering could have the right,
for a period of one year from the date of their purchase of common stock, to
obtain recovery of the consideration paid in connection with their purchase of
common stock or, if they already sold the stock, sue us for damages resulting
from their purchase of common stock. These refunds or damages could total up
to $1 million, based on the public offering price of $11.00 per share, if the
investors suffer a total loss of their investment during this period and seek
refunds or damages. If this were to occur, our results of operations and cash
position could suffer.
Item 7a. Qualitative and Quantitative Disclosure 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 the cash
equivalents, we believe that we are not subject to any material interest rate
risk. We did not have any foreign currency hedging or other derivative
financial instruments as of December 31, 1999.
We do not enter into financial instruments for trading or speculative
purposes and do not currently utilize derivative financial instruments. Our
operations are conducted primarily in the United States and as such are not
subject to material foreign currency exchange rate risk. We have no long-term
debt.
Item 8. Financial Statements and Supplementary Data.
See Part IV, Item 14 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
The Company's Proxy Statement for its 2000 Annual Meeting of Stockholders,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, will be incorporated by reference in this Form 10-K pursuant to
General Instruction G(3) of Form 10-K and will provide the information
required under Part III (Items 10-13), except for the information with respect
to the Company's executive officers, which is included in "Item 1. Business--
Executive Officers."
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Consolidated Financial Statements and Report of
PricewaterhouseCoopers LLP, which are set forth in the Index to
Consolidated Financial Statements at page F-1.
(2)Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is included in
the consolidated financial statements or notes thereto.
(3)Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S> <C>
3.3* Amended and Restated Certificate of Incorporation of the
Registrant.
3.5* Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock Certificate.
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 on January 2000, and form of stock
option agreements and restricted stock purchase agreements.
10.3++ Amended and Restated 1998 Stock Plan, as amended on January
2000, and form of stock option agreements and restricted stock
purchase agreements.
10.4* 1999 Employee Stock Purchase Plan, and form of subscription
agreement.
10.5* 1999 Directors' Stock Option Plan, and form of stock option
agreement.
10.6* Form of Common Stock Agreement between the Registrant and each
of Dean S. Edell M.D. and James J. Hornthal.
10.7* Engagement Letter between the Registrant and Hambrecht & Quist
dated March 22, 1999.
10.8* Consulting Agreement between the Registrant and Michael D.
McDonald dated August 12, 1999.
10.9* Employment Agreements between the Registrant and each of Deryk
Van Brunt and Marcos A. Athanasoulis.
10.10* Employment Agreement between the Registrant and Albert Greene
dated August 16, 1999.
10.11* Offer Letter from the Registrant to C. Fred Toney dated June
16, 1999.
10.12* Letter Agreement between the Registrant and Ann Marie Buddrus
dated August 4, 1999.
10.13* Lock-Up Agreement between the Registrant and Dr. Dean S. Edell
dated August 27, 1999.
10.14* Form of Change of Control Agreement between the Registrant
Albert L. Greene.
10.15* License and Confidential Information Agreement between the
Registrant and Dr. Dean S. Edell dated May 14, 1999.
10.16* Office Lease between the Registrant and Christie Avenue
Partners JS dated March 26, 1999.
10.17* Landlord's Consent and Agreement (Sublease) between the
Registrant and Burnham Pacific Operating Partnership, L.P.
dated July 22, 1999.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S> <C>
10.18* Joint Development Agreement/Base Agreement by and between the
Registrant, Windom Health Enterprises and Global Health
Initiatives dated August 12, 1999.
10.19+* Co-Branded Site Agreement by and between the Registrant,
Graedon Enterprises, Inc., and Joe Graedon and Teresa Graedon
dated September 9, 1999.
10.20+* Agreement between the Registrant and AltaVista Company dated
September 27, 1999.
10.21* Agreement and Plan of Reorganization by and between the
Registrant, HC Acquisition Corporation and ePills, Inc. dated
September 28, 1999.
10.22+* Internet Fulfillment Services Agreement between ePills, Inc.
and Bergen Brunswig Drug Company dated September 16, 1999.
10.23+* Pharmacy Services Fulfillment Agreement between ePills, Inc.
and Medi-Mail, Inc. dated August 1999.
10.24* Form of Indemnification Agreement.
10.25* Agreement and Plan of Reorganization by and between Registrant
and RxList.com dated October 25, 1999.
10.26* Industrial Lease between ePills.com and H.S.P. dated May 4,
1999.
10.27+* Co-Branding Content Agreement between Registrant and MediaLinx
Interactive, L.P. dated June 30, 1999.
10.28+* Advertising Insertion Order between ePills, Inc. and America
Online, Inc. dated August 20, 1999.
10.29* Assumed HealthCentralRx.com 1999 Stock Option Plan and form of
incentive stock option agreement.
10.30 Agreement with Covert Bailey dated December 1999.
21.1* List of subsidiaries.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 48)
27.1 Financial Data Schedule.
</TABLE>
- --------
*Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-88019)
+Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.
++Supersedes previously filed exhibit.
(b) Reports on Form 8-K.
None.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HealthCentral.com
/s/ C. Frederick Toney
By: _________________________________
C. Frederick Toney,
Executive Vice President and Chief
Financial Officer
Date: March 10, 2000
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Albert L. Greene and C. Frederick
Toney, jointly and severally, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Albert L. Greene President, Chief Executive March 9, 2000
____________________________________ Officer and Director
Albert L. Greene (Principal Executive
Officer)
/s/ C. Frederick Toney Executive Vice President and March 10, 2000
____________________________________ Chief Financial Officer
C. Frederick Toney (Principal Financial and
Accounting Officer)
Co-Chairman of the Board
____________________________________
James Hornthal
/s/ Michael D. McDonald Co-Chairman of the Board March 9, 2000
____________________________________
Michael D. McDonald
/s/ Louis Andersen Director March 10, 2000
____________________________________
Louis Andersen
/s/ Sheryle Bolton Director March 9, 2000
____________________________________
Sheryle Bolton
/s/ Annette Campbell-White Director March 8, 2000
____________________________________
Annette Campbell-White
/s/ Dean Edell Director March 8, 2000
____________________________________
Dean Edell
/s/ Wesley D. Sterman Director March 8, 2000
____________________________________
Wesley D. Sterman
Director
____________________________________
Robin Wolaner
</TABLE>
48
<PAGE>
HEALTHCENTRAL.COM
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<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
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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 and its subsidiaries at December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 1, 2000
F-2
<PAGE>
HEALTHCENTRAL.COM
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1999 1998
------ ------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 77,654,947 $1,091,551
Accounts receivable, net of allowance for doubtful
accounts of $64,609 and $0 respectively........... 578,314 15,189
Other receivables.................................. 67,080 --
Prepaid expenses................................... 3,144,149 --
------------ ----------
Total current assets............................. 81,444,490 1,106,740
Receivable from a related party...................... -- 563,541
Property and equipment, net.......................... 1,784,879 --
Intangible assets.................................... 33,763,444 --
Other assets......................................... 1,150,288 --
------------ ----------
Total assets..................................... $118,143,101 $1,670,281
============ ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 1,787,428 $ 28,482
Accrued expenses................................... 1,052,910 39,166
Deferred revenue................................... 149,367 --
Current portion of obligations under capital
leases............................................ 147,498 --
Note payable....................................... 2,540,784 --
------------ ----------
Total current liabilities........................ 5,677,987 67,648
Obligations under capital leases..................... 292,010 --
------------ ----------
Total liabilities................................ 5,969,997 67,648
------------ ----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Convertible preferred stock, $0.001 par value,
5,875,000 and 1,875,000 shares authorized at
December 31, 1999 and 1998, respectively, 0 and
1,012,500 issued and outstanding at December 31,
1999 and 1998, respectively....................... -- 1,134
Common stock, $0.001 par value, 100,000,000 and
27,750,000 shares authorized at December 31, 1999
and 1998, respectively, 22,581,238 and 4,689,906
shares issued and outstanding at December 31, 1999
and 1998, respectively............................ 22,396 4,468
Additional paid-in capital......................... 152,397,459 2,334,912
Note receivable from stockholder................... (405,931) (5,931)
Deferred stock compensation........................ (5,005,965) (284,481)
Accumulated deficit................................ (34,834,855) (447,469)
------------ ----------
Total stockholders' equity....................... 112,173,104 1,602,633
------------ ----------
Total liabilities and stockholders' equity....... $118,143,101 $1,670,281
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HEALTHCENTRAL.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Advertising and eCommerce.............. $ 901,331 $ 15,259 $ --
Content subscription and license....... 287,422 -- --
------------ ---------- ----------
Total revenues....................... 1,188,753 15,259 --
------------ ---------- ----------
Operating and other expenses:
Product, content and product
development........................... 4,398,580 136,788 --
Sales and marketing.................... 9,159,290 141,516 848
General and administrative............. 2,045,795 78,549 300
Amortization of intangible assets...... 3,333,961 -- --
Stock compensation..................... 4,939,694 104,641 --
Acquired in-process research and
development........................... 804,525 -- --
------------ ---------- ----------
Total operating and other expenses... 24,681,845 461,494 1,148
------------ ---------- ----------
Loss from operations..................... (23,493,092) (446,235) (1,148)
Interest income, net..................... 493,706 -- --
------------ ---------- ----------
Net loss................................. (22,999,386) (446,235) (1,148)
Preferred stock dividend................. 11,388,000 -- --
------------ ---------- ----------
Net loss attributable to common
stockholders............................ $(34,387,386) $ (446,235) $ (1,148)
============ ========== ==========
Basic and diluted net loss per share..... $ (4.96) $ (0.10) $ --
============ ========== ==========
Shares used in computing basic and
diluted net loss per share.............. 6,926,485 4,669,628 4,610,000
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HEALTHCENTRAL.COM
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Note Receivable Deferred Total
------------------ ------------------ Paid-In from Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
---------- ------ ---------- ------- ------------ --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996............ -- $ -- 4,610,000 $ 4,379 $ 3,628 $ -- $ -- $ (86) $ 7,921
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
issuance of
stock options... -- -- -- -- 9,390,973 -- (9,661,178) -- (270,205)
Amortization of
deferred
compensation.... -- -- -- -- -- -- 4,939,694 -- 4,939,694
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
acquisitions.... -- -- 4,433,288 4,685 31,734,986 -- -- -- 31,739,671
Stock option
exercises....... -- -- 376,250 301 416,799 (400,000) -- -- 17,100
Issuance of
Series A
convertible
preferred stock
warrants ....... -- -- -- -- 49,372 -- -- -- 49,372
Issuance of
common stock
warrants and
options......... -- -- -- -- 1,747,848 -- -- -- 1,747,848
Preferred stock
dividend........ -- -- -- -- 11,388,000 -- -- (11,388,000) --
Issuance of
common stock in
IPO, net........ -- -- 7,500,000 7,500 74,651,321 -- -- -- 74,658,821
Conversion of
preferred stock. (5,050,955) (5,657) 5,050,955 5,051 606 -- -- -- --
Exercise of
warrants........ -- -- 524,589 385 809,606 -- -- -- 809,991
Common stock
issued for
services........ -- -- 6,250 6 62,494 -- -- -- 62,500
Net loss........ -- -- -- -- -- -- -- (22,999,386) (22,999,386)
---------- ------ ---------- ------- ------------ ---------- ----------- ------------ ------------
Balance at
December 31,
1999............ -- $ -- 22,581,238 $22,396 $152,397,459 $ (405,931) $(5,005,965) $(34,834,855) $112,173,104
========== ====== ========== ======= ============ ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HEALTHCENTRAL.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
------------ ---------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(22,999,386) $ (446,235) $(1,148)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services........ 62,500 2,429 --
Stock compensation expense.............. 4,939,694 104,641 --
Amortization of prepaid license......... 373,884 -- --
Depreciation and amortization expense... 3,486,000 -- --
Acquired in-process research and
development............................ 804,525 -- --
Changes in assets and liabilities:
Accounts and other receivables........ (238,883) (15,189) --
Prepaid expenses and other assets..... (1,947,673) -- --
Accounts payable...................... 970,768 28,482 --
Accrued expenses...................... 27,392 39,166 --
Deferred revenues..................... (77,319) -- --
------------ ---------- -------
Net cash used in operating
activities......................... (14,598,498) (286,706) (1,148)
------------ ---------- -------
Cash flows from investing activities:
Purchase of property and equipment........ (1,153,110) -- --
Cash paid in connection with acquisitions,
net of cash received..................... (636,897) -- --
Payments to related party................. (2,302,901) (563,541) --
------------ ---------- -------
Net cash used in investing
activities......................... (4,092,908) (563,541) --
------------ ---------- -------
Cash flows from financing activities:
Proceeds from issuance of convertible
preferred stock.......................... 18,315,065 1,935,025 --
Proceeds from stock option exercises...... 17,100 -- --
Payments on capital leases................ (46,175) -- --
Proceeds from issuance of notes payable... 1,500,000 -- --
Proceeds from warrant exercises........... 809,991 -- --
Proceeds from initial public offering..... 74,658,821 -- --
------------ ---------- -------
Net cash provided by financing
activities......................... 95,254,802 1,935,025 --
------------ ---------- -------
Net increase (decrease) in cash and cash
equivalents................................ 76,563,396 1,084,778 (1,148)
Cash and cash equivalents at beginning of
period..................................... 1,091,551 6,773 7,921
------------ ---------- -------
Cash and cash equivalents at end of period.. $ 77,654,947 $1,091,551 $ 6,773
============ ========== =======
Supplemental disclosures of cash flows
information:
Cash paid for interest.................... $ 130,460 $ -- $ --
============ ========== =======
Supplemental disclosures of non-cash
investing and financing activities:
Deferred stock compensation............... $ 9,661,178 $ 389,122 $ --
Warrants issued in connection with
agreements............................... 1,496,153 -- --
Common stock purchased with note
receivables.............................. 400,000 5,931 --
Warrants issued in connection with sale of
preferred stock.......................... 301,317 408,629 --
Issuance of stock in connection with
acquisitions............................. 31,739,671 -- --
Payment of note payable with preferred
stock.................................... 1,500,000 -- --
Preferred stock dividend.................. 11,388,000 -- --
Assets acquired under capital leases...... 96,129 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HEALTHCENTRAL.COM
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 emerged from the development stage
during 1999 and operates in one business segment.
