<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000
REGISTRATION NO. 333-91619
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MD2PATIENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 7375 62-1798114
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
501 CORPORATE CENTRE DRIVE,
SUITE 200, FRANKLIN, TENNESSEE 37067
(615) 383-8400
(Address, including zip code, and telephone number, including
area code, of registrant's executive offices)
JOSEPH B. CRACE
MD2PATIENT, INC.
501 CORPORATE CENTRE DRIVE, SUITE 200
FRANKLIN, TENNESSEE 37067
(615) 383-8400
(Name, address, including zip code, and telephone number
including area code, of agent for service)
The Commission is requested to send copies of all communications to:
<TABLE>
<S> <C>
R. GREGORY BROPHY, ESQ. J. PAGE DAVIDSON, ESQ.
ALSTON & BIRD LLP BASS, BERRY & SIMS PLC
ONE ATLANTIC CENTER 2700 FIRST AMERICAN CENTER
ATLANTA, GEORGIA 30309-3424 NASHVILLE, TENNESSEE 37238-2700
(404) 881-7000 (615) 742-6200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 17, 2000
PROSPECTUS
34,000,000 SHARES
MD2PATIENT, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
-------------------------
MD2patient, Inc. d/b/a md2patient.com is offering up to 34,000,000 shares
of its Series B Convertible Preferred Stock. md2patient.com is conducting this
offering simultaneously with an offering of up to 2,000,000 shares of its Series
A Convertible Preferred Stock and Warrants to purchase up to 4,000,000 shares of
its Series A Convertible Preferred Stock.
This offering will terminate on the earlier to occur of (a) the sale of all
of the shares offered hereby, (b) December 31, 2000 or (c) our decision to
terminate the offering. All payments for shares offered hereby will be deposited
into an escrow account at SunTrust Bank until we receive payments for at least
5,000,000 shares of Series B Convertible Preferred Stock. If we do not receive
payments for at least 5,000,000 shares of Series B Convertible Preferred Stock
by December 31, 2000, we will terminate this offering and promptly return all
payments plus interest, if any.
Shares of our Series A and Series B Convertible Preferred Stock do not have
ordinary voting rights, except with respect to a proposed merger or sale of our
company. Shares of our Common Stock have ordinary voting rights. Heritage Group,
LLC and its affiliates own approximately 74% of our outstanding shares of Common
Stock. As a result, Heritage Group, LLC and its affiliates control our company
and will continue to control our company following the completion of this
offering.
This is the initial public offering of our Series B Convertible Preferred
Stock. The shares offered by this prospectus may not be transferred or re-sold
without our prior written consent. No public market for these shares currently
exists and we do not expect a public market to develop. Accordingly, we do not
intend to list our Series B Convertible Preferred Stock on any securities
exchange or on the Nasdaq Stock Market.
We have engaged W.R. Hambrecht & Company, LLC to assist in the sale of the
shares and Warrants. W.R. Hambrecht will take and process purchase orders for
shares, arrange for the electronic delivery of prospectuses to purchasers,
accept money from purchasers and deliver shares to purchasers in this offering.
W.R. Hambrecht is not required to purchase any shares or to undertake any
affirmative selling efforts in this offering.
<TABLE>
<CAPTION>
TOTAL
PER ------------------------
SHARE MINIMUM MAXIMUM
----- ---------- -----------
<S> <C> <C> <C>
Price to public............................................. $1.00 $5,000,000 $34,000,000
Underwriting commissions.................................... $0.03* $ 400,000* $1,020,000*
Proceeds, before expenses, to md2patient.com................ $0.97 $4,600,000 $32,980,000
</TABLE>
- ---------------
* W.R. Hambrecht will receive a fee equal to (i) $400,000 upon the closing of
the sale of 5,000,000 shares of Series B Convertible Preferred Stock, (ii)
eight cents ($.08) per share of any shares of Series A or Series B Convertible
Preferred Stock sold after the initial closing of the sale of 5,000,000
shares, until an aggregate of 6,250,000 shares have been sold, (iii) zero
cents ($.00) per share of any shares sold after an aggregate of 6,250,000
shares have been sold and until 16,666,666 shares have been sold, and (iv)
three cents ($0.03) per share of any shares sold after an aggregate of
16,666,666 shares have been sold.
-------------------------
INVESTING IN THE SERIES B CONVERTIBLE PREFERRED STOCK INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(WR HAMBRECHT & CO. LOGO)
, 2000
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 17, 2000
PROSPECTUS
2,000,000 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
WARRANTS TO PURCHASE 4,000,000 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
MD2PATIENT, INC.
------------------------
MD2patient, Inc. d/b/a md2patient.com is offering up to 2,000,000 shares of
its Series A Convertible Preferred Stock and Warrants to purchase up to
4,000,000 shares of its Series A Convertible Preferred Stock. md2patient.com is
conducting this offering simultaneously with an offering of up to 34,000,000
shares of its Series B Convertible Preferred Stock.
This offering will terminate on the earlier to occur of (a) the sale of all
of the shares and Warrants offered hereby, (b) December 31, 2000 or (c) our
decision to terminate the offering. All payments for shares offered hereby will
be deposited into an escrow account at SunTrust Bank until we receive payments
for at least 5,000,000 shares of Series B Convertible Preferred Stock. If we do
not receive payments for at least 5,000,000 shares of Series B Convertible
Preferred Stock by December 31, 2000, we will terminate this offering and
promptly return all payments plus interest, if any.
Shares of our Series A and Series B Convertible Preferred Stock do not have
ordinary voting rights, except with respect to a proposed merger or sale of our
company. Shares of our Common Stock have ordinary voting rights. Heritage Group,
LLC and its affiliates own approximately 74% of our outstanding shares of Common
Stock. As a result, Heritage Group, LLC and its affiliates control our company
and will continue to control our company following the completion of this
offering.
This is the initial public offering of our Series A Convertible Preferred
Stock and Warrants. The securities offered by this prospectus may not be
transferred or re-sold without our prior written consent. No public market for
these securities currently exists and we do not expect a public market to
develop. Accordingly, we do not intend to list our Series A Convertible
Preferred Stock or Warrants on any securities exchange or on the Nasdaq Stock
Market.
We have engaged W.R. Hambrecht & Company, LLC to assist in the sale of the
shares and Warrants. W.R. Hambrecht will take and process purchase orders for
securities, arrange for the electronic delivery of prospectuses to purchasers,
accept money from purchasers and deliver securities to purchasers in this
offering. W.R. Hambrecht is not required to purchase any securities or to
undertake any affirmative selling efforts in this offering.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Price to public of Series A Convertible Preferred Stock..... $1.00 $2,000,000
Underwriting commissions.................................... $0.03* $ 60,000*
Proceeds, before expenses, to md2patient.com................ $0.97 $1,940,000
</TABLE>
- -------------------------
* W.R. Hambrecht will receive a fee equal to (i) $400,000 upon the closing of
the sale of 5,000,000 shares of Series B Convertible Preferred Stock, (ii)
eight cents ($.08) per share of any shares of Series A or Series B Convertible
Preferred Stock sold after the initial closing of the sale of 5,000,000
shares, until an aggregate of 6,250,000 shares have been sold, (iii) zero
cents ($.00) per share of any shares sold after an aggregate of 6,250,000
shares have been sold and until 16,666,666 shares have been sold, and (iv)
three cents ($.03) per share of any shares sold after an aggregate of
16,666,666 shares have been sold.
------------------------
INVESTING IN THE SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANTS INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(WR HAMBRECHT & CO. LOGO)
, 2000
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 26
Management.................................................. 34
Certain Relationships and Related Transactions.............. 40
Principal Stockholders...................................... 41
Description of Capital Stock................................ 42
Shares Eligible for Future Sale............................. 46
Federal Income Tax Consequences............................. 47
Plan of Distribution........................................ 50
Legal Matters............................................... 53
Experts..................................................... 53
Where You Can Find More Information......................... 53
Index to Financial Statements............................... F-1
</TABLE>
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in our stock.
MD2PATIENT.COM
We were incorporated in July 1999 to develop and operate a web site to
provide access to selected on-line healthcare content and services and to
develop customized web pages for our physician subscribers. Our web site became
operational during January 2000 for the limited purpose of accepting
subscriptions for our proposed Internet services. Based on our current
development schedule, we believe that during the second quarter of 2000, our web
site will include customized web pages for our physician subscribers, links to
other healthcare web sites or clinical information databases and other general
healthcare information. Our focus will be to enhance the relationship between
our physician subscribers and their patients by providing on our web site
content and services available on the Internet that will be useful in educating
patients, improving administrative efficiency and improving communications
between physicians, or their staff, and patients.
The selection of our content and services will be made by panels of
physicians, organized by specialty, that we will form to help us select content
and services. Although we have not yet formed any of these physician panels, we
believe that at least four will be formed during the first and second quarters
of 2000. Our staff will regularly survey the Internet to identify and recommend
to our physician panels new content and service offerings that may be of benefit
to our physician subscribers, their staff and their patients. Our physician
panels will be responsible for reviewing the content and services recommended by
our staff and selecting content and services for inclusion on or through our web
site. We will regularly upgrade our site as our physician panels select new
offerings.
We are a development stage company and, to date, we have not generated any
revenues. Since our inception we have incurred losses and negative cash flow
and, as of December 31, 1999, we had an accumulated deficit of $650,469. We
expect negative cash flow and operating losses to continue for the foreseeable
future, and we may never become profitable. We expect to incur costs of no more
than $1,000,000 associated with the initial development and launch of our web
site. Through December 31, 1999, we had incurred approximately $260,000 of such
costs.
The market for the Internet services and products we intend to offer is
intensely competitive. Since the commercialization of the Internet in the early
1990s, the number of web sites on the Internet competing for users' attention
has proliferated with no substantial barriers to entry, and we expect that
competition will continue to intensify. As of March 1, 2000, we had 1,015
subscribers to our web site, of which 139 received their subscriptions for free
in connection with their participation as investors in a November 1999 private
placement of our Series A Convertible Preferred Stock.
3
<PAGE> 6
THE OFFERING
Series B Convertible Preferred Stock. We are offering a minimum of
5,000,000 shares and a maximum of 34,000,000 shares of our Series B Convertible
Preferred Stock at a price of $1.00 per share. The shares of our Series B
Convertible Preferred Stock will only be offered and sold to physicians (or the
physician groups in which they practice) who have subscribed for our web
services. This is the initial public offering of our Series B Convertible
Preferred Stock. This offering will terminate on the earlier to occur of (a) the
sale of all of the shares offered hereby, (b) December 31, 2000 or (c) our
decision to terminate the offering. The offering price of $1.00 per share was
determined arbitrarily by us and does not necessarily reflect the value of a
share of Series B Convertible Preferred Stock.
Series A Convertible Preferred Stock. We are also offering up to 2,000,000
shares of our Series A Convertible Preferred Stock at a price of $1.00 per
share. The shares of our Series A Convertible Preferred Stock will only be
offered and sold to physicians who have subscribed to our web services and that
we determine have played or will play an important role in the development or
market acceptance of our web site, including members of our physician panels,
members of our Physician Advisory Board and physicians with whom we enter into
endorsement relationships. This is the initial public offering of our Series A
Convertible Preferred Stock. The offering of Series A Convertible Preferred
Stock will terminate at the same time the offering of Series B Convertible
Preferred Stock terminates. The offering price of $1.00 per share was determined
arbitrarily by us and does not necessarily reflect the value of a share of
Series A Convertible Preferred Stock.
Warrants to Purchase Series A Convertible Preferred Stock. We are also
offering Warrants to purchase up to 4,000,000 shares of our Series A Convertible
Preferred Stock. The Warrants will only be offered to (a) physicians who have
subscribed to our web services and that we determine have played an important
role in the development and market acceptance of our web site, including members
of our physician panels, members of our Physician Advisory Board and physicians
with whom we enter into endorsement relationships (b) physician subscribers who
refer other physicians who subscribe to our web services, and (c) employees and
independent contractors who assist us in marketing our web services. Each
Warrant will entitle the holder thereof to purchase the number of shares of
Series A Convertible Preferred Stock underlying the Warrant for $1.00 per share.
Offerees will not pay any consideration in connection with our grant or their
receipt of the Warrants. The Warrants are exercisable at any time beginning on
the date of issuance and ending on the third anniversary of their date of
issuance. Our Board of Directors will have the discretion to determine the
offerees of the Warrants and, if appropriate, adopt specific criteria for
determining the number of underlying shares for which each Warrant is
exercisable.
This is neither a solicitation of an offer to buy nor an offer to sell our
securities to persons in the following jurisdictions: Arizona, Florida, Guam,
Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, Puerto Rico, South
Dakota, Vermont, West Virginia, and Wyoming. Persons in these jurisdictions are
not authorized to purchase any of our securities under this prospectus.
Investing in this offering involves a high degree of risk. See "Risk
Factors" beginning on page 7.
4
<PAGE> 7
THE SHARES OFFERED
Shares of Series B Convertible Preferred Stock automatically convert into
shares of Series A Convertible Preferred Stock on a one-for-one basis at the
rate of one-third per year on each anniversary of their issuance. Shares of
Series A Convertible Preferred Stock are convertible at any time at the election
of the holder into shares of Common Stock on a one-for-one basis. If we complete
an underwritten public offering of our Common Stock in which at least
$10,000,000 worth of our Common Stock is sold at a price of not less than $1.00
per share, then:
(1) our Series B Convertible Preferred Stock will automatically become
convertible into shares of our Common Stock on the same terms that it is
presently convertible into shares of our Series A Convertible Preferred
Stock; and
(2) all outstanding shares of our Series A Convertible Preferred Stock
will automatically convert into shares of our Common Stock on a one-for-one
basis.
Shares of Series A and Series B Convertible Preferred Stock may not be
transferred or re-sold without our prior written consent.
Shares of Series A or Series B Convertible Preferred Stock do not have any
voting rights, except with respect to a proposed merger or sale of the company
and except as otherwise required by law.
Upon the liquidation, dissolution or winding up of md2patient.com, holders
of shares of Series A or Series B Convertible Preferred Stock sold in this
offering would be entitled to be paid, before any payment to holders of our
Common Stock, an amount equal to $1.00 per share.
These terms and all other material terms of the Series A and Series B
Convertible Preferred Stock are described in greater detail under the heading
"Description of Capital Stock" later in this prospectus.
CONDITIONS OF THIS OFFERING
This offering will terminate on the earlier to occur of the sale of all of
the shares offered hereby or December 31, 2000. All payments for shares offered
hereby will be deposited into an escrow account at SunTrust Bank until we
receive payments for at least 5,000,000 shares of Series B Convertible Preferred
Stock. If we do not receive payments for at least 5,000,000 shares of Series B
Convertible Preferred Stock by December 31, 2000, we will terminate this
offering and promptly return all payments together with interest, if any. Our
officers and directors will not be able to purchase shares of Series B
Convertible Preferred Stock in order to meet the minimum of 5,000,000 shares.
USE OF PROCEEDS
After deducting fees of WR Hambrecht and estimated offering expenses of
$450,000, we expect to receive a minimum of (1) $4,150,000 in net proceeds from
the offering of Series B Convertible Preferred Stock, (2) no proceeds from the
offering of Series A Convertible Preferred Stock and (3) no proceeds from the
offering of Warrants. We cannot assure you that we will receive any net proceeds
in excess of these estimated minimums. We plan to use the proceeds from this
offering for implementing and expanding the functionality of our web site and
associated databases, enhancing our marketing and sales organizations, pursuing
relationships with third party vendors of on-line content and services, and
expanding our customer support functions. The potential uses of proceeds and the
amounts allocated to each such use are subject to management's discretion.
5
<PAGE> 8
-------------------------
Our principal executive offices are located at 501 Corporate Centre Drive,
Suite 200, Franklin, Tennessee 37067. Our telephone number is (615) 383-8400.
Our Internet address is www.md2patient.com. We do not intend for information
contained on or linked to our web site to be incorporated into this prospectus.
In this prospectus, references to the "company," "md2patient.com," "we," "us,"
and "ours" refer to MD2patient, Inc.
6
<PAGE> 9
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before buying shares in this offering. Our business could be adversely affected
by any of the following factors, in which event the value of our business could
decline, and you could lose part or all of your investment.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in July 1999 and have not yet launched our web site.
We have a limited operating history that you can use to evaluate our business or
our future prospects. You must consider the risks, expenses and problems
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as ours. Some of
the risks which we may face as an early stage company include our ability to:
- implement our business model and strategy and adapt them as needed;
- attract physicians, their staffs and patients to our web site; and
- develop third party relationships for our content and services.
If we fail to successfully manage these risks, expenses and problems, and
the other risks described below, current evaluations of our business and
prospects may prove to be inaccurate.
WE HAVE NO REVENUES, WE ARE NOT PROFITABLE AND WE EXPECT FUTURE LOSSES
Since our inception, we have incurred losses and negative cash flow, and,
as of December 31, 1999, we had an accumulated deficit of $650,469. We expect
negative cash flow and operating losses to continue for the foreseeable future,
and we may never become profitable. We expect our operating costs to increase,
but because we have no operating history, we have no historical financial data
to use as a basis for determining future operating expenses. The principal
minimum costs of expanding our business will include:
- substantial direct and indirect selling, marketing, advertising and
promotional costs, which we expect to be approximately $500,000;
- costs incurred in connection with hiring additional personnel to meet our
anticipated growth especially in the area of customer service, which we
expect to be approximately $1,000,000; and
- costs incurred to develop our web site and obtain services and content to
be offered on or through our web site, which we expect to be
approximately $2,500,000.
We cannot assure you that we will ever achieve or sustain profitability. For
more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
7
<PAGE> 10
OUR BUSINESS MODEL IS NEW AND UNTESTED AND OUR WEB SITE MAY NOT ACHIEVE MARKET
ACCEPTANCE
Our success will depend upon our ability to attract physician subscribers
to our web site and to motivate those subscribers and their patients to utilize
our web site to obtain healthcare information, products and services over the
Internet. However, our business model is new and our web site is untested. We
cannot guarantee that physician subscribers and patients will utilize our web
site, or even the Internet, as a replacement for traditional sources of
healthcare information, products and services.
Acceptance of web sites by physicians and their patients will require a
broad acceptance of new methods of conducting business and exchanging
information. Our failure to achieve market acceptance and to develop and
maintain a large base of physician subscribers and patient users for our web
site would cause our business to fail.
WE DO NOT CURRENTLY HAVE ANY CONTENT OR SERVICES ON OUR WEB SITE
We do not currently have any content or services on our web site. All of
the web site content and services described in this prospectus will have to be
obtained from third party content and service providers or developed
independently by us. We currently do not have any agreements with content or
service providers to obtain content and services for our web site. We are
currently relying on outside firms to develop our web site and to assist us in
establishing relationships with third parties to obtain the content and services
to be offered on our web site. The market for such relationships is very
competitive and there can be no assurance that such content or services will be
available to us on commercially reasonable terms or at all. Therefore, there can
be no assurance that we will be successful in developing and launching a web
site with useful content and services. The failure to develop and launch a web
site with useful content and services will cause us to fail. For more
information, see "Business -- Third Party Business Relationships."
IF WE ARE UNABLE TO ESTABLISH REVENUE-GENERATING RELATIONSHIPS WITH THIRD
PARTIES SUCH AS HEALTHCARE VENDORS AND ADVERTISERS, OUR BUSINESS IS LIKELY TO
FAIL
In addition to creating a large base of physician subscribers and patient
users for our web site, we must establish business relationships with healthcare
vendors and advertisers in order to obtain revenue from commerce originating on
or through our web site. We do not currently have any business relationships of
this type and competition for these relationships from other web sites is
intense. Vendors and advertisers may be unwilling to enter into relationships
with us until our web site is fully operational and we have a significant number
of subscribers. If we fail to establish these relationships, our sources of
revenue will be very limited and our business is likely to fail. For more
information, see "Business -- Third Party Business Relationships."
WE INTEND FOR SOME OF OUR REVENUES TO COME FROM ADVERTISING AND SPONSORSHIPS,
AND THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING AND SPONSORSHIP IS
UNCERTAIN
While we are unable to determine how much revenue, if any, we will generate
from advertisers and sponsors, we will attempt to obtain some revenue from the
sale of advertisements and sponsorships on our web site. The Internet
advertising market is new and rapidly evolving. It cannot yet be compared with
the traditional advertising market to gauge its effectiveness. As a result,
there is significant uncertainty about the demand and market acceptance for
Internet advertising. For example, increased use of filter software
8
<PAGE> 11
programs that allow Internet users to limit or remove advertising from their
desktops or the adoption of this type of software by Internet access providers
could adversely affect the viability of advertising on the Internet. Many of our
potential advertising customers and sponsors may conclude that Internet
advertising and sponsorship are not effective relative to traditional
advertising and sponsorship opportunities. If the market for Internet
advertising and sponsorships fails to develop or develops more slowly than we
expect, our potential sources of revenue will be limited and our business may be
adversely affected. For more information, see "Business -- Third Party Business
Relationships."
WE FACE INTENSE COMPETITION
The market for Internet services and products is intensely competitive.
Since the Internet's commercialization in the early 1990's, the number of web
sites on the Internet competing for users' attention has proliferated with no
substantial barriers to entry, and we expect that competition will continue to
intensify. We will compete for physician subscribers, content and service
providers, advertisers and sponsors with the following categories of companies:
- on-line services or web sites targeted to the healthcare industry
generally;
- publishers and distributors of traditional offline media, including those
targeted to physicians, many of which have established or may establish
web sites;
- general purpose on-line services which provide access to healthcare
content and services;
- public sector and non-profit web sites that provide healthcare
information without advertising or commercial sponsorships; and
- web search and retrieval services and other high-traffic web sites.
Due to the rapidly evolving nature of our market, the limited barriers to
entry and the rapid proliferation of competitors, we are unable to quantify the
number of our competitors, but we believe they are numerous. Although we do not
believe anyone currently dominates our market, there are several well
capitalized companies such as Healtheon/WebMD, Medscape and drkoop.com that are
already pursuing business strategies that are similar to ours. These companies
are significantly further along than we are in the development of their
businesses and are already providing products similar to those that we are
seeking to develop. Competition from these companies will be intense. Some of
our competitors enjoy substantial competitive advantages over us, including:
- greater resources that can be devoted to the development, promotion and
sale of their content and services;
- longer operating histories;
- existing Internet products and services that may have already achieved
market acceptance;
- greater financial, technical and marketing resources;
9
<PAGE> 12
- existing relationships with key content or service providers;
- greater name recognition; and
- established subscriber bases.
For more information, see "Business -- Competition."
WE ARE A DEVELOPMENT STAGE COMPANY WITH VERY LIMITED CAPITAL RESOURCES
The proceeds of this offering, together with a limited amount of capital
previously raised by us in connection with sales of our Common Stock and our
Series A Convertible Preferred Stock and warrants will be the only capital
resources available to us. These capital resources may not be sufficient to
finance in full the implementation of our business strategy. Therefore, we may
have to raise additional capital, which could entail issuing additional equity
securities or incurring significant amounts of debt. Our issuance of additional
equity securities would cause dilution to investors in this offering. Our
incurrence of debt could result in substantial debt service obligations, which,
in turn, could cause cash flow problems. Additional capital may not be available
to us on commercially reasonable terms or at all. The failure to raise
additional needed capital could cause us to fail. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
We currently have two pending trademark applications filed with the United
States Patent and Trademark Office, one for md2patient(TM) and one for
md2patient.com(TM). At this point in time, we are unable to predict whether the
United States Patent and Trademark Office will allow these applications to
proceed to registration. For more information, see "Business -- Intellectual
Property."
Our business could be adversely affected if unauthorized parties infringe
upon or misappropriate our content, services or proprietary information, such as
our trade names, trademarks or trade secrets. Our efforts to protect our
intellectual property may not be adequate. In the future, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others, which could be time
consuming and costly.
WE MAY BE LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Intellectual property infringement claims could be made against us as the
number of our competitors grows or as we aggregate on-line content and services
from third parties. These claims could be expensive and divert our attention
from our operations. In addition, if we become liable to third parties for
infringing their intellectual property rights related to our content, services,
name or otherwise, we could be required to pay substantial damages, develop
comparable non-infringing intellectual property or obtain a license. We could
also be forced to cease providing the content or services or using the name(s)
that contain the infringing intellectual property. We may be unable to develop
non-infringing intellectual property or obtain a license on commercially
reasonable terms, or at all.
10
<PAGE> 13
WE MAY INCUR LIABILITY FOR CONTENT AND USER DATA CONTAINED ON OUR WEB SITE
As a content provider, we may face potential liability for intellectual
property infringement, defamation, indecency and other claims. In addition, we
may incur liability for unauthorized duplication or distribution of third-party
content or materials or for information collected from and about our subscribers
and users. Third parties or users may bring claims against us relating to
proprietary rights or use of personal information. We do not currently maintain
general liability insurance for potential claims of this type.
IF WE LOSE THE SERVICES OF JOHN BLOUNT OR ALBERT RODEWALD, OUR BUSINESS WOULD
SUFFER
We depend substantially on the continued services and performance of John
E. Blount, our President, and Albert Rodewald, our Executive Vice President and
Chief Technology Officer. Mr. Blount has been instrumental in the development of
our business model and marketing of our web site to physicians. In addition, Mr.
Rodewald has been instrumental in putting in place the technology that we
utilize, as well as the development of our web site and associated databases. If
we were to lose the services of either Mr. Blount or Mr. Rodewald before the
full implementation of our web site and completion of this offering, our
progress in implementing our web site and attracting physician subscribers could
be substantially interrupted which would hurt our business.
IF WE CANNOT ATTRACT ADDITIONAL PERSONNEL TO MANAGE AND OPERATE OUR BUSINESS, WE
MAY BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY, COMPETE SUCCESSFULLY OR GENERATE
REVENUE
Because our current management team does not have experience in managing
and operating an Internet-related company, we believe that our future success
depends on our ability to attract and retain additional personnel, particularly
management personnel with such experience, as well as experienced professionals
capable of marketing Internet-based services to physicians and their staffs. We
are currently seeking to hire up to five persons to assist in the administration
and management of our physician panels and the location and assembly of
potential content and service offerings that can be presented to our physician
panels for possible inclusion on our web site. We anticipate a need in the near
future to hire a web site manager, a marketing executive, up to two additional
sales professionals and additional administrative support staff. There is
intense competition for employees, at all levels, that possess knowledge of both
the Internet industry and the healthcare market. Our failure to attract and
retain highly qualified employees could limit our ability to execute our
business strategy, compete successfully or generate revenue.
OUR ON-LINE ACTIVITIES MAY EXPOSE US TO MALPRACTICE LIABILITY AND OTHER
LIABILITY INHERENT IN HEALTHCARE DELIVERY
We could be exposed to malpractice or other liability against which we are
not insured. Patients who file lawsuits against physicians often name as
defendants all persons or companies with any relationship to the physicians. As
a result, patients could file lawsuits against us based on treatment provided by
physicians who subscribe to our web site, have web pages on our web site or to
whom our web site provides a link. In addition, a plaintiff or government agency
could take the position that our delivery of healthcare information directly, or
information delivered by a third-party web site that a patient accesses through
our web site, exposes us to liability for wrongful delivery of healthcare
11
<PAGE> 14
services or erroneous healthcare information. The amount of insurance we may
maintain with insurance carriers in the future may not be sufficient to cover
all of the losses we might incur from these potential claims.
STATE RESTRICTIONS ON THE PRACTICE OF MEDICINE COULD NEGATIVELY AFFECT OUR
ACTIVITIES
Any finding in a state that we are not in compliance with its laws could
require us to restructure our services, which could be time consuming and
expensive and which could limit the marketability of our web site. The laws in
some states prohibit some business entities from practicing medicine. This is
commonly referred to as the prohibition against the "corporate practice of
medicine." In general, these laws prohibit us from employing physicians to
practice medicine or from directly furnishing medical care to patients. Each
state requires licensure for the practice of medicine within that state, and
some states consider the receipt of an electronic transmission of selected
healthcare information in that state to be the practice of medicine. These types
of laws could restrict our activities and the extent to which we can provide
healthcare information to patients, physicians and others. If our activities are
found to be not in compliance with these laws, we could be subjected to
penalties or forced to change our business operations in a manner that increases
our costs or reduces our revenue.
STATE AND FEDERAL LAWS THAT PROTECT THE PRIVACY OF HEALTHCARE INFORMATION MAY
LIMIT OUR ABILITY TO COLLECT, USE AND DISCLOSE THAT INFORMATION
Our business could be harmed if we fail to comply with current or future
laws or regulations governing the collection, dissemination, use and
confidentiality of patient healthcare information. Numerous federal and state
laws and regulations govern collection, dissemination, use and confidentiality
of patient-identifiable healthcare information, including:
- state privacy and confidentiality laws;
- state laws regulating healthcare professionals, such as physicians,
pharmacists and nurse practitioners;
- Medicaid laws;
- the Health Insurance Portability and Accountability Act of 1996 and
related rules proposed by the Health Care Financing Administration; and
- Health Care Financing Administration standards for Internet transmission
of healthcare data.
The U.S. Congress has been considering proposed legislation that would
establish a new federal standard for protection and use of healthcare
information. We may not be able to safeguard patient healthcare information from
unauthorized disclosure or use, which may subject us to claims for violations of
law. In addition, other third party web sites that consumers may access through
our web site may not maintain systems to safeguard this healthcare information.
Future laws or changes in current laws may necessitate costly adaptations to our
systems.
12
<PAGE> 15
IF WE ARE NOT ABLE TO PREVENT INTERNET SECURITY BREACHES, UTILIZATION OF OUR WEB
SITE COULD DECLINE OR NEVER DEVELOP AND WE COULD BE EXPOSED TO LIABILITY
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting electronic commerce and
engaging in sensitive communications over the Internet. It is anticipated that
we will rely on browser-level encryption, authentication and certificate
technologies, all of which will be licensed from third parties, to provide the
security and authentication necessary to effect secure transmission of
confidential information. However, we cannot guarantee that advances in computer
capabilities, new discoveries in the field of cryptography or other similar
developments will not result in a compromise or breach of our security measures.
A party who is able to circumvent our security measures could misappropriate
proprietary information or confidential communications or cause interruptions to
our operations. We may be required to spend significant capital and other
resources to protect against the threat of security breaches or to alleviate
problems caused by security breaches. Any well-publicized compromise of Internet
security could deter people from using the Internet or from conducting
transactions that involve transmitting confidential information, including
confidential healthcare information. To the extent that our activities or the
activities of third parties with whom we have business relationships involve the
storage and transmission of confidential information, such as patient records or
credit information, security breaches could expose us to claims, litigation or
other liabilities.
WE MAY EXPERIENCE SYSTEM FAILURES
To succeed, we must be able to operate our web site 24 hours a day, seven
days a week, without interruption. It is anticipated that almost all of our
communications and information services will be provided to us by third parties.
To operate without interruption, our third party providers must guard against:
- damage from fire, power loss and other natural disasters;
- communication failures;
- software and hardware errors, failures or crashes;
- security breaches, computer viruses and similar disruptive problems; and
- other potential interruptions.
System failures could delay the launch of our web site or adversely affect the
market acceptance of our web site.
THE INTERNET IS SUBJECT TO EXISTING AND POTENTIAL GOVERNMENT REGULATIONS THAT
MAY LIMIT UTILIZATION OF OUR WEB SITE, INCREASE OUR COST OF DOING BUSINESS OR
LIMIT OUR ABILITY TO GENERATE REVENUE
Currently, our business is not subject to substantial government regulation
at the federal or state level. However, the amount of government regulation is
expected to increase as a number of new laws and regulations affecting Internet
businesses are
13
<PAGE> 16
currently under consideration by federal and state legislators. Laws and
regulations may be adopted with respect to the Internet and on-line businesses
covering issues such as:
- privacy of user information;
- pricing of Internet access or of on-line commerce;
- taxation of Internet access or of on-line commerce;
- quality and characteristics of on-line content and services;
- copyrights;
- on-line advertising of healthcare products and services; and
- confidentiality of patient information.
Increasing government regulation of these and other areas affecting Internet
activities could:
- slow the development of Internet commerce, which could limit or eliminate
some or all of our anticipated sources of revenue;
- increase regulatory compliance costs for us and the companies with whom
we intend to do business;
- slow the acceptance of the Internet as an advertising medium, which could
limit or eliminate advertising as a potential source of revenue for us;
and
- limit the scope of content and services made available on the Internet
generally, or on or through our web site in particular, which could limit
the market acceptance of our web site among users and/or advertisers and
vendors.
For more information, see "Business -- Government Regulation."
OUR BUSINESS COULD BE HARMED IF INTERNET SALES BECOME TAXABLE
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services over the Internet and certain other Internet activities. We cannot
predict the effect of current attempts at taxing or regulating commerce over the
Internet. Because our business will depend on revenues generated by e-commerce
activity associated with our web site, any legislation that impairs the growth
of e-commerce could have a material adverse effect on our business.
INVESTORS IN THIS OFFERING MAY HAVE TO HOLD THEIR SHARES FOR AN INDEFINITE
PERIOD OF TIME
Our Articles of Incorporation provide that no holder of shares of our
Series A or Series B Convertible Preferred Stock may sell, assign or transfer
any of such shares without our prior written consent. In addition, there is no
public market for our Series A
14
<PAGE> 17
or Series B Convertible Preferred Stock and no such public market is expected to
develop in the future. We do not intend to apply for listing of any class or
series of our capital stock on any securities exchange or the Nasdaq Stock
Market unless and until we complete an underwritten public offering of our
Common Stock. After any such public offering, we would only list for trading our
Common Stock. We do not currently know whether or when we will attempt an
underwritten public offering of our Common Stock and there can be no assurance
that we will ever complete such a public offering or that a market for our
Common Stock will ever develop. Therefore, investors in this offering may have
to hold their shares for an indefinite period of time and may never have an
opportunity to resell them. The Warrants will not be publicly traded and are not
transferrable under any circumstances. For more information, see "Description of
Capital Stock."
PROCEEDS FROM THIS OFFERING MAY BE HELD IN ESCROW UNTIL DECEMBER 31, 2000
All payments for shares offered in this offering will initially be
deposited into an escrow account with SunTrust Bank. These payments will be
released to us by the escrow agent if we sell at least 5,000,000 shares of
Series B Convertible Preferred Stock by December 31, 2000. During this time,
investors will not be able to demand return of their investment. If we do not
receive payments for at least 5,000,000 shares of Series B Convertible Preferred
Stock by December 31, 2000, we will terminate the offering and promptly return
payments plus interest, if any. For more information see, "Plan of
Distribution."
INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE DILUTION IN THE BOOK VALUE OF
THEIR SHARES
Investors purchasing shares in this offering will incur immediate and
substantial dilution of up to $0.76 in the net tangible book value per share
from the public offering price of $1.00 per share, or 76%. In addition, our
Board of Directors has the authority to issue a significant number of additional
shares of our capital stock without obtaining shareholder approval to do so. Any
such issuances will dilute the ownership interest in md2patient.com obtained by
investors in this offering. For more information, see "Dilution."
WE MAY NEVER PAY A DIVIDEND
We have never declared or paid any cash dividends on our capital stock. In
addition, we do not anticipate paying cash dividends in the foreseeable future.
Our failure to pay a dividend could effect the value of our shares in the future
and the return on any investment made in our shares. The shares of Series A and
Series B Convertible Preferred Stock offered by us in this offering are not
entitled to any mandatory dividend payments. Accordingly, whether and to what
extent dividends will ever be declared and paid is subject to the sole
discretion of our Board of Directors.
OUR MANAGEMENT MAY FAIL TO ALLOCATE THE USE OF PROCEEDS FROM THIS OFFERING
EFFECTIVELY
Although the potential uses of proceeds from this offering and the amounts
allocated to each such use are subject to management's discretion, management
expects to use the proceeds for implementing and expanding the functionality of
our web site and associated databases, enhancing our marketing and sales
organization, pursuing relationships with third party vendors of on-line content
and services and for expanding our customer support capabilities. They may use
the net proceeds ineffectively or for purposes with which you
15
<PAGE> 18
disagree. Management's failure to apply the proceeds effectively could impede
our ability to grow our business.
HERITAGE GROUP, LLC AND ITS AFFILIATES CONTROL APPROXIMATELY 74% OF OUR COMMON
STOCK
Holders of our Series A and Series B Convertible Preferred Stock only have
the right to vote on a proposed merger or sale of the company, and not on other
matters submitted to a vote of shareholders, such as the election of directors.
Holders of our Common Stock have the right to vote on all matters submitted to a
vote of shareholders. Heritage Group, LLC and its affiliates own 18,000,000
shares of our Common Stock, which constitutes approximately 74% of the
outstanding shares of our Common Stock. As a result, Heritage Group, LLC and its
affiliates currently control our company and have the ability to determine the
outcome of all matters requiring shareholder approval. Following the completion
of this offering, Heritage Group, LLC will continue to have this ability, with
the possible exception of a proposed merger or sale of the company, which will
depend on how many shares are sold in this offering. For more information, see
"Certain Relationships and Related Transactions."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." They include statements concerning:
- plans for developing and launching our web site;
- anticipated sources of revenue;
- our business and operating strategy;
- anticipated sources of capital and the ability to meet future liquidity
and capital requirements;
- plans for hiring additional personnel;
- use of proceeds of this offering; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
When used in this prospectus, the words "expect," "believe," "goal,"
"plan," "intend," "estimate," "may," "will" and similar expressions are
generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus. Except as required by federal
securities laws, we assume no obligation to update any forward-looking
statements.
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<PAGE> 19
USE OF PROCEEDS
After deducting fees of WR Hambrecht and estimated offering expenses of
$450,000, we expect to receive a minimum of (1) no proceeds from the offering of
Series A Convertible Preferred Stock, (2) $4,150,000 in net proceeds from the
offering of Series B Convertible Preferred Stock and (3) no proceeds from the
offering of Warrants. If all of the shares of Series A and Series B Convertible
Preferred Stock offered hereby are sold, we would expect to receive a maximum of
$34,470,000 in net proceeds, after deducting fees of WR Hambrecht and estimated
offering expenses. However, we cannot assure you that we will receive any net
proceeds in excess of the estimated minimum of $4,150,000.
We expect to use the net proceeds from this offering for implementing and
expanding the functionality of our web site and associated databases, enhancing
our marketing and sales organizations, pursuing relationships with third-party
vendors of on-line content and services, and expanding our customer support
functions. Although the potential uses of the proceeds and the amounts allocated
to each such use are subject to management's discretion and may be reallocated
at any time, the following chart summarizes how md2patient.com currently expects
to use the estimated net proceeds from the offering and the order of priority
for the uses stated:
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
5,000,000 SHARES 36,000,000 SHARES
------------------------ ------------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Estimated Cash Proceeds............ $4,150,000 100.0% $34,470,000 100.0%
Uses of Proceeds:
Technology....................... 1,500,000 36.1 10,500,000 30.5
Content Development.............. 1,000,000 24.1 4,000,000 11.6
Sales/Marketing.................. 500,000 12.1 10,500,000 30.5
Customer Service................. 1,000,000 24.1 8,000,000 23.2
Working Capital.................. 150,000 3.6 1,470,000 4.2
</TABLE>
The factors that could cause a change in how we allocate the proceeds among
the uses stated above include our success in developing strategic alliances, our
pursuit of acquisitions and our expansion of the breadth of content we offer on
our web site. Pending the uses set forth above, the net proceeds of this
offering will be invested in short-term, investment grade, interest-bearing
investments or accounts.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends on any class or series of our capital stock for the foreseeable
future.
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<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of md2patient.com as of
December 31, 1999:
- on an actual basis; and
- as adjusted to reflect the sale by md2patient.com of the minimum
5,000,000 shares of Series B Convertible Preferred Stock offered hereby
at a public offering price of $1.00 per share and the receipt of the
estimated net proceeds therefrom, after deducting fees of WR Hambrecht
and estimated offering expenses.
The information below is qualified by and should be read in conjunction
with "Management's Discussion and Analysis and Results of Operations" and our
financial statements and the notes to those statements appearing at the end of
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Shareholders' equity:
Preferred Stock, $.01 par value; 300,000,000 shares
authorized:
Series A Convertible; 50,000,000 shares designated;
5,000,000 shares issued and outstanding, actual;
5,000,000 shares issued and outstanding, as
adjusted.............................................. $ 50,000 $ 50,000
Series B Convertible; 50,000,000 shares designated; no
shares issued and outstanding, actual; 5,000,000
shares issued and outstanding, as adjusted............ -- 50,000
Common Stock, $.01 par value; 300,000,000 shares
authorized; 10,000,000 shares issued and outstanding,
actual and as adjusted.................................. 100,000 100,000
Additional paid-in capital................................ 4,686,087 8,786,087
Deficit accumulated during the development stage.......... (650,469) (650,469)
---------- ----------
Total shareholders' equity............................ $4,185,618 $8,335,618
========== ==========
</TABLE>
The capitalization information set forth in the table above:
- does not reflect the fact that shares of Series B Convertible Preferred
Stock automatically convert into shares of Series A Convertible Preferred
Stock on a one-for-one basis at a rate of one-third per year on each
anniversary of their issuance;
- does not reflect the fact that holders of Series A Convertible Preferred
Stock may at any time elect to convert all or any portion of those shares
into Common Stock on a one-for-one basis;
- excludes 5,000,000 shares of Series A Convertible Preferred Stock
reserved for issuance upon the exercise of outstanding warrants and the
Warrants offered hereby with an exercise price of $1.00 per share;
- excludes 14,347,500 shares of Common Stock issued subsequent to December
31, 1999; and
- excludes 10,000,000 shares of Common Stock reserved for future issuance
under our stock option plan.
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<PAGE> 21
DILUTION
Our pro forma net tangible book value at December 31, 1999, after giving
effect to the conversion of all outstanding shares of Series A Convertible
Preferred Stock into Common Stock on a one-for-one basis and after giving effect
to the issuance of 14,347,500 shares of Common Stock subsequent to December 31,
1999, was $4,185,618, or $0.14 per share. Pro forma net tangible book value per
share is equal to our total tangible assets less our total liabilities, divided
by the number of shares of Common Stock outstanding on a pro forma basis.
Dilution per share represents the difference between the price per share
paid by investors in this offering and the as adjusted pro forma net tangible
book value per share immediately after this offering. After giving effect to the
sale of the maximum 34,000,000 shares of Series B Convertible Preferred Stock
and 2,000,000 shares of Series A Convertible Preferred Stock in this offering at
$1.00 per share, and after deducting fees of the placement agent and estimated
offering expenses, our as adjusted pro forma net tangible book value at December
31, 1999 would have been approximately $38,655,618, or $0.59 per share. This
represents an immediate decrease in pro forma net tangible book value of $0.41
per share to new investors, or 41%. Similarly, after giving effect to the sale
of the minimum 5,000,000 shares of Series B Convertible Preferred Stock in this
offering at $1.00 per share, and after deducting fees of WR Hambrecht and
estimated offering expenses, our as adjusted pro forma net tangible book value
at December 31, 1999 would have been approximately $8,335,618, or $0.24 per
share. This represents an immediate decrease in pro forma net tangible book
value of $0.76 per share to new investors, or 76%. The following tables
illustrate this dilution:
MAXIMUM SHARES SOLD (34,000,000 SERIES B AND 2,000,000 SERIES A)
<TABLE>
<S> <C> <C>
Public offering price per share............................. $1.00
Pro forma net tangible book value per share at December
31, 1999............................................... $0.14
Increase per share attributable to new investors.......... 0.45
As adjusted pro forma net tangible book value per share
after this offering....................................... 0.59
-----
Dilution per share to new investors......................... $0.41
=====
Dilution per share to new investors (percentage)............ 41%
=====
</TABLE>
MINIMUM SHARES SOLD (5,000,000 SERIES B)
<TABLE>
<S> <C> <C>
Public offering price per share............................. $1.00
Pro forma net tangible book value per share at December
31, 1999............................................... $0.14
Increase per share attributable to new investors.......... 0.10
As adjusted pro forma net tangible book value per share
after this offering....................................... 0.24
-----
Dilution per share to new investors......................... $0.76
=====
Dilution per share to new investors (percentage)............ 76%
=====
</TABLE>
The following table summarizes, on a pro forma basis after giving effect to
this offering, the difference between the number of shares of capital stock
purchased from us, the total consideration paid and the average price per share
paid by existing shareholders and by new investors purchasing shares of Series B
Convertible Preferred Stock and
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<PAGE> 22
Series A Convertible Preferred Stock in this offering. We have not deducted fees
of the placement agent or estimated offering expenses in our calculations.
MAXIMUM SHARES SOLD (34,000,000 SERIES B AND 2,000,000 SERIES A)
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders:
Common....................... 24,347,500 37.2 $ 100,000 0.2% $0.01
Series A Convertible 5,000,000 7.7 5,000,000 12.2 $1.00
Preferred.................
New investors.................. 36,000,000 55.1 36,000,000 87.6 $1.00
---------- ----- ----------- -----
Total..................... 65,347,500 100.0% $41,100,000 100.0% $0.63
========== ===== =========== =====
</TABLE>
MINIMUM SHARES SOLD (5,000,000 SERIES B)
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders:
Common....................... 24,347,500 70.8% $ 100,000 1.0% $0.01
Series A Convertible 5,000,000 14.6 5,000,000 49.5 $1.00
Preferred.................
New investors.................. 5,000,000 14.6 5,000,000 49.5 $1.00
---------- ----- ----------- -----
Total..................... 34,347,500 100.0% $10,100,000 100.0% $0.29
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables do not reflect that, upon the
liquidation dissolution or winding up md2patient.com, holders of shares of
Series A and Series B Convertible Preferred Stock sold in this offering are
entitled to be paid out of our assets, before any payment to holders of our
Common Stock, an amount equal to $1.00 per share, as described in more detail
later in this prospectus under the heading "Description of Capital Stock." In
addition, the foregoing discussion and tables assume no exercise of outstanding
warrants and Warrants offered hereby to purchase 5,000,000 shares of Series A
Convertible Preferred Stock at an exercise price of $1.00 per share. See
"Description of Capital Stock -- Warrants."
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<PAGE> 23
SELECTED FINANCIAL DATA
In the table below, we provide you with selected financial data of
md2patient.com. We have prepared this information using our historical financial
statements as of December 31, 1999 and for the period from July 30, 1999 (date
of inception) through December 31, 1999.
When you read this selected financial data, it is important that you read
along with it the historical financial statements and related notes included in
this prospectus, as well as the section of this prospectus entitled,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
PERIOD FROM JULY 30, 1999
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1999
-------------------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Interest Income........................................ $ 25,610
Costs and expenses:
Selling, general and administrative.................... 676,079
----------
Net loss................................................. $ (650,469)
==========
Basic and diluted net loss per share..................... $ (0.07)
==========
Weighted average shares used in calculating basic and
diluted net loss per share(1).......................... 10,000,000
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
<S> <C>
BALANCE SHEET DATA
Cash..................................................... $4,025,058
Working capital.......................................... 3,794,601
Total assets............................................. 4,667,910
Stockholders' equity..................................... 4,185,618
</TABLE>
- -------------------------
(1) See Note 4 of Notes to Financial Statements.
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a development stage company recently formed to develop and operate a
web site to provide access to selected on-line healthcare content and services
to our physician subscribers and their patients. We have not yet completed the
development of our web site, begun to offer Internet services, or entered into
any agreements with third party vendors, suppliers or advertisers to provide
content or services on or through our site.
ANTICIPATED SOURCES OF REVENUE
We anticipate that our web site will be operational by the end of the
second quarter of 2000. Once operational, we will seek to generate revenue
primarily from the following sources:
- Fees paid by physician subscribers;
- Fees paid by web vendors in connection with installing and managing
content and services on or through our site;
- Advertising revenue from businesses desiring to access our physician
subscribers and their patients;
- Fees paid by vendors in connection with business-to-business e-commerce
transactions generated through our site;
- Fees paid by vendors in connection with business-to-consumer e-commerce
transactions generated through our site; and
- Fees paid by pharmaceutical research and drug manufacturing companies in
connection with medical research and/or participation in on-line clinical
drug trials.
Physician Subscriptions. We plan to build and to retain a physician
subscriber base by offering an evolving array of content and services selected
by our physician specialty panels. Subscriptions will be sold for three years of
service to be paid in a single lump sum of $1,000 or three annual installments
of $400. As of January 1, 2000, we had 259 physician subscribers, of which 139
received free subscriptions in connection with their purchase of shares of
Series A Convertible Preferred Stock in our November 1999 private placement.
Web Vendors. For an ongoing fee plus participation in revenues generated
from traffic originating from our site, we anticipate entering into agreements
with vendors to install and manage selected healthcare content and services on
or through our site with links to their site. Such content and services will
have been reviewed and selected by our physician specialty panels for inclusion
on or through our site. As of the date of this prospectus, we have not entered
into any agreements with vendors to provide content or services for our site.
Advertising. The key factors in attracting advertising revenue is the size
of our physician subscriber base, our ability to capture demographic information
valuable to advertisers, and the frequency with which our web site is accessed.
In connection with the
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<PAGE> 25
development of our web site, we are also developing the databases necessary to
capture and present the information that we believe will be particularly
valuable to advertisers. As of the date of this prospectus, we have not entered
into any relationships or agreements with vendors or advertisers.
Business-to-Business e-commerce Transactions. In connection with the
development of our web site, we plan to offer our physician subscribers and
their practice staffs content and services that will assist them in the
day-to-day management and operation of their practices. We believe this category
of services will allow us to generate additional revenues from
business-to-business e-commerce transactions originating from our site and
enhance our ability to improve the efficiency of our physician subscribers'
practices. Some of the services offered through our site will be targeted to all
physicians, while other services will be targeted to specific medical
specialties.
Business-to-Consumer e-Commerce Transactions. We believe our physician
subscribers will include a large number of affluent consumers with significant
disposable income which will be attractive to vendors. We will attempt to secure
relationships with selected vendors that desire to offer consumer products and
services to our physician subscribers through our site. We believe we will be
able to structure these relationships in a manner that will allow us to charge
access fees and otherwise participate in the revenues generated from such
transactions.
We also believe that the patients of our physician subscribers will
represent a consumer base that will be attractive to vendors of consumer
healthcare products and services. Accordingly, we will seek to generate
additional revenue by charging access fees and/or a percentage of the revenues
generated by transactions between vendors and patients that occur through our
site.
Medical Research and Clinical Drug Trials. We plan to promote our
physician subscriber base to pharmaceutical research and drug manufacturing
companies interested in enrolling physicians in on-line surveys and clinical
drug trials. If we are successful in these efforts, we believe participating
companies will pay us a fee for information generated from our database, access
to our subscribing physicians and advertisements of their surveys and drug
trials on our web site. As of the date of this prospectus, we have not entered
into any agreements with pharmaceutical research or drug manufacturing
companies.
CURRENT AND ANTICIPATED FINANCIAL COMMITMENTS
We have entered into an agreement with Arthur Andersen LLP to assist us in
developing our technical infrastructure and web site. Arthur Andersen will work
closely with our technology staff to develop and launch our web site. We
anticipate leasing the servers and the related computer hardware and equipment
that will support our web site. These costs are expected to be expensed as
incurred. Our agreement with Arthur Andersen LLP provides that Arthur Andersen
LLP's services will be completed in two phases. The fee for the first phase will
be approximately $250,000, plus expenses. The fee for the second phase is
expected to be between $250,000 and $450,000, plus expenses. The terms of the
agreement provide that the design and implementation of our web site prototype
will be completed prior to the end of the first quarter of 2000.
We are seeking to hire up to five persons to assist in the administration
and management of our physician panels and the location and assembly of
potential content and service offerings that can be presented to our physician
panels for possible inclusion on
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<PAGE> 26
our web site. We anticipate a need in the near future to hire a web site
manager, up to two additional sales professionals and additional administrative
support staff.
As a result of these activities, prior to the completion of this offering
we anticipate incurring substantial additional costs and expenses related to the
continued development of our web site and the hiring of qualified personnel.
Future costs and expenses will include sales and marketing expenses incurred to
attract physician subscribers to our web services, as well as ongoing technology
costs to enhance the content and services available to our physician subscribers
and their patients.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the commencement of this offering, we raised $5,000,000 through a
private placement of 5,000,000 shares of our Series A Convertible Preferred
Stock and warrants. We also raised $100,000 through the private placement of
Common Stock to Heritage Group, LLC. As of December 31, 1999, our principal
commitments consisted of our agreements with Arthur Andersen, our web site
consultants, and the costs and expenses incurred in connection with the private
placements and this offering. Given the proceeds raised in these private
placements, we believe that we have sufficient existing capital resources to
complete the development of our web site, formally launch our web site and
maintain our web site for the next 12 months. When formally launched, our web
site will include physician web pages, which will allow patient access to
information relating to individual physician practices. The web site will also
make limited content and services available to our physician subscribers,
including the development of customized web pages and links to medical societies
and various clinical information databases. If we are successful in selling at
least the minimum number of shares of Series B Convertible Preferred Stock
available in this offering, we believe we will have sufficient capital to
implement our business plan and meet our anticipated long-term working capital
needs.