In November 1999, the Company reincorporated in the state of Delaware. Also
in November 1999, the Board of Director's and shareholders of the Company
approved a 5-for-4 stock split of its common and preferred stock which became
effective December 2, 1999.
The Company sold 7,500,000 shares of common stock at $11 per share upon
completing its initial public offering on December 10, 1999 and raised cash of
$74.7 million, net of underwriting fees and expenses.
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 service
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 subsidiaries, Windom Health Enterprises, Inc., and
HealthCentralRx.com, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with general 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.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31, 1999
and 1998, the Company maintained its cash and cash equivalents in bank
accounts in amounts which, at times, exceed federally insured limits. Cash
equivalents consist primarily of corporate bonds and money market auction
instruments with maturities of three months or less for which the carrying
value approximated fair value. The cost of these investments at December 31,
1999 was $69,941,902.
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 office equipment..................................... 3 years
Furniture and fixtures............................................ 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.
F-7
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED 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. ("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 a recovery of the carrying value unlikely. An impairment of 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.
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 a statement
of financial position. To date the Company has not had any transactions that
are required to be reported in comprehensive income.
Revenue recognition
Advertising revenues are recorded 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.
eCommerce revenues are recognized for sales of over-the-counter and health
and beauty aid products, net of discounts, when products are shipped to
customers. The Company recognizes commission revenues for the use of its
website related to sales made by the pharmacy fulfillment partner for all
prescription drugs. The Company is responsible for all refunds relating to
sales where a customer is not satisfied with the products received. The
Company provides an estimated allowance for such returns in the period of
sale. The Company also retains the credit risk for sales of all products made
by its fulfillment partners.
Content subscription and license revenues are derived from contracts with
healthcare providers, health product resellers, and third party organizations
and 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
F-8
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
WebSite Development Costs
The Company accounts for website development costs in accordance with the
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Website development costs
consist of external and internal costs incurred to purchase and implement the
website software and significant enhancements used in the Company's business.
These costs are capitalized and amortized using the straight-line method over
the estimated useful life of the asset. Amortization expense for the year
ended December 31, 1999 was not significant.
Internal and external costs of developing website content are expensed as
incurred and included in product, content and product development expense in
the accompanying consolidated statements of operations.
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 contract.
Advertising expense for the year ended December 31, 1999 was $7,462,731 and
has been included in sales and marketing expense in the consolidated statement
of operations. There were no advertising expenses for the years ended December
31, 1998 and 1997.
Net loss per share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share and SEC
Staff Accounting Bulletin ("SAB") No. 98. Basic and diluted net loss per share
are computed by dividing the net loss available to holders of common stock for
the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common stock if their effect is antidilutive. Potential
common stock consists of restricted common stock, incremental common shares
issuable upon the exercise of stock options and warrants. The net loss per
share at December 31, 1999 includes 5,050,955 shares of convertible preferred
stock that converted into common shares on a one-to-one basis upon completion
of the Company's initial public offering in December 1999.
F-9
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share attributable to common
stockholders because to do so would be antidilutive for the periods indicated:
<TABLE>
<CAPTION>
Years ended
December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Series A convertible preferred stock................. -- 1,012,500
Series B convertible preferred stock................. -- --
Convertible preferred stock warrants................. -- 486,000
Convertible common stock warrants.................... 86,145 --
Common stock options................................. 2,844,874 274,718
Common stock subject to repurchase................... 312,500 17,937
--------- ---------
3,243,519 1,791,155
========= =========
</TABLE>
The restricted shares subject to repurchase are excluded from the
calculation of basic and diluted earnings per share attributable to common
stockholders until the restrictions lapse.
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.
Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents 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
evaluations of it's 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.
In 1999 and 1998, 62% and 100% of the Company's revenues were generated
from one customer. At December 31, 1999 and 1998 one customer accounted for
73% and 100% of the total outstanding receivables.
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.
F-10
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or result of operations of the Company.
Note 2--Balance Sheet Components:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
---------- ----
<S> <C> <C>
Property and equipment:
Furniture and office equipment........................ $ 325,287 --
Computer and network equipment........................ 1,599,853 --
Leasehold improvements................................ 11,777 --
---------- ----
1,936,917 --
Less accumulated depreciation......................... (152,038) --
---------- ----
$1,784,879 $--
========== ====
</TABLE>
Property and equipment includes $473,679 of computer equipment under
capital leases at December 31, 1999. Accumulated amortization of assets under
capital leases totaled $51,293 at December 31, 1999.
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
----------- -------
<S> <C> <C>
Intangible assets:
Goodwill.......................................... $33,369,577
Core technology................................... 1,615,573 --
Acquired workforce................................ 357,829 --
Contracts......................................... 1,189,103 --
Tradenames........................................ 443,062 --
Other............................................. 122,260 --
----------- -------
37,097,404 --
Less accumulated amortization..................... (3,333,960) --
----------- -------
$33,763,444 $ --
=========== =======
Accrued expenses:
Accrued compensation.............................. $ -- $39,166
Accrued advertising............................... 455,314 --
Accrued vacation.................................. 97,470 --
Accrued professional fees and other............... 500,126 --
----------- -------
$ 1,052,910 $39,166
=========== =======
</TABLE>
F-11
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Acquisitions
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 and 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 feasiblility and had no alternative future use.
Goodwill and other intangibles are being amortized on a straight-line 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 operates an online drug store that provides retail sales
of prescription pharmaceuticals, over-the-counter products and health and
beauty aids on the Internet.
F-12
<PAGE>
HEALTHCENTRAL.COM
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 the estimated fair values as determined by
management. The purchase price allocation is summarized below:
<TABLE>
<S> <C>
Goodwill..................................................... $11,441,000
Identifiable assets.......................................... 1,147,000
Contracts.................................................... 1,189,000
Core technology.............................................. 1,241,000
Tradename.................................................... 443,000
Acquired workforce........................................... 177,000
In-process research and development.......................... 250,000
-----------
Total purchase price..................................... $15,888,000
===========
</TABLE>
The total purchase price of the $15.9 million consisted of 1,492,096 shares
of common stock valued at $13,533,000 based upon the deemed value of the
Company's common stock of $9.07 per share on the date the definitive merger
agreement was signed. The purchase price also included the assumption of
86,969 employee stock options valued at $6.11 per share, assumed liabilities
of $1,653,000 and transaction costs of $171,000.
The valuation of the purchased in-process research and 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 flow associated with the in-
process research and development was discounted to the present value using a
rate of return that is commensurate with the risk of the asset. The purchased
in-process technology was not considered to have reached technological
feasibility and had no alternative future use.
Goodwill and other intangibles are being amortized on a straight-line 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 purchase
price allocation is summarized below:
<TABLE>
<S> <C>
Goodwill..................................................... $11,212,000
Net liabilities assumed...................................... (287,000)
Pharmaceutical database...................................... 123,000
-----------
Total purchase price..................................... $11,048,000
===========
</TABLE>
The total purchase price of $11.0 million consisted of 836,422 shares of
the Company's common stock valued at $8,364,216, an aggregate of $2.6 million
in notes payable issued to RxList.com shareholders discounted at a deemed
interest rate of 10% over 6 months and 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.
F-13
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill and other intangibles are being amortized on a straight-line 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 acquisitions 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>
Years Ended
December 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Revenues.............................................. $ 1,469 $ 580
Net loss attributable to common stockholders.......... (49,726) (8,451)
Basic and diluted net loss per share attributable to
common stockholders.................................. (4.96) (1.11)
</TABLE>
Note 4--Related Party Transactions:
In August 1998, in association with a letter of intent relating to a merger
with Windom Health Enterprises, Inc., the Company entered into a License and
Management Agreement (the "Agreement") with Windom Health Enterprises, Inc.
Pursuant to the Agreement, the Company had full management responsibility for
the operations of Windom Health Enterprises, Inc. In this capacity, the
Company advanced Windom Health Enterprises, Inc. funds to finance its
operations. At December 31, 1998, the net outstanding balance due from Windom
Health Enterprises, Inc. amounted to $563,541. The cumulative amount due from
Windom Health Enterprises, Inc. 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 divided 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
and included within interest expense in the statement of operations 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 December 1999 the
warrants were exercised and 8,333 shares of the Company's common stock were
issued.
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
F-14
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$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 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 December
1999, the warrants were exercised and 16,664 shares of the Company's common
stock were issued.
In August 1999, in connection with the acquisition of Windom Health, the
Company entered into a three year consulting agreement with a member of the
Board of Directors. The agreement provided that an $85,000 bonus be paid on
the closing of the Company's Series B preferred stock financing and a monthly
fee of $5,000 for consulting services be paid for the term of the agreement.
If the Company terminates the consulting agreement without releasing the
individual from its non-competition provision, he will continue to receive, as
severance, the monthly fee due for the remainder of the initial term of the
consulting agreement.
In August 1999, the Company and Windom Health Enterprises, Inc., entered
into a joint development agreement with Global Health Initiatives, Inc.
("GHI"). A member of the Board of Directors of the Company, is also the
President and CEO of GHI. As of December 31, 1999, GHI completed one project
for the Company at a cost of $37,338. Also, in September 1999, the Company
subleased a portion of its offices to GHI. Rent under the lease was $1,250 per
month. The original lease term expired on October 31, 1999 at which time the
lease was converted to a month to month basis. The agreement will be
terminated on February 29, 2000.
Note 5--Convertible Preferred Stock:
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 December 31, 1999.
F-15
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than
51% of the resulting voting power of the surviving entity, the holders of
Series A 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.
In December 1999, in connection with the Company's initial public offering,
5,050,955 shares of common stock were issued in connection with the conversion
of all outstanding shares of preferred stock.
Preferred stock dividend
In August 1999 the Company sold 4,038,455 shares of Series B convertible
preferred stock at $5.20 per share, for total cash proceeds to the Company of
approximately $21 million. The difference between the sales price and the
deemed value per share of the common stock on the transaction date resulted in
a beneficial conversion feature in the amount of $11.4 million. The beneficial
conversion feature has been reflected as a preferred stock dividend in the
statement of operations in the year ended December 31, 1999.
Warrants for convertible preferred stock
In connection with the sale of Series A convertible preferred stock in
December 1998, the Company issued warrants for 486,000 shares of Series A
convertible preferred stock at an exercise price of $2.00 per share. 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 December 1999 the warrants were exercised and 463,089 shares of the
Company's common stock were issued.
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.
F-16
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 were exercised in December
1999. 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. In
December 1999 the warrants were exercised and 36,503 shares of the Company's
common stock were issued.
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. Portions of the
shares sold are subject to a right of repurchase by the Company subject to
vesting over a one-year period. At December 31, 1999 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 5.40%, an expected
dividend yield of zero percent, an expected volatility of 80% 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 7,647,395 shares of common stock at December 31,
1999 for future issuance in connection with stock options and warrants.
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.