While the minimum net proceeds of this offering are expected to be
sufficient to meet our anticipated long-term working capital needs, additional
capital could be required if unexpected costs arise or if we seek to enhance the
content or services to be provided through our web site or accelerate the
implementation of our business plan through the acquisition of complementary
businesses. If additional capital requirements arise, we may need to raise
additional funds sooner than expected. If we raise additional funds through the
issuance of equity or convertible debt securities, these securities may have
rights, preferences or privileges that are superior to those of the shares
available in this offering and may result in substantial dilution to existing
shareholders. If additional funding is needed, there is no assurance that such
funding will be available on terms acceptable to md2patient.com, if at all.
Our losses from inception to December 31, 1999 total $650,469, consisting
principally of costs incurred in the form of direct expenses primarily
consisting of payroll, legal and consulting fees. These costs relate to the
development of our web site, our initial organization and our capital-raising
activities to date.
YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were developed without addressing the impact of the recent change
in the century. If not corrected, many computer software applications could fail
or create erroneous results as a result of the change to the year 2000. We will
use software,
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<PAGE> 27
computer technology and other services provided by third-party vendors. We are
also dependent on telecommunications vendors to maintain our communications
network.
We believe that our third-party supplied software and computer technology
is and will be year 2000 compliant. All of our software and computer technology
supplied by third-party vendors has been purchased recently or will be purchased
in the near future. In connection with these purchases, we generally request our
vendors to represent in writing that each of their technology products is year
2000 compliant. However, to date we have not actually received any such written
representations. The failure of any software or systems upon which we rely to be
year 2000 compliant could have a material adverse impact on the development or
operation of our web site.
To date, we have not experienced any problems associated with the change to
the year 2000, nor have we incurred any costs in connection with the change to
the year 2000. Based upon our assessment of our software and computer
technology, we do not believe that we need to develop a year 2000 contingency
plan and we have not developed any such plan. However, the failure of any of our
third-party service providers to be year 2000 compliant could delay the launch
of our web site.
The year 2000 compliance of the general system necessary to support our
operations is difficult to assess. For instance, we will depend on the integrity
and stability of the Internet to provide our services. We will also depend on
the year 2000 compliance of the computer systems used by our subscribers. Thus,
the system necessary to support our operations will consist of a network of
computers and telecommunications systems located throughout the world and
operated by numerous unrelated entities and individuals, none of which has the
ability to control or manage the potential year 2000 issues that may impact the
entire system. It is not possible to predict potential negative impact of year
2000 issues of these systems.
Our worst-case year 2000 scenario would involve a major disruption in
access to the Internet, a failure of our systems and a failure in the systems of
our third-party content and service providers. This would result in the delay of
the launch of our web site and would delay the implementation of our business
strategy.
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<PAGE> 28
BUSINESS
OUR BUSINESS
We were incorporated in July 1999 to develop and operate a web site to
provide access to selected on-line healthcare content and services and to
develop customized web pages for our physician subscribers. We have not yet
completed the development of our web site or begun to offer Internet services to
our physician subscribers. Since incorporation, our founders have been
developing the business concept for md2patient.com and have engaged outside
consultants to assist us in the development of our technical infrastructure and
web site. Our operations to date have focused primarily on the development and
design of our web site, the acquisition and configuration of necessary software
and hardware, building a sales and marketing organization, recruiting key
management and raising capital.
Our web site became operational during January 2000 for the limited purpose
of accepting subscriptions for our Internet services. As such, our web site
currently consists of a homepage, containing general information about
md2patient.com, and procedures for physicians to register and subscribe for our
Internet services. We are continuing the development of the other functions to
be made available on or through our web site and have commenced the process of
identifying third party content and services to be added to our site. Based on
our current development schedule, we believe that by the end of the second
quarter of 2000, our web site will also include customized web pages for our
physician subscribers, links to various other healthcare content sites or
clinical information databases, as well as the following general information:
- Directory of our physician subscribers;
- Physician search engine;
- General women's health issues;
- General men's health issues;
- Drug interaction assessment tool;
- On-line physician's desk reference (PDR);
- List or links to disease specific discussion groups;
- List or links to disease specific on-line support groups;
- First aid/CPR instructional information and diagrams;
- Nutritional information; and
- Access to on-line shopping.
OUR INDUSTRY
The U.S. healthcare system is plagued with information-related problems. Of
the roughly $1.2 trillion projected to be spent on healthcare in the U.S. in
1999, an estimated $400 billion relates to avoidable or inappropriate treatment.
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<PAGE> 29
In addition to these inefficiencies, there are significant intangible costs
that result from poor information flow. We believe that the Internet will
dramatically change how information flows and how people and organizations
interact in healthcare. As an inexpensive and flexible technology, we believe
the Internet will be used to streamline current processes, enhance the quality
of care and create entirely new ways of conducting business relating to
healthcare. We believe that both physicians and their patients will benefit from
the Internet's strength as an information source and a communications medium.
Growth of the Internet
The Internet is the fastest growing medium in history and has rapidly
become a significant global medium for information, communications, news and
commerce. The Internet is distinct from traditional media because it offers
immediate access to dynamic and interactive content and enables virtually
instantaneous communication among users. The Internet enables users to quickly
retrieve and transfer information, share their experiences in on-line
communities and purchase a variety of products and services.
Internet Use by Patients and Healthcare Consumers
Health and medical information is one of the fastest growing areas of
interest on the Internet. According to the Harris Poll, up to an estimated 74%
of all Internet users in the United States seek healthcare information on-line.
We believe that pharmaceutical and other healthcare companies will have an
increasing interest in using on-line advertising to reach target groups with
appealing and compatible demographics.
Internet Use by Physicians
The rapid overall adoption of on-line health and medical information stands
in contrast to the slow rate at which physicians are developing physician-driven
web sites. There are more than 16,000 healthcare-related web sites available on
the Internet, and the number is growing. We believe that the massive number of
sites has served to frustrate both patients and physicians from a standpoint of
reliability, accuracy and trust. We believe there are opportunities for
physicians to help improve the quality of information their patients access
on-line.
Convergence of the Internet and Physician Practices
We believe that over the long term the focus of the convergence of the
Internet and healthcare will trend towards the physician's office because the
delivery of healthcare is increasingly moving to the outpatient setting and
physicians control the majority of healthcare expenditures. We believe a
uniquely attractive opportunity exists to assist physicians in using the
Internet to increase the efficiency of their practices and improve patient
satisfaction through the aggregation of reliable healthcare content and
services.
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<PAGE> 30
THE MD2PATIENT.COM STRATEGY
Our goal is to aggregate reliable healthcare content and services from
existing on-line sources for the benefit of our physician subscribers, their
staff and their patients. Our focus will be to assist our physician subscribers
in utilizing the Internet to enhance their practices and increase patient
satisfaction. A central element of this focus will be our development of
customized physician web pages for our physician subscribers that will give each
subscriber the ability to select and place on his or her web page the content
and services available through our site that he or she determines will best
serve his or her patients.
The selection of our content and services will be made by our physician
specialty panels. To date, no physician panels have been formed; however, we are
in the process of doing so and believe that at least four physician panels will
be formed during the first and second quarters of 2000. Once formed, our staff
will regularly survey the Internet to identify and recommend to our physician
panels new content and service offerings that may be of benefit to our physician
subscribers, their staff and their patients. The physician panels will be
responsible for reviewing the content and services recommended by our staff and
selecting the content and services for inclusion on or through our web site. We
will regularly upgrade our site as our physician panels select new offerings.
To implement our strategy, we will:
- Focus on the Physician/Patient Relationship. We believe that the
relationship between the physician and his or her patient is unique. Our
focus will be to improve this relationship by offering customized web
pages to our physician subscribers that may be accessed by their patients
and the general public. We believe that our physician subscribers and
their staff will encourage their patients to visit the physician web page
given the practice-specific information that it will contain and the fact
that the content on the web page will have been reviewed by our specialty
panels and selected by the physician.
- Focus on Physician Needs. The physician functions in the following
capacities: (1) clinician; (2) business owner; and (3) consumer. We
intend to assist our physician subscribers in each of these capacities
through the content and services to be made available on or through our
web site. As clinician, our focus will include identifying, by specialty,
helpful and informative content to assist in educating patients with
respect to their medical condition and treatment. As business owner, our
focus will include improving the administrative efficiency of our
subscriber's practice through such services as on-line appointment
scheduling, insurance verification and, where necessary, preauthorization
of healthcare services. As consumer, our focus will include providing our
subscribers and their patients with personal services, such as access to
on-line shopping.
- Capitalize on the Purchasing Power of our Physician Subscribers and their
Patients. We believe that our physician subscribers and their patients
represent an attractive consumer group. If we are successful in
developing a large physician subscriber base, we believe we will be able
to offer e-commerce opportunities to our subscribers and their patients
and develop revenue generating relationships with third parties that
offer on-line commerce.
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<PAGE> 31
PHYSICIAN WEB PAGES
We intend to offer each physician subscriber a customized web page that can
be accessed by his or her patients and the general public. Each physician
subscriber will have the ability to select the content to be included on his or
her web page from the content reviewed by our physician panels and made
available on or through our web site. Each physician subscriber may include some
or all of the following information on his or her web page:
- Picture of physician and/or staff;
- Physician demographic information;
- Practice office hours and policies;
- After hours assistance and emergency phone numbers;
- Location of offices and parking information;
- Directions to office;
- Patient comment area via anonymous e-mail to physician's office;
- Physician comment area to provide any special information to patients;
- Links to content sites selected by the physician; and
- Links to md2patient.com disease-specific pages.
Each web page is intended to function as an extension of the physician's
practice. Specifically, a physician web page could allow his or her patients to
find answers to frequently asked questions about issues such as treatment
options and drug interactions. We believe that the web pages will assist our
physician subscribers in utilizing the Internet to enhance their practices and
increase patient satisfaction.
PHYSICIAN PANELS AND PHYSICIAN ADVISORY BOARD
We intend to form physician panels, organized by specialty, and a Physician
Advisory Board to assist us in selecting the content and services to be made
available on or through our web site. While these have not been formed to date,
we believe that our Physician Advisory Board and at least four physician panels
will be formed during the first and second quarters of 2000. We have not yet
determined whether or to what extent we may compensate members of our physician
panels or the advisory board.
Physician Panels
Each of our physician specialty panels will typically consist of 7 to 10
physician subscribers from the same or similar medical specialties. The criteria
for selection will include recognized leadership in the area of specialty and
demographic diversity. Once formed, the physician panels will review the content
and services recommended by our staff and select the content and services for
inclusion on or through our web site. We will regularly update our site as our
physician panels select new offerings.
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<PAGE> 32
Physician Advisory Board
Our Physician Advisory Board will typically consist of 8 to 12 physician
subscribers from various medical specialties. Its primary focus will be to
assist in the prioritization and manner of presentation of the content and
services to be offered on our web site. This board will also serve in an
advisory capacity to management in identifying potential members of the
physician specialty panels and establishing the criteria for selection of the
content and services to be made available on or through our site. Similar to our
physician panels, the criteria for selection to our Physician Advisory Board
will include recognized leadership in one's area of specialty and demographic
diversity.
THE MD2PATIENT.COM WEB SITE
In connection with the implementation of our web site, we intend to
organize our healthcare content by medical specialty and topic. We intend to add
medical specialties and topic areas as our physician panels or Physician
Advisory Board members deem appropriate. As of the date of this prospectus, we
have not completed the development of our site and no healthcare content or
services are available to our physician subscribers or their patients.
We also plan to offer to our physician subscribers content and services
that will assist them in the day-to-day management and operation of their
practices. These content and service offerings, if any, will be reviewed by our
Physician Advisory Board and/or physician panels before they are made available
on or through our web site.
THIRD PARTY BUSINESS RELATIONSHIPS
We will seek to enter into business relationships with third parties for
most of the healthcare content and services to be included on or through our web
site. We believe these relationships will benefit both our organization and
these third parties by providing the third parties with direct access to our
physician subscribers and their patients. As of the date of this prospectus, we
do not presently have any such business relationships; however, we have
commenced the process of identifying potential third parties for this purpose.
PHYSICIAN SUBSCRIPTIONS TO OUR WEB SITE
To utilize all of the features of our web site, a physician user must
become a subscriber to our web services. We will require each subscriber to
provide his or her name, practice information and physician license number. The
information provided by the physicians will be secured on our web site through
transfer encryption technology and a firewall server.
Subscriptions will be sold for three years of service. Physicians will have
the option of paying a lump sum of $1,000 for all three years or an annual fee
paid in three (3) installments of $400. In either case, the subscription fees
must be paid in advance. As of March 1, 2000, we had 1,015 physician subscribers
to our web site, of which 139 received their subscriptions for free in
connection with their participation as investors in our private placement of
Series A Convertible Preferred Stock.
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COMPETITION
Due to the rapid expansion of the Internet, the market for Internet
services and products is intensely competitive and rapidly changing. There are
no substantial barriers to entry in the Internet market, and we expect that
competition will continue to intensify. We will compete, directly and
indirectly, for subscribers, users and advertisers with other on-line services
or web sites targeted to the healthcare industry generally, including WebMD.com,
Medscape.com and drkoop.com.
We believe the principal competitive factors in attracting and retaining
physician subscribers and their patients are the depth, reliability and
trustworthiness of our healthcare content and services, as well as the value
derived from our web site's content and services, such as saving time, improving
the quality of outcomes and services and contributing financial benefit to a
physician's practice. We believe that the principal competitive factors that
will attract and retain advertisers, third party vendors, and other potential
sources of revenue include:
- Long-term commitment by physicians;
- The amount of success that physicians and their staffs have in directing
patients to use their web pages on our web site;
- Depth and penetration of our base of physician subscribers in certain
markets;
- Continued growth of our base of physician subscribers and patient users;
and
- Generating repeat visits to our web site from physicians, their staffs
and their patients.
SALES AND MARKETING
We have a direct sales organization consisting of nine sales professionals.
The healthcare experience of these professionals ranges from 4 to 21 years, and
the sales experience of these professionals ranges from 0 to 20 years. We
anticipate that as we expand our operations we will hire additional sales
professionals with a focus on selling Internet subscriptions to physicians. We
generally seek to hire individuals with significant experience selling to
physicians and working with physicians' staffs.
We are engaged in a sales campaign focused on attracting new physician
subscribers and increasing awareness of the md2patient.com brand. We will use a
combination of direct sales efforts, including direct mail and telemarketing,
and indirect media based activities, including on-line activities. We will also
participate in tradeshows, conferences and speaking engagements focused on
physician associations and trade groups. We plan to allocate significant
resources to market the md2patient.com brand to the physician's office, their
staff and their patients.
We have identified our top 50 target markets and are in the process of
arranging and making presentations to physicians in those markets regarding the
development of our web site and the opportunity to subscribe for our Internet
services. Each presentation is made in-person by one or more of our sales
professionals. Physicians are invited to the presentations through the direct
marketing efforts of our sales professionals or by physicians, most of whom are
existing subscribers for our Internet services. To date we have not engaged in
any local or national advertising campaigns. We have spent less than $50,000 to
date on marketing activities, but we intend to spend significantly more on such
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<PAGE> 34
activities as we expand our operations over the next 12 months. We expect to
spend approximately $2,500,000 on sales and marketing over the next 12 months.
GOVERNMENT REGULATION
Currently, we are not subject to substantial government regulation at the
federal or state level. Although there are currently relatively few laws or
regulations directly applicable to communications or commerce over the Internet,
several proposals by federal, state and foreign governments may lead to laws or
regulations concerning various aspects of the Internet, including privacy and
the collection and use of personal information on-line. If these governments
adopt legislation protecting user privacy or the collection of personal
information, our ability to collect or use personal information could become
limited, which could make our web site less attractive to advertisers and
sponsors. In addition, several proposals have been made at the federal, state
and local level and by some foreign governments that could impose taxes on the
sale of goods and services and other Internet activities. We cannot predict the
effect of current attempts at taxing or regulating commerce over the Internet.
Any legislation that substantially impairs the growth of e-commerce could have a
material adverse effect on our business or delay the implementation of our
business strategy.
The applicability to the Internet of existing laws is uncertain. If new
laws are adopted or existing laws or applied in an unforeseen manner, use of the
Internet may decrease, which could decrease the demand for our services and
increase our cost of doing business.
INTELLECTUAL PROPERTY
We currently have two pending trademark applications filed with the United
States Patent and Trademark Office, one for md2patient(TM) and one for
md2patient.com(TM). At this point in time, we are unable to predict whether the
United States Patent and Trademark Office will allow these applications to
proceed to registration.
We expect that we will obtain most of our content and service offerings
under licenses or other agreements with third parties. We expect to enter into
confidentiality agreements with our employees, consultants, vendors and
customers. We will generally seek to control access to and distribution of our
technology, documentation and other proprietary information. We currently hold
the domain name md2patient.com, however, the legal status of intellectual
property on the Internet is currently subject to various uncertainties. The
current system for registering, allocating and managing domain names has been
the subject of litigation and proposed regulatory reform. Accordingly, the
extent of our ability to protect the domain name md2patient.com is uncertain.
We will rely on a variety of technology that we license from third parties,
including our Internet servers and server software, which will be used in our
web site to perform key functions. We cannot assure you that these third party
technology licenses will be available to us on commercially reasonable terms.
The loss of or our inability to maintain or obtain upgrades to any of these
technology licenses could materially adversely affect our business or delay the
implementation of our business strategy. In addition, because we expect to
license most of our content from third parties, our exposure to copyright
infringement actions may increase because we must rely upon these third parties
for information as to the origin and ownership of our licensed content.
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EMPLOYEES
As of March 1, 2000, we had 26 full-time employees, none of whom is
represented by a labor union or covered by a collective bargaining arrangement.
We believe that our employee relations are good.
FACILITIES
Our principal executive offices are currently located at 501 Corporate
Centre Drive, Suite 200, Franklin, Tennessee. The office space occupies
approximately 10,000 square feet and is leased pursuant to a lease that has a
three year term commencing in the first quarter of 2000 with an option to renew
for an additional five years. We believe that this space will meet our current
needs and will also allow for our future growth.
LEGAL PROCEEDINGS
There are no claims or proceedings pending or threatened against us.
However, from time to time, we may be involved in litigation relating to claims
arising out of our operations or regulatory proceedings. We may also be subject
to third-party claims for defamation, negligence, copyright or trademark
infringement or other claims based on the nature and content of information
supplied on or through our web site.
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MANAGEMENT
The following table sets forth information with respect to our executive
officers and directors as of January 1, 2000.
OUR DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rock A. Morphis............................ 41 Chairman of the Board
Joseph B. Crace............................ 45 Chief Executive Officer
John E. Blount............................. 48 President and Director
Thomas A. Gallagher........................ 42 Executive Vice President of
Business Development and
Director
James G. Petway, Jr........................ 42 Executive Vice President and
Chief Financial Officer
Albert Rodewald............................ 50 Executive Vice President, Chief
Technology Officer and Director
</TABLE>
Rock A. Morphis has served as a Director of md2patient.com since its
incorporation in July 1999 and as Chairman of the Board since January 1, 2000.
In addition, Mr. Morphis is a founder and Director of Heritage Group, LLC, a
company that develops and manages physician-owned healthcare projects. He is the
current Chairman, President and Chief Executive Officer of Heritage Health
Systems, Inc., a company that operates physician-owned independent practice
associations (IPAs) and manages capitated reimbursement risk, which he
co-founded in August 1992, and has served as its CEO since September 1995. From
January 1994 until June 1995, Mr. Morphis served as Chairman of the Board, Chief
Executive Officer and President of Surgical Health Corporation, a company that
developed, owned and operated outpatient surgery centers. From 1991 until 1994,
Mr. Morphis served as President, Chief Executive Officer and Chairman of
Heritage Surgical Corporation, also a company that developed, owned and operated
outpatient surgery centers. From 1986 until 1991, Mr. Morphis was co-founder and
Managing Director of Heritage Group, Inc., a firm that specialized in partnering
with physicians to own and operate imaging centers, surgery centers, and
lithotripsy units. A graduate of the University of Tennessee, Mr. Morphis holds
a B.S. in accounting. Mr. Morphis has 16 years of health industry experience.
Joseph B. Crace joined md2patient.com on January 24, 2000 as Chief
Executive Officer. From February 1998 to December 1999, Mr. Crace served as
Chief Operating Officer and Chief Financial Officer for Gaylord Entertainment
Company, a public diversified entertainment business with numerous broadcasting,
interactive, hospitality, and music interests. From 1996 to 1998, Mr. Crace
served as the Chief Executive Officer of The Blue Sky Group, Inc., a venture
capital and outsourcing firm he founded. From 1992 to 1996, Mr. Crace served as
President of the Specialty Products Division and Group Vice President Corporate
Development for Bob Evans Farms, Inc., a family restaurant and retail foods
company. Mr. Crace holds a B.S. in Microbiology from the University of South
Florida, an M.B.A. from Vanderbilt University's Owen Graduate School of
Management, and a J.D. from Stetson University College of Law in Florida. Mr.
Crace serves on the Board of Directors of Bass Pro Shops, Inc., a retail and
on-line outdoor products company.
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<PAGE> 37
John E. Blount has served as President and Director of md2patient.com since
its incorporation in July 1999. In addition, Mr. Blount is a founder and
Director of Heritage Group, LLC, a company that develops and manages
physician-owned healthcare projects. Mr. Blount is currently serving as a
Director of Heritage Health Systems, Inc., a company that operates
physician-owned independent practice associations (IPAs) and manages capitated
reimbursement risk, and has served as such since co-founding that company in
August 1992. Mr. Blount served as Executive Vice President and Secretary of
Heritage Health Systems, Inc. from May 1995 to December 1998. From January 1994
until December 1995, Mr. Blount served as Executive Vice President of
Development of Surgical Health Corporation, a company that developed, owned and
operated outpatient surgery centers. Mr. Blount served as a Director of Heritage
Surgical Corporation, also a company that developed, owned and operated
outpatient surgery centers, since its founding in 1991 and as Executive Vice
President of such company from 1991 to 1994. From 1986 until 1991, Mr. Blount
was co-founder and Managing Director of Heritage Group, Inc. a firm that
specialized in partnering with physicians to own and operate imaging centers,
surgery centers, and lithotripsy units. A graduate of Duke University, Mr.
Blount also holds an M.B.A. from the University of North Dakota and a Masters
Degree in Health Administration from the Medical College of Virginia. Mr. Blount
has 22 years of health industry experience.
Thomas A. Gallagher has served as a Director of md2patient.com since its
incorporation in July 1999 and as Executive Vice President of Business
Development since January 1, 2000. In addition, Mr. Gallagher is a founder and
Director of Heritage Group, LLC, a company that develops and manages
physician-owned healthcare projects. He served as Executive Vice President,
Chief Development Officer and a Director of Heritage Health Systems, Inc., a
company that operates physician-owned independent practice associations (IPAs)
and manages capitated reimbursement risk, which he co-founded in August 1992,
from September 1995 through December 1999. Mr. Gallagher served as Chief
Executive Officer and President of Heritage Health Systems, Inc. from January
1994 to September 1995. Between April 1992 and January 1994, Mr. Gallagher
served as Executive Vice President and Chief Financial Officer of Heritage
Surgical Corporation, a company that developed, owned and operated outpatient
surgery centers. Prior to joining Heritage Surgical Corporation, Mr. Gallagher
was a General Partner in two venture funds: Lawrence Tyrrell Ortale and Smith I
& II. Mr. Gallagher holds an M.B.A. from Vanderbilt University's Owen Graduate
School of Business and a B.S. in accounting from the University of Tennessee.
Mr. Gallagher has 15 years of health industry experience.
James G. Petway, Jr. has served as Executive Vice President and Chief
Financial Officer of md2patient.com since January 1, 2000. Prior to joining
md2patient.com, Mr. Petway was a partner with Arthur Andersen, LLP and had been
with the firm since 1979. A graduate of the University of Tennessee, Mr. Petway
holds a B.S. in Accounting and is a certified public accountant. Mr. Petway has
20 years of public accounting experience, during which time he served numerous
clients in the healthcare, technology and software industries.
Albert Rodewald has served as Executive Vice President, Chief Technology
Officer and a Director of md2patient.com since its incorporation in July 1999.
In addition, Mr. Rodewald is a founder and Director of Heritage Group, LLC, a
company that develops and manages physician-owned healthcare projects. Mr.
Rodewald is also currently serving as Chairman of the Board and Director of
Interlogics, Inc., a developer of software for the workers' compensation
industry. From co-founding ProSeed, LLC, a developer of
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<PAGE> 38
prostate cancer treatment centers, in 1996 until its sale in 1998, Mr. Rodewald
served as its Director and Vice President of Development. As a co-founder of
Heritage Health Systems, Inc., a company that operates physician-owned
independent practice associations (IPAs) and manages capitated reimbursement
risk, Mr. Rodewald served as a Director of that company from 1992-1995. Mr.
Rodewald is a co-founder of Heritage Surgical Corporation, a company that
developed, owned and operated outpatient surgery centers, and served as its
director and Vice President of Facility Development from 1991-1994. From 1986 to
1991, he was a co-founder and Managing Director of Heritage Group, Inc. a firm
that specialized in partnering with physicians to own and operate imaging
centers, surgery centers, and lithotripsy units. A graduate of the University of
Wisconsin, Mr. Rodewald holds an MS from City University of New York. Mr.
Rodewald has 28 years of health industry experience.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer during the year ended December
31, 1999 and the compensation paid to our other executive officers to whom we
paid more than $100,000 during the year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
------------------------
RESTRICTED SECURITIES ALL 2000
NAME AND PRINCIPAL STOCK UNDERLYING OTHER ANNUAL
POSITION SALARY BONUS AWARD(S) OPTIONS COMPENSATION SALARY
- ------------------ -------- -------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Joseph B. Crace...... -- -- 3,500,000(1) -- -- $250,000
Chief Executive
Officer
John E. Blount....... $102,083 -- 2,000,000(2) -- -- $175,000
President
Albert Rodewald...... $102,083 -- 2,000,000(2) -- -- $175,000
Executive Vice
President
</TABLE>
- ---------------
(1) Granted February 11, 2000.
(2) Granted January 14, 2000.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Crace, Blount,
Gallagher, Petway and Rodewald. The terms of these employment agreements expire
on January 1, 2002, except for Mr. Crace, whose agreement expires on January 24,
2002. Each employment agreement may be automatically renewed for one-year terms.
md2patient.com may terminate these employment agreements at any time. Each
employment agreement provides that in the event md2patient.com terminates the
executive's employment without "cause," as defined therein, the executive shall
continue to receive his then current salary as a severance payment for a period
of one year following such termination. "Cause" includes fraud,
misappropriation, embezzlement by the executive officer, engaging in competition
with md2patient.com and disclosing proprietary information of md2patient.com.
The employment agreements entitle Mr. Crace to an annual base salary of
$250,000 and entitle Messrs. Blount, Gallagher, Petway and Rodewald to annual
base salaries of $175,000. The agreements also provide that our Board of
Directors may grant a bonus
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<PAGE> 39
from time to time to each executive. In addition, the employment agreements
provide that each executive will be granted a restricted stock award of our
Common Stock, which vests ratably over a three-year period. Mr. Crace received a
restricted stock award of 3,500,000 shares and each of Messrs. Blount,
Gallagher, Petway and Rodewald received a restricted stock award of 2,000,000
shares. Pursuant to this requirement, we entered into restricted stock award
agreements with each of these five executive officers. The vesting periods under
the restricted stock awards began as of July 1, 1999 for Messrs. Blount and
Rodewald and as of January 1, 2000 for Messrs. Gallagher and Petway. The vesting
period for Mr. Crace began on January 24, 2000.
Each of the employment agreements prohibits the executive's disclosure and
use of confidential information and restricts, for a period of 12 months
following termination of employment, the executive's competition with us or
disclosure of our proprietary information.
We have not obtained any key-man life insurance.
2000 LONG-TERM INCENTIVE PLAN
On January 13, 2000, our Board of Directors adopted the 2000 Long-Term
Incentive Plan, which was approved by our shareholders on January 13, 2000. A
summary of the Incentive Plan is set forth below and is qualified in its
entirety by reference to the full text of the Incentive Plan, a copy of which is
included as an exhibit to the registration statement of which this prospectus is
a part.
The purpose of the Incentive Plan is to promote the success, and enhance
the value, of md2patient.com by linking the personal interests of employees,
officers, consultants and directors to those of the shareholders, and by
providing such persons with an incentive for outstanding performance.
The Incentive Plan authorizes the granting of awards to our employees,
officers, consultants and directors in the following forms:
- Incentive Stock Options (ISOs) to purchase shares of our Common Stock;
- Non-Qualified Stock Options (NQSOs) to purchase shares of our Common
Stock;
- Stock Appreciation Rights (SARs);
- Performance Units;
- Restricted Stock;
- Dividend Equivalent Rights; and
- Other stock-based awards.
Subject to adjustment as provided in the Incentive Plan, the aggregate
number of shares of Common Stock reserved and available for Awards or which may
be used to provide a basis of measurement for or to determine the value of an
Award, such as with a SAR or Performance Share, is 10,000,000. The maximum
number of shares of Common Stock with respect to one or more Options and/or SARs
that may be granted during any one calendar year under the Incentive Plan to any
one participant is 2,000,000. The maximum fair market value of any Awards other
than Options and SARs that may be received by a participant, less any
consideration paid by the participant for such Award, during any one calendar
year under the Incentive Plan is $100,000. Pursuant to the terms of the
Incentive Plan, ISOs may not be granted at an exercise price of less than one-
hundred percent (100%) of the fair market value of our Common Stock on the date
of
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<PAGE> 40
grant. Further, we will not grant NQSOs at an exercise price of less than
eighty-five percent (85%) of the fair market value of our Common Stock on the
date of grant.
The Incentive Plan is administered by our Board of Directors, or the
Compensation Committee of the Board of Directors, when appointed, which has the
power, authority and discretion to: designate participants; determine the type
or types of Awards to be granted to each participant and the terms and
conditions thereof; establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Incentive Plan; and make all
other decisions and determinations that may be required under, or as it deems
necessary or advisable to administer, the Incentive Plan. The Board or the
Compensation Committee of the Board may, at any time and from time to time,
terminate, amend or modify the Incentive Plan without shareholder approval. No
termination, amendment, or modification of the Incentive Plan may adversely
affect any Award previously granted under the Incentive Plan, without the
consent of the participant.
Upon the participant's death or disability during his or her employment or
his or her service as a director, all outstanding Options, SARs, and other
Awards in the nature of rights that may be exercised will become fully vested
and exercisable and all restrictions on outstanding Awards will lapse. In
addition, in the event of a Change in Control of md2patient.com (as defined in
the Incentive Plan), all outstanding Options, SARs, and other Awards in the
nature of rights that may be exercised will become fully vested and exercisable
and all restrictions on all outstanding Awards will lapse. Unexercised or
restricted Awards generally will not be assignable or transferable by a
participant other than by will or the laws of descent and distribution or,
except in the case of an ISO, pursuant to a qualifying domestic relations order.
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended, we may not deduct compensation in excess of $1.0 million paid to our
principal executive officer and the four next most highly compensated executive
officers. The Incentive Plan is designed to comply with Section 162(m) of the
Internal Revenue Code so that the grant of Options and SARs under the Incentive
Plan, and other Awards, such as Performance Shares, that are conditioned on the
performance goals described in the Incentive Plan, will be excluded from the
calculation of annual compensation for purposes of Section 162(m) and will be
fully deductible.
BOARD OF DIRECTORS AND COMMITTEES
We intend to expand the size of our Board of Directors to include no less
than two of our physician subscribers and no less than two independent
non-physician directors. Following this expansion, we will maintain at least two
independent directors on our Board.
We also intend to establish an Audit Committee of our Board of Directors.
The Audit Committee will be responsible for reviewing our external audit
procedures and internal accounting controls and recommending the engagement of
our independent auditors.
DIRECTOR COMPENSATION
Our directors do not currently receive any compensation for serving as
directors. However, we anticipate implementing a stock-based compensation
program for non-employee directors prior to completion of this offering.
Additionally, we reimburse directors for out-of-pocket expenses they incur in
attending Board meetings or Board committee meetings in their capacities as
directors.
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<PAGE> 41
We have entered into a restricted stock award agreement with our Chairman
of the Board, Rock A. Morphis, pursuant to which Mr. Morphis has been granted a
restricted stock award of 2,000,000 shares of our Common Stock, which vests
ratably over a three-year period commencing January 1, 2000.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
As permitted under Georgia law, our Articles of Incorporation provide that
a director shall not be personally liable to md2patient.com or its shareholders
for monetary damages for breach of the duty of care or any other duty owed to
the corporation as a director, except liability for any of the following:
- any appropriation, in violation of his duties, of any business
opportunity of the corporation,
- for acts or omissions which involve intentional misconduct or a knowing
violation of law,
- for unlawful corporate distributions, or
- for any transaction from which the director received an improper personal
benefit.
Under our Bylaws, we are required to indemnify our directors to the full
extent permitted by Georgia law. Georgia law provides that a corporation may
indemnify its directors, officers, employees and agents against judgments,
fines, penalties, amounts paid in settlement, and reasonable expenses, including
attorney's fees, resulting from various types of legal actions or proceedings,
including, but not limited to any threatened, pending, or completed action, suit
or proceeding whether civil, criminal, administrative, arbitrative or
investigative and whether formal or informal, if the actions of the party being
indemnified meet the standards of conduct specified therein. Determination
concerning whether or not the applicable standard of conduct has been met can be
made by the following:
- the Board of Directors by a majority vote of all the disinterested
directors, if there are at least two disinterested directors;
- a majority vote of a committee of two or more disinterested directors;
- special legal counsel; or
- an affirmative vote of a majority of shares held by disinterested
shareholders.
No indemnification shall be made in connection with a proceeding by or in
the right of md2patient.com, except for reasonable expenses incurred in
connection with the proceeding if it is determined that the indemnitee has met
the relevant standard of conduct. In addition, indemnification shall not be made
in connection with any other proceeding in which such person was adjudged liable
on the basis that personal benefit was improperly received by him.
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<PAGE> 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 30, 1999, we were formed as a wholly owned subsidiary of Heritage
Group, LLC and we issued 50,000,000 shares of our Common Stock to Heritage
Group, LLC for a purchase price of $100,000. Messrs. Blount, Gallagher, Morphis
and Rodewald are the members of Heritage Group, LLC. Terms of this initial
issuance of our Common Stock were more favorable to us than those generally
available to unaffiliated third parties. This initial issuance was not approved
by any disinterested independent directors on our Board because at that time we
did not have any such independent directors on our Board to ratify the issuance.
At the time of such initial issuance, Heritage Group, LLC believed it could
attract additional management employees and enter into strategic alliances with
third parties through the limited liability company on a tax efficient basis.
Heritage Group, LLC subsequently determined that it would be preferable to
attract future employees through incentive plans to be adopted by md2patient.com
and to enter into strategic alliances directly through md2patient.com.
Accordingly, on November 23, 1999, Heritage Group, LLC effected a
recapitalization pursuant to which 40,000,000 shares of Common Stock were
returned to md2patient.com to be available for reissuance at the discretion of
our Board of Directors.
All future material transactions and loans with our founders and affiliates
will be made or entered into on terms that are no less favorable to
md2patient.com than those that can be obtained from unaffiliated third parties.
Further, all future material transactions and loans with our founders and
affiliates, and any forgiveness of loans, will not be engaged in until at least
two independent non-physician directors are elected to our Board and must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who have access, at our expense, to independent legal
counsel.
Each of Messrs. Blount, Crace, Gallagher, Morphis, Petway and Rodewald and
Heritage Group LLC has entered into a Lock-In Agreement with md2patient.com with
respect to the 22,495,588 shares of our Common Stock that they own. Under the
agreement, those stockholders have agreed, with limited exceptions, not to sale,
pledge, assign or otherwise dispose of any of those 22,495,588 shares. Two and
one-half percent (2 1/2%) of those shares will be released from the restrictions
set forth in the agreement pro rata among the security holders each quarter
beginning on the second anniversary of the date of the completion of this
offering. The agreement terminates on the earlier of (a) the fourth anniversary
of the completion of this offering, (b) the termination of this offering if no
shares of Series B Convertible Preferred Stock are sold, (c) if the minimum
number of shares are not sold, the date that the escrow agent returns the
proceeds to investors in this offering, (d) a consolidation, merger or share
exchange involving a change of control of md2patient.com or the sale of all or
substantially all of our assets, or (e) on the date the shares of Series A and
Series B Convertible Preferred Stock become "Covered Securities" as defined
under the National Securities Market Improvement Act of 1996.
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<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our capital stock as of March 15, 2000 by each person or entity who
beneficially owns more than 5% of any class or series of our capital stock, each
of our directors and executive officers, and all of our directors and executive
officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------------
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON PREFERRED PREFERRED
NAME STOCK %(1) STOCK % STOCK %
- ---- ---------- ---- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Heritage Group, LLC(2)........ 10,000,000 34.1 -- -- -- --
John E. Blount(3)............. 12,000,000 40.9 25,000 * -- --
Joseph B. Crace(4)............ 3,500,000 11.9 -- -- -- --
Thomas A. Gallagher(5)........ 12,000,000 40.9 -- -- --
Rock A. Morphis(6)............ 12,000,000 40.9 -- -- -- --
James G. Petway, Jr.(7)....... 2,000,000 6.8 -- -- -- --
Albert Rodewald(8)............ 12,000,000 40.9 -- -- -- --
All directors and executive
officers as a group (6
persons).................... 23,500,000 80.1 -- -- -- --
</TABLE>
- -------------------------
* less than 1%
(1) Percentage calculations give effect to the issuance of 5,000,000 shares of
Common Stock issuable upon conversion of currently outstanding shares of
Series A Convertible Preferred Stock.
(2) Heritage Group, LLC's business address is 1913 21st Avenue South, Nashville,
Tennessee 37212.
(3) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr. Blount
is a member. Mr. Blount disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in Heritage Group, LLC.
Includes 2,000,000 restricted shares issued pursuant to a restricted stock
award agreement.
(4) Represents restricted shares issued pursuant to a restricted stock award
agreement.
(5) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr.
Gallagher is a member. Mr. Gallagher disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Heritage Group,
LLC. Includes 2,000,000 restricted shares issued pursuant to a restricted
stock award agreement.
(6) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr.
Morphis is a member. Mr. Morphis disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Heritage Group,
LLC. Includes 2,000,000 restricted shares issued pursuant to a restricted
stock award agreement.
(7) Represents restricted shares issued pursuant to a restricted stock award
agreement.
(8) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr.
Rodewald is a member. Mr. Rodewald disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Heritage Group,
LLC. Includes 2,000,000 restricted shares issued pursuant to a restricted
stock award agreement.
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<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is a summary of the material
terms of our Common Stock and our Series A and Series B Convertible Preferred
Stock and is qualified in its entirety by reference to the full text of our
Articles of Incorporation which are included as an exhibit to the registration
statement of which this prospectus is a part.
The total number of shares of stock of all classes that we have authority
to issue is 600,000,000 shares, consisting of:
- 300,000,000 shares of Common Stock, par value $.01 per share; and
- 300,000,000 shares of Preferred Stock, of which 50,000,000 shares are
designated as Series A Convertible Preferred Stock, par value $.01 per
share, and 50,000,000 shares are designated as Series B Convertible
Preferred Stock, par value $.01 per share.
As of March 15, 2000, there were outstanding 24,347,500 shares of our
Common Stock, 5,000,000 shares of our Series A Convertible Preferred Stock and
no shares of our Series B Convertible Preferred Stock. In addition, as of March
15, 2000, there were outstanding warrants to purchase 1,000,000 shares of our
Series A Convertible Preferred Stock.
COMMON STOCK
Our Common Stock is subject to all of the rights, privileges, preferences
and priorities of the Preferred Stock set forth in our Articles of
Incorporation.
Dividends may be paid on the Common Stock, and on any other class or series
of stock entitled to participate with Common Stock as to dividends, when and as
declared by our Board of Directors.
In the event of any dissolution, liquidation, or winding up of
md2patient.com, the holders of Common Stock, Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock are entitled to participate
equally in the distribution of any assets remaining after we have paid all of
our debts and liabilities and after we have paid the preferential amounts
summarized below in the description of our Series A and Series B Convertible
Preferred Stock.
Each holder of Common Stock is entitled to cast one vote for each share of
Common Stock held upon any matter submitted to a vote of our stockholders,
including the election of directors.
During the 180-day period following our first underwritten public offering
in which at least $10,000,000 of our Common Stock is sold at a price of not less
than $1.00 per share, shares of Common Stock other than those sold in such
underwritten public offering may not be transferred or re-sold without our prior
written consent. However, this restriction does not prohibit the following
transfers:
- as a bona fide gift, provided the person receiving the gift agrees to the
same transfer restriction,
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<PAGE> 45
- as a distribution to the partners, members or shareholders of a Common
Stock holder, provided that the persons receiving the distribution agree
to the same transfer restriction, or
- to members of the immediate family of a holder of Common Stock, provided
that the family members agree to the same transfer restriction.
SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK
Except as required by law and except for any merger, consolidation or share
exchange resulting in a change of control or the sale of substantially all of
our assets submitted to a vote of our shareholders, holders of shares of Series
A and Series B Convertible Preferred Stock do not have any voting rights
whatsoever. With respect to any corporate transaction submitted to a vote of our
shareholders:
- each holder of shares of Series A or Series B Convertible Preferred Stock
is entitled to cast one vote for each share of Series A or Series B
Convertible Preferred Stock held; and
- the holders of shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Common Stock vote together and not as
separate classes or series.
The holders of shares of Series A or Series B Convertible Preferred Stock
are entitled to participate equally in all dividends paid on Common Stock,
except that if dividends on Common Stock are payable in shares of Common Stock,
(1) the corresponding dividends to be paid on Series A Convertible Preferred
Stock must be paid in shares of Series A Convertible Preferred Stock and (2) the
corresponding dividends to be paid on Series B Convertible Preferred Stock must
be paid in shares of Series B Convertible Preferred Stock.
In the event of any liquidation, dissolution or winding up of
md2patient.com, each holder of shares of Series A or Series B Convertible
Preferred Stock then outstanding is entitled to be paid, before any payment is
made to holders of Common Stock, an amount equal to the price paid to
md2patient.com for the initial issuance of such shares of Series A or Series B
Convertible Preferred Stock Convertible Preferred Stock.
If the assets to be distributed are insufficient to permit the payment in
full of such liquidation preference, then all of the assets available for
distribution will be distributed to holders of Series A and Series B Convertible
Preferred Stock pro rata in proportion to the full liquidation preference each
holder would otherwise be entitled to receive.
After the payment in full of the liquidation preference, the holders of
Common Stock then outstanding are entitled to be paid an amount per share of
Common Stock equal to the liquidation preference of the Series A and Series B
Convertible Preferred Stock divided by the total number of then outstanding
shares of Series A and Series B Convertible Preferred Stock. If the assets
available for distribution are insufficient to permit the payment in full of the
amount referred to in the immediately preceding sentence, then all assets will
be paid to the holders of Common Stock pro rata based on the number of shares of
Common Stock they hold. After payment in full of this amount to the holders of
Common Stock, all remaining assets will be distributed to the holders of shares
of Common Stock and to the holders of shares of Series A and Series B
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<PAGE> 46
Convertible Preferred Stock pro rata based on the number of shares of Common
Stock and/or Series A and Series B Convertible Preferred Stock they hold.
If the foregoing manner of distribution would result in a payment per share
to holders of Series A and Series B Convertible Preferred Stock of less than the
amount payable per share to holders of Common Stock, then the aggregate amount
that would have been payable with respect to shares of Series A and Series B
Convertible Preferred Stock plus the aggregate amount that would have been
payable with respect to all shares of Common Stock will instead be paid to the
holders of such Series A and Series B Convertible Preferred Stock Common Stock
pro rata based on the number of shares of Series A or Series B Convertible
Preferred Stock and/or shares of Common Stock they hold.
In the case of any merger, consolidation or share exchange resulting in a
change of control or the sale of substantially all of our assets, each holder of
shares of Series A or Series B Convertible Preferred Stock will have the right
to receive the same consideration that a holder of an equal number of shares of
Common Stock would be entitled to receive pursuant to such transaction. However,
if the consideration so payable to any holder of Series A or Series B
Convertible Preferred Stock is not at least equal in value to the Convertible
Preferred Stock Liquidation Preference of his or her shares of Series A or
Series B Convertible Preferred Stock, then the transaction shall instead be
treated as a liquidation and payments will be made in accordance with the
procedure described in the preceding two paragraphs. In addition, any
consideration payable with respect to shares of Series B Convertible Preferred
Stock pursuant to such a transaction may be made payable on a delayed basis over
the same period of time as is described below with respect to the automatic
conversion of shares of Series B Convertible Preferred Stock.
Any holder of shares of Series A Convertible Preferred Stock may at any
time convert all or any number of his or her shares into shares of Common Stock
on a one-for-one basis. In addition, all shares of Series A Convertible
Preferred Stock automatically convert into shares of Common Stock on a
one-for-one basis upon the closing of an underwritten public in which at least
$10,000,000 of our Common Stock is sold at a price of not less than $1.00 per
share.
Outstanding shares of Series B Convertible Preferred Stock automatically
convert into shares of Series A Convertible Preferred Stock, on a one-for-one
basis, at the rate of one-third per year on each anniversary of their date of
issuance. Each one-third calculation is applied per holder of applicable shares
with respect to the aggregate number of applicable shares held, rounding up to
the nearest whole share. If we complete an underwritten public in which at least
$10,000,000 of our Common Stock is sold at a price of not less than $1.00 per
share, shares of our Series B Convertible Preferred Stock will automatically
become convertible into shares of our Common Stock on the same terms that they
are presently convertible into shares of our Series A Convertible Preferred
Stock.
A holder of Series A or Series B Convertible Preferred Stock may not
transfer or otherwise re-sell any shares of Series A or Series B Convertible
Preferred Stock without our prior written consent.
UNDESIGNATED PREFERRED STOCK
There are 200,000,000 shares of undesignated (or "blank check") Preferred
Stock authorized by our Articles of Incorporation. Our Board of Directors has
the authority, without obtaining prior shareholder approval, to issue shares of
undesignated Preferred
44
<PAGE> 47
Stock in one or more classes or series and to determine the dividend rights,
conversion rights, liquidation preferences, voting rights, redemption rights,
number of shares constituting any class or series and other rights, terms and
designations of such classes or series. We will not issue any such blank check
Preferred Stock to our founders unless such issuance is on the same terms
offered to all other existing stockholders or to new stockholders. Such
issuances may dilute or otherwise adversely affect the economic, ownership and
other rights and interests of the holders of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Common Stock.
WARRANTS
Terms of Exercise; Expiration. The Warrants will be exercisable for the
number of shares of Series A Convertible Preferred Stock underlying the Warrant.
If we complete an underwritten public offering in which at least $10,000,000
worth of our Common Stock is sold at a price of not less than $1.00 per share,
then the Warrants will automatically become exercisable for shares of our Common
Stock on the same terms that they are exercisable for shares of our Series A
Convertible Preferred Stock. The exercise price for the Warrants is $1.00 per
share for each share to be issued upon exercise. Warrant holders are not
entitled to any rights as stockholders of md2patient.com until they exercise
their Warrants.
The Warrants will only be offered by us through WR Hambrecht to (a)
physicians who have subscribed to our web services and that we determine have
played an important role in the development and market acceptance of our web
site, including members of our physician panels, members of our Physician
Advisory Board, and those physicians with whom we enter into endorsement
relationships, (b) physician subscribers who refer other physicians who
subscribe to our web services, and (c) employees and independent contractors who
assist us in marketing our web services. Our Board of Directors will have the
discretion to determine the offerees of the Warrants and, if appropriate, adopt
specific criteria for determining the number of underlying shares for which each
Warrant is exercisable.
Each Warrant will be exercisable for all, but not less than all, of the
underlying shares on any one occasion. The Warrants are exercisable at any time
during the three-year period following their date of issuance. Upon exercise of
a Warrant, in lieu of paying the exercise price in cash, the holder of the
Warrant may elect to receive a lesser number of shares issued upon exercise that
have a value equal to the difference between the fair market value of the shares
issued upon exercise and the aggregate exercise price.
Transfer. Our Warrants will not be publicly traded and can not be sold,
transferred, assigned, hypothecated or otherwise disposed of without our prior
written consent.
Outstanding Warrants. As of March 15, 2000, there were outstanding
warrants to purchase 1,000,000 shares of our Series A Convertible Preferred
Stock, which were issued in connection with our private placement of 5,000,000
shares of Series A Convertible Preferred Stock that closed on November 18, 1999.
The warrants that were issued in the private placement have the same terms as
the Warrants in this offering, except that the warrants issued in the private
placement are exercisable during the period from November 18, 2000 to November
18, 2004.
45
<PAGE> 48
TRANSFER AGENT
The transfer agent for our Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock is SunTrust Bank, Atlanta.
SHARES ELIGIBLE FOR FUTURE SALE
COMMON STOCK
As of March 15, 2000, there were outstanding an aggregate of 24,347,500
shares of Common Stock that were issued in private transactions in reliance on
exemptions from the registration requirements of the federal securities laws.
These shares of Common Stock are considered restricted securities under Rule 144
promulgated under the Securities Act of 1933. Accordingly, absent registration
for re-sale, these shares may only be re-sold publicly in reliance on and
subject to the limitations set forth in Rule 144, which are described below.
Under the terms of our Articles of Incorporation, during the 180-day period
following an underwritten public offering in which at least $10,000,000 worth of
our Common Stock is sold at a price of not less than $1.00 per share, no holder
of shares of our Common Stock may sell, assign or transfer any of such shares
without our prior written consent.
SERIES A CONVERTIBLE PREFERRED STOCK
We have issued and sold an aggregate of 5,000,000 shares of our Series A
Convertible Preferred Stock in private transactions in reliance on exemptions
from the registration requirements of the federal securities laws. These shares
are also considered restricted securities under Rule 144. Although Rule 144
would permit public re-sales of these shares subject to the limitations of Rule
144 described below, our Articles of Incorporation provide that no holder of
shares of our Series A Convertible Preferred Stock may sell, assign or transfer
any of such shares without our prior written consent.
The Series A Convertible Preferred Stock distributed in this offering will
be unrestricted for purposes of the federal securities laws and will not be
subject to Rule 144. However, our Articles of Incorporation provide that no
holder of shares of Series A Convertible Preferred Stock may sell, assign or
transfer any of such shares without our prior written consent.
SERIES B CONVERTIBLE PREFERRED STOCK
The Series B Convertible Preferred Stock distributed in this offering will
be unrestricted for purposes of the federal securities laws and will not be
subject to Rule 144. However, our Articles of Incorporation provide that no
holder of shares of Series B Convertible Preferred Stock may sell, assign or
transfer any of such shares without our prior written consent.
SALES FOLLOWING CONVERSION OF SERIES A OR SERIES B CONVERTIBLE PREFERRED STOCK
Shares of our Series A Convertible Preferred Stock are convertible at any
time at the option of the holder into shares of Common Stock and automatically
convert to Common Stock upon the closing of an underwritten public offering in
which at lease $10,000,000
46
<PAGE> 49
worth of our Common Stock is sold at a price of not less than $1.00 per share.
Furthermore, shares of our Series B Convertible Preferred Stock automatically
convert at the rate of one-third per year into shares of Series A Convertible
Preferred Stock, if the conversion date occurs prior to an underwritten public
offering in which at least $10,000,000 worth of our Common Stock is sold at a
price of not less than $1.00 per share, or Common Stock, if the conversion date
occurs after such an underwritten public offering.
Under the federal securities laws, shares issued upon any such conversion
will retain the status of the shares converted for purposes of determining
whether or not the shares issued upon conversion are restricted. Accordingly,
shares issued upon conversion of shares that are considered restricted under
Rule 144 will also be restricted under Rule 144. Similarly, shares issued upon
conversion of unrestricted securities will also be unrestricted under Rule 144.
Furthermore, if the shares issued upon conversion are shares of Common
Stock, such shares will be subject to the 180-day lock-up period following an
underwritten public offering as discussed above. If the shares issued upon
conversion are shares of Series A Convertible Preferred Stock, such shares will
be subject to the restriction against transfer provided in our Articles of
Incorporation, as discussed above.
SALES UNDER RULE 144
Rule 144 provides that a person holding restricted securities for a period
of at least one year may sell such securities in brokerage transactions in an
amount not to exceed in any three-month period 1% of the total outstanding
number of shares of that class of securities. Because there is no public market
for any of our securities, it will be impossible to sell restricted securities
through brokerage transactions. However, Rule 144(k) provides that a person who
is a "non-affiliate" of md2patient.com and who has held restricted securities
for over two years is not subject to these manner of sale and volume limitations
as long as the other conditions of Rule 144 are met. Therefore, until we
complete an underwritten public offering in which at lease $10,000,000 worth of
our Common Stock is sold at a price of not less than $1.00 per share, Rule
144(k) is the only alternative provided for in Rule 144 pursuant to which a
shareholder could publicly sell restricted securities.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of material U.S. federal income tax
considerations applicable to holders of Warrants offered hereby and those who
acquire Series A Convertible Preferred Stock upon exercise of Warrants. No
ruling has been requested of the Internal Revenue Service and no opinion has
been requested of counsel regarding any of the tax considerations discussed
below. This summary is based on provisions of the Internal Revenue Code of 1986,
Treasury Regulations, including temporary and proposed Regulations, rulings and
decisions currently in effect, all of which may be changed with possible
retroactive effect. This discussion does not encompass all of the aspects of
federal taxation that may be relevant to investors in light of their personal
investment circumstances. In addition, this discussion does not consider the
effect of any foreign, state, local, gift, estate or other tax laws that may be
applicable to a particular investor. Our discussion assumes that investors will
hold our Warrants and Series A
47
<PAGE> 50
Convertible Preferred Stock as capital assets within the meaning of Section 1221
of the Code. Prospective investors in the Warrants are strongly urged to consult
their tax advisors regarding the particular tax consequences that may apply to
them as a result of purchasing, holding and disposing of our Warrants and Series
A Convertible Preferred Stock.