F-17
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
During the period from January 1, 1998 through December 31, 1999, the
Company recorded $10,050,300 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 1999 and 1998. 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
6.2%; expected dividend yield of zero percent; expected volatility of 80% 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 $4,939,694 and $104,641 for the years
ended December 31, 1999 and 1998, 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, 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, December 31,
1998...................... 2,701,366 274,718 0.25
Options granted.......... (2,567,063) 2,567,063 3.80
Options exercised........ -- (376,250) 1.11
Options canceled......... 27,500 (27,500) 10.06
---------- ---------
Balances, December 31,
1999...................... 161,803 2,438,031 $ 3.75
========== =========
</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.................................. 819,374 9.90
</TABLE>
F-18
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information under the 1998 Plan at December
31, 1999:
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding -------------------------
---------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Life Exercise Exercise
Prices Number (Years) Price Number Price
-------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 0.25 791,157 8.97 $ 0.25 316,386 $ 0.25
1.28 855,000 9.59 1.28 122,293 1.28
8.19 68,750 9.67 8.19 -- 8.19
10.00 299,375 9.91 10.00 -- 10.00
10.08 409,999 9.77 10.08 -- 10.08
11.00 13,750 9.93 11.00 -- 11.00
--------- -------
2,438,031 438,679
========= =======
</TABLE>
The following table summarizes activity under the 1999 Plan:
<TABLE>
<CAPTION>
Weighted
Shares Number Average
Available of Exercise
for Grant Shares Price
--------- ------- --------
<S> <C> <C> <C>
Balances, December 31, 1998................... -- -- $--
Shares reserved for grant................... 4,625,000 -- --
Options granted............................. (406,843) 406,843 4.44
--------- -------
Balances, December 31, 1999................... 4,218,157 406,843 4.44
========= =======
</TABLE>
During 1999, the Company issued stock options under the 1999 Plan with the
following weighted average fair values:
<TABLE>
<CAPTION>
Weighted
Average
Options Fair
Granted Value
------- --------
<S> <C> <C>
Below fair value......................................... 250,000 $8.41
At fair value............................................ 156,843 9.47
</TABLE>
The following summarizes information under the 1999 Plan at December 31,
1999:
<TABLE>
<CAPTION>
Options
Options Outstanding at Exercisable at
------------------------------------------- ------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercises Life Exercise Exercise
Prices Number (Years) Price Number Price
------------ ------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$ 1.28 250,000 3.90 $ 1.28 72,917 $ 1.28
7.31- 8.25 31,000 9.99 8.01 -- 8.01
8.69- 8.75 18,700 9.99 8.74 -- 8.74
10.00-10.08 107,143 9.85 10.03 -- 10.03
------- ------
406,843 72,917
======= ======
</TABLE>
F-19
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
If compensation cost for the Company's stock based compensation plans 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>
Years Ended December 31,
------------------------
1999 1998
------------- ----------
<S> <C> <C>
Net loss attributable to common stockholders:
As reported.................................. $(34,387,386) $(466,235)
Pro forma.................................... (37,912,047) (466,235)
Basic and diluted net loss per share
attributable to common stockholders:
As reported.................................. $ (4.96) $ (0.10)
Pro forma.................................... (5.47) (0.10)
</TABLE>
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing method with the following
assumptions: expected dividend yield of zero percent; weighted average
expected option term of four years; risk interest rates of 5.62% to 6.24% and
for 1999 a volatility of 80%.
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, with the ability to purchase shares of its common stock through
payroll deductions, up to 10% of eligible compensation. Participant's 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 the 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 2,500 per calendar year or 10,000 per any one Offering Period.
An Offering period is generally 24 months or less (subject to limitations
imposed by the Internal Revenue Code). A total of 1,250,000 shares are
available in 2000 for purchase under the ESPP.
1999 Directors' Stock Option Plan
The 1999 Directors' Stock Option Plan (the "Director's Plan") was adopted
by the Board of Directors in September 1999 and became effective December
1999. A total of 312,500 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.
Note 8--Income Taxes:
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $13.6 million for federal and state income tax purposes,
respectively. The 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 may be subject to annual limitations attributable
to equity transactions that result in changes in ownership as defined in the
Tax Reform Act of 1986.
F-20
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and (liabilities) comprise the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
----------- ---------
<S> <C> <C>
Net operating loss carryforwards.................. $ 5,514,000 $ 95,600
Allowances........................................ 26,000 --
Deferred compensation............................. 849,000 42,900
----------- ---------
Gross deferred tax asset........................ 6,389,000 138,500
Valuation allowance............................... (6,389,000) (138,500)
----------- ---------
Net deferred tax assets......................... $ -- $ --
=========== =========
</TABLE>
Note 9--Debt:
In conjunction with the acquisition of RxList on October 28, 1999, an
aggregate of $2.6 million in promissory notes payable were issued to the
RxList.com shareholders. The annual interest rate on the notes was 5%, payable
at the earlier of 10 days after the initial public offering or 6 months after
the closing of the merger. The estimated present value of the notes on October
28, 1999 was $2,541,000. The notes were repaid in full on January 3, 2000.
Note 10--Commitments and Contingencies:
In April 1999, the Company entered into an advertising agreement with
Excite, Inc. Excite, Inc. is to provide advertising to the Company ratably
over a one-year period in exchange for total payments of approximately
$139,000. As of December 31, 1999 the Company had paid approximately $126,706
under the agreement.
In April 1999, the Company entered into a one-year content license
agreement with a publisher of physician rating information. 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 recognizable 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 between
10% and 30% for each transaction where a user enters the publisher's website
to obtain assistance in identifying medical providers. In addition, the
publisher will pay the Company 30% of net advertising revenues derived from
HealthCentral.com content pages. As of December 31, 1999, $50,000 was paid by
the Company under this agreement.
In May 1999, the Company entered into an agreement with LookSmart, Ltd.
LookSmart, Ltd. is to provide advertising to the Company ratably over a one-
year period for a fee not to exceed $480,000. As of December 31, 1999, the
Company had paid approximately $224,600 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
jointly developed a co-branded site 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 $160,000 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. commencing upon the launch of the
site. In January 2000, the contract was amended such that if the Company's
revenue exceeds one million Canadian dollars in any given year, the Company
shall pay $80,000 to Medialinx Interactive, L.P.
In August 1999, HealthCentralRx 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 to the Company including the
processing, adjudication or verification, and fulfillment of prescription
drugs. As of December 31, 1999, the Company had paid approximately $5,378 to
Medi-Mail, Inc. under this agreement.
F-21
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. As of December 31, 1999, the Company had paid $3,520,155 in
conjunction with this agreement.
In September 1999, HealthCentralRx entered into an agreement with Bergen
Brunswig Drug Company ("Bergen") 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. Under the terms of
the agreement, the Company paid a database license fee of $25,000 upon signing
of the contract and is obligated to pay a monthly service fee to Bergen of
$1,000 and a fulfillment charge of $.75 per item ordered or minimum of $2.03
per order. As of December 31, 1999, the Company paid approximately $25,183 to
Bergen under this agreement.
In September 1999, the HealthCentral.com entered into a three-year
agreement with AltaVista to develop a co-branded health channel. The agreement
provides that, in exchange for a minimum number of user impressions on the co-
branded health channel, the Company is obligated to pay AltaVista
approximately $65.6 million in cash and stock over the three-year term of the
agreement; however, either AltaVista or the Company may terminate the
relationship after two years, in which case the aggregate payment obligation
over the first two years in cash and stock would be $34.5 million. In the
first year an initial deposit of $1 million was paid that will be expensed
equally over a two year period. The required annual payments will be expensed
equally over the term of the contract, $12.2 million in year one, $19.3
million in year two and $30 million in year three. The remaining $3 million
relates to equity grants of $1 million that will be issued to Alta Vista at
the end of each of the three years. The company will also expense these
equally over the contract term. 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 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. As of December 31, 1999 the Company had paid $2,012,500 to Alta
Vista.
In September 1999, the Company entered into an agreement with the People's
Pharmacy in which a co-branded website was developed. The Company is entitled
to all advertising revenues from the co-branded website in exchange for a cash
payment of $50,000 per annum. The Company also granted options to the
principals of the People's Pharmacy to purchase up to 250,000 shares of the
Company's common stock at an exercise price of $1.28 per share. Pursuant to
the terms of the agreement, options for 31,250 shares of stock vested upon
signing the agreement. Accordingly, the fair value of these options of
$234,000 was included in production, content and product development expense
in the year ended December 31, 1999. Additionally, 31,250 shares of stock
vested at the closing of the Company's initial public offering. The fair value
of these options was $209,000 and was also included in production, content and
product development expense in the year ended December 31, 1999. Further,
options for 125,000 shares of common stock with a fair value of $630,000,
which will be subject to periodic remeasurement, will be amortized over the
performance period of the agreement. The Company valued these options using
the Black-Scholes option pricing model, applying an expected life of 4 years,
a weighted average risk-free rate of 6.24%, an expected dividend yield of zero
percent, a volatility of 80% and a deemed value of common stock of $7.31 per
share. With regard to the remaining 62,500 options, the Company will not
receive the related services stipulated in the agreement and, therefore, these
options will never vest. Accordingly, no value has been ascribed to these
options.
In November 1999, the Company entered into a one-year agreement with
ADAM.com, Inc. ("ADAM") to license content, to advertise on the ADAM web site
and to sublicense content to institutional clients.
F-22
<PAGE>
HEALTHCENTRAL.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company paid a one-time set-up fee of $50,000 upon signing the contract.
Payments related to advertising are based on the number of page views
delivered. If the number of page views exceeds a certain threshold, ranging
from 15 million to 45 million, the Company will pay ADAM a percent of net
advertising revenue. ADAM is guaranteed a minimum amount of $100,000. In
addition, the Company will pay ADAM $3,000 to $7,500 per year under the
agreement. ADAM is guaranteed a minimum sublicense fee of $50,000. These
expenses will be recognized ratably over the term of the agreement.
In December 1999, the Company entered into a four-year license agreement
with Covert Bailey whereby Mr. Bailey will supply health, fitness and
nutrition content to the Company. The Company is required to pay Mr. Bailey
approximately $36,000 annually over the term of the contract. The Company also
issued 6,250 shares of the Company's common stock valued at $62,500 upon
signing of the contract and granted him non-qualified options to acquire
30,000 shares of the Company's common stock which vests over the 4 year term
of the agreement. The fair value of these options was $123,000. The options
will be subject to periodic remeasurement and will be amortized over the life
of the agreement and included in production, content and product development
expense. The Company valued these options using the Black-Scholes option
pricing model, applying an expected life of 4 years, a weighted average risk-
free rate of 6.24%, an expected dividend yield of zero percent, a volatility
of 80% and a deemed value of common stock of $7.31 per share.
In December 1999, the Company entered into an eleven month agreement with
Microsoft Corporation ("Microsoft") whereby the Company would be the premier
provider of health and fitness newsletters to Microsoft News Hotmail
subscribers. Under the terms of the agreement, the Company will pay Microsoft
a minimum fee of $1,833,000 based on $.01 per copy distributed to each
subscriber, but not to exceed $2,433,000 over term of the contract. In
addition, the Company agreed to purchase an aggregate of $640,000 in
advertising from Microsoft during the term of the agreement. These expenses
will be recognized ratably over the term of the agreement.
Leases
The Company leases office space and equipment under noncancellable
operating and capital leases with various expiration dates through March 2005.
Rent expense for the three years ended December 31, 1999 was $0, $1,560 and
$161,443, respectively. The terms of the facility leases provide for rental
payments on a graduated scale.
Future minimum lease payments under noncancellable operating and capital
leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ --------- ----------
<S> <C> <C>
2000............................................... $ 207,069 $ 466,852
2001............................................... 200,271 475,108
2002............................................... 131,843 418,516
2003............................................... -- 359,348
2004............................................... -- 87,335
2005 and thereafter................................ -- --
--------- ----------
Total minimum lease payments................... 539,183 $1,807,159
==========
Amount representing interest....................... (99,675)
---------
Present value of net minimum lease payments........ 439,508
Less current portion of obligations under capital
leases............................................ (147,498)
---------
Obligations under capital leases................... $ 292,010
=========
</TABLE>
Contingencies
The Company is subject to claims and assessments from time to time in the
ordinary course of business. Management does not believe that any such
matters, individually or in the aggregate, will have a material adverse effect
on the Company's financial condition.
F-23
<PAGE>
Exhibit 10.2
HEALTHCENTRAL.COM
1999 STOCK PLAN
(as amended January 2000)
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 minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, applicable to the exercise. 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
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, applicable to the exercise.
(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
Control (i) in which outstanding awards are being continued, assumed or
substituted, the vesting and exercisability of each outstanding Option and Stock
Purchase Right shall accelerate such that (A) with respect to awards held by
optionees who are not Officers (as defined below), such awards 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 in Control, and the
vesting and exercisability of the awards shall thereafter continue on the
schedule set forth in the applicable agreement (subject to continued service
requirements), and (B) with respect to awards held by optionees who are
Officers, such awards 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 in Control, and the vesting and exercisability
schedule of the awards thereafter shall be reset such the Shares remaning
unvested as of the consummation of the transaction shall vest as to 1/12th of
such remaining Shares each month following such consummation (subject to
continued service requirements), and (ii) in which outstanding awards are
terminating, the vesting and exercisability of each outstanding Option and Stock
Purchase Right shall accelerate such that the Options and Stock Purchase Rights
shall become vested and exercisable to the extent of 100% of the Shares then
unvested, and any repurchase right of the Company with respect to Shares issued
upon exercise of an Option or Stock Purchase Right shall lapse as to 100% of the
Shares subject to such repurchase right prior to consummation of the Change in
Control, in each case upon such conditions as the Administrator shall determine.
For purposes of this Section 14(c), an "Officer" means any employee holding at
least the position of Vice President. To the extent that an Option or Stock
Purchase Right is not exercised prior to consummation of a Corporate Transaction
or Change in Control in which the Option or Stock Purchase Right is terminating,
such Option or Stock Purchase Right shall terminate upon such consummation.