We will only offer and issue our warrants to individuals that are U.S.
Holders. A "U.S. Holder" means a citizen or resident of the United States or
individuals otherwise subject to U.S. federal income taxation on a net income
basis with respect to our Warrants. This discussion does not consider the tax
consequences applicable to non-U.S. Holders. Holders may not sell our Warrants
and the Warrants are not transferable. In addition, our Warrants are not
redeemable by us.
TAX TREATMENT OF WARRANTS; CHARACTERIZATION OF OUR WARRANTS.
We expect the Warrants to be characterized as warrants or options, and not
as equity, for federal income tax purposes. The following discussion assumes
that the Warrants we are offering will be properly characterized as warrants.
Issuance and Exercise. We will only offer Warrants to (a) physicians who
have subscribed to our web services and that we determine have played an
important role in the development and market acceptance of our web site, (b)
physician subscribers who refer other physicians who subscribe to our web
services, and (c) employees and independent contractors who assist us in
marketing our web services. We will issue the Warrants to these individuals in
exchange for the services they are providing to us, specifically, assisting us
in developing or marketing our web services and/or referring other physicians
who subscribe to our web services. No taxable income will be recognized by a
Warrant holder upon the issuance of the Warrant. The Warrant holder, will, in
general, recognize ordinary income in the year in which the Warrant is
exercised, equal to the excess of the fair market value of the acquired shares
on the exercise date over the exercise price paid for the shares. When the
Warrant holders are treated as receiving ordinary income as a result of exercise
of the Warrant, we will be required to withhold and pay the withholding tax due
with regard to that ordinary income. We may do this by withholding from the
number of shares issued on exercise of the option, or by requiring payment of
the amount required to be withheld before we will issue shares upon exercise of
the option.
Tax Basis in Our Series A Convertible Preferred Stock. When a Warrant is
exercised, a holder will acquire basis in our Series A Convertible Preferred
Stock equal to the amount of income the holder is required to recognize upon
exercise of the Warrant.
Disposition of Shares Received Upon Exercise of Warrants. Upon a sale or
other taxable disposition of the Series A Convertible Preferred Stock, the
holder thereof will have gain or loss equal to the excess of (a) the amount
realized upon such sale or taxable disposition over (b) the holder's tax basis
in the shares of stock. This gain or loss will be capital gain, and will be
long-term gain if the shares have been held for more than one year. In the case
of individuals, long-term capital gains are generally subject to a maximum tax
rate of 20%.
Lapse. If a Warrant received is not exercised and is allowed to expire,
the holder will not recognize any gain or loss in connection with the expiration
of the Warrant.
Tax Treatment to md2patient.com of Warrant Issuance and Exercise. We will
be entitled to an income tax deduction equal to the amount of ordinary income
recognized by
48
<PAGE> 51
the Warrant holder with respect to the exercised Warrant. The deduction will
generally be allowed for our taxable year in which such ordinary income is
recognized by the Warrant holder.
Other Tax Considerations. There may be other federal, state, local or
foreign tax considerations applicable to a particular holder or prospective
purchaser of our Warrants, Series B Convertible Preferred Stock or Series A
Convertible Preferred Stock. ACCORDINGLY, EACH HOLDER OR PROSPECTIVE PURCHASER
OF OUR WARRANTS, SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES A CONVERTIBLE
PREFERRED STOCK SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO THE HOLDER OR PROSPECTIVE PURCHASER OF PURCHASING, HOLDING
AND DISPOSING OF OUR WARRANTS AND PREFERRED STOCK.
49
<PAGE> 52
PLAN OF DISTRIBUTION
We are offering a minimum of 5,000,000 and a maximum of 34,000,000 shares
of our Series B Convertible Preferred Stock and up to 2,000,000 shares of our
Series A Convertible Preferred Stock. We are also offering Warrants to purchase
up to 4,000,000 shares of our Series A Convertible Preferred Stock. We have
entered into an underwriting agreement with W.R. Hambrecht & Company, LLC,
pursuant to which WR Hambrecht has agreed to assist in the sale of up to
34,000,000 shares of our Series B Convertible Preferred Stock, up to 2,000,000
shares of our Series A Convertible Preferred Stock, and Warrants to purchase up
to 4,000,000 shares of our Series A Convertible Stock. WR Hambrecht is not
required to sell, as our agent, a specific number or dollar amount of shares or
Warrants in the offering, or to purchase any of the shares or Warrants in the
offering for its own account or for the accounts of others.
We intend to sell the shares of Series A and Series B Convertible Preferred
Stock offered hereby to investors who have subscribed for our web services.
After the Commission declares the registration statement relating to this
offering effective, each physician who registers with or subscribes to our web
site will be given access to the prospectus filed with the Commission relating
to the Series B Convertible Preferred Stock in a password-protected, segregated
area of the web site of WR Hambrecht. In addition, certain of the physicians who
subscribe to our web site will also be given access through the WR Hambrecht
site to the prospectus filed with the Commission relating to both the Series A
and Series B Convertible Preferred Stock. We intend to offer the shares of
Series A Convertible Preferred Stock through WR Hambrecht as our agent to those
physicians who have subscribed to our web services and that we determine have
played or will play an important role in the development or market acceptance of
our web site.
We intend to grant the Warrants through WR Hambrecht only to (a) physicians
who have subscribed to our web services and that we determine have played an
important role in the development and market acceptance of our web site,
including members of our physician panels, members of our Physician Advisory
Board and physicians with whom we enter into endorsement relationships, (b)
physician subscribers who refer other physicians who subscribe to our web
services, and (c) employees and independent contractors who assist us in
marketing our web services. Offerees will not pay any consideration in
connection with our grant or their receipt of the Warrants. Our Board of
Directors will have the discretion to determine the offerees of the Warrants
and, if appropriate, adopt specific criteria for determining the number of
underlying shares for which each Warrant is exercisable. Because we do not
intend to grant any Warrants until we have completed the initial closing for at
least 5,000,000 shares of Series B Convertible Preferred Stock, we have not yet
determined the specific criteria for the selection of offerees or the number of
underlying shares to be made available to any such offeree.
To participate in the offering of either the Series A or Series B shares,
investors will be required to open a brokerage account with WR Hambrecht with an
initial minimum deposit of $3,000. After opening an account with WR Hambrecht, a
prospective investor will be permitted to purchase the shares offered hereby in
the appropriate password-protected, segregated area of WR Hambrecht's web site
provided that he or she has subscribed to our web site. WR Hambrecht will
deposit all payments it accepts as our agent into an interest bearing escrow
account at SunTrust Bank by noon of the next business day. Once we receive
payments for at least 5,000,000 shares of Series B Convertible Preferred Stock,
we will conduct an initial closing. Our officers and directors will not be able
to purchase shares of Series B Convertible Preferred Stock in order to meet the
minimum of 5,000,000 shares. At the initial closing, all payments for shares of
50
<PAGE> 53
Series A and Series B Convertible Preferred Stock received in the escrow account
up to that point, minus the amount of any sales commissions owed to WR
Hambrecht, will be disbursed to us. If we have not received payments for at
least 5,000,000 shares of Series B Convertible Preferred Stock by December 31,
2000, all payments will be promptly refunded in full with interest and without
deducting any expenses. Until such time as the escrow agent has released their
payments to us, investors will not be deemed shareholders. The escrow agent will
hold the payments in escrow for the benefit of the investors and the funds will
not be subject to our creditors. During the period of escrow, investors will not
be entitled to a refund of their payments. Following the initial closing, we
will hold additional interim closings at such times as we agree upon with WR
Hambrecht until (a) all of the shares in this offering have been purchased, (b)
December 31, 2000 or (c) we decide to terminate the offering, whichever occurs
first. At such interim closings, all payments for shares of Series A and Series
B Convertible Preferred Stock received in the escrow account since the
immediately preceding closing, minus the amount of any sales commissions owed to
WR Hambrecht, will be disbursed to us.
To participate in the offering of the Warrants, offerees will be required
to open a brokerage account with WR Hambrecht with an initial minimum deposit of
$3,000. After opening an account with WR Hambrecht, offerees will have the right
to receive the Warrants offered hereby through a password-protected, segregated
area of WR Hambrecht's web site. No Warrants will be issued unless the Company
has conducted an initial closing for at least 5,000,000 shares of Series B
Convertible Preferred Stock.
To participate in the offering of Series B Convertible Preferred Stock,
investors must purchase a minimum of 3,000 shares of Series B Convertible
Preferred Stock. In addition, investors must purchase the Series B Convertible
Preferred Stock in increments of 1,000 shares. We will divide the number of
shares of Series B Convertible Preferred Stock offered hereby into three
tranches and will limit the number of shares that may be purchased by investors
in each tranche as follows:
- no more than 5,000 shares per investor until the first 10,000,000 shares
have been sold;
- no more than 4,000 shares per investor until the next 16,000,000 shares
have been sold; and
- no more than 3,000 shares per investor thereafter.
The following table illustrates these per investor purchase limits and the
maximum number of investors that could participate in each tranche assuming each
investor purchases the maximum number of shares allowed per investor:
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES OFFERED PER
TRANCHE INVESTOR
- ------- ---------------------------
<S> <C>
First 10,000,000 shares................................. 5,000
Next 16,000,000 shares.................................. 4,000
Last 8,000,000 shares................................... 3,000
</TABLE>
As to the shares of Series A Convertible Preferred Stock to be sold in this
offering, there is a minimum investment of $3,000 but no maximum investment.
However, we do not expect that any investor will be offered more than 100,000
shares of Series A Convertible Preferred Stock.
51
<PAGE> 54
We intend to effect offers and sales of the shares and Warrants in the
offering through the delivery of this prospectus by WR Hambrecht. The offering
will be limited to those prospective investors who consent to receive a
prospectus through electronic delivery in accordance with the procedures set
forth in the segregated area of the web site of WR Hambrecht.
In connection with its assistance with the sale of the Series A and Series
B Convertible Preferred Stock and Warrants offered hereby, WR Hambrecht will
receive a fee equal to (i) $400,000 upon the closing of the sale of 5,000,000
shares of Series B Convertible Preferred Stock, (ii) eight cents ($.08) per
share of any shares of Series A or Series B Convertible Preferred Stock sold
after the initial closing of the sale of 5,000,000 shares, until an aggregate of
6,250,000 shares have been sold, (iii) zero cents ($.00) per share of any shares
sold after an aggregate of 6,250,000 shares have been sold and until 16,666,666
shares have been sold, and (iv) three cents ($.03) per share of any shares sold
after an aggregate of 16,666,666 shares have been sold. WR Hambrecht will not
receive any fee in connection with the offer or exercise of the Warrants. We
have agreed to indemnify WR Hambrecht against specified liabilities, including
liabilities under the Securities Act, or to contribute to payments that WR
Hambrecht may be required to make in respect thereof.
The expenses of the offering, exclusive of any underwriting commissions
payable to WR Hambrecht include the Commission registration fee, the NASD filing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
blue sky fees and expenses, transfer agent and registrar fees, and other
miscellaneous fees. We estimate that these fees and expenses will be an
aggregate of approximately $450,000. These fees and expenses are payable
entirely by us.
WR Hambrecht does not intend to act as a market maker for the Series B
Convertible Preferred Stock, for the Series A Convertible Preferred Stock or for
the Warrants following this offering.
We have not determined the offering price of the Series A or Series B
Convertible Preferred Stock or the exercise price of the Warrants by negotiation
with WR Hambrecht, as is customary in many initial public offerings. Instead,
the offering price has been determined arbitrarily by our Board of Directors.
WR Hambrecht is an investment banking firm formed as a limited liability
company in February 1998. In addition to this offering, WR Hambrecht has engaged
in the business of public and private equity investing and financial advisory
services since its inception. The manager of WR Hambrecht, William R. Hambrecht,
has 40 years of experience in the securities industry.
This is neither a solicitation of an offer to buy nor an offer to sell our
securities to persons in the following jurisdictions: Arizona, Florida, Guam,
Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, Puerto Rico, South
Dakota, Vermont, West Virginia, and Wyoming. Persons in these jurisdictions are
not authorized to purchase any of our securities under this prospectus.
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<PAGE> 55
LEGAL MATTERS
The validity of the securities offered in this offering will be passed upon
by Alston & Bird LLP, Atlanta, Georgia. Certain legal matters will be passed
upon for WR Hambrecht by Bass, Berry & Sims PLC, Nashville, Tennessee.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999, and for the period from July 30, 1999 (date of
inception) to December 31, 1999, as set forth in their report. We've included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission in Washington,
D.C. a Registration Statement on Form S-1 under the Securities Act with respect
to the securities offered in this prospectus. This prospectus, filed as part of
the registration statement, does not contain all of the information set forth in
the registration statement and its exhibits and schedules, portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information about us and the securities offered by this prospectus,
we refer you to the registration statement and to its exhibits and schedules.
Statements in this prospectus about the contents of any contract, agreement or
other document are not necessarily complete and, in each instance, we refer you
to the copy of such contract, agreement or document filed as an exhibit to the
registration statement. Each such statement is qualified in all respects by
reference to the document to which it refers. Anyone may inspect the
registration statement and its exhibits and schedules without charge at the
public reference facilities the Commission maintains at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661. You may obtain copies of all or
any part of these materials from the Commission upon payment to the Commission
of prescribed fees. You may also inspect these reports and other information
without charge at a web site maintained by the Commission. The address of this
site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, file reports and other information with the Commission.
Although we do not anticipate that we will send any of these reports to our
stockholders, you will be able to inspect and copy these reports and other
information at the public reference facilities maintained by the Commission and
at the Commission's regional offices at the addresses noted above. You also will
be able to obtain copies of this material from the Public Reference Section of
the Commission as described above, or inspect them without charge at the
Commission's web site.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering for sale, and seeking offers to
buy, shares of our Preferred Stock only in jurisdictions where offers and sales
are permitted.
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<PAGE> 56
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity........................... F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
MD2patient, Inc., formerly MDpathways, Inc.
We have audited the accompanying balance sheet of MD2patient, Inc.,
formerly MDpathways, Inc. (a Company in the development stage) as of December
31, 1999, and the related statements of operations, stockholders' equity, and
cash flows for the period from July 30, 1999 (date of inception) to December 31,
1999. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MD2patient, Inc. at December
31, 1999, and the results of its operations and its cash flows for the period
from July 30, 1999 (date of inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
January 14, 2000,
except for the third paragraph of
Note 8, as to which the date is
March 3, 2000
Nashville, Tennessee
F-2
<PAGE> 58
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $4,025,058
Prepaid and other........................................... 107,168
----------
Total current assets................................... 4,132,226
Deferred offering costs..................................... 184,328
Computer software costs..................................... 259,283
Equipment and furniture..................................... 92,073
----------
Total assets........................................... $4,667,910
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................... $ 257,292
Deferred subscription fees.................................. 80,333
----------
Total current liabilities.............................. 337,625
Deferred subscription fees.................................. 144,667
----------
Total liabilities...................................... 482,292
----------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value, 300,000,000
shares authorized;
-- Series A Convertible; 50,000,000 shares designated;
5,000,000 shares issued and outstanding (liquidation
preference of $5,000,000 at December 31, 1999)............ 50,000
-- Series B Convertible; 50,000,000 shares designated;
no shares issued and outstanding....................... --
Common stock, $.01 par value, 300,000,000 shares authorized;
10,000,000 shares issued and outstanding.................. 100,000
Additional paid-in capital.................................. 4,686,087
Deficit accumulated during development stage................ (650,469)
----------
4,185,618
----------
$4,667,910
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 59
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 30, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUES:
Interest income............................................. $ 25,610
COSTS AND EXPENSES:
Selling, general and administrative......................... 676,079
-----------
Net loss.................................................. $ (650,469)
===========
Basic and diluted net loss per share........................ $ (0.07)
===========
Basic and diluted weighted average shares outstanding....... 10,000,000
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 60
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 30, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
SERIES A CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
--------------------- ---------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
---------- -------- ----------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inception, July 30,
1999............... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock.............. -- -- 10,000,000 100,000 -- -- 100,000
Issuance of Series A
Convertible
Preferred Stock,
net of expenses of
$124,913 and
subscription fees
of $139,000........ 5,000,000 50,000 -- -- 4,526,087 -- 4,576,087
Issuance of warrants
on Series A
Convertible
Preferred Stock.... -- -- -- -- 160,000 -- 160,000
Net loss........... -- -- -- -- -- (650,469) (650,469)
--------- ------- ----------- -------- ---------- --------- ----------
Balance, December 31,
1999............... 5,000,000 $50,000 10,000,000 $100,000 $4,686,087 $(650,469) $4,185,618
========= ======= =========== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 61
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 30, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (650,469)
Adjustments to reconcile net loss to net cash used from
operating activities:
Change in assets and liabilities:
Prepaid and other...................................... (107,168)
Accounts payable and accrued expenses.................. 257,292
Deferred subscription fees............................. 225,000
----------
Net cash used in operating activities................ (275,345)
----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures........................................ (351,356)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... 100,000
Issuance of Series A Convertible Preferred Stock............ 4,576,087
Issuance of warrants on Series A Convertible Preferred
Stock..................................................... 160,000
Deferred offering costs..................................... (184,328)
----------
Net cash provided by financing activities............ 4,651,759
----------
Net increase in cash................................. 4,025,058
Cash, beginning of period................................... --
----------
Cash, end of period......................................... $4,025,058
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 62
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND NATURE OF BUSINESS
MD2patient, Inc. ("the Company") is a Georgia corporation which was
incorporated and capitalized by Heritage Group LLC ("Heritage") in July 1999
under the name of MDpathways, Inc. The Company changed its name to MD2patient,
Inc. in December 1999. The Company is developing a web site to provide access to
selected on-line healthcare content and services and to develop web pages for
its physician subscribers.
MD2patient, Inc. is in the development stage as its operations principally
involve the building of its web site infrastructure, market analysis, capital
raising and other business planning activities. No revenue has been generated.
Since MD2patient, Inc. is in the development stage, the accompanying financial
statements should not be regarded as typical for normal operating periods.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash. The Company
maintains cash with one financial institution located in Tennessee, which
may at times exceed federally insured limits.
The carrying amounts reported in the balance sheets for cash and accounts
payable approximate their fair values due to the short-term nature of these
financial instruments.
b. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
c. Computer hardware and software
Property and equipment are stated at cost and will be amortized over the
expected useful lives of the assets ranging from three to seven years.
d. Advertising
MD2patient, Inc. expenses advertising costs when incurred. There were no
advertising expenses incurred for the period ended December 31, 1999. At
December 31, 1999, the Company had prepaid $100,000 related to an
advertising retainer for fiscal 2000.
F-7
<PAGE> 63
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
e. Start-up Costs
MD2patient, Inc. has adopted Statement of Position No. 98-5 requiring
companies to expense all start-up related expenses when incurred. Start-up
expenses incurred for the period ended December 31, 1999, were $3,582.
f. Revenue Recognition
The Company had no revenue during 1999. The Company anticipates generating
revenue from several sources. Revenue from user subscriptions will be
recognized over the related subscription period. Revenue from our web
vendors for website hosting and content syndication will be recognized
ratably over the terms of the underlying agreements. Advertising revenue
will be recognized in the period in which the advertisement is displayed,
either on a straight-line method or based on minimum guaranteed impressions.
Revenue from our e-commerce transactions will be recognized as the
underlying sales transaction is completed over the underlying service
period. Revenue from participation in medical research and participation in
clinical drug trials will be recognized over the term of the underlying
agreement or contract period.
The Company anticipates entering into advertising barter transactions and
will account for such transactions in accordance with EITF Issue No. 99-17,
Advertising Barter Transactions. Revenues and expenses will be recognized at
fair value from advertising barter transactions only if the fair value of
the advertising surrendered in the transaction is determinable based on our
historical practice, not to exceed six months prior to the date of the
barter transaction, of receiving cash for similar advertising from unrelated
parties to the barter transaction.
g. Website Development and Maintenance Costs
The Company accounts for costs incurred to develop and implement its website
in accordance with Statement of Position ("SOP") 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. The
Company is currently in its application development stage of its website
development, with activities predominantly related to installation of
hardware and coding of the website. Prior to this stage, the Company
expensed all costs associated with its website development. Once the
application development stage is completed, costs associated with
post-implementation/operation will be expensed as incurred, including costs
to populate content and maintenance of the website. Through December 31,
1999, the Company has capitalized approximately $259,000 related to its
website development.
h. Net Loss Per Share
The Company computes net loss per share following Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" and SEC Staff
Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128
and SAB 98, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net loss per
share is computed by
F-8
<PAGE> 64
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dividing the net loss for the period by the weighted average number of
common and potentially dilutive shares outstanding during the period.
Potentially dilutive shares, composed of incremental common shares issuable
upon the exercise of stock options and warrants, and common shares issuable
on assumed conversion of the Convertible Preferred Stock, are included in
diluted net loss per share to the extent these shares are dilutive.
Potentially dilutive shares consisting of 1,000,000 warrants to purchase
Series A Convertible Preferred stock and 5,000,000 shares of Series A
Convertible Preferred Stock were excluded from basic and diluted net loss
per share because of their anti-dilutive effect.
i. Income Taxes
Income taxes are computed based on the liability method of accounting
whereby deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
j. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," effective July 30, 1999. This
statement requires a full set of general purpose financial statements to be
expanded to include the reporting of "comprehensive income." Comprehensive
income is comprised of two components, net income and other comprehensive
income. During the period ended December 31, 1999, the Company had no items
qualifying as other comprehensive income; accordingly, the adoption of SFAS
No. 130 had no impact on the Company's financial statements.
k. Segment Reporting
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." This statement changes the way public
business enterprises report segment information, including financial and
descriptive information about their selected information in interim and
annual financial statements. Under SFAS No. 131, operating segments are
defined as revenue producing components of the enterprise which are
generally used internally for evaluating segment performance. As the Company
has a limited operating history, the effects of SFAS No. 131 on the
Company's financial position or results of operations for the period ended
December 31, 1999 could not yet be determined.
F-9
<PAGE> 65
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
l. Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company believes SFAS No. 133 will have no material effect on its financial
position or results of operations.
3. DEFERRED OFFERING COSTS
Deferred offering costs represent costs incurred as of the balance sheet
date as they relate to MD2patient, Inc.'s proposed initial public offering.
4. SHAREHOLDERS' EQUITY
CAPITAL STOCK
The authorized shares of the Company total 600,000,000 shares, consisting
of: (a) 300,000,000 shares of Common Stock, $0.01 par value per share ("Common
Stock"); and (b) 300,000,000 shares of Preferred Stock, $0.01 par value per
share ("Preferred Stock"), of which 50,000,000 shares have been designated as
Series A Convertible Preferred Stock ("Series A Preferred") and 50,000,000
shares have been designated as Series B Convertible Preferred Stock ("Series B
Preferred"), these preferred shares together are referred to as the "Convertible
Preferred Stock."
COMMON STOCK
On July 30, 1999, the Company was formed as a wholly-owned subsidiary of
Heritage Group, LLC ("Heritage") and in connection with such formation,
50,000,000 shares of Common Stock were issued to Heritage for $100,000. For
certain business and tax planning purposes, Heritage elected to return
40,000,000 shares of Common Stock to the Company effective November 23, 1999,
which is available for reissuance at the discretion of the Board of Directors.
This has been accounted for as a reverse stock split and all amounts have been
adjusted accordingly.
The Common Stock is subject to all of the rights, privileges, preferences
and priorities of the Preferred Stock as set forth in the Company's Articles of
Incorporation. Dividends may be paid on the Common Stock, but only when and as
declared by the Board of Directors. Upon any dissolution, liquidation or winding
up of the Company, the holders of the Common Stock, and any holders of any class
or series of stock entitled to participate therewith will become entitled to
participate in the distribution of any assets of the Company after payment of
all debt and liabilities, and after the Company has paid or set aside for
payment, amounts due to holders of any class of stock having preference over the
Common Stock.
F-10
<PAGE> 66
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Each holder of Common Stock is entitled to cast one vote for each
outstanding share of Common Stock held upon any matter or thing submitted to a
vote of the stockholders of the Company.
CONVERTIBLE PREFERRED STOCK
Effective November 18, 1999, the Company closed a private placement of
Series A Convertible Preferred Stock whereby 5,000,000 shares were sold for
$1.00 per share. Included with this purchase, investors received warrants to
purchase 1,000,000 shares of Series A Convertible Preferred Stock for $1.00 per
share and are exercisable beginning one year after the date of issuance. The
estimated fair value of those warrants totaled $160,000 at November 18, 1999 and
has been allocated to warrants from additional paid in capital on the statement
of stockholders' equity. The fair value of each warrant was estimated using a
minimal value model with the following assumptions: expected life of three
years; 0% dividend; and a risk-free interest rate of 5.77%. Additionally,
investors in this Series A placement received free three year subscriptions to
the website. Deferred subscription fees have been recorded and additional
paid-in-capital has been reduced by $139,000 which represents the price of a
three year subscription.
VOTING RIGHTS. Except as required by law and except for any "Corporate
Transaction" submitted to a vote of the stockholders of the Company, holders of
shares of Convertible Preferred Stock do not have any voting rights whatsoever.
A Corporate Transaction is defined as (a) any consolidation or merger of the
Company, other than any merger, consolidation or share exchange resulting in the
holders of the capital stock of the Company entitled to vote for the election of
directors holding a majority of the capital stock of the surviving or resulting
entity entitled to vote for the election of directors, or (b) any sale or other
disposition by the Company of all or substantially all of its assets to a third
party. With respect to any Corporate Transaction submitted to a vote of the
stockholders of the Company, (i) each holder of shares of Convertible Preferred
Stock is entitled to cast one vote for each outstanding share of Convertible
Preferred Stock so held and (ii) the holders of shares of Convertible Preferred
Stock and Common Stock will vote together and not as separate classes or series.