For purposes of this Section 14, an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon a Corporate Transaction or Change of Control, as the case may
be, each holder of an Option would be entitled to receive upon exercise of the
Option the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option at such time (after giving effect to any adjustments in the number
of Shares covered by the Option as provided for in this Section 14); provided,
however, that if such consideration received in the transaction was not solely
common stock of the Successor Corporation, the Administrator may, with the
consent of the Successor Corporation, provide for the consideration to be
received upon exercise of the
-13-
<PAGE>
Option to be solely Common Stock of the Successor Corporation equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
(e) Limitation on Payments. In the event that the vesting
----------------------
acceleration provided for in subsection (c) above (x) constitutes "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code (the
"Code"), and (y) but for this Section 14(e) would be subject to the excise tax
- -----
imposed by Section 4999 of the Code (or any corresponding provisions of state
income tax law), then such vesting acceleration shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result in
no portion of such severance benefits being subject to excise tax under Code
Section 4999,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the optionee on an after-tax basis of the greater
amount of acceleration benefits, notwithstanding that all or some portion of
such benefits may be taxable under Code Section 4999. Any determination required
under this Section 14(e) shall be made in writing by the Company's independent
accountants or other outside tax advisors, whose determination shall be based on
factual assertions provided by the Company, and which will be conclusive and
binding for all purposes on the Company and the optionee. In the event that (A)
above applies, then the optionee shall be responsible for any excise taxes
imposed with respect to such benefits. In the event that (B) above applies, then
each benefit provided hereunder shall be proportionately reduced to the extent
necessary to avoid imposition of such excise taxes.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation (other than an adjustment pursuant to Section 14 above) shall
be made that would materially and adversely affect the rights of any
Participant, without his or her consent. In addition, to the extent necessary
and desirable to comply with the Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall materially and adversely affect Options or Stock Purchase
Rights already granted, unless mutually agreed otherwise between the Participant
and the Administrator, which agreement must be in writing and signed by the
Participant and the Company.
17. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
-14-
<PAGE>
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
-15-
<PAGE>
[Post-IPO Officer Form of Option Agreement]
HEALTHCENTRAL.COM
1999 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
You have been granted an option to purchase Common Stock of
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date: GrantDate
Date of Grant (Later of Board
Approval Date or Commencement of
Employment/Consulting): GrantDate
Exercise Price Per Share: PricePerShare
Total Number of Shares Granted: NumberofShares
Total Price of Shares Granted: TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option
-------------
NoSharesNSO Nonstatutory Stock Option
-------------
Term/Expiration Date: Expiration
Vesting Commencement Date: VestingCommencement
Vesting Schedule: VestingSchedule: One fourth of the total
shares vests on the annual anniversary
of the vesting commencement date and
1/48 of the total shares vests on the
monthly anniversary of the vesting
commencement date thereafter.
Termination Period: Option may be exercised for a period of
______ after termination of employment or
consulting relationship except as set out
in Sections 7 and 8 of the Stock Option
Agreement (but in no event later than the
Expiration Date).
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the HealthCentral.com 1999 Stock Plan and the Stock
Option Agreement, all of which are attached and made a part of this document.
-1-
<PAGE>
OPTIONEE HEALTHCENTRAL.COM
By:
- ----------------------- ---------------------
Signature
Address: Title:
--------------- -------------------
- -----------------------
-2-
<PAGE>
HEALTHCENTRAL.COM
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option.
---------------
(a) General Terms. HealthCentral.com (the "Company"), hereby grants
------------- -------
to the Optionee named in the Notice of Stock Option Grant attached to this
Agreement ("Optionee"), an option (the "Option") to purchase the total number of
-------- ------
shares of Common Stock (the "Shares") set forth in the Notice of Stock Option
------
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
--------------
the 1999 Stock Plan (the "Plan") adopted by the Company, which is incorporated
----
in this Agreement by reference. In the event of a conflict between the terms of
the Plan and the terms of this Agreement, the terms of the Plan shall govern.
Unless otherwise defined in this Agreement, the terms used in this Agreement
shall have the meanings defined in the Plan.
(b) Tax Status of Option. Unless and to the extent designated a
--------------------
Nonstatutory Stock Option in the Notice of Stock Option Grant, this Option is
intended to be an Incentive Stock Option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to the maximum extent
----
permitted under applicable tax law. If any portion of this Option is designated
as an Incentive Stock Option it shall qualify as such only to the extent that
the aggregate fair market value of the Shares (generally, the Option's exercise
price) subject to this Option (and all other Incentive Stock Options granted to
Optionee by the Company or any Parent or Subsidiary) that first become
exercisable in any calendar year does not exceed $100,000. To the extent that
the aggregate fair market value of such Shares exceeds $100,000, the Shares in
excess of such limit shall be treated as subject to a Nonstatutory Stock Option,
in accordance with Section 5 of the Plan.
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Sections 9 and 10 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by this
Section 2 and by Sections 6, 7 and 8 below.
(iii) In no event may this Option be exercised after the Expiration
Date of the Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise.
------------------
(i) This Option shall be exercisable by delivering to the Company
a written notice of exercise (in the form attached as Exhibit A) which shall
---------
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such Shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option
-1-
<PAGE>
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee agrees
to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise.
(iii) No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall
be considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option shall be
exercised; or (d) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds required to pay the
exercise price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
------------
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Service Status, Optionee may, to the extent otherwise so entitled at
the date of such termination (the "Termination Date"), exercise this Option
----------------
during the Termination Period set out in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at the date of
such termination, or if Optionee does not exercise this Option within the time
specified in the Notice of Stock Option Grant, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Service Status as a
result of total and permanent disability (as
-2-
<PAGE>
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of termination of employment (but in no event later
than the Expiration Date of the Option as set forth in the Notice of Stock
Option Grant), exercise the Option to the extent otherwise so entitled at the
date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option (to the extent otherwise so entitled) within the time specified in
this Agreement, the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Service Status since the date of grant of the Option,
or (b) within thirty (30) days after the termination of Optionee's Continuous
Service Status, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the Expiration
Date of the Option as set forth in the Notice of Stock Option Grant), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or termination, as applicable. To the extent
that Optionee was not entitled to exercise this Option at the date of death or
termination, as applicable, or if Optionee's estate or the person who acquired
the right to exercise the Option as a result of Optionee's death does not
exercise this Option within the time specified in the Notice of Stock Option
Grant, the Option shall terminate
9. Non-Transferability of Option. Except as otherwise provided in this
-----------------------------
Section 9, this Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by him or her. However, Optionee, with the approval
of the Administrator, may transfer the Option to or for the benefit of one or
more members of Optionee's Immediate Family (as defined below), including,
without limitation, to a trust for the benefit of one or more members of
Optionee's Immediate Family or to a partnership or limited liability company
composed of one or more members of Optionee's Immediate Family, and subject to
such limits as the Administrator may establish. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and permitted
transferees of Optionee. No transfer for consideration shall be permitted
except to a partnership or limited liability company composed of one or more
members of Optionee's Immediate Family.
The foregoing right to transfer the Option shall apply to the right to
consent to amendments to this Agreement and, in the discretion of the
Administrator, shall also apply to the right to transfer ancillary rights
associated with the Option. The term "Immediate Family" shall mean Optionee's
spouse or former spouse, parents, children, stepchildren, adoptive
relationships, sisters, brothers, grandchildren, nieces, nephews, mother-in-law,
father-in-law, sons-in-law, daughters-in-law, brothers-in-law or sisters-in-law
(and, for this purpose, shall also include Optionee). Optionee acknowledges and
agrees that Optionee shall be responsible for payment of any applicable income
and employment tax withholdings imposed upon the transfer and/or subsequent
exercise of a transferred Option, and such transfer and the transferee's right
to receive the shares subject to this Option upon exercise thereof is
conditioned on satisfaction of such withholding taxes as the Company determines
may be due.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement
-3-
<PAGE>
or the Plan shall confer upon Optionee any right with respect to continuation as
an Employee or Consultant with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her employment
or consulting relationship at any time, with or without cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE AND
DOES NOT ADDRESS STATE, LOCAL OR FOREIGN ISSUES, AND THAT THE TAX LAWS AND
REGULATIONS SUMMARIZED ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. In addition, if Optionee is an employee of
the Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on the
date of exercise, or (ii) the sales proceeds, over the Exercise Price. If this
Option is a Nonstatutory Stock Option, then gain realized on the disposition of
Shares will be treated as long-term or short-term capital gain depending on
whether or not the disposition occurs more than one year after the exercise
date. In the case of either an Incentive Stock Option or a Nonstatutory Stock
Option, the long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 20% if the Shares are held
more than one year after exercise.
(d) Notice of Disqualifying Disposition. If the Option granted to
-----------------------------------
Optionee in this Agreement is an Incentive Stock Option, and if Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to the Incentive
Stock Option on or before the later of (i) the date two years after the Date of
Grant, or (ii) the date one year after transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by Optionee from the early
disposition by payment in cash or out of the current earnings paid to Optionee.
13. Withholding Tax Obligations.
---------------------------
-4-
<PAGE>
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee understands that, upon exercising a Nonstatutory Stock Option, he or
she will recognize income for tax purposes in an amount equal to the excess of
the then Fair Market Value of the Shares over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be withheld, or (iv) by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date equal to the amount required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all Applicable
Laws. All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, the Fair Market
-----------
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the applicable laws (the
"Tax Date").
--------
14. Signature. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
-5-
<PAGE>
[Remainder of page left intentionally blank]
-6-
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: HealthCentral.com
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of HealthCentral.com
Common Stock, under and pursuant to the Company's 1999 Stock Plan and the Stock
Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name:
________________________________
Address:
________________________________
Signed:
________________________________
Date:
________________________________
<PAGE>
HEALTHCENTRAL.COM
1999 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
You have been granted an option to purchase Common Stock of
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date: GrantDate
Date of Grant (Later of Board
Approval Date or Commencement of
Employment/Consulting): GrantDate
Exercise Price Per Share: PricePerShare
Total Number of Shares Granted: NumberofShares
Total Price of Shares Granted: TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option
-------------
NoSharesNSO Nonstatutory Stock Option
-------------
Term/Expiration Date: Expiration
Vesting Commencement Date: VestingCommencement
Vesting Schedule: VestingSchedule
Termination Period: Option may be exercised for a period
of ______ after termination of
employment or consulting relationship
except as set out in Sections 7 and 8
of the Stock Option Agreement (but in
no event later than the Expiration
Date).
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the HealthCentral.com 1999 Stock Plan and the Stock
Option Agreement, all of which are attached and made a part of this document.
OPTIONEE HEALTHCENTRAL.COM
By:
- --------------------------- ----------------------------
Signature
Address: Title:
------------------- -------------------------
- ---------------------------
-1-
<PAGE>
HEALTHCENTRAL.COM
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option.
---------------
(a) General Terms. HealthCentral.com (the "Company"), hereby grants
------------- -------
to the Optionee named in the Notice of Stock Option Grant attached to this
Agreement ("Optionee"), an option (the "Option") to purchase the total number of
-------- ------
shares of Common Stock (the "Shares") set forth in the Notice of Stock Option
------
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
--------------
the 1999 Stock Plan (the "Plan") adopted by the Company, which is incorporated
----
in this Agreement by reference. In the event of a conflict between the terms of
the Plan and the terms of this Agreement, the terms of the Plan shall govern.
Unless otherwise defined in this Agreement, the terms used in this Agreement
shall have the meanings defined in the Plan.
(b) Tax Status of Option. Unless and to the extent designated a
--------------------
Nonstatutory Stock Option in the Notice of Stock Option Grant, this Option is
intended to be an Incentive Stock Option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to the maximum extent
----
permitted under applicable tax law. If any portion of this Option is designated
as an Incentive Stock Option it shall qualify as such only to the extent that
the aggregate fair market value of the Shares (generally, the Option's exercise
price) subject to this Option (and all other Incentive Stock Options granted to
Optionee by the Company or any Parent or Subsidiary) that first become
exercisable in any calendar year does not exceed $100,000. To the extent that
the aggregate fair market value of such Shares exceeds $100,000, the Shares in
excess of such limit shall be treated as subject to a Nonstatutory Stock Option,
in accordance with Section 5 of the Plan.
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Sections 9 and 10 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by this
Section 2 and by Sections 6, 7 and 8 below.
(iii) In no event may this Option be exercised after the Expiration
Date of the Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise.
------------------
(i) This Option shall be exercisable by delivering to the Company a
written notice of exercise (in the form attached as Exhibit A) which shall state
---------
the election to exercise the Option, the number of Shares in respect of which
the Option is being exercised, and such other representations and agreements as
to the holder's investment intent with respect to such Shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option
-1-
<PAGE>
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee agrees to
make adequate provision for federal, state or other tax withholding obligations,
if any, which arise upon the exercise of the Option or disposition of Shares,
whether by withholding, direct payment to the Company, or otherwise.
(iii) No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall
be considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option shall be
exercised; or (d) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds required to pay the
exercise price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
------------
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Service Status, Optionee may, to the extent otherwise so entitled at
the date of such termination (the "Termination Date"), exercise this Option
----------------
during the Termination Period set out in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at the date of
such termination, or if Optionee does not exercise this Option within the time
specified in the Notice of Stock Option Grant, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Service Status as a
result of total and permanent disability (as
-2-
<PAGE>
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of termination of employment (but in no event later
than the Expiration Date of the Option as set forth in the Notice of Stock
Option Grant), exercise the Option to the extent otherwise so entitled at the
date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option (to the extent otherwise so entitled) within the time specified in
this Agreement, the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Service Status since the date of grant of the Option,
or (b) within thirty (30) days after the termination of Optionee's Continuous
Service Status, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the Expiration
Date of the Option as set forth in the Notice of Stock Option Grant), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or termination, as applicable. To the extent
that Optionee was not entitled to exercise this Option at the date of death or
termination, as applicable, or if Optionee's estate or the person who acquired
the right to exercise the Option as a result of Optionee's death does not
exercise this Option within the time specified in the Notice of Stock Option
Grant, the Option shall terminate
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution.