DIVIDEND RIGHTS. Holders of Convertible Preferred Stock are entitled to
participate on a share for share basis in all dividends declared and paid on
Common Stock, provided, however, that in case of dividends on Common Stock that
are payable in Common Stock, or in options, warrants or rights to acquire Common
Stock, or in securities convertible into or exchangeable for Common Stock, (i)
the corresponding dividends to be paid to holders of Series A Preferred Stock
will be paid in shares of, or options, warrants or rights to acquire, or
securities convertible or exchangeable for, as the case may be, Series A
Preferred Stock, and (ii) the corresponding dividends to be paid to holders of
Series B Preferred Stock will be paid in shares of, or options, warrants or
rights to acquire, or securities convertible into or exchangeable for, as the
case may be, Series B preferred Stock.
LIQUIDATION. Upon any dissolution, liquidation or winding up of the
Company, the holders of the Convertible Preferred Stock will be entitled to be
paid out of the assets of
F-11
<PAGE> 67
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company legally available for distribution to its stockholders, before any
payment or declaration and setting apart for payment of any amount is made in
respect to Common Stock, an amount equal in value to the consideration received
by the Company for the initial issuance of such shares of Convertible Preferred
Stock, as adjusted. If upon liquidation, the assets to be distributed to the
Convertible Preferred Stock are insufficient to permit the payment in full of
the Convertible Preferred Stock Liquidation Preference, then all of the assets
legally available for distribution to the holders of Convertible Preferred Stock
will be distributed to such holders ratably in proportion the amount otherwise
entitled.
CONVERSION OF SERIES A PREFERRED STOCK
OPTIONAL CONVERSION. Any holder of shares of Series A Preferred Stock may
at any time convert all or any number of the shares held into shares of Common
Stock on a one-for-one basis by surrendering the certificate. At the time
conversion has been effected, the shares surrendered for conversion will no
longer be deemed to be outstanding, all rights of a converting holder with
respect to the shares surrendered for will immediately terminate and the holder
will be deemed to have become the holder of record of the shares of Common Stock
issuable upon conversion.
AUTOMATIC CONVERSION. All shares of Series A Preferred Stock will
automatically be converted into shares of Common Stock on a one-for-one basis
upon the closing of a "Qualified Public Offering," defined as a firm commitment
underwritten public offering of Common Stock pursuant to a registration
statement declared effective under the Securities Act of 1933, as amended, in
which (i) the gross aggregate proceeds, before fees and expenses, received by
the Company (and any selling shareholders) equals or exceeds $10,000,000 and
(ii) the price per share to the public equals or exceeds $1.00; provided,
however, that the term "Qualified Public Offering" will not include an offering
made in connection with a business acquisition or combination or an employee
benefit plan.
The Company will at all times reserve out of its authorized but unissued
capital stock or out of its capital stock held in treasury sufficient shares of
Common Stock to permit the conversion of all outstanding Series A Preferred
Stock.
CONVERSION OF SERIES B PREFERRED STOCK
Outstanding shares of Series B Preferred Stock will automatically be
converted into shares of Series A Preferred Stock (if converted prior to a
Qualified Public Offering) or Common Stock (if converted after a Qualified
Public Offering), on a one-for-one basis, at the rate of one-third per year on
the anniversary of their date of issuance.
The Company will at all times reserve out of its authorized but unissued
capital stock or out of its capital stock held in treasury sufficient shares of
Series A Preferred Stock or Common Stock, as applicable, to permit the
conversion of all outstanding Series B Preferred Stock.
F-12
<PAGE> 68
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTIONS ON TRANSFERS
Holders of Convertible Preferred Stock will not transfer record or
beneficial ownership of, and the Company will not recognize or register the
transfer of, any shares of Convertible Preferred Stock unless the Company gives
its prior written consent.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Deferred tax assets:
Start-up costs.................................... $ 88,664
Deferred subscription fees........................ 85,500
Net operating loss carryforward................... 122,985
---------
Total deferred tax assets........................... 297,149
Valuation allowance............................... (297,149)
---------
Total deferred tax assets, net of valuation
allowance......................................... $ --
=========
</TABLE>
The effective income tax rate differed from the federal statutory rate for
the period from July 30, 1999 (date of inception) to December 31, 1999 as
follows:
<TABLE>
<CAPTION>
1999
-----
<S> <C>
U.S. federal income tax rate............................ 34.0%
State income tax, net of federal income tax benefit..... 4.0
Increase in valuation allowance......................... (38.0)
-----
0.0%
=====
</TABLE>
The Company has established a valuation allowance for deferred tax assets
at December 31, 1999 due to the uncertainty of realizing these assets in the
future. The valuation allowance increased $297,149 during 1999. As of December
31, 1999, the Company had future net operating loss carryforwards of $323,644
expiring 2019.
6. COMMITMENTS AND CONTINGENCIES
The Company is obligated under an agreement for the development and
implementation of an Information Technology Infrastructure, which principally
relates to its web site. The agreement allows for termination at any time (i) by
the Company upon thirty days written notice to the vendor; (ii) by the vendor in
the event of a professional conflict upon ten days written notice to the
Company; or (iii) by either party upon written notice for failure to comply with
the terms of the agreement for a thirty-day period following receipt of notice.
Fees associated with this agreement total approximately $200,000 for 1999 and
have been capitalized as computer software costs.
F-13
<PAGE> 69
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rental commitments under operating leases having an initial or
remaining non-cancelable term of more than one year are as follows:
2000................................................$165,776
2001.................................................165,776
2002.................................................165,776
--------
$497,328
========
7. INITIAL PUBLIC OFFERING
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission for a proposed initial public offering
("IPO") of its Series A and B Convertible Preferred Stock. In its IPO, the
Company plans to issue a maximum of 2,000,000 shares of its Series A Convertible
Preferred Stock and 34,000,000 shares of its Series B Convertible Preferred
Stock. Offering costs are estimated to be approximately $450,000, not including
placement agency fees.
8. SUBSEQUENT EVENTS
EMPLOYMENT AGREEMENTS
During January 2000, the Company entered into employment agreements with
five executive officers. The agreements generally continue until terminated with
notice by the Company or the executive, and provide for severance payments under
certain circumstances. The agreements include a covenant against competition
with the Company, which extends for a period of one year after termination. As
of January 1, 2000 if all employees under contract were to be terminated without
good cause (as defined) under these contracts, the Company's liability would be
approximately $950,000.
2000 LONG-TERM INCENTIVE PLAN
Effective January 13, 2000, the Board of Directors and shareholders
approved the 2000 Long-term Incentive Plan which provides for the grant of
nonqualified and incentive stock options, stock appreciation rights, performance
shares, restricted stock and other stock-based awards. There are 10,000,000
shares available under this plan for future grants at January 14, 2000. Under
the provisions of the 2000 plan, nonqualified stock options and other stock
awards are to be granted to officers and employees at prices not less than fair
market value at the date of grant.
RESTRICTED STOCK GRANTS
During January, February and March 2000, the Company granted 13,750,000
restricted shares of common stock to certain of its employees and directors.
Shares were awarded in the name of the employee, who has all rights of a
shareholder, subject to certain restrictions on transferability and a risk of
forfeiture. The forfeiture provisions expire monthly, over a period not to
exceed five years. Restricted shares subject to forfeiture provisions have been
recorded as unearned stock grant compensation totalling $137,500.
F-14
<PAGE> 70
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY
ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY:
- EXCEPT THE STOCK OFFERED BY THIS PROSPECTUS;
- IN ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED;
- IN ANY JURISDICTION WHERE THE DEALER OR OTHER SALESPERSON IS NOT
QUALIFIED TO MAKE THE OFFER OR SOLICITATION;
- TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION;
OR
- TO ANY PERSON WHO IS NOT A UNITED STATES RESIDENT OR WHO IS OUTSIDE THE
JURISDICTION OF THE UNITED STATES.
THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING SALE DOES NOT IMPLY
THAT:
- THERE HAVE BEEN NO CHANGES IN THE AFFAIRS OF MD2PATIENT.COM AFTER THE
DATE OF THIS PROSPECTUS; OR
- THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS.
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
34,000,000 SHARES
MD2PATIENT, INC.
SERIES B CONVERTIBLE
PREFERRED STOCK
PROSPECTUS
(WR HAMBRECHT & CO. LOGO)
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 71
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY
ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY:
- EXCEPT THE STOCK OFFERED BY THIS PROSPECTUS;
- IN ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED;
- IN ANY JURISDICTION WHERE THE DEALER OR OTHER SALESPERSON IS NOT
QUALIFIED TO MAKE THE OFFER OR SOLICITATION;
- TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION;
OR
- TO ANY PERSON WHO IS NOT A UNITED STATES RESIDENT OR WHO IS OUTSIDE THE
JURISDICTION OF THE UNITED STATES.
THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING SALE DOES NOT IMPLY
THAT:
- THERE HAVE BEEN NO CHANGES IN THE AFFAIRS OF MD2PATIENT.COM AFTER THE
DATE OF THIS PROSPECTUS; OR
- THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS.
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,000,000 SHARES OF
SERIES A CONVERTIBLE
PREFERRED STOCK
WARRANTS TO PURCHASE 4,000,000
SHARES OF SERIES A CONVERTIBLE
PREFERRED STOCK
MD2PATIENT, INC.
PROSPECTUS
(WR HAMBRECHT & CO. LOGO)
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 72
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the securities being registered. All
amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 11,259
Accounting Fees and Expenses................................ 50,000
Legal Fees and Expenses..................................... 250,000
Printing Costs.............................................. 100,000
Miscellaneous Expenses...................................... 38,741
--------
Total..................................................... $450,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted under Georgia law, our Articles of Incorporation provide that
a director shall not be personally liable to the corporation or its shareholders
for monetary damages for breach of duty of care or any other duty owed to the
corporation as a director, except that such provision shall not eliminate or
limit the liability of a director (a) for any appropriation, in violation of his
duties, of any business opportunity of the corporation, (b) for acts or
omissions which involve intentional misconduct or a knowing violation of law,
(c) for unlawful corporate distributions, or (d) for any transaction from which
the director received an improper personal benefit.
Under our Bylaws, we are required to indemnify our directors to the full
extent permitted by Georgia law. Georgia law provides that a corporation may
indemnify its directors, officers, employees and agents against judgments,
fines, penalties, amounts paid in settlement, and reasonable expenses, including
attorney's fees, resulting from various types of legal actions or proceedings,
including, but not limited to any threatened, pending, or completed action, suit
or proceeding whether civil, criminal, administrative, arbitrative or
investigative and whether formal or informal, if the actions of the party being
indemnified meet the standards of conduct specified therein. Determination
concerning whether or not the applicable standard of conduct has been met can be
made by (a) the Board of Directors by a majority vote of all the disinterested
directors, if there are at least two disinterested directors, (b) a majority
vote of a committee of two or more disinterested directors, (c) special legal
counsel, or (d) an affirmative vote of a majority of shares held by
disinterested shareholders. No indemnification shall be made (i) in connection
with a proceeding by or in the right of MD2patient, Inc. except for reasonable
expenses incurred in connection with the proceeding if it is determined that the
indemnitee has met the relevant standard of conduct, or (ii) in connection with
any other proceeding in which such person was adjudged liable on the basis that
personal benefit was improperly received by him.
II-1
<PAGE> 73
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of MD2patient, Inc. on July 30, 1999, we
sold 50,000,000 shares of Common Stock to Heritage Group, LLC for a purchase
price of $100,000.00.
To raise working capital, on November 18, 1999, we sold 5,000,000 shares of
Series A Convertible Preferred Stock and related warrants to individual
investors. The aggregate purchase price for such purchases was $5,000,000.
The offer, sale and issuance of the above securities were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as a transactions by an issuer not involving a public
offering. The recipient of securities represented its intention 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 share
certificate issued in the transactions. The recipient had adequate access to
information about MD2patient, Inc.
On November 23, 1999, Heritage Group, LLC effected a recapitalization
pursuant to which 40,000,000 shares of Common Stock were returned to MD2patient,
Inc. to be available for reissuance at the discretion of our Board of Directors.
On January 14, 2000, we issued 10,000,000 shares of Common Stock to our
directors, executive officers and employees pursuant to restricted stock award
agreements. In addition, on February 11, 2000 we issued 3,500,000 shares of
Common Stock to Joseph B. Crace, our Chief Executive Officer and 80,000 shares
of Common Stock to other employees, which were also issued pursuant to
restricted stock award agreements. On March 1, 2000, we issued 170,000 shares of
Common Stock to other employees, also pursuant to restricted stock award
agreements. The consideration for the issuance of these shares is future
services that we expect to receive from these individuals. The offer, sale and
issuance of these shares were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <C> <S>
1.1 -- Underwriting Agreement.
*3.1 -- Articles of Incorporation of MD2patient, Inc.
*3.1.1 -- Articles of Amendment to the Articles of Incorporation of
MD2patient, Inc.
*3.1.2 -- Articles of Amendment to the Articles of Incorporation of
MD2patient, Inc.
*3.2 -- Bylaws of MD2patient, Inc.
*4.1 -- Specimen Series A Convertible Preferred Stock certificate.
*4.2 -- Specimen Series B Convertible Preferred Stock certificate.
*4.3 -- Escrow Agreement.
4.4 -- Form of Stock Purchase Warrant.
5.1 -- Opinion of Alston & Bird LLP.
*10.1 -- Business Consulting Statement of Work dated November 10,
1999 by and between Arthur Andersen LLP and MD2patient, Inc.
</TABLE>
II-2
<PAGE> 74
<TABLE>
<C> <C> <S>
*10.2 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and John E. Blount.
*10.3 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and Thomas A. Gallagher.
*10.4 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and Albert Rodewald.
*10.5 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and James G. Petway, Jr.
*10.6 -- MD2patient, Inc. 2000 Long-Term Incentive Plan.
*10.7 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and John E. Blount.
*10.8 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and Thomas A.
Gallagher.
*10.9 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and Albert Rodewald.
*10.10 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and James G. Petway,
Jr.
*10.11 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and Rock A. Morphis.
*10.12 -- Employment Agreement dated as of January 24, 2000 by and
between MD2patient, Inc. and Joseph B. Crace.
*10.13 -- Restricted Stock Award Agreement dated as of February 11,
2000 by and between MD2patient, Inc. and Joseph B. Crace.
23.1 -- Consent of Independent Auditors.
23.2 -- Consent of Alston & Bird LLP (included in Exhibit 5.1).
*24.1 -- Powers of Attorney.
*27.1 -- Financial Data Schedule.
*27.2 -- Financial Data Schedule.
</TABLE>
- -------------------------
* previously filed.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
II-3
<PAGE> 75
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Franklin, State of Tennessee, on March 13, 2000.
MD2patient, Inc.
By: /s/ JOHN E. BLOUNT
-----------------------------------
John E. Blount
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 13, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOSEPH B. CRACE Chief Executive Officer
- ---------------------------------------------------
Joseph B. Crace
/s/ JOHN E. BLOUNT President and Director
- ---------------------------------------------------
John E. Blount
/s/ JAMES G. PETWAY, JR. Executive Vice President and Chief
- --------------------------------------------------- Financial Officer (Principal
James G. Petway, Jr. Financial and Accounting Officer)
/s/ ALBERT RODEWALD Executive Vice President and Director
- ---------------------------------------------------
Albert Rodewald
/s/ THOMAS A. GALLAGHER Executive Vice President and Director
- ---------------------------------------------------
Thomas A. Gallagher
/s/ ROCK A. MORPHIS Chairman of the Board
- ---------------------------------------------------
Rock A. Morphis
*By:
-----------------------------------------------
John E. Blount
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <C> <S>
1.1 -- Underwriting Agreement.
*3.1 -- Articles of Incorporation of MD2patient, Inc.
*3.1.1 -- Articles of Amendment to the Articles of Incorporation of
MD2patient, Inc.
*3.1.2 -- Articles of Amendment to the Articles of Incorporation of
MD2patient, Inc.
*3.2 -- Bylaws of MD2patient, Inc.
*4.1 -- Specimen Series A Convertible Preferred Stock certificate.
*4.2 -- Specimen Series B Convertible Preferred Stock certificate.
*4.3 -- Escrow Agreement.
4.4 -- Form of Stock Purchase Warrant.
5.1 -- Opinion of Alston & Bird LLP.
*10.1 -- Business Consulting Statement of Work dated November 10,
1999 by and between Arthur Andersen LLP and MD2patient, Inc.
*10.2 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and John E. Blount.
*10.3 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and Thomas A. Gallagher.
*10.4 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and Albert Rodewald.
*10.5 -- Employment Agreement dated as of January 1, 2000 by and
between MD2patient, Inc. and James G. Petway, Jr.
*10.6 -- MD2patient, Inc. 2000 Long-Term Incentive Plan.
*10.7 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and John E. Blount.
*10.8 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and Thomas A.
Gallagher.
*10.9 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and Albert Rodewald.
*10.10 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and James G. Petway,
Jr.
*10.11 -- Restricted Stock Award Agreement dated as of January 14,
2000 by and between MD2patient, Inc. and Rock A. Morphis.
*10.12 -- Employment Agreement stated as of January 24, 2000 by and
between MD2patient, Inc. and Joseph B. Crace.
*10.13 -- Restricted stock award agreement dated as of February 11,
2000 by and between MD2patient, Inc. and Joseph B. Crace
23.1 -- Consent of Independent Auditors.
23.2 -- Consent of Alston & Bird LLP (included in Exhibit 5.1).
*24.1 -- Powers of Attorney.
*27.1 -- Financial Data Schedule.
*27.2 -- Financial Data Schedule.
</TABLE>
- -------------------------
* previously filed.
<PAGE> 1
EXHIBIT 1.1
34,000,000
SERIES B CONVERTIBLE PREFERRED STOCK
2,000,000
SERIES A CONVERTIBLE PREFERRED STOCK
4,000,000
WARRANTS TO PURCHASE
SERIES A CONVERTIBLE PREFERRED STOCK
UNDERWRITING AGREEMENT
March ____, 2000
W.R. HAMBRECHT & COMPANY, LLC
550 Fifteenth Street
San Francisco, CA 94103
Ladies and Gentlemen:
MD2patient, Inc., a Georgia corporation (the "Company"), proposes to
issue and sell up to an aggregate of 34,000,000 shares (the "Series B Shares")
of its authorized but unissued Series B Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock"), and 2,000,000 shares (the "Series A
Shares," and together with the Series B Shares, the "Shares") of its authorized
but unissued Series A Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock," and together with the Series B Preferred Stock, the "Preferred
Stock"), to the public at a price of $1.00 per share, and warrants to purchase
4,000,000 shares of Series A Preferred Stock (the "Warrants"), pursuant to a
Form S-1 registered public offering (the "Offering"). This Agreement sets forth
the terms under which W.R. Hambrecht & Company, LLC (sometimes referred to
herein as "W.R. Hambrecht") will, as an agent of the Company, assist in the sale
of the Shares and the Warrants in the Offering. The Preferred Stock and the
Warrants are more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company hereby confirms as follows its agreement with W.R.
Hambrecht in connection with the proposed offer and sale of the Shares and the
Warrants.
1. REGISTRATION STATEMENT. The Company has filed with the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-1 (No. 333-91619), including the related preliminary prospectus, for
the registration under the
<PAGE> 2
Securities Act of 1933, as amended (the "Act"), of the Shares and the Warrants.
Copies of such registration statement and of each amendment thereto, if any,
including the related preliminary prospectus heretofore filed by the Company
with the Commission have been delivered to W.R. Hambrecht.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement, including all exhibits and financial statements, in
the form in which it became effective, and any registration statement filed
pursuant to Rule 462(b) of the rules and regulations of the Commission with
respect to the Shares and the Warrants (herein called a Rule 462(b) registration
statement), and, in the event of any amendment thereto after the effective date
of such registration statement (herein called the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any rule 462(b) registration statement). The
term "Prospectus" as used in this Agreement shall mean the prospectus relating
to the Shares and the Warrants first filed with the Commission pursuant to Rule
424(b) (or if no such filing is required, as included in the Registration
Statement) and, in the event of any supplement or amendment to such prospectus
after the Effective Date, shall also mean (from and after the filing with the
Commission of such supplement or the effectiveness of such amendment) such
prospectus as so supplemented or amended, and, if applicable, shall also mean an
electronic Prospectus as defined in Section 5(f) hereof. The term "Preliminary
Prospectus" as used in this Agreement shall mean each preliminary prospectus
included in such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to W.R. Hambrecht copies of each Preliminary Prospectus and has
consented to the use of such copies for the purposes permitted by the Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to W.R. Hambrecht, as of the date hereof and the
Effective Date, as follows:
(A) Neither the Commission nor any state securities
commission of a state in which the Company is offering Shares or Warrants has
issued any order preventing or suspending the use of any Preliminary Prospectus
or has instituted or, to the Company's knowledge, threatened to institute any
proceedings with respect to such an order. The Registration Statement and the
Prospectus comply in all material respects, with the provisions of the Act and
the rules and regulations of the Commission thereunder. On the Effective Date,
the Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading, and on the
Effective Date the Prospectus did not contain any untrue statement of a material
fact
2
<PAGE> 3
and did not omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties in this subparagraph (a) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of W.R. Hambrecht expressly for use in the Registration
Statement or Prospectus.
(B) Each of the Company and its subsidiaries (i) has been
duly organized and is validly existing and in good standing under the laws of
its jurisdiction of incorporation or formation, as the case may be, having full
power and corporate authority, to own or lease its properties and to conduct its
business as described in the Registration Statement and the Prospectus; and (ii)
is duly qualified to do business as a foreign corporation or limited liability
company, as the case may be, and is in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole). Except as disclosed in the
Prospectus, the Company and its subsidiaries do not own any capital stock or
other equity securities in any entity.
(C) The Company had the duly authorized and validly
issued outstanding capitalization set forth under the caption "Capitalization"
in the Prospectus as of the date(s) indicated therein. The securities of the
Company conform to the descriptions thereof contained in the Prospectus. The
form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation. The outstanding shares of capital
stock (other than the Shares) have been duly authorized and validly issued by
the Company and are fully paid and nonassessable. Except as referred to in the
Prospectus, as of the date(s) indicated in the Prospectus, there are no
outstanding options, warrants, rights or other arrangements requiring the
Company at any time to issue any capital stock. Except as referred to in the
Prospectus, no holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to subscribe for any of the
Shares or the Warrants, and neither the filing of the Registration Statement nor
the offering or sale of the Shares or the Warrants as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to, the registration of any securities of the
Company. The Shares and the Warrants are duly authorized, and will be, when sold
to the public as provided herein, validly issued, fully paid and nonassessable
and conform to the description thereof contained in the Prospectus. No further
approval or authority of the shareholders or the Board of Directors of the
Company will be required for the issuance and sale of the Shares or the Warrants
as contemplated herein. The outstanding shares of capital stock or ownership
interests of each of the Company's subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable, and, except as
3
<PAGE> 4
otherwise disclosed in the Prospectus, are solely owned by the Company free and
clear of all liens, encumbrances and equities and claims; and, except as
disclosed in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in such
subsidiaries are outstanding. All offers and sales by the Company of the
Company's securities prior to the date hereof were at all relevant times duly
registered under or exempt from the registration requirements of the Act and
were duly registered in accordance with or the subject of an available exemption
from registration under the applicable blue sky laws. The Company has not
affected any sales of securities that would be required to be disclosed in
response to Item 701 of Regulation S-K that are not disclosed in the
Registration Statement.
(D) The Company has full legal right, power and authority
to enter into this Agreement and to consummate the transactions provided for
herein. This Agreement has been duly authorized, executed and delivered by the
Company and, assuming it is a binding agreement of W.R. Hambrecht, constitutes a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles relating to the
availability of remedies and except as rights to indemnity or contribution may
be limited by federal or state securities laws and the public policy underlying
such laws), and none of the Company's execution or delivery of this Agreement,
its performance hereunder, its consummation of the transactions contemplated
herein, its application of the net proceeds of the Offering in the manner set
forth under the caption "Use of Proceeds" or the conduct of its business as
described in the Prospectus, conflicts or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, causes or will cause (or permits
or will permit) the maturation or acceleration of any liability or obligation or
the termination of any right under, or result in the creation or imposition of
any lien, charge, or encumbrance upon, any property or assets of the Company or
any of its subsidiaries pursuant to the terms of (i) the articles of
incorporation or bylaws of the Company or any of its subsidiaries, (ii) any
indenture, mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note agreement or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which it is bound or to which its
respective property is subject or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company or any of its subsidiaries of any
government, arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries, or their activities or properties, which
would materially and adversely affect the business or properties of the Company
and its subsidiaries taken as a whole.
4
<PAGE> 5
(E) The financial statements of the Company and its
subsidiaries and the related notes and schedules thereto included in the
Registration Statement and the Prospectus fairly present the financial position,
results of operations, stockholders' equity and cash flows of the Company and
its subsidiaries at the dates and for the periods specified therein. Such
financial statements and the related notes and schedules thereto have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise noted
therein) and all adjustments necessary for a fair presentation of results for
such periods have been made; provided, however, that the unaudited financial
statements are subject to normal year-end audit adjustments (which are not
expected to be material) and do not contain all footnotes required under
generally accepted accounting principles. The summary and selected financial and
statistical data included in the Registration Statement and the Prospectus
present fairly the information shown therein and such data have been prepared on
a basis consistent with the financial statements contained therein and in the
books and records of the Company.
(F) Ernst & Young LLP, who have certified the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the rules and
regulations promulgated thereunder.
(G) Each of the Company and its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(H) The Company and its subsidiaries have filed all
necessary federal, state and local income, franchise and other material tax
returns and has paid all taxes shown as due thereunder, and the Company and its
subsidiaries have no tax deficiency that has been or, to their knowledge, which
might be assessed against the Company and its subsidiaries which, if so
assessed, would materially and adversely affect the business or properties of
the Company and its subsidiaries, taken as a whole. All tax liabilities accrued
through the date hereof have been adequately provided for on the books of the
Company and its subsidiaries.
(I) Except as disclosed in the Prospectus, there is no
action, suit, claim, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company or any of its subsidiaries before or
by any court, regulatory body or administrative agency or any other governmental
agency or body, domestic or foreign,
5
<PAGE> 6
which (i) questions the validity of the capital stock of the Company or this
Agreement or of any action taken or to be taken by the Company pursuant to or in
connection with this Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings, if any,
as are summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) may have a material adverse affect upon the
business operations, financial conditions or income of the Company and its
subsidiaries, taken as a whole.