The designation of a beneficiary does not constitute a transfer. An Option may
be exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement or the Plan shall confer upon Optionee any right with respect to
continuation as an Employee or Consultant with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
his or her employment or consulting relationship at any time, with or without
cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE AND
DOES NOT ADDRESS STATE, LOCAL OR FOREIGN ISSUES, AND THAT THE TAX LAWS AND
REGULATIONS SUMMARIZED ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
-3-
<PAGE>
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. In addition, if Optionee is an employee of
the Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on the
date of exercise, or (ii) the sales proceeds, over the Exercise Price. If this
Option is a Nonstatutory Stock Option, then gain realized on the disposition of
Shares will be treated as long-term or short-term capital gain depending on
whether or not the disposition occurs more than one year after the exercise
date. In the case of either an Incentive Stock Option or a Nonstatutory Stock
Option, the long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 20% if the Shares are held
more than one year after exercise.
(d) Notice of Disqualifying Disposition. If the Option granted to
-----------------------------------
Optionee in this Agreement is an Incentive Stock Option, and if Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to the Incentive
Stock Option on or before the later of (i) the date two years after the Date of
Grant, or (ii) the date one year after transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by Optionee from the early
disposition by payment in cash or out of the current earnings paid to Optionee.
13. Withholding Tax Obligations.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee understands that, upon exercising a Nonstatutory Stock Option, he or
she will recognize income for tax purposes in an amount equal to the excess of
the then Fair Market Value of the Shares over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be
-4-
<PAGE>
withheld, or (iv) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option that number of Shares having a Fair Market
Value determined as of the applicable Tax Date equal to the amount required to
be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all Applicable
Laws. All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, the Fair Market
-----------
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the applicable laws (the
"Tax Date").
--------
14. Signature. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
-5-
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: HealthCentral.com
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of HealthCentral.com
Common Stock, under and pursuant to the Company's 1999 Stock Plan and the Stock
Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name:_______________________________
Address:____________________________
____________________________
____________________________
Signed: ____________________________
Date:_______________________________
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
HealthCentral.com
By:
-------------------------------
Name:
-----------------------------
(print)
Title:
----------------------------
<CompanyAddressLine1>
<CompanyAddressLine2>
PURCHASER:
<Optionee>
-----------------------------------
(Signature)
____________________________________
(Print Name)
Address:
<OptioneeAddress1>
<OptioneeAddress2>
I, ______________________, spouse of <Optionee>, have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be bound irrevocably by the Agreement and further agree that any community
property or similar interest that I may have in the Shares shall hereby be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
------------------------------
Spouse of <Optionee>
-8-
<PAGE>
EXHIBIT 10.3
HEALTHCENTRAL.COM
AMENDED AND RESTATED 1998 STOCK PLAN
(amended January 2000)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an Option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns an equity interest.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any Stock Exchange and the
applicable laws of any other country or jurisdiction where Options are granted
under the Plan.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Change in Control" means a sale of all or substantially all of
-----------------
the Company's assets, or a merger, consolidation or other capital reorganization
of the Company with or into another corporation; provided however that a merger,
consolidation or other capital reorganization in which the holders of more than
50% of the shares of capital stock of the Company outstanding immediately prior
to such transaction continue to hold (either by the voting securities remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the total voting power represented by the voting
securities of the Company, or such surviving entity, outstanding immediately
after such transaction shall not constitute a Change in Control.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means the Committee appointed by the Board of
---------
Directors to administer the Plan in accordance with Section 4 below.
(h) "Common Stock" means the Common Stock of the Company.
------------
(i) "Company" means HealthCentral.com, a California corporation.
-------
<PAGE>
(j) "Consultant" means any person, including an advisor, who renders
----------
services to the Company, or any Parent, Subsidiary or Affiliate, and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(k) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parent(s), Affiliates, Subsidiaries or their respective successors.
For purposes of this Plan, a change in status from an Employee to a Consultant
or from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(l) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(m) "Director" means a member of the Board.
--------
(n) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent, Subsidiary or Affiliate of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a director shall not be sufficient to constitute "employment"
of such director by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system including without limitation the National Market of the
National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq")
------
System, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported), as quoted on such system or
exchange, or the exchange with the greatest volume of trading in Common Stock
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of
-2-
<PAGE>
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(q) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
(r) "Listed Security" means any security of the Company which is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(s) "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(t) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(u) "Option" means a stock option granted pursuant to the Plan.
------
(v) "Option Agreement" means a written agreement between an Optionee
----------------
and the Company reflecting the terms of an Option granted under the Plan and
includes any documents attached to such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
(w) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(y) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(aa) "Plan" means this 1998 Stock Plan.
----
-3-
<PAGE>
(bb) "Reporting Person" means an officer, director, or greater than
----------------
10% shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(cc) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 10 below.
(dd) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between a holder of a Stock Purchase Right and the Company reflecting the terms
of a Stock Purchase Right granted under the Plan and includes any documents
attached to such agreement.
(ee) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(ff) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(gg) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(hh) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(ii) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 3,000,000 Shares of Common Stock (after giving effect to the
Company's 5-for-4 stock split effected in connection with its reincorporation
under the laws of Delaware and subject to further adjustment as provided in
Section 13 below). The Shares may be authorized, but unissued, or reacquired
Common Stock. If an Option expires or becomes unexercisable for any reason
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares that were subject thereto shall, unless
the Plan shall have been terminated, become available for future grant under the
Plan. In addition, any Shares of Common Stock that are retained by the Company
upon exercise of an Option or Stock Purchase Right in order to satisfy the
exercise or purchase price for such Option or Stock Purchase Right or any
withholding taxes due with respect to such exercise shall be treated as not
issued and shall continue to be available under the Plan. Shares repurchased by
the Company pursuant to any repurchase right that the Company may have shall not
be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the
-4-
<PAGE>
Applicable Laws, the Board may authorize one or more officers to grant Options
or Stock Purchase Rights to Employees and Consultants.
(b) Administration with respect to Reporting Persons. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3(d) and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(f) instead of Common Stock;
-5-
<PAGE>
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted and to
make any other amendments or adjustments to any Option that the Administrator
determines, in its discretion and under the authority granted to it under the
Plan, to be necessary or advisable, provided however that no amendment or
adjustment to an Option that would materially and adversely affect the rights of
any Optionee shall be made without the prior written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees; provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Purchase Right
may, if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
(b) Type of Option. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) At-Will Relationship. The Plan shall not confer upon the holder
--------------------
of any Option or Stock Purchase Right any right with respect to continuation of
employment or consulting relationship with the Company, nor shall it interfere
in any way with such holder's
-6-
<PAGE>
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement.
8. Limitations on Grants to Employees. Subject to adjustment as provided
----------------------------------
in Section 13 below, the maximum number of Shares which may be subject to
Options or Stock Purchase Rights granted to any one Employee under the Plan for
any fiscal year of the Company shall be 1,250,000 Shares (after giving effect to
the Company's 5-for-4 stock split effected in connection with its
reincorporation under the laws of Delaware and subject to further adjustment as
provided in Section 13 below).
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board and
set forth in the Option Agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is granted
prior to the date, if any, upon which the Common Stock becomes a Listed Security
and is:
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than 10% of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant if required by the Applicable Laws.
-7-
<PAGE>
(B) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per Share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code and if not so intended shall be such price as is determined
by the Administrator.
(C) granted to any other eligible person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant if required by the Applicable Laws.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) cancellation of indebtedness, (5) other Shares
that (x) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six months on the date of surrender or such
other period as may be required to avoid a charge to the Company's earnings, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which such Option shall be exercised, (6)
authorization for the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised, (7) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price and any applicable income or employment taxes, (8) delivery of an
irrevocable subscription agreement for the Shares that irrevocably obligates the
option holder to take and pay for the Shares not more than twelve months after
the date of delivery of the subscription agreement, (9) any combination of the
foregoing methods of payment, or (10) such other consideration and method of
payment for the issuance of Shares to the extent permitted under the Applicable
Laws. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if
it determines, in its sole discretion, that acceptance of such form of
consideration is not in the best interests of the Company at such time.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator and reflected in the Option Agreement, which
may include vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however, that any Option granted prior to
the date, if any, upon which the Common Stock becomes a
-8-
<PAGE>
Listed Security shall become exercisable at the rate of at least 20% per year
over five years from the date the Option is granted if required by the
Applicable Laws. In the event that any of the Shares issued upon exercise of an
Option (which exercise occurs prior to the date, if any, upon which the Common
Stock becomes a Listed Security) should be subject to a right of repurchase in
the Company's favor, such repurchase right shall lapse at the rate of at least
20% per year over five years from the date the Option is granted if required by
the Applicable Laws. Notwithstanding the above, in the case of an Option granted
to an officer, Director or Consultant of the Company or any Parent or Subsidiary
of the Company, the Option may become fully exercisable, or a repurchase right,
if any, in favor of the Company shall lapse, at any time or during any period
established by the Administrator. The Administrator shall have the discretion to
determine whether and to what extent the vesting of Options shall be tolled
during any unpaid leave of absence; provided however that in the absence of such
determination, vesting of Options shall be tolled during any such leave.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and the Company has received full payment
for the Shares with respect to which the Option is exercised. Full payment may,
as authorized by the Administrator, consist of any consideration and method of
payment allowable under Section 9(b) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, not withstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 10(c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three months (or such other period of time not less than 30 days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise his or her
Option to the extent that the Optionee was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate and the Optioned Stock underlying the unexercised
portion of the Option shall revert to the Plan. No termination shall be deemed
to occur and this Section 10(b)
-9-
<PAGE>
shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or
(ii) the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 10(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), such Optionee may, but only within six months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three months of the date of such termination, the Option will
not qualify for Incentive Stock Option treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within six months from the date of termination, the Option shall
terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within 30 days following termination of the
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six months following the date of death (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), by such Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of the Optionee's Continuous Status as an Employee or
Consultant. To the extent that the Optionee was not entitled to exercise the
Option at the date of death or termination, as the case may be, or if the
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following
-10-
<PAGE>
termination of an Optionee's Continuous Status as an Employee or Consultant from
the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the Option
Agreement to such greater time as the Board shall deem appropriate, provided,
that in no event shall such option be exercisable later than the date of
expiration of the term of such Option as set forth in the Option Agreement.
(f) Buy-Out Provisions. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price, if required by the Applicable Laws,
shall not be less than 85% of the Fair Market Value of the Shares as of the date
of the offer, or, in the case of a person owning stock representing more than
10% of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary, the price shall not be less than 100% of the Fair
Market Value of the Shares as of the date of the offer), and the time within
which such person must accept such offer, which shall in no event exceed 30 days
from the date upon which the Administrator made the determination to grant the
Stock Purchase Right. The offer shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to an Optionee
who is not an officer, director or Consultant of the Company or of any Parent or
Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year if
required by the Applicable Laws.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder
-11-
<PAGE>
when his or her purchase is entered upon the records of the duly authorized
transfer agent of the Company. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Stock Purchase
Right is exercised, except as provided in Section 13 of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, applicable to the exercise. For purposes of
this Section 12, the Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
under the Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value determined as of the applicable Tax Date equal to the
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, applicable to the exercise.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
-12-
<PAGE>
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right and the number of Shares set forth in Section 8 above, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent it has not been
previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Corporate Transaction; Change in Control. In the event of a
----------------------------------------
Corporate Transaction or a Change in Control, each outstanding Option and Stock
Purchase Right shall be assumed or an equivalent option or right shall be
substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation (such entity, the "Successor Corporation"), unless the
---------------------
Successor Corporation does not agree to assume the outstanding Options or Stock
Purchase Rights or to substitute equivalent options or rights, in which case
such Options or Stock Purchase Rights shall terminate upon consummation of the
transaction. In the event of a transaction that qualifies as a Change in Control
(i) in which outstanding awards are being continued, assumed or substituted, the
vesting and exercisability of each outstanding Option and Stock Purchase Right
shall accelerate such that (A) with respect to awards held by optionees who are
not Officers (as defined below), such awards shall become vested and exercisable
to the extent of 50% of the Shares then unvested, and any repurchase right of
the Company with respect to Shares issued upon exercise of an Option or
-13-
<PAGE>
Stock Purchase Right shall lapse as to 50% of the Shares subject to such
repurchase right prior to consummation of the Change in Control, and the vesting
and exercisability of the awards shall thereafter continue on the schedule set
forth in the applicable agreement (subject to continued service requirements),
and (B) with respect to awards held by optionees who are Officers, such awards
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 in
Control, and the vesting and exercisability schedule of the awards thereafter
shall be reset such that Shares remaining unvested as of the consummation of the
transaction shall vest as to 1/12th of such remaining Shares each month
following such consummation (subject to continued service requirements), and
(ii) in which outstanding awards are terminating, the vesting and exercisability
of each outstanding Option and Stock Purchase Right shall accelerate such that
the Options and Stock Purchase Rights shall become vested and exercisable to the
extent of 100% of the Shares then unvested, and any repurchase right of the
Company with respect to Shares issued upon exercise of an Option or Stock
Purchase Right shall lapse as to 100% of the Shares subject to such repurchase
right prior to consummation of the Change in Control, in each case upon such
conditions as the Administrator shall determine. For purposes of this Section
14(c), and "Officer" means any employee holding at least the position of Vice
President. To the extent that an Option or Stock Purchase Right is not exercised
prior to consummation of a Corporate Transaction or Change in Control in which
the Option or Stock Purchase Right is terminating, such Option or Stock Purchase
Right shall terminate upon such consummation.