(J) All executed agreements or copies of executed
agreements filed or incorporated by reference as exhibits to the Registration
Statement to which the Company or any of its subsidiaries is a party or by which
it is bound or to which its assets, properties or businesses are subject have
been duly and validly authorized, executed and delivered by the Company or such
subsidiary and constitute the legal, valid and binding agreements of the Company
or such subsidiary enforceable against it in accordance with their respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to enforcement of
creditors' rights generally, and general equitable principles relating to the
availability of remedies, and except as rights to indemnity or contribution may
be limited by federal or state securities laws and the public policy underlying
such laws). The descriptions in the Registration Statement of contracts and
other documents are accurate and fairly present the information required to be
shown with respect thereto by the Act and the rules and regulations promulgated
thereunder, and there are no contracts or other documents which are required by
the Act or the rules and regulations promulgated thereunder to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(K) Since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus or the
Registration Statement which has not been set forth in an effective supplement
or amendment to the Prospectus or the Registration Statement.
(L) Neither the Company nor any of its subsidiaries is,
or with the giving of notice or lapse of time or both, will be, in violation of
or in default under, any term or provision of (i) its articles of incorporation,
bylaws or operating agreement, (ii) any indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note agreement or other
agreement or instrument to which it is a party or by which it is or may be bound
or to which any of its property is or may be subject, or any indebtedness, the
effect of which breach or default singly or in the aggregate may have a material
adverse effect on the business, management, properties, assets, rights,
operations, or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company or such
6
<PAGE> 7
subsidiary or of any arbitrator, court, regulatory body, administrative agency
or any other governmental agency or body, domestic or foreign, having
jurisdiction over the Company or such subsidiary or its activities or properties
and the effect of which breach or default singly or in the aggregate may have a
material adverse effect on the business, management, properties, assets, rights,
operations, or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole.
(M) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than as contemplated hereby.
(N) No labor disturbance by the employees of the Company
or any of its subsidiaries exists or, to the Company's knowledge, is imminent.
(O) Each of the Company and its subsidiaries owns, is
licensed or otherwise possesses all rights to use, all patents, patent rights,
inventions, computer programs, source code, object code, databases, devices,
techniques, methods, processes, procedures, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade names,
copyrights and other intellectual property rights (collectively, the "Rights")
necessary for the conduct of its business as it is currently being conducted. To
the Company's knowledge, no claims have been asserted against the Company or any
of its subsidiaries by any person with respect to the use of any such Rights or
challenging or questioning the validity or effectiveness of any such Rights. The
continued use of the Rights in connection with the business and operations of
the Company and its subsidiaries does not, to the knowledge of the Company and
its subsidiaries, infringe on the rights of any person, which, if the subject of
an unfavorable decision, ruling or filing, would have a material adverse effect
on the condition, business or properties of the Company and its subsidiaries
taken as a whole.
(P) The Company and its subsidiaries are conducting their
businesses in compliance with all applicable laws, ordinances or governmental
rules or regulations of the jurisdictions in which they are conducting business,
except where failure to be so in compliance would not materially and adversely
affect the business or properties of the Company and its subsidiaries, taken as
a whole. Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated (except
such additional steps as may be required by the National Association of
Securities Dealers, Inc. (the "NASD"), the Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or to qualify or exempt the Shares and
the Warrants for public offering under state securities or Blue Sky laws) has
been obtained or made and is in full force and effect.
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<PAGE> 8
(Q) Neither the Company nor any of its subsidiaries is,
or after giving effect to the issuance and sale of the Shares and the Warrants
by the Company will be, an "investment company" within the meaning of such term
under the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission promulgated thereunder.
(R) The Company and its subsidiaries have good and valid
title to all properties and assets described in the Prospectus as owned by them,
free and clear of all liens, encumbrances, security interests, equities, claims
and defects, except such as are described in the Registration Statement and
Prospectus, or such as are not materially important in relation to the business
of the Company and its subsidiaries when taken in the aggregate. The Company has
valid leases for the properties described in the Prospectus as leased by it,
enforceable against the Company and free and clear of all liens, encumbrances,
security interests, equities, claims and defects, except such as are described
in the Registration Statement and Prospectus, or such as are not material and do
not interfere in any material respect with the use made by the Company and its
subsidiaries thereof. The Company and its subsidiaries own or lease all such
properties as are necessary to their operations as currently conducted, as such
current operations are set forth in the Registration Statement and the
Prospectus and the properties and business of the Company and its subsidiaries
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(S) Each of the Company and its subsidiaries holds all
franchises, licenses, permits, approvals, certificates and other authorizations
from federal, state and other governmental or regulatory authorities necessary
to the ownership, leasing and operation of its properties or required for the
present conduct of its business, and such franchises, licenses, permits,
approvals, certificates and other governmental authorizations are in full force
and effect and the Company and its subsidiaries are in compliance therewith in
all material respects, except where the failure so to obtain, maintain or comply
with would not have a materially adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(T) The Company and its subsidiaries are in compliance in
all material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder (herein called "ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any of its subsidiaries would have
any liability; the Company and its subsidiaries have not incurred and do not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "Pension
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<PAGE> 9
Plan" for which the Company and its subsidiaries would have liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(U) No relationship, direct or indirect, exists between
or among the Company or its subsidiaries, on the one hand, and the directors,
officers, shareholders, customers or suppliers of the Company or its
subsidiaries, on the other hand, which is required to be described in the
Prospectus that is not so described.
(V) Neither the Company nor any of its subsidiaries, nor
to the Company's knowledge, any director, officer, agent, employee or other
person associated with or acting on behalf of the Company or any of its
subsidiaries, has used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provisions of the Foreign Corrupt Practices Act of 1972; or made any bribe,
rebate, payoff, influence, payment, kickback or other unlawful payment.
(W) The business, operations and facilities of the
Company and each of its subsidiaries have been and are being conducted or
operated in compliance with all applicable laws, ordinances, rules, regulations,
licenses, permits, approvals, plans, authorizations or requirements relating to
occupational safety and health, pollution, protection of health or the
environment (including, without limitation, those relating to emissions,
discharges, release or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) or otherwise
relating to remediating real property in which the Company or any of its
subsidiaries has or has had any interest, whether owned or leased, of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States, any state or political subdivision thereof and all applicable
judicial or administrative agency or regulatory decrees, awards, judgments and
orders relating thereto, except for such failures to so comply as would not,
individually or in the aggregate, have a material adverse effect on the business
of the Company and its subsidiaries taken as a whole, and neither the Company
nor any of its subsidiaries has received any notice from a governmental
instrumentality or any third party alleging any violation thereof or liability
thereunder (including, without limitation, liability for costs of investigating
or remediating sites containing hazardous substances or damage to natural
resources).
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<PAGE> 10
(X) Neither the Company nor any of its subsidiaries, nor
to the Company's knowledge any officer or employee of the Company or any of its
subsidiaries is a party to any contract or commitment that restricts in any
material respect the ability of the Company, any of its subsidiaries or such
individual to engage in the business of the Company or such subsidiary as
described in the Registration Statement and the Prospectus.
(Y) Any certificate signed by any officer of the Company
on behalf of the Company and delivered to W.R. Hambrecht or to counsel for W.R.
Hambrecht shall be deemed a representation and warranty of the Company hereunder
to W.R. Hambrecht as to the matters covered thereby.
3. SALE AND DELIVERY OF THE SHARES AND THE WARRANTS.
(A) On the basis of the representations and warranties
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Shares and the Warrants through W.R. Hambrecht, as agent for
the Company, to the public, and W.R. Hambrecht agrees to sell the Shares and
Warrants, as agent for the Company, upon the terms and conditions set forth in
the Prospectus. The parties agree that the Shares will be offered and sold to
the public at the price of $1.00 per Share (the "Public Offering Price"). W.R.
Hambrecht makes no representations as to the number of Shares or Warrants it
will sell. The Company acknowledges and agrees that W.R. Hambrecht is not
obligated to purchase any of the Shares or the Warrants and that there is no
firm commitment to sell any certain number of the Shares or the Warrants by W.R.
Hambrecht. The Company agrees to pay W.R. Hambrecht a fee (the "Selling
Commission"), as follows: (i) $400,000 upon the Initial Closing (as defined
below) of the sale of 5,000,000 Shares, (ii) eight cents ($.08) per Share of the
Shares sold through W.R. Hambrecht in the Offering after the Initial Closing,
until an aggregate of 6,250,000 Shares have been sold, (iii) zero cents ($.00)
per Share of the Shares sold through W.R. Hambrecht in the Offering after an
aggregate of 6,250,000 Shares have been sold and until 16,666,666 Shares have
been sold, and (iv) three cents ($0.03) per Share of the Shares sold through
W.R. Hambrecht in the Offering after an aggregate of 16,666,666 Shares have been
sold.
(B) W.R. Hambrecht shall receive all funds resulting from
the sales of Shares by the Company (through W.R. Hambrecht as agent for the
Company) to investors in the Offering and shall transmit all such funds to an
interest bearing account with SunTrust Bank, a Georgia banking corporation (the
"Escrow Agent"), by noon (San Francisco time) of the next business day following
the debit of such funds from such investors' brokerage accounts with W.R.
Hambrecht. The debit of such investors' brokerage accounts with W.R. Hambrecht
will occur seven calendar days following W.R. Hambrecht's receipt of an order to
buy the Shares. The escrow procedures established by W.R. Hambrecht, the Company
and the Escrow Agent shall comply with Commission Rule 15c2-4 promulgated under
the Exchange Act and W.R. Hambrecht shall comply with Rule 15c2-4. Only
broker/dealers who are either (i) members in good standing of the NASD that are
registered with the
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<PAGE> 11
NASD and maintain net capital pursuant to Rule 15c3-1 promulgated under the
Exchange Act of not less than $25,000 or (ii) dealers with their principal
places of business located outside the United States, its territories and its
possessions and not registered as brokers or dealers under the Exchange Act, who
have agreed not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein
shall be designated selected dealers by W.R. Hambrecht. W.R. Hambrecht shall
require all selected dealers to comply with Rule 15c2-4.
(C) On or before the third business day following the
Company's and W.R. Hambrecht's notification to the Escrow Agent that 5,000,000
Series B Shares have been sold and the Escrow Agent has received cash or cleared
funds for 5,000,000 Series B Shares prior to December 31, 2000 (the "Offering
Termination Date"), an initial closing (the "Initial Closing") on the sale of
such Series B Shares shall take place at such time and place as is mutually
agreed upon by the Company and W.R. Hambrecht, provided that the other
conditions to the obligations of W.R. Hambrecht and the Company set forth in
Sections 6 and 7 hereof have been satisfied. Following the Initial Closing, the
Company and W.R. Hambrecht shall mutually agree upon the time and place for
additional closings (each a "Closing," and together with the Initial Closing,
the "Closings") on the sale of Series A Shares, Warrants and additional Series B
Shares sold prior to the Offering Termination Date, provided that the other
conditions to the obligations of W.R. Hambrecht and the Company set forth in
Sections 6 and 7 hereof have been satisfied. In the event that 5,000,000 Series
B Shares are not sold by the Company in the Offering prior to the earlier of (i)
the Offering Termination Date and (ii) the receipt by the Company of an order
from the Commission granting the withdrawal of the Registration Statement (the
"Registration Statement Withdrawal"), all funds held by the Escrow Agent will be
promptly refunded to the investors in full, without deduction therefrom in
accordance with the terms of the Escrow Agreement. During the period of escrow
described above, investors in the Offering will not have the right to demand a
refund of the funds placed on their behalf of by W.R. Hambrecht with the Escrow
Agent. Until such time as the funds have been released from escrow (either to
the Company or the investors, as the case may be) investors will not be deemed
shareholders of the Company. The funds in escrow will be held for the benefit of
the investors until released to the Company and will not be subject to creditors
of the Company.
(D) At each of the Closings, the Company shall deliver to
W.R. Hambrecht certificates for the Shares in such denominations and in such
name or names as W.R. Hambrecht may request at least one business day before
such Closing against payment to the Company by the Escrow Agent, on behalf of
the purchasers of such Shares (by wire transfer or other immediately available
funds acceptable to the Company) of the Public Offering Price of such Shares,
less the Selling Commission owed by the Company to W.R. Hambrecht in accordance
with Section 3(a) hereof. Such Selling Commission shall be paid to W.R.
Hambrecht at each of the Closings by the Escrow Agent (by wire transfer or other
immediately available funds acceptable to W.R.
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<PAGE> 12
Hambrecht). At each of the Closings involving the sale of Warrants, the Company
shall deliver to W.R. Hambrecht Warrants in such denominations and in such name
or names as W.R. Hambrecht may request at least one business day before such
Closing.
4. OFFERING BY W.R. HAMBRECHT.
(A) It is understood that, after the Registration
Statement becomes effective, W.R. Hambrecht proposes to sell the Shares and the
Warrants to the public as agent for the Company upon the terms and conditions
set forth in the Prospectus, such selling efforts to include receiving, handling
and disbursing all payments from investors and delivering the Warrants and the
certificates for the Shares to the investors once received by W.R. Hambrecht
pursuant to Section 3(d) above. Upon written notice provided by the Company to
W.R. Hambrecht, W.R. Hambrecht hereby agrees to suspend its selling efforts
until it has received written notice from the Company that it may continue its
selling efforts in accordance with this Agreement and upon the terms and
conditions set forth in the Prospectus.
(B) The information set forth under the caption "Plan of
Distribution" in the Registration Statement, any Preliminary Prospectus and the
Prospectus (insofar as such information relates to W.R. Hambrecht or related
persons) constitutes the only information furnished by W.R. Hambrecht to the
Company for inclusion in the Registration Statement, any Preliminary Prospectus,
and the Prospectus, and W.R. Hambrecht represents and warrants to the Company
that the statements made therein (insofar as they relate to W.R. Hambrecht or
related persons) are correct and do not omit any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(C) W.R. Hambrecht hereby represents and warrants that it
is registered as a broker-dealer under federal securities laws and under state
securities laws in all fifty States of the United States of America and that it
will act as a broker-dealer as required in order for offers and sales of Shares
and Warrants to comply with all applicable federal and state securities laws in
the States specified by the Company.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(A) The Company will not file with the Commission any
amendment to the Registration Statement or supplement to the Prospectus (i) of
which W.R. Hambrecht shall not previously have been advised and furnished with a
copy a reasonable period of time prior to the proposed filing and as to which
filing W.R. Hambrecht shall not have given its consent or (ii) which is not in
compliance with the Act or the rules and regulations of the Commission
thereunder.
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(B) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise W.R. Hambrecht (i) of any request
made by the Commission for amendment of the Registration Statement, for
supplement to the Prospectus or for additional information, (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement, or the institution or threat of any action,
investigation or proceeding for that purpose, or (iii) the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Shares or the Warrants for sale in any jurisdiction, or the receipt by it
of notice of the initiation or threatening of any proceeding for that purpose.
The Company will use its best efforts to prevent the issuance of any such order
and, if issued, to obtain the lifting or withdrawal thereof as soon as possible.
(C) The Company will (i) on or before each date on which
a Closing occurs (each such date a "Closing Date" and collectively, the "Closing
Dates"), deliver to W.R. Hambrecht a signed copy of the Registration Statement
as originally filed and of each amendment thereto filed prior to the time the
Registration Statement became effective and, promptly upon the filing thereof,
a signed copy of each post-effective amendment, if any to the Registration
Statement (together with, in each case, all exhibits thereto unless previously
delivered to W.R. Hambrecht), (ii) as promptly as possible deliver to W.R.
Hambrecht, at such office as W.R. Hambrecht may designate, as many copies of
the Prospectus as W.R. Hambrecht may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law to
be delivered by W.R. Hambrecht or dealers, likewise send to W.R. Hambrecht as
many additional copies of the Prospectus and as many copies of any supplement
to the Prospectus and of any amended prospectus, filed by the Company with the
Commission, as W.R. Hambrecht may reasonably request for the purposes
contemplated by the Act.
(D) If at any time (i) during the period in which a
prospectus is required by law to be delivered by W.R. Hambrecht or dealers or
(ii) prior to the Offering Termination Date any event relating to or affecting
the Company, or of which the Company shall be advised in writing by W.R.
Hambrecht, shall occur as a result of which it is necessary to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Shares or the Warrants, the Company will, subject to Section 5(a) hereof,
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus so that the Prospectus as so supplemented or amended will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. The Company authorizes W.R. Hambrecht to use the
Prospectus, as from time to time amended or supplemented, in connection with the
sale of the Shares or Warrants by W.R. Hambrecht
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<PAGE> 14
as agent for the Company in accordance with this Agreement and the applicable
provisions of the Act and the applicable rules and regulations thereunder for
such period.
(E) Prior to the filing thereof with the Commission, the
Company will submit to W.R. Hambrecht, for its information, a copy of any
post-effective amendment to the Registration Statement and any supplement to the
Prospectus or any amended prospectus proposed to be filed.
(F) The Company shall cause to be prepared and delivered,
at its expense, promptly following the effective date of this Agreement, to W.R.
Hambrecht an "electronic Prospectus" to be used by W.R. Hambrecht in connection
with the Offering. As used herein, the term "electronic Prospectus" means a form
of Prospectus, and any amendment or supplement thereto, that meets each of the
following conditions: (i) it shall be encoded in an electronic format,
reasonably satisfactory to W.R. Hambrecht, that may be transmitted
electronically by W.R. Hambrecht to offerees and purchasers of the Shares or the
Warrants for at least the Prospectus delivery period; (ii) it shall disclose the
same information as the paper Prospectus and Prospectus filed pursuant to the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to
the extent that graphic and image material cannot be disseminated
electronically, in which case such graphic and image material shall be replaced
in the electronic Prospectus with a fair and accurate narrative description or
tabular representation of such material, as appropriate; and (iii) it shall be
in or convertible into a paper format or an electronic format, reasonably
satisfactory to W.R. Hambrecht, that will allow investors to store and have
continuously ready access to the Prospectus at any future time, without charge
to investors (other than any fee charged for subscription to the system as a
whole and for online time). Such electronic Prospectus may consist of a Rule 434
preliminary prospectus, together with the applicable term sheet, provided that
it otherwise satisfies the format and conditions described in the immediately
preceding sentence.
(G) The Company will use its best efforts to qualify the
Shares and the Warrants for offer and sale under the securities or blue sky laws
of such jurisdictions as the Company may designate, will provide written
notification to W.R. Hambrecht of the jurisdictions in which the Shares and the
Warrants are qualified for offer and sale, and, during the period in which a
prospectus is required by law to be delivered by W.R. Hambrecht or a dealer,
will maintain such qualifications in good standing under said securities or blue
sky laws; provided, however, that the Company shall not be required to qualify
as a foreign corporation or file any general consent to service of process in
any jurisdiction in which it is not so qualified. The Company will immediately
notify W.R. Hambrecht when the Shares or Warrants are no longer
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<PAGE> 15
qualified for offer and sale in a particular jurisdiction and when it desires WR
Hambrecht to cease selling Shares or Warrants in a particular jurisdiction.
(H) The Company agrees to pay all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, without limitation, all costs and expenses incident to (i)
the preparation, printing and filing with the Commission and the NASD of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to W.R. Hambrecht of copies of any Preliminary Prospectus and of the
several documents required by paragraph (c) of this Section 5 to be so
furnished, (iii) the printing of this Agreement and related documents delivered
to W.R. Hambrecht, (iv) the preparation, printing and filing of all supplements
and amendments to the Prospectus referred to in paragraph (d) of this Section 5,
(v) blue sky fees and related disbursements (including reasonable counsel fees
and disbursements and cost of printing memoranda) in qualifying the Shares and
the Warrants under state securities or blue sky laws, and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees.
(I) The Company agrees to reimburse W.R. Hambrecht, for
the account of the W.R. Hambrecht, for blue sky fees and related disbursements
(including reasonable counsel fees and disbursements and cost of printing
memoranda for W.R. Hambrecht) paid by or for the account of W.R. Hambrecht or
its counsel in qualifying the Shares and the Warrants under state securities or
blue sky laws and in the review of the offering by the NASD.
(J) As soon as practicable, but in any event not later
than 45 days after the end of the first fiscal quarter first occurring after the
first anniversary of the Effective Date, the Company will make generally
available to its security holders, in the manner specified in Rule 158(b) of the
rules and regulations promulgated under the Act an earnings statement which will
be in the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the rules and regulations
promulgated thereunder.
(K) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Preferred Stock.
(L) The Company will apply the net proceeds of the
offering received by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(M) The Company will timely file all such reports, forms
or other documents as may be required from time to time, under the Act, the
rules and regulations promulgated thereunder, the Exchange Act, and the rules
and regulations promulgated thereunder, and all such reports, forms and
documents filed will comply in all material
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<PAGE> 16
respects as to form and substance with the applicable requirements under the
Act, the rules and regulations promulgated thereunder, the Exchange Act and the
rules and regulations promulgated thereunder.
(N) The Company is familiar with the Investment Company
Act of 1940, as amended, and has in the past conducted its affairs, and will in
the future conduct its affairs, in such a manner to ensure that the Company was
not and will not be an "investment company" or a "company" controlled by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(O) The Company will reserve and keep available that
maximum number of its authorized but unissued shares of common stock, par value
$.01 per share ("Common Stock"), which are issuable upon conversion of the
Preferred Stock or upon exercise of the Warrants outstanding from time to time.
The Company will reserve and keep available that minimum number of its
authorized but unissued shares of Series A Preferred Stock, which are issuable
upon conversion of the Series B Preferred Stock or upon exercise of the Warrants
outstanding from time to time.
(P) The Company will notify W.R. Hambrecht promptly of
any material adverse change affecting any of its representations, warranties,
agreements and indemnities herein at any time during the term of this Agreement.
6. CONDITIONS OF W.R. HAMBRECHT'S OBLIGATIONS. The obligations of
W.R. Hambrecht under this Agreement are subject to the performance by the
Company on and as of each Closing Date, of its covenants and agreements
hereunder, and the following additional conditions:
(A) The Registration Statement shall have become
effective, and no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company or W.R.
Hambrecht, shall be contemplated by the Commission.
(B) W.R. Hambrecht shall be satisfied that (i) as of the
Effective Date, the statements made in the Registration Statement and the
Prospectus were true and correct and neither the Registration Statement nor the
Prospectus omitted to state a fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) since the Effective Date, no
event has occurred which should have been set forth in a supplement or amendment
to the Prospectus which has not been set forth in an effective supplement or
amendment, (iii) neither the Company nor any of its subsidiaries has any
material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus to the extent required under the Act, (iv) there
are not pending or known
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<PAGE> 17
threatened legal proceedings to which the Company or any of its subsidiaries is
a party or of which property of the Company or any of its subsidiaries is
subject which are material and which are not disclosed in the Registration
Statement and the Prospectus to the extent required under the Act, (v) there are
not any franchises, contracts, leases or other documents which are required to
be filed as exhibits to the Registration Statement which have not been filed as
required, and (vi) the representations and warranties of the Company herein are
true and correct in all material respects as of each Closing Date.
(C) On or prior to each Closing Date, the legality and
sufficiency of the sale of the Shares and the Warrants hereunder and the
validity and form of the certificates representing the Shares, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as to the financial
statements contained therein), shall have been approved at or prior to such
Closing Date by Bass, Berry & Sims PLC, counsel for W.R. Hambrecht, which
approval may not be unreasonably withheld. W.R. Hambrecht shall have received
from counsel to W.R. Hambrecht, such opinion or opinions with respect to the
issuance and sale of the Shares and the Warrants, the Registration Statement and
the Prospectus and such other related matters as W.R. Hambrecht reasonably may
request and such counsel shall have received such documents and other
information as they reasonably request to enable them to pass upon such matters,
which opinion or opinions shall not be unreasonably withheld.
(D) On each Closing Date, W.R. Hambrecht shall have
received an opinion addressed to W.R. Hambrecht, dated such Closing Date, of
Alston & Bird LLP, counsel to the Company ("Company Counsel"), to the effect set
forth below:
(I) Each of the Company and its corporate
subsidiaries has been duly incorporated and is validly
existing and in good standing under the laws of its
jurisdiction of incorporation, and has the corporate power to
own or lease its properties and to conduct its business, and
the Company is duly qualified to do business as a foreign
corporation and is in good standing in the State of Tennessee;
(II) The Company has authorized and outstanding
capital stock in the number and classes as set forth under the
heading "Capitalization" in the Prospectus. The securities of
the Company conform in all material respects to the
description thereof contained in the Prospectus. Proper
corporate proceedings have been validly taken to authorize the
Company's authorized capital stock and all outstanding shares
of such capital stock have been duly authorized and validly
issued by the Company, are fully paid and nonassessable. No
preemptive rights, rights of first refusal or other rights
exist with respect to the Shares or the Warrants, or the issue
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<PAGE> 18
and sale thereof, pursuant to the Company's articles of
incorporation or bylaws and, there are to the knowledge of
such counsel no contractual preemptive rights that have not
been waived, rights of first refusal or rights of co-sale
which exist with respect to the Shares or the Warrants.
(III) The outstanding shares of capital stock of
each of the Company's corporate subsidiaries have been duly
authorized and validly issued, are fully paid and
non-assessable, and are owned by the Company, to such
counsel's knowledge, free and clear of all liens, encumbrances
and equities and claims; and, to such counsel's knowledge, no
options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership
interests in such subsidiaries are outstanding.
(IV) To such counsel's knowledge, there are no
rights of any holders of the Company's securities, not
effectively satisfied or waived, to require registration under
the Act of any of the Company's securities or other securities
of the Company in connection with the filing of the
Registration Statement or with the offer or sale of the Shares
or the Warrants;
(V) The Company has the corporate power to enter
into this Agreement and to consummate the transactions
provided for herein. This Agreement has been duly authorized,
executed and delivered by the Company.