For purposes of this Section 13(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon such Change in Control, each
holder of an Option or Stock Purchase Right would be entitled to receive upon
exercise of the Option or Stock Purchase Right the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 13); provided however that if such consideration received in the
Change in Control was not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
Option to be solely common stock of the successor corporation or its Parent
equal to the Fair Market Value of the per Share consideration received by
holders of Common Stock in the transaction.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
(e) Limitation on Payments. In the event that the vesting
----------------------
acceleration provided for in subsection (c) above (x) constitutes "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code (the
"Code"), and (y) but for this Section 13(e) would be subject to the excise tax
- -----
imposed by Section 4999 of the Code (or any corresponding provisions of state
income tax law), then such vesting acceleration shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject to excise tax under Code
Section 4999,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the optionee on an after-tax basis of the greater
amount of acceleration benefits, notwithstanding that all or some portion of
such benefits may be taxable under Code Section 4999. Any determination required
under this Section 13(e) shall be made in writing by the Company's independent
accountants or other outside tax advisors, whose determination shall be based on
factual assertions provided by the Company, and which will be conclusive and
binding for all purposes on the Company and the optionee. In the event that (A)
above applies, then the optionee shall be responsible for any excise taxes
imposed with respect to such benefits. In the event that (B) above applies, then
each benefit provided hereunder shall be proportionately reduced to the extent
necessary to avoid imposition of such excise taxes.
14. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee or the holder of Stock Purchase Rights only by the Optionee or
holder of Stock Purchase Rights; provided however that the Administrator may in
its discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements, or amend outstanding Option Agreements to allow for transferability
by, specifying (i) the manner in which such Nonstatutory Stock Options are
transferable and (ii) that any such transfer shall be subject to the Applicable
Laws. The designation of a beneficiary by an Optionee will not constitute a
transfer. An Option or Stock Purchase Right may be exercised, during the
lifetime of the holder of the Option or Stock Purchase Right, only by such
holder or a transferee permitted by this Section 14.
-14-
<PAGE>
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board; provided,
however, that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
-15-
<PAGE>
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written Option Agreements and Restricted Stock Purchase Agreements,
respectively, in such form(s) as the Administrator shall approve from time to
time.
20. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve months before or after
the date the Plan is adopted. Such shareholder approval shall be obtained in
the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
and Stock Purchase Rights issued under the Plan shall become void in the event
such approval is not obtained.
21. Information and Documents to Optionees and Purchasers. The Company
-----------------------------------------------------
shall provide financial statements at least annually to each Optionee and to
each individual who acquired Shares pursuant to the Plan, during the period such
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares. The Company shall
not be required to provide such information if the issuance of Options or Stock
Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee or the purchaser a copy of the Plan and any
agreement(s) pursuant to which securities granted under the Plan are issued.
-16-
<PAGE>
HEALTHCENTRAL.COM
1998 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Address:
_____________________
_____________________
You have been granted an option to purchase Common Stock "Common Stock" of
------------
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date:
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting):
Vesting Commencement Date:
Exercise Price per Share:
Total Number of Shares Granted:
Total Exercise Price:
Type of Option: Incentive Stock Options
______
Nonstatutory Stock Options
______
Term/Expiration Date:
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance
with the following vesting
schedule: 1/4th of the Shares
subject to the Option shall vest
and become exercisable on the 12-
month anniversary of the Vesting
Commencement Date and 1/48th of
the total number of Shares subject
to the Option shall vest and
become exercisable on the monthly
anniversary date of the Vesting
Commencement Date thereafter.
In the event of a Change of
Control, the vesting and
exercisability of the Option shall
accelerate as provided in the
Company's 1998 Stock Plan;
<PAGE>
provided however that the Shares
remaining unvested following such
acceleration shall therafter vest
and become exercisable in equal
monthly installments over the 12-
month period following the closing
date of the Change of Control.
Termination Period: This Option may be exercised for 30
days after termination of
employment or consulting
relationship except as set out in
Sections 6 and 7 of the Stock
Option Agreement (but in no event
later than the Expiration Date).
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1998 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
HEALTHCENTRAL.COM
________________________ By:______________________
Signature
________________________ ______________________
Print Name Print Name and Title
<PAGE>
HEALTHCENTRAL.COM
1998 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. HealthCentral.com, a California corporation (the
---------------
"Company"), hereby grants to _________ ("Optionee"), an option (the "Option") to
- ------- -------- ------
purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the HealthCentral.com 1998 Stock Plan (the "Plan")
----
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Exercise Notice and Restricted Stock Purchase Agreement
attached hereto as Exhibit A (the "Exercise Agreement") or of any other form of
--------- ------------------
written notice approved for such purpose by the Company which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash or check;
(b) cancellation of outstanding indebtedness;
(c) surrender of other shares of Common Stock of the Company which (i)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six months on the date of surrender,
and (ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are registered
under the Exchange Act, delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the Exercise Price.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at such Termination Date, or if Optionee does not exercise this
Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent
<PAGE>
Optionee was entitled to exercise it as of such Termination Date. To the extent
that Optionee was not entitled to exercise the Option as of the Termination
Date, or if Optionee does not exercise such Option (to the extent so entitled)
within the time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the Fair Market Value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option
at the Termination Date, or if Optionee does not exercise such Option to the
extent so entitled within the time specified in this Section 6(b), the Option
shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. Except as otherwise provided in this
-----------------------------
Section 8, this Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by him or her. However, Optionee, with the approval
of the Administrator, may transfer the Option to or for the benefit of one or
more members of Optionee's Immediate Family (as defined below), including,
without limitation, to a trust for the benefit of one or more members of
Optionee's Immediate Family or to a partnership or limited liability company
composed of one or more members of Optionee's Immediate Family, and subject to
such limits as the Administrator may establish. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and permitted
transferees of Optionee. No transfer for consideration shall be permitted
except to a partnership or limited liability company composed of one or more
members of Optionee's Immediate Family.
The foregoing right to transfer the Option shall apply to the right to
consent to amendments to this Agreement and, in the discretion of the
Administrator, shall also apply to the right to transfer ancillary rights
associated with the Option. The term "Immediate Family" shall
<PAGE>
mean Optionee's spouse or former spouse, parents, children, stepchildren,
adoptive relationships, sisters, brothers, grandchildren, nieces, nephews,
mother-in-law, father-in-law, sons-in-law, daughters-in-law, brothers-in-law or
sisters-in-law (and, for this purpose, shall also include Optionee). Optionee
acknowledges and agrees that Optionee shall be responsible for payment of any
applicable income and employment tax withholdings imposed upon the transfer
and/or subsequent exercise of a transferred Option, and such transfer and the
transferee's right to receive the shares subject to this Option upon exercise
thereof is conditioned on satisfaction of such withholding taxes as the Company
determines may be due.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if Shares transferred pursuant to the Option are held for at least one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case,
the long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 20% if the Shares are held more than
one year after exercise. If Shares purchased under an Incentive Stock Option
are disposed of within one year after exercise or within two years after the
Date of Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the
<PAGE>
extent of the difference between the Exercise Price and the lesser of (i) the
Fair Market Value of the Shares on the date of exercise, or (ii) the sale price
of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee understands that, upon exercising a Nonstatutory Stock Option, he or
she will recognize income for tax purposes in an amount equal to the excess of
the then Fair Market Value of the Shares over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be withheld, or (iv) by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date equal to the amount required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all Applicable
Laws. All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
<PAGE>
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, the Fair Market
-----------
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the applicable laws (the
"Tax Date").
--------
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature Page Follows]
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
HEALTHCENTRAL.COM
By:
----------------------------
----------------------------
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
[Employee]
<PAGE>
EXHIBIT A
---------
HEALTHCENTRAL.COM
1998 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
HealthCentral.com, a California corporation (the "Company"), and _________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
- -----------
not defined, they shall have the meaning ascribed to them in the 1998 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $______________ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
- -------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser
<PAGE>
or other transferee ("Proposed Transferee"); (iii) the number of Shares to be
-------------------
transferred to each Proposed Transferee; and (iv) the terms and conditions of
each proposed sale or transfer. The Holder shall offer the Shares at the same
price (the "Offered Price") and upon the same terms (or terms as similar as
-------------
reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30 days
----------------------------------
after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for the
-------------- --------------
Shares purchased by the Company or its assignee(s) under this Section 3(a) shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section 3(a), then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section 3(a) notwithstanding, the transfer of any or all of
the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.
9
<PAGE>
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In the
-----------------------------------------------------
event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to
------------------------------
be transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within 30 days after receipt by it of written notice of the transfer
or proposed transfer of Shares. However, if the Purchaser does not agree with
the valuation as determined by the Board of Directors of the Company, the
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and the Purchaser and whose
fees shall be borne equally by the Company and the Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such
10
<PAGE>
period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
11
<PAGE>
NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter
12
<PAGE>
herein and merges all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
shall be effective unless in writing signed by the parties to this Agreement.
The failure by either party to enforce any rights under this Agreement shall not
be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
13
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
HEALTHCENTRAL.COM
By:
------------------------------------
Name:
----------------------------------
(print)
Title:
---------------------------------
PURCHASER:
[Employee]
____________________________________
(Signature)
____________________________________
(Print Name)
Address: _________________________
_________________________
I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
_______________________
Spouse of _____________
14
<PAGE>
[Employee Form of Option Agreement]
HEALTHCENTRAL.COM
1998 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee]
Address:
______________________
______________________
You have been granted an option to purchase Common Stock "Common Stock" of
------------
HealthCentral.com (the "Company") as follows:
-------
Board Approval Date:
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting):
Vesting Commencement Date:
Exercise Price per Share:
Total Exercise Price:
Type of Option: Incentive Stock Options
------------
Nonstatutory Stock Options
------------
Term/Expiration Date:
Vesting Schedule: This Option may be exercised, in whole or
in part, in accordance with the following
schedule: 1/4th of the Shares subject to
the Option shall vest on the 12th month
anniversary of the Vesting Commencement
Date and 1/48th of the total number of
Shares subject to the Option shall vest on
the monthly anniversary date of the
Vesting Commencement Date thereafter.
Termination Period: This Option may be exercised for 30 days
after termination of employment or
consulting relationship except as set out
in Sections 6 and 7 of the Stock
<PAGE>
Option Agreement (but in no event later
than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1998 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
[EMPLOYEE] HEALTHCENTRAL.COM
By:
------------------------
- ----------------------
Signature
- ---------------------- ------------------------
Print Name Print Name and Title
<PAGE>
HEALTHCENTRAL.COM
1998 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. HealthCentral.com, a California corporation (the
---------------
"Company"), hereby grants to _________ ("Optionee"), an option (the "Option") to
- ------- -------- ------
purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the HealthCentral.com 1998 Stock Plan (the "Plan")
----
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the Expiration
Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Exercise Notice and Restricted Stock Purchase Agreement
attached hereto as Exhibit A (the "Exercise Agreement") or of any other form of
--------- ------------------
written notice approved for such purpose by the Company which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash or check;
(b) cancellation of outstanding indebtedness;
(c) surrender of other shares of Common Stock of the Company which (i)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six months on the date of surrender,
and (ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are registered
under the Exchange Act, delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the Exercise Price.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at such Termination Date, or if Optionee does not exercise this
Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent
<PAGE>
Optionee was entitled to exercise it as of such Termination Date. To the extent
that Optionee was not entitled to exercise the Option as of the Termination
Date, or if Optionee does not exercise such Option (to the extent so entitled)
within the time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the Fair Market Value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option
at the Termination Date, or if Optionee does not exercise such Option to the
extent so entitled within the time specified in this Section 6(b), the Option
shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
<PAGE>
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if Shares transferred pursuant to the Option are held for at least one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case,
the long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 20% if the Shares are held more than
one year after exercise. If Shares purchased under an Incentive Stock Option
are disposed of within one year after exercise or within two years after the
Date of Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee
<PAGE>
understands that, upon exercising a Nonstatutory Stock Option, he or
she will recognize income for tax purposes in an amount equal to the excess of
the then Fair Market Value of the Shares over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value determined as of the
applicable Tax Date (as defined in Section 11(c) below) on the date of surrender
equal to the amount required to be withheld, or (iv) by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date equal to the amount required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all applicable
laws. All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, the Fair Market
-----------
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the applicable laws (the
"Tax Date").
--------
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such
<PAGE>
underwritten offering of the Company's securities, Optionee agrees not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any securities of the Company (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the Company's
initial public offering.
[Signature Page Follows]
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
HEALTHCENTRAL.COM
By:
-----------------------------
------------------------------
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
[Employee]
<PAGE>
EXHIBIT A
---------
HEALTHCENTRAL.COM
1998 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
HealthCentral.com, a California corporation (the "Company"), and _________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
- -----------
not defined, they shall have the meaning ascribed to them in the 1998 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $______________ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
- -------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser
<PAGE>
or other transferee ("Proposed Transferee"); (iii) the number of Shares to be
-------------------
transferred to each Proposed Transferee; and (iv) the terms and conditions of
each proposed sale or transfer. The Holder shall offer the Shares at the same
price (the "Offered Price") and upon the same terms (or terms as similar as
-------------
reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30 days
----------------------------------
after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for the
-------------- --------------
Shares purchased by the Company or its assignee(s) under this Section 3(a) shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section 3(a), then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section 3(a) notwithstanding, the transfer of any or all of
the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.
-9-
<PAGE>
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In the
-----------------------------------------------------
event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within 30 days after receipt by it of written notice of the transfer
or proposed transfer of Shares. However, if the Purchaser does not agree with
the valuation as determined by the Board of Directors of the Company, the
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and the Purchaser and whose
fees shall be borne equally by the Company and the Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such
-10-
<PAGE>
period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
-11-
<PAGE>
NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter
-12-
<PAGE>
herein and merges all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
shall be effective unless in writing signed by the parties to this Agreement.
The failure by either party to enforce any rights under this Agreement shall not
be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-13-
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
HEALTHCENTRAL.COM
By:
-----------------------------------------
Name:
-----------------------------------------
(print)
Title:
-----------------------------------------
PURCHASER:
[Employee]
--------------------------------------------
(Signature)
--------------------------------------------
(Print Name)
--------------------------------------------
Address:
------------------------------
------------------------------
I, ______________________, spouse of , have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
---------------------------------
Spouse of _____________
-14-
<PAGE>
EXHIBIT 10.30
HEALTHCENTRAL.COM
CONTENT LICENSE AGREEMENT
This Content License Agreement (the "Agreement") is made as of December 6,
1999 (the "Effective Date") by and between HealthCentral.com, a Delaware
corporation with offices at Marketplace Tower, 6001 Shellmound Street, Suite
800, Emeryville, CA 94608 ("HealthCentral"), and Covert Bailey, an individual
("Bailey").
BACKGROUND
----------
A. HealthCentral owns and operates an Internet network currently
consisting of a website known as "HealthCentral.com" (the "HealthCentral
Network").
B. Bailey has developed and/or produced and expects to continue to develop
and/or produce works on health and fitness topics consisting of books, audio
tapes, video tapes and radio and television content, and may in the future
develop and/or produce additional products relating to health and fitness
topics.
C. Bailey wishes to license certain content to HealthCentral and to make
such content available to End-Users via the HealthCentral Network, and
HealthCentral wishes to obtain such a license; and the parties desire that
HealthCentral use Bailey's name, as well as Bailey's approved likeness and image
(collectively, the "Name") in connection with the distribution of certain
content over the internet and other interactive media (excluding television and
radio).
In consideration of the foregoing, and the mutual promises contained
herein, the parties hereby agree as follows:
A G R E E M E N T
-----------------
1. DEFINITIONS. Capitalized terms shall have the meaning ascribed to them
in this Section 1, or elsewhere in this Agreement.
"ADVERTISING RIGHTS" means the advertising, promotional, sponsorship and
similar rights sold or licensed with respect to the HealthCentral Network.
"ADVERTISING DESIGNEE" means an employee of HealthCentral approved by
Bailey. Christina Bailey is hereby proposed by HealthCentral and accepted by
Bailey to serve as the Approved Designee, and Ms. Bailey shall remain so until
and unless Bailey retracts his approval in writing or until Ms. Bailey's
employment is terminated in due course by HealthCentral. If Ms. Bailey or other
Approved Designee is unavailable, Bailey will himself assume the rights and
obligations of Approved Designee.
"BRAND FEATURES" of a party means such party's trademarks, trade names,
service marks, service names, logos and other distinct brand elements that
appear from time to time in such party's properties, ventures and services
worldwide, and for which such party has established trademarks or trade dress
rights, or which are protected by U.S. copyright laws, together with any
modifications to the foregoing made by such party during the term of this
Agreement.
<PAGE>
"BRAND GUIDELINES" means the guidelines for use of HealthCentral's Brand
Features, as prescribed by HealthCentral from time to time.
"END-USER" means an end-user who accesses the HealthCentral Network.
"BAILEY CONTENT" means health and fitness topics which Bailey develops,
licenses, or works on, as of the Effective Date and during the Term, consisting
of books audio AND VIDEO tapes, and radio television show content produced
and/or performed in by Bailey, and any other products produced and/or performed
in by Bailey during the Term.
"INTELLECTUAL PROPERTY RIGHTS" means all rights in and to trade secrets,
patents, copyrights, trademarks, know-how, as well as moral rights and similar
rights of any type under the laws of any governmental authority, domestic or
foreign, including rights in and to all applications and registrations relating
to any of the foregoing.
"LAUNCH DATE" means the date on which the Bailey Content is made publicly
available to End-Users via the HealthCentral Network.
"LINK" means a URL hidden behind a formatting option that may take the form
of a colored item of text (such as a URL description), logo or image, "button"
or graphic box, and which allows an end-user to move automatically to or between
web pages, web sites or within a web page.
"THIRD PARTY SITES" means one or more web-sites on the Internet developed
by HealthCentral for third parties.
"OTHER INTERNET ENTITIES" means any entity other than HealthCentral whose
business primarily involves the Internet or any entity providing portals,
content, Internet service, search engines or broadband content or services.
"URL" means Universal Resource Locator, which provides a unique Internet
protocol address for accessing an Internet page.
2. HEALTHCENTRAL NETWORK DEVELOPMENT & MAINTENANCE.
2.1 BAILEY CONTENT. Bailey will make available to HealthCentral the
Bailey Content and/or access to the Bailey Content for delivery to HealthCentral
at HealthCentral's expense Bailey will use reasonable commercial efforts and
will cooperate with HealthCentral, to ensure the Bailey Content is current and
accurate, and will provide HealthCentral with all Bailey Content and/or access
to all Bailey Content promptly following its creation or production expect that
preexisting bailey Content is limited as regards this paragraph to the extent
the Bailey Content is within Bailey's possession and under Bailey's control.
2.2 HEALTHCENTRAL NETWORK.
(a) EDITORIAL CONTROL. HealthCentral will have sole editorial control
of use of the Bailey Content in the HealthCentral Network, subject to the
approval by Bailey or his Approved Designee. HealthCentral may include non-
Bailey content in the HealthCentral Network, including on pages containing
Bailey Content provided that no such use creates an actual or implied
endorsement by Bailey of products or services produced or provided by other
<PAGE>
parties. HealthCentral shall have no obligation to use any portion of the
Bailey Content for any purpose whatsoever.
(b) HOSTING. HealthCentral will, at its own expense, provide and
manage all servers, telecommunications, facilities maintenance, and operations
related to the delivery of the HealthCentral Network to End-Users. HealthCentral
will be solely responsible for providing technical and customer support to End-
Users.
(c) AUTOMATIC LINK TO HEALTHCENTRAL NETWORK. Bailey will use his
commercially reasonable efforts to ensure that the preexisting Bailey website
(currently located at www.covertbailey.com) will be automatically linked to the
HealthCentral Network, so that users searching the Internet for "Bailey" or
"Covert Bailey" will automatically be linked to the HealthCentral Network and
not the preexisting Bailey website.
2.3 COSTS AND EXPENSES. Except as otherwise expressly provided for
herein, each party shall be responsible for and bear all costs and expense it
incurs in connection with its execution of the Agreement, and in connection with
its performance of its obligations and its exercise of its rights provided for
in this Agreement. Any out of town travel required of Bailey by Healthcentral
shall be at HealthCentral's expense, including airfare, ground transportation,
hotel accommodations and meals (or a reasonable per diem for meals) and
incidental expenses.
3. ADVERTISING.
3.1 ADVERTISING RIGHTS. Bailey acknowledges and agrees that
HealthCentral will exclusively own all Advertising Rights for the HealthCentral
Network, and HealthCentral shall be entitled to retain all revenue arising from
the license or sale of such Advertising Rights. Subject to Section 3.2,
HealthCentral will have sole control over the content of any advertising on the
HealthCentral Network, except that no actual or implied endorsement by Bailey
shall be created thereby.
3.2 BAILEY APPROVAL. Bailey will have no right to reject or to
prevent HealthCentral from including specific advertising on any pages within
the HealthCentral Network which contain Bailey Content except that no actual or
implied endorsement by Bailey shall be created thereby. Notwithstanding the
foregoing, Bailey reserves the right to request that HealthCentral refuse to
display, or remove, any Advertising from pages of the HealthCentral Network
containing Bailey Content (i) that would violate any applicable law, regulation
or third party right, or (ii) that Bailey in good faith reasonably determines:
(x) is inappropriate, (y) may result in liability or adverse publicity to
Bailey, or (z) may otherwise damage the reputation or goodwill associated with
Bailey and the Name; and HealthCentral shall use reasonable commercial efforts
to comply with such request.
4. LICENSES.
4.1 GRANT OF LICENSE BY BAILEY. Subject to the terms and conditions
of this Agreement, and subject to the existing contracts and/or licenses with
third parties as provided for in Section 4.2, Bailey hereby grants to
HealthCentral for the Term of this Agreement, an exclusive, royalty-free,
worldwide license under all of Bailey's Intellectual Property Rights (a) to use,
reproduce, publicly display, publicly perform, distribute, modify, edit, he
needs to pre-approve and transmit the Bailey Content in the HealthCentral
Network; (b) to sublicense the use, reproduction, public display, public
performance, distribution, modification, editing, and transmittal of the Bailey
Content in Third Party Sites; and (c) to use, reproduce, publicly display,
<PAGE>
distribute and transmit the Name on and in connection with the HealthCentral
Network and the Third Party Sites in conjunction with the proper use hereunder
of Bailey Content in such Third Party Sites.
(d) to modify and edit the Bailey Content for the purpose set forth
immediately above the 4.1(c) subject to the approval of Bailey or his Approved
Designee; and (d) to use , reproduce, publicly display, distribute and transmit
the Name on and in connection with Healthcentral Network and the approved Third
Party Sites in conjunction with the proper use here under of Bailey Content in
such Third Party Sites. For purpose of the this paragraph "approved Third Party
Sites" refers to search engines and other third party websites that transmit
content in good taste and in a manner consistent with HealthCentral's terms of
use policy.
4.2 THIRD PARTY RELATIONSHIPS. Bailey is subject to obligations under
the contracts and agreements listed in Exhibit 4.2. Bailey will not enter into
any other contracts or relationships after the Effective Date which would
conflict with the obligations of Bailey under this Agreement, including without
limitation the exclusivity obligations of Section 5, without the express prior
written approval of HealthCentral. HealthCentral will not use or exploit either
the Bailey Content or Name controlled by third parties as set forth in Exhibit
4.2, without written approval form such third parties.
4.3 RESERVED RIGHTS. Without limitation of the foregoing, each party
reserves all rights other than those expressly granted in this Agreement, and no
licenses are granted except as expressly set forth herein.
5. EXCLUSIVITY.
6.2 BY BAILEY. During the Term of this Agreement, without prior written
approval of HealthCentral, Bailey shall not provide any Bailey Content, or other
content relating to the topics of health and fitness, to any Other Internet
Entity or other third party for use on the Internet. During the Term of this
Agreement, Bailey shall not provide services to or for use on the Internet by
any Other Internet Entity or other third party, including without limitation,
services as a host, author, or contributor, and shall not authorize or permit
any Other Internet Entity or other third party to use the Name on the Internet.
6. SERVICES.
6.1 CHAT ROOM. Bailey will give good faith consideration as to his
participation in an interactive "chat room", or similar public discussion and
communication forum, on the HealthCentral Network at a frequency and on topics
to be mutually determined.
6.2 REFERENCES. Bailey shall use all reasonable efforts to make reference
to the HealthCentral Network as appropriate in connection with his appearances
on radio and television and publications of Bailey Content, including in
newspapers, other periodicals, and books. Such efforts to make such website
references are agreed by the parties to be a part of the exclusivity obligations
of Bailey hereunder (except that Bailey may make incidental references to non-
competing websites).
6.3 FUTURE COOPERATION. The parties will use good faith efforts to discuss
and negotiate the terms and conditions pursuant to which the parties may
cooperate in providing additional services including without limitation
coaching, product and merchandise sales.
<PAGE>
7. PROPRIETARY INFORMATION.
7.1 CONFIDENTIALITY. HealthCentral and Bailey hereby acknowledge that in
the course of activities under this Agreement each of them may have access to
confidential and proprietary information which relates to the other party's
marketing, business, and technology (the "Confidential Information"). Each
party agrees to, during the Term and for a five (5) year period following any
expiration or termination of this Agreement: (a) preserve and protect the
confidentiality of the other party's Confidential Information: (b) refrain from
using the other party's Confidential Information except as contemplated herein;
and (c) not disclose such Confidential Information to any third party except to
employees as is reasonably required in connection with the exercise of its
rights and obligations under this Agreement (and only subject to binding use and
disclosure restrictions at least as protective as those set forth herein
executed in writing by such employees). Notwithstanding the foregoing, either
party may disclose Confidential Information of the other party which is: (i)
already publicly known; (ii) discovered or created by the receiving party
without reference to the Confidential Information of the disclosing party, as
shown in records of receiving party; (iii) otherwise known to the receiving
party through no wrongful conduct of the receiving party, or (iv) required to be
disclosed by law or court order. Moreover, any party hereto may disclose any
Confidential Information hereunder to such party's agents, attorneys and other
representatives or any court of competent jurisdiction or any other party
empowered hereunder as reasonably required to resolve any dispute between the
parties hereto. Each party shall treat the terms of this Agreement as
"Confidential Information", provided, however, that after the initial press
release issued pursuant to the condition of paragraph 13.1 of this Agreement,
either party may disclose the existence of this Agreement and, in general, the
relationship between Bailey and HealthCentral.
7.2 OWNERSHIP.
(a) BY BAILEY. As between Bailey and HealthCentral, Bailey will have and
retain full and exclusive right, title and ownership interest in and to the
Bailey Content and the Name, together with any Intellectual Property Rights
thereto.
(b) BY HEALTHCENTRAL. As between Bailey and HealthCentral, HealthCentral
will have and retain full and exclusive right, title and ownership interest in
and to: (i) the HealthCentral Brand Features, (ii) the HealthCentral Network
(except as set forth in subsection (a) above), and (iii) any Intellectual
Property Rights to both of the foregoing.
8. TERMINATION.
8.1 TERM.
(a) INITIAL TERM. This Agreement will become effective as of the Effective
Date and, unless sooner terminated as provided below, or as otherwise mutually
agreed, shall remain effective for a period of four (4) years following the
Launch Date (the "Initial Term").
(b) RENEWAL. Six (6) months prior to the expiration of the Initial Term,
the parties shall meet to negotiate the terms under which the parties would
renew the Agreement.
<PAGE>
8.2 TERMINATION. This Agreement may be terminated at any time by a party,
effective immediately upon notice, if the other party: (a) becomes insolvent;
(b) files a petition in bankruptcy, (c) makes an assignment for the benefit of
its creditors, or (d) breaches any of its material responsibilities or
obligations under the Agreement which breach is not remedied within thirty (30)
days from receipt of written notice of such breach.
8.3 EFFECT OF TERMINATION. Upon expiration or termination of this
Agreement: (a) each party shall return or, at the disclosing party's request
destroy, the Confidential Information of the other party, (b) all licenses
granted herein shall terminate, (c) HealthCentral shall have no further right to
use, and shall not use, Bailey Content in any way whatsoever and agrees to purge
Bailey Content from all electronic memories owned by it or in its possession or
under its control and (d) Sections 1, 7, 8.3, 9, 10, 11, and 13 will survive
any termination or expiration of the Agreement.
9. REPRESENTATION AND WARRANTIES.
9.1 BY EACH PARTY. Each party represents and warrants to the other that:
(a) (except for Bailey), such party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; (b) the execution of this Agreement by such party, and the
performance by such party of its obligations and duties hereunder, do not and
will not violate any agreement to which such party is a party or by which it is
otherwise bound; and (c) when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms.
9.2 BY BAILEY. Bailey hereby represents and warrants that Bailey has
assigned or otherwise transferred, and, throughout the Term, will assign or
otherwise transfer to HealthCentral. sufficient rights to the Name, the Bailey
Content, and such other Bailey property as are necessary for Bailey to grant to
HealthCentral the licenses granted hereunder. Bailey hereby consents to the
licenses and sublicenses, as applicable, of such rights to HealthCentral as
provided for in this Agreement. The parties understand and agree that Bailey
does not develop or provide and are not obligated hereunder to develop or
provide software of any kind and nothing in this Agreement shall be construed to
require the provision, development or licensing of software by Bailey.
9.3 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
SECTION, NO PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE HEALTHCENTRAL
NETWORK, THE NAME, THE BAILEY CONTENT AND ANY OTHER CONTENT PROVIDED HEREUNDER,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE.
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY BAILEY. Bailey agrees, at its own expense, to
defend or at its option to settle any claim or action brought against
HealthCentral arising out of or relating to a claim that: (a) use of Bailey's
Brand Features in accordance with the terms of this Agreement infringes a third
party copyright or trademark, (b) the Bailey Content infringes the Intellectual
<PAGE>
Property Rights of a third party or contains any material or information that is
obscene, defamatory, violates any law or regulation, or breaches the rights of
any person or entity, including, without limitation, rights of publicity,
privacy or personality, and/or (c) results from a breach by Bailey of any
representation or warranty contained in Section 9; and Bailey will indemnify
HealthCentral against any and all losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising
under any such claim or action; provided that HealthCentral provides Bailey
with: (x) prompt written notice of such claim or action, (y) sole control and
authority over the defense or settlement of such claim or action (provided that
Bailey shall not enter into any settlement which materially affects
HealthCentral's rights without HealthCentral's prior written consent), and (z)
proper and full information and reasonable assistance to defend and/or settle
any such claim or action.
10.2 INDEMNIFICATION BY HEALTHCENTRAL. HealthCentral agrees, at its own
expense, to defend or at its option to settle any claim or action brought
against Bailey arising out of or relating to a claim that: (a) use of
HealthCentral's Brand Features in accordance with the terms of this Agreement
infringes a third party copyright or trademark, (b) the HealthCentral Network,
excluding any Bailey Content contained therein, or the operation of the
HealthCentral Network infringes the Intellectual Property Rights of a third
party or contains any material or information that is obscene, defamatory,
violates any law or regulation, or breaches the rights of any person or entity,
including, without limitation, rights of publicity, privacy or personality,
and/or (c) results from a breach by HealthCentral of any representation or
warranty contained in Section 9.1; and HealthCentral will indemnify Bailey
against any and all losses, damages, suits, judgments, costs and expenses
(including litigation costs and reasonable attorneys' fees) arising under any
such claim or action; provided that the Bailey Party provides HealthCentral
with: (x) prompt written notice of such claim or action, (y) sole control and
authority over the defense or settlement of such claim or action (provided that
HealthCentral shall not enter into any settlement which materially affects
Bailey's rights without Bailey's prior written consent) and (z) proper and full
information and reasonable assistance to defend and/or settle any such claim or
action.
11. LIMITATION OF LIABILITY. EXCEPT FOR LIABILITY ARISING UNDER SECTIONS
7.1 AND 10, UNDER NO CIRCUMSTANCES WILL ANY PARTY BE LIABLE TO ANOTHER PARTY
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM
ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE.
12. COMPENSATION.
(a) DOLLAR SUM. In consideration of Bailey's undertaking of
responsibilities under this Agreement, HealthCentral will (a) pay Bailey the sum
of thirty-six thousand dollars ($36,000) by the earlier of seven (7) days of the
Launch Date or fifteen days after execution of this Agreement; and (b) beginning
on the first day of the thirteenth (13th) month following the payment set forth
immediately above, and monthly thereafter during the remainder of the Term,
three thousand dollars ($3,000).
(b) EQUITY. In consideration of Bailey's undertaking of responsibilities
under this Agreement, HealthCentral will (a) issue Bailey as of the Effective
Date five thousand (5,000) shares of the common stock of HealthCentral; and (b)
grant Bailey non-qualified options to aquire twenty four thousand (24,000)
shares of the common stock of HealthCentral (the "Option
<PAGE>
Shares") at a strike price equal to the fair market value as of the Effective
Date, which Option Shares shall vest at the rate of 1/48th of such shares on
each monthly anniversary of the Effective Date, provided that Bailey continues
to perform his obligations under this Agreement. These options will be subject
to a one hundred eighty (180) day lock-up agreement, commencing on the effective
date of HealthCentral's proposed initial public offering.
13. MISCELLANEOUS.
13.1 PRESS RELEASE. Notwithstanding Section 7.1, the parties will
cooperate to create appropriate, mutually agreeable, public announcements of
the relationship set forth in this Agreement. No party will make any separate
public announcement without first delivering the announcement to the other party
and obtaining the other party's prior consent, which will not be unreasonably
withheld or delayed.
13.2 NOTICES. Any notice or other communication to be given hereunder
will be in writing and given by facsimile, postpaid registered or certified mail
return receipt requested, or electronic mail (with a copy concurrently mailed as
set forth above). The date of receipt shall be deemed the date on which such
notice is given. Notice hereunder will be directed to a party at the address
for such party set forth in the first paragraph of this Agreement. A party may
change its address for notice purposes hereof on written notice to the other
party in accordance with this Section 13.2.
13.3 NO JOINT VENTURE OR AGENCY. Nothing in this Agreement shall
constitute or create a joint venture, partnership, or any other similar
arrangement between Bailey and HealthCentral. Neither party is authorized to
act as agent or bind the other party except as expressly stated in this
Agreement.
13.4 NO ASSIGNMENT. Neither party will transfer or assign any of its
rights or assign or delegate any of its obligations under this Agreement, in
whole or in part, whether voluntarily or by operation of law, without the prior
written consent of the other party. Any purported transfer, assignment or
delegation by either party without the appropriate prior written approval will
be null and void and of no force or effect. Notwithstanding the foregoing,
HealthCentral will have the right to assign its rights and obligations under
this Agreement to any successor of such party by way of merger or consolidation
or the acquisition of all or substantially all of the business and assets of the
assigning party relating to the Agreement
13.5 HEADINGS. Sections, titles or captions in no way define, limit,
extend or describe the scope of this Agreement nor the intent of any of its
provisions.
13.6 SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
13.7 ENTIRE AGREEMENT. This Agreement together with its Exhibits
contains the entire agreement of the parties with respect to the subject matter
hereof, and supersedes all prior and/or contemporaneous agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
13.8 GOVERNING LAW. This Agreement will be governed by and interpreted
under the laws of the State of California, without giving effect to applicable
conflicts of law principles.
<PAGE>
13.9 AMENDMENT. This Agreement may not be amended or modified by the
parties in any manner, except by an instrument in writing signed on behalf of
each of the parties to which such amendment or modification applies by a duly
authorized officer or representative.
13.10 WAIVER. Any of the provisions of this Agreement may be waived by
the party entitled to the benefit thereof. Neither party will be deemed, by any
act or omission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by the waiving party, and then only to the
extent specifically set forth in such writing. A waiver with reference to one
event will not be construed as continuing or as a bar to or waiver of any right
or remedy as to a subsequent event.
13.11 GENDER. Throughout this Agreement, the masculine gender shall be
construed to include the feminine gender, the feminine gender to include the
masculine gender, and the neuter gender to include the masculine and/or feminine
gender as the context may require.
13.12 DISPUTE RESOLUTION. Representatives from each party will meet
within ten (10) business days after receipt of a request from either party to
review in good faith any dispute with respect to the interpretation of any
provision of this Agreement or with respect to the performance of either party
under this Agreement. In the event a disagreement or dispute under this
Agreement is not resolved by the designated representatives of each party by
mutual agreement within ten (10) business days after a meeting to discuss the
disagreement, either party may present the dispute to a mutually agreeable
mediator for resolution. If such mediation does not resolve the dispute, such
dispute or claim arising out of or in connection with this Agreement will be
finally settled by binding arbitration in accordance with the then-current
Commercial Arbitration Rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules who is knowledgeable in the
Internet industry. In arriving at his award the arbitrator shall make every
effort to find a solution to the dispute in the provisions of this Agreement and
shall give full effect to all parts hereof. The arbitrator shall apply
California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. The location of the
arbitration shall be Portland, Oregon. The arbitrator shall designate in his
award the party which is the prevailing party and the prevailing party will be
entitled to recover its costs and expenses, including, without limitation,
attorneys' fees and costs, incurred in connection with such arbitration.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision.
13.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if both parties hereto had signed the same
document. All counterparts will be construed together and will constitute one
agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the Effective Date.
By:
-------------------------
Covert Bailey
HEALTHCENTRAL.COM
By:
-------------------------
Title:
----------------------
<PAGE>
Exhibit 23.1
Consent of Independent Accounts
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-92281) of HealthCentral.com of our report dated
February 1, 2000 relating to the consolidated financial statements appearing in
HealthCentral.com's Annual Report on Form 10-K for the year ended December 31,
1999.
PricewaterhouseCoopers LLP
San Jose, California
March 8, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HEALTHCENTRAL.COM FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 77,655
<SECURITIES> 0
<RECEIVABLES> 643
<ALLOWANCES> 65
<INVENTORY> 0
<CURRENT-ASSETS> 81,444
<PP&E> 1,937
<DEPRECIATION> 152
<TOTAL-ASSETS> 118,143
<CURRENT-LIABILITIES> 5,678
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 112,151
<TOTAL-LIABILITY-AND-EQUITY> 118,143
<SALES> 1,189
<TOTAL-REVENUES> 1,189
<CGS> 0
<TOTAL-COSTS> 15,604
<OTHER-EXPENSES> 9,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 34,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,387)
<EPS-BASIC> (4.96)
<EPS-DILUTED> (4.96)
</TABLE>