(VI) The execution and delivery by the Company of
this Agreement does not, and if the Company were now to
perform its obligations under this Agreement such performance
would not, result in any breach or violation of any of the
terms or provisions of, or constitute a default under, or
result in the creation or imposition of any contractual lien,
charge or encumbrance upon any property or assets of the
Company pursuant to, the terms of the certificate of
incorporation or bylaws of the Company or any of its corporate
subsidiaries; the terms of any material indenture, mortgage,
deed of trust, voting trust agreement, stockholder's
agreement, note agreement or other agreement or instrument
known to such counsel to which the Company or any of its
subsidiaries is a party or by which it is bound or to which
its properties are subject; any existing federal or state
statute, rule or regulation to which the Company or any of its
subsidiaries is subject, which would materially and adversely
affect the business or properties of the Company and its
subsidiaries taken as a whole; or any judicial or
administrative judgment, decree or order, known to such
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<PAGE> 19
counsel to which the Company or any of its subsidiaries is
subject, which would materially and adversely affect the
business or properties of the Company and its subsidiaries
taken as a whole;
(VII) No consent, approval, authorization or order
of any governmental authority of the United States or the
State of Georgia is required for the consummation of the
transactions contemplated in this Agreement, except such as
have been obtained under the Act or may be required by the
NASD or under state securities or Blue Sky laws in connection
with the issuance and sale of the Shares and the Warrants by
the Company pursuant to this Agreement;
(VIII) The Registration Statement is effective
under the Act; any required filing of the Prospectus pursuant
to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been
issued, and no proceedings for that purpose have been
instituted or are pending or are threatened or contemplated by
the Commission;
(IX) The Registration Statement and the
Prospectus (except for the financial statements, schedules and
other financial and statistical data included therein, as to
which such counsel need not express any opinion), complied as
to form in all material respects with the requirements of the
Act and the rules and regulations of the Commission
thereunder;
(X) The descriptions contained and summarized in
the Registration Statement and the Prospectus of written
franchises, contracts, leases, documents, or any threatened
legal or governmental actions, suits or proceedings, are
accurate in all material respects and fairly represent in all
material respects the information required to be shown by the
Act and the rules and regulations of the Commission
thereunder. To the knowledge of such counsel, there are no
written franchises, contracts, leases, documents, or any
threatened legal or governmental actions, suits or
proceedings, which are required by the Act and the rules and
regulations of the Commission thereunder to be described in
the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement which are not described
or filed as required;
(XI) The statements in the Prospectus under the
caption "Description of Capital Stock" in each case insofar as
such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present
in all material respects the information
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<PAGE> 20
required under the Act and the rules and regulations
promulgated thereunder (the "Act and Rules") with respect
to such legal matters, documents and proceedings and
fairly summarize in all material respects the matters
referred to therein to the extent required by the
Act and Rules;
(XII) Good and valid title to the Shares and the
Warrants sold in the Offering, free and clear of all liens,
encumbrances, equities, security interests and claims of which
counsel has knowledge, has been transferred to the purchasers
in the Offering, assuming for the purpose of this opinion that
such purchasers purchased the same in good faith without
notice of any liens, encumbrances, equities, security
interests or adverse claims; and
In addition, such counsel shall state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with the Company's independent public accountants, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Registration Statement and the Prospectus and
(without taking any further action to verify independently the statements made
in the Registration Statement and the Prospectus and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel to believe that the Registration Statement as
of the date it is declared effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus as of its date and as of the applicable Closing Date contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need not express any opinion with respect to the financial
statements, schedules and other financial and statistical data included in the
Registration Statement or the Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. References to the Registration
Statement and the Prospectus in this paragraph (d) shall include any amendment
or supplement thereto at the date of such opinion.
(E) W.R. Hambrecht shall have received from Ernst & Young
LLP a letter or letters, addressed to W.R. Hambrecht and dated each Closing
Date, confirming that they are independent public accountants with respect to
the Company within the meaning of the Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their letter
delivered to W.R. Hambrecht concurrently with the execution of this Agreement
(the "Original Letter"), but carried out
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<PAGE> 21
to a date not more than three business days prior such Closing Date (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of such Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries, which should
have been set forth in a supplement or amendment to the Prospectus which has not
been set forth in an effective supplement or amendment.
(F) On each Closing Date, W.R. Hambrecht shall have
received a certificate, dated such Closing Date or such later date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, (i) stating that the respective signers of said certificate have
carefully examined the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein and any amendments or
supplements thereto and this Agreement, and that the statements included in
clauses (i) through (vi) of paragraph (b) of this Section 6 are true and
correct, and (ii) representing and warranting that the representations and
warranties of the Company pursuant to Section 2 of this Agreement are true and
correct as of each such Closing Date.
(G) W.R. Hambrecht shall have been furnished evidence
reasonably satisfactory to W.R. Hambrecht from the appropriate authorities of
the several jurisdictions of the qualification referred to in paragraph (g) of
Section 5 hereof.
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
(A) The obligations of the Company to deliver the Shares and the
Warrants shall be subject to the conditions that (i) the Registration Statement
shall have become effective, (ii) no stop order suspending the effectiveness
thereof shall be in effect and no proceedings therefor shall be pending or
threatened by the Commission and (iii) since the Effective Date, no event has
occurred which should have been set forth in a supplement or amendment to the
Prospectus which has not been set forth in an effective supplement or amendment.
(B) The Company shall have been furnished evidence
reasonably satisfactory to the Company from the appropriate authorities of the
several jurisdictions of the qualification referred to in paragraph (g) of
Section 5 hereof.
8. INDEMNIFICATION AND CONTRIBUTION.
(A) Subject to the provisions of paragraph (d) of this
Section 8, the Company agrees to indemnify and hold harmless W.R. Hambrecht (and
any person participating in the distribution who is deemed to be an underwriter
(as defined in Section 2(11) of the Act) and each person (including each member
or officer thereof), if any, who
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<PAGE> 22
controls W.R. Hambrecht within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which such
indemnified parties or any of them may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, and the Company agrees to reimburse W.R. Hambrecht and
controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages, or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary to
make the statements therein, in light of the circumstance under which they were
made, not misleading; provided, however, that the indemnity agreement of the
Company contained in this paragraph (a) shall not apply to any such loss, claim,
damage, liability or action if such statement or omission was made in reliance
upon and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of W.R. Hambrecht expressly
for use in the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto. The indemnity agreements of the Company contained
in this paragraph (a) and the representations and warranties of the Company
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery and payment for the Shares and the
Warrants.
(B) W.R. Hambrecht agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be
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<PAGE> 23
brought against, the respective indemnified parties, in each case arising out of
or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement (including the Prospectus
as part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading, in each case to the extent, but only to
the extent, that such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished in
writing by or on behalf of W.R. Hambrecht to the Company expressly for use in
the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, and will reimburse, as incurred, all legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action. The indemnity agreement of W.R. Hambrecht contained
in this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery and payment for the Shares and the Warrants.
(C) Each party indemnified under the provisions of
paragraph (a) or (b) of this Section 8 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, such indemnified party will promptly notify any party or parties
from whom indemnification may be sought hereunder of the commencement thereof in
writing. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give such notice if the party to whom such
notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which such notice would have related and was prejudiced by the
failure to give the notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party or parties against which a claim is
to be made will be entitled, at its own expense, to participate in the defense
of such action, suit, investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of notice from the indemnified party or parties of an action,
suit, investigation or inquiry to which indemnity may be sought, to assume the
entire defense thereof (alone or in conjunction with any
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<PAGE> 24
other indemnifying party or parties), at its own expense, in which case such
defense shall be conducted by counsel reasonably satisfactory to the indemnified
party or parties; provided, however, that (i) if the indemnified party or
parties has reasonably concluded that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct such defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under Section 9 for any legal or
other expenses (other than the reasonable costs of investigation) subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party has employed such counsel in connection with the
assumption of different or additional legal defenses in accordance with the
proviso to the immediately preceding sentence, or (ii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party. If no such notice to assume the defense
of such action has been given within a reasonable time of the indemnified
party's or parties' notice to such indemnifying party or parties, the
indemnifying party or parties shall be responsible for any reasonable legal or
other expenses incurred by the indemnified party or parties in connection with
the defense of the action, suit, investigation, inquiry or proceeding.
(D) If the indemnification provided for in this Section 8
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
referred to in paragraphs (a) and (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties from the offering of the Shares and the Warrants or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and W.R. Hambrecht, on the other, shall be deemed to be in the same proportion
as the total net proceeds from the
24
<PAGE> 25
Offering of the Shares (before deducting expenses) and the total Selling
Commissions received by W.R. Hambrecht, bear to the aggregate Public Offering
Price of the Shares. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by each indemnifying party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable consideration referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this paragraph (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph (d), W.R. Hambrecht
shall not be required to contribute any amount in excess of the Selling
Commissions applicable to the Shares sold by the Company through W.R. Hambrecht
as agent for the Company hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which a claim for contribution may be made against another
party or parties under this paragraph (d), it will promptly notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any other obligation it may have hereunder or otherwise
(except as specifically provided in paragraph (c) of this Section 8). The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
(E) No indemnifying party will without the prior written
consent of the indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any person who controls W.R. Hambrecht within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such indemnified party and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
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<PAGE> 26
9. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 8 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis W.R. Hambrecht for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 8 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 9 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent that any such payment
is ultimately held to be improper, W.R. Hambrecht shall promptly refund it and
(ii) W.R. Hambrecht shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
10. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, and W.R. Hambrecht,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
W.R. Hambrecht, and will survive delivery of and payment for the Shares and the
Warrants. Any successors to W.R. Hambrecht shall be entitled to the indemnity,
contribution and reimbursement agreements contained in this Agreement.
11. TERMINATION.
(A) This Agreement may be terminated by the Company for
any reason by giving notice to W.R. Hambrecht.
(B) This Agreement may be terminated by W.R. Hambrecht by
giving notice to the Company if and only if there occurs any refusal, inability
or failure on the part of the Company to perform in all material respects any
agreement herein, to fulfill in all material respects any of the conditions
herein (including, without limitation, the conditions set forth in paragraphs
(a) through (g) of Section 6), or to comply in all material respects with any
provision hereof other than by reason of a default by W.R. Hambrecht, subject to
the Company's right to cure any such refusal, inability or failure within ten
business days of the Company's receipt of W.R. Hambrecht's notice thereof.
(C) If this agreement is terminated pursuant to this
Section 11, there shall be no liability of the Company to W.R. Hambrecht and no
liability of W.R. Hambrecht to the Company; provided, however, that in the event
of any such termination, the Company agrees to pay all fees owed pursuant to
Section 3(a) and to indemnify and hold harmless W.R. Hambrecht from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including any costs and expenses referred to in paragraphs (h)
and (i) of Section 5. Additionally, if this Agreement is terminated prior to the
Initial Closing, the Company will reimburse W.R. Hambrecht
26
<PAGE> 27
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that have actually been incurred by W.R. Hambrecht
incident to the performance of W.R. Hambrecht's obligations under this
Agreement. Notwithstanding any termination of this agreement, the provisions of
this Section 11(c) and Section 8 hereof shall survive and remain in full force
and effect.
12. NOTICES. All communications hereunder shall be in writing and
if sent to W.R. Hambrecht shall be mailed or delivered or telegraphed and
confirmed by letter or telecopied and confirmed by letter to W.R. Hambrecht &
Company, LLC at 550 Fifteenth Street, San Francisco, California 94103 or, if
sent to the Company, shall be mailed or delivered or telegraphed and confirmed
to the Company at 501 Corporate Centre Drive, Suite 200, Franklin, TN 37067.
13. SUCCESSORS. This agreement shall incur to the benefit of and
be binding upon the Company and W.R. Hambrecht and, with respect to the
provisions of Section 8 hereof, the several parties (in addition to the Company
and W.R. Hambrecht) indemnified under the provisions of said Section 8, and
their respective personal representatives successors and assigns. Nothing in
this agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this agreement,
or any provisions herein contained. The term "successors and assigns" as herein
used shall not include any purchaser, as such purchaser, of any of the Shares or
Warrants from the Company.
14. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
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<PAGE> 28
If the foregoing correctly sets forth our understanding, please indicate W.R.
Hambrecht's acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
MD2PATIENT, INC.
By:
---------------------------
John E. Blount
President and Secretary
Accepted as of the date first above written:
W.R. HAMBRECHT & COMPANY, LLC
By: W.R. Hambrecht & Company, LLC
By:
-----------------------------------------
Title:
--------------------------------------
<PAGE> 1
EXHIBIT 4.4
THIS WARRANT IS NON-TRANSFERABLE AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF WITHOUT THE PRIOR WRITTEN CONSENT OF MD2PATIENT, INC. AS
PROVIDED IN PARAGRAPH 7(a) HEREOF.
No. _____ Right to Purchase _______
Shares of Series A Preferred
Stock or Common Stock
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, in consideration of having subscribed for the web
services of MD2patient, Inc., a Georgia corporation (the "Company") and either
having played an important role in the development and market acceptance of our
web site or having referred other physicians who subscribe for our web
services, ______________________ is entitled to purchase from the Company, at
any time during the period specified in Paragraph 2 hereof, ______________
(____) fully paid and non-assessable shares of either Series A Preferred Stock
or Common Stock, par value $.01 per share ("Common Stock"), of the Company, as
determined in accordance with Paragraph 1 hereof, at an exercise price per
share of $1.00 (the "Exercise Price"). The term "Warrant Shares", as used
herein, refers to the _____ shares of either Series A Preferred Stock or Common
Stock, as the case may be, purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraphs 4 and 5
hereof.
This Warrant is subject to the following terms, provisions and
conditions:
1. Manner and Exercise; Issuance of Certificates; Payment for
Shares.
(a) Subject to the provisions hereof, this Warrant may be exercised
by the holder hereof, as to all (but not less than all) of the Warrant Shares,
on any one occasion (but on no more than one occasion) within the time period
specified in Paragraph 2 hereof by the surrender of this Warrant, together with
a completed Exercise Agreement in the form attached hereto, to the Company
during normal business hours on any business day at the Company's principal
office in Franklin, Tennessee (or such other office or agency of the Company as
it may designate by notice to the holder hereof), and payment to the Company in
cash, by certified or official bank check or immediately available federal
funds of the full Exercise Price for all of the Warrant Shares. Notwithstanding
the preceding sentence, the holder, at its sole option, may elect (upon
delivery to the Company of satisfactory documentation of such election,
including an opinion of counsel if reasonably required), in lieu of the payment
of the Exercise Price in cash, check or federal funds, to receive from the
Company a lesser number of Warrant Shares having a Fair Market Value on the
date of exercise equal to the difference between (i) the Fair Market Value on
the date of exercise of the full number of Warrant Shares and (ii) the
aggregate Exercise Price of the full number of Warrant Shares (such lesser
number of Warrant Shares so issuable to the holder shall be considered as and
included within the meaning of the term "Warrant Shares" for all remaining
purposes hereof). Prior to the closing of any "Qualified Public Offering" (as
such term is defined in the Company's Articles of Incorporation, as the same
may be amended from time to time), this Warrant shall be exercisable only for
shares of Series A Preferred Stock. From and after the closing of any such
Qualified Public Offering, this Warrant shall be exercisable only for shares of
Common Stock.
(b) For purposes of this Paragraph 1, "Fair Market Value" per share
of the Warrant Shares on any date shall be the average of the daily closing
prices per share of the type of
<PAGE> 2
securities for which the Warrant is then exercisable on each of the 20
consecutive trading days through and including the trading day immediately
preceding such date. The closing price per share of any such securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the securities are listed or admitted to trading
or, if the securities are not listed or admitted to trading on any national
securities exchange, as reported by The Nasdaq Stock Market, Inc.'s Nasdaq
National Market or, if on any such date the securities are not listed or
admitted to trading on any national securities exchange or quoted by The Nasdaq
Stock Market, Inc.'s Nasdaq National Market, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
securities selected by the Board of Directors of the Company; provided,
however, that if on any such date the securities are not listed or admitted to
trading on a national securities exchange or traded in the over-the-counter
market, the closing price per share of such securities on such date shall mean
the fair value per share of securities on such date as determined in good faith
by the Board of Directors of the Company and set forth in a certificate
delivered to the holder.
(c) Warrant Shares acquired by the holder hereof shall be deemed to
be issued to the holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement (and other documentation reasonably requested by
the Company) delivered, and payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased shall be delivered to the
holder hereof within a reasonable time after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as may
be requested by the holder hereof and shall be registered in the name of said
holder unless otherwise specified by the holder in the Exercise Agreement and
consented to by the Company.
2. Period of Exercise. This Warrant is exercisable on any one
occasion (but on no more than one occasion) at any time after the date of
issuance, and before 5:00 p.m. Franklin, Tennessee local time on the third (3rd)
anniversary of the date of issuance. The date of issuance of this Warrant is
______________, 2000.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance,
be validly issued, fully paid and non-assessable.
(b) Reservation of Shares. During the period within which this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of this Warrant, a sufficient
number of Warrant Shares to provide for the exercise of this Warrant.
4. Stock Dividends, Splits, Combinations. If at any time after the
date of the issuance of this Warrant the Company (a) declares a dividend or
other distribution payable in shares of, or securities convertible into shares
of, Series A Preferred Stock (or, following the closing of any Qualified Public
Offering, Common Stock) or subdivides its outstanding shares of
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<PAGE> 3
Series A Preferred Stock (or, following the closing of any Qualified Public
Offering, Common Stock) into a larger number or (b) combines its outstanding
shares of Series A Preferred Stock (or, following the closing of any Qualified
Public Offering, Common Stock) into a smaller number, then (i) the number of
Warrant Shares to be delivered upon exercise of this Warrant will, upon the
occurrence of an event set forth in clause (a) above, be increased and, upon the
occurrence of an event set forth in clause (b) above, be decreased so that the
holder of this Warrant will be entitled to receive the number of shares of
Series A Preferred Stock (or, following the closing of any Qualified Public
Offering, Common Stock) that such holder would have owned immediately following
such action had this Warrant been exercised immediately prior thereto and (ii)
the Exercise Price in effect immediately prior to such dividend, other
distribution, subdivision or combination, as the case may be, shall be adjusted
proportionately by multiplying such Exercise Price by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
5. Reorganization, Merger or Sale of Assets. In case of any capital
reorganization or reclassification or other change of outstanding shares of
Series A Preferred Stock (or, following the closing of any Qualified Public
Offering, Common Stock), any consolidation or merger of the Company with or
into another corporation or other entity (other than a consolidation or merger
of the Company in which the Company is the resulting or surviving corporation
and which does not result in any reclassification or change of outstanding
Series A Preferred Stock (or, following the closing of any Qualified Public
Offering, Common Stock)) or the sale of all or substantially all of the assets
of the Company to another corporation or other entity, upon exercise of this
Warrant, the holder of this Warrant shall have the right to receive the kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Series A Preferred Stock (or, following the closing
of any Qualified Public Offering, Common Stock) deliverable upon exercise of
this Warrant would have been entitled upon such reorganization,
reclassification, consolidation, merger or sale had this Warrant been exercised
immediately prior to such event; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions of this Warrant with respect to the rights and
interests thereafter of the holder of this Warrant, to the end that the
provisions set forth in this Warrant (including provisions with respect to
changes in and other adjustments of the Exercise Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon exercise of this Warrant.
6. No Rights or Liabilities as a Shareholder. Nothing contained in
this Warrant shall be determined as conferring upon the holder of this Warrant
any rights as a stockholder of the Company or as imposing any liabilities on
such holder to purchase any securities whether such liabilities are asserted by
the Company or by creditors or stockholders of the Company or otherwise.
7. Transfer, Exchange and Replacement of Warrant.
(a) Warrant Transfer Provisions. THIS WARRANT MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNLESS CONSENTED
TO IN WRITING BY THE COMPANY, AND NO SALE, TRANSFER, ASSIGNMENT, HYPOTHECATION
OR OTHER DISPOSITION OF THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS
CONSENTED TO IN WRITING BY THE COMPANY. Any transfer of this Warrant, if
previously consented to by the Company,
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<PAGE> 4
is registrable at the office or agency of the Company referred to in Paragraph
7(d) below by the holder hereof in person or by his duly authorized attorney,
upon surrender of this Warrant properly endorsed.
(b) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any permitted transfer or any replacement as
provided in this Paragraph 7, this Warrant shall be automatically canceled.
(d) Register. The Company shall maintain at its principal office in
Franklin, Tennessee (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each permitted
transferee, if any, and each prior owner of this Warrant, if any.
8. No Adjustment for Dividends. Except as provided in Paragraph 4
hereof, no adjustment in respect of any dividends shall be made during the term
of this Warrant or upon the exercise of this Warrant. Notwithstanding any other
provision hereof, no adjustments shall be made on Warrant Shares issuable on
the exercise of this Warrant for any cash dividends paid or payable to holders
of record of Series A Preferred Stock or Common Stock prior to the date as of
which the holder of this Warrant shall be deemed to be the record holder of
such Warrant Shares.
9. Notices of Corporate Action. So long as this Warrant has not
been exercised, in the event of:
(a) any taking by the Company of a record of all holders of Series A
Preferred Stock (or, following the closing of any Qualified Public Offering,
Common Stock) for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than cash dividends or distributions
paid from the retained earnings of the Company) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right;
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other entity or any transfer of all or
substantially all the assets of the Company to any other entity; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail to the holder of this Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right and the amount and character of any
such dividend, distribution or right or (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such
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<PAGE> 5
time is to be fixed, as of which the holders of record of Series A Preferred
Stock (or, following the closing of any Qualified Public Offering, Common
Stock) shall be entitled to exchange their shares of Series A Preferred Stock
or Common Stock, as the case may be, for the securities or other property, if
any, deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be delivered at least 10 days prior to the date therein specified,
unless such date is beyond the control of the Company, in which case the notice
shall be delivered as soon as practicable, but in no event more than 5 days
prior to the date therein specified.
10. Lock-Up. Notwithstanding anything herein to the contrary,
without the prior written consent of the Company, neither this Warrant nor any
of the Warrant Shares issued or issuable upon exercise of this Warrant may be
transferred, sold, assigned, pledged, hypothecated or otherwise disposed of by
the holder(s) hereof or thereof (collectively, a "Disposition") at any time
within the 180-day period immediately following the effective date of any
registration statement filed under the Securities Act of 1933 in connection
with the Company's first Qualified Public Offering; except for any Disposition
(i) as a bona fide gift, provided the donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to the general or limited
partners, members or shareholders of such holder, provided that the
distributees thereof agree in writing to be bound by this restriction, or (iii)
if such holder is an individual, to members of his or her immediate family or
to a trust the beneficiaries of which are exclusively such holder and/or
members of his or her immediately family, provided that the transferees thereof
agree in writing to be bound by this restriction. The provisions of this
Paragraph 10 shall survive any exercise of this Warrant. This Paragraph 10 is
intended for the benefit of the Company and any underwriters that underwrite
such Qualified Public Offering. Any certificate(s) representing Warrant Shares
issued upon exercise of this Warrant may bear a legend referring to the
restriction contained in this Paragraph 10.
11. Notices. All notices, requests and other communications required
or permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed, to such holder at
the address shown for such holder on the books of the Company, or at such other
address as shall have been furnished to the Company by notice from such holder.
All notices, requests and other communications required or permitted to be
given or delivered hereunder to the Company shall be in writing and shall be
personally delivered, or shall be sent by certified or registered mail, postage
prepaid and addressed, to the office of the Company at 501 Corporate Centre
Drive, Suite 200, Franklin, Tennessee, 37067, or at such other address as shall
have been furnished to the holder of this Warrant by notice from the Company.
Any such notice, request or other communication may be sent by telegram,
facsimile or telex, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail as
provided above. All notices, requests and other communications shall be deemed
to have been given either at the time of the delivery thereof to (or the
receipt by, in the case of a telegram, facsimile or telex) the person entitled
to receive such notice at the address of such person for purposes of this
Paragraph 11, or, if mailed, at the completion of the third full day following
the date of such mailing thereof to such address, as the case may be.
12. Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia.
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<PAGE> 6
13. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may not be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of the several
Paragraphs of this Warrant are inserted for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the holder of this Warrant with respect to this
Warrant.
(d) Binding Effect; Benefits. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the holder of this Warrant
(and, for purposes of Paragraph 10 hereof, any holder of Warrant Shares) and
their respective successors and assigns. Except as expressly provided in
Paragraph 10 hereof, nothing in this Warrant, expressed or implied, is intended
to or shall confer on any person other than the Company and such holder, or
their respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized undersigned officer as of _______________, 2000.
MD2PATIENT, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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<PAGE> 7
FORM OF EXERCISE AGREEMENT
Dated:
-----------------
To: MD2patient, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby exercises said Warrant with regard to all of the Warrant Shares
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant either: [check one]
[ ] (i) in cash or by certified or official bank check or by
immediately available federal funds in the amount of
$________________ as provided in the first sentence of
Paragraph 1(a) of the Warrant or
[ ] (ii) by acceptance of a lesser number of shares of Common
Stock as provided in the second sentence of Paragraph 1(a)
of the Warrant.
Please issue a certificate or certificates for the Warrant Shares in the name
of _______________ the undersigned. [Unless consented to in writing by the
Company, the Warrant Shares must be issued in the same name that the Warrant
has been issued.]
If the address to which the certificate(s) representing Warrant Shares
is(are) to be forwarded differs from the address of the holder of the Warrant
as shown on the records of the Company, or if more than one stock certificate
is to be issued with regard to such shares, the denominations in which the
stock certificate(s) should be issued and/or the address to which the stock
certificate(s) should be forwarded is set forth below.
Name:
------------------------------------
Signature:
-------------------------------
Title of Signing Officer or Agent (if any):
-----------------------------------------
Note: The above signature should correspond exactly
with the name on the face of the within Warrant.
<PAGE> 1
EXHIBIT 5.1
[ALSTON & BIRD LLP LOGO]
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
www.alston.com
March 17, 2000
MD2patient, Inc.
501 Corporate Centre Drive
Suite 200
Franklin, Tennessee 37067
Re: Form S-1 Registration Statement (SEC File No. 333-91619)
MD2patient, Inc.
Gentlemen:
We have acted as counsel for MD2patient, Inc., a Georgia corporation (the
"Corporation"), in connection with the above referenced Registration Statement
on Form S-1 (the "Registration Statement") being filed by the Corporation with
the Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended, and covering (i) 34,000,000 shares of the Corporation's
Series B Convertible Preferred Stock, $.01 par value per share ("Series B
Shares"), (ii) 2,000,000 shares of the Corporation's Series A Convertible
Preferred Stock, $.01 par value per share (the "Series A Shares"), (iii)
warrants (the "Warrants") to purchase 4,000,000 shares of the Corporation's
Series A Convertible Preferred Stock, $.01 par value per share (the "Warrant
Shares"), (iv) 38,000,000 shares of the Corporation's Series A Convertible
Preferred Stock, $.01 par value per share, issuable upon conversion of the
Series B Shares and the Warrant Shares (the "Series A Conversion Shares"), and
(v) 40,000,000 shares of the Corporation's Common Stock, $.01 par value per
share, issuable upon conversion of the Series A Shares, the Series B Shares and
Warrant Shares in certain circumstances (the "Common Conversion Shares"). This
Opinion Letter is rendered pursuant to Item 16 of Form S-1 and Item 601(b)(5) of
Regulation S-K. Capitalized terms used in this Opinion Letter and not otherwise
defined herein shall have the meanings assigned to such terms in the
Registration Statement.
In the capacity described above, we have considered such matters of law and
of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Corporation, certificates of public officials and such other documents as we
have deemed appropriate as a basis for the opinions hereinafter set forth. The
opinions set forth herein are limited to the laws of the State of Georgia.
Based upon the foregoing, it is our opinion that (a) the Warrants have
been duly authorized by all necessary corporate action and, upon execution and
delivery by the Corporation, the Warrants will be validly issued and will
constitute legally binding obligations of the Corporation enforceable against
the Corporation in accordance with their terms, (b) upon issuance and delivery
of the Series A Shares and Series B Shares against payment therefor as provided
in the Registration Statement, the Series A Shares and Series B Shares will be
validly issued, fully paid and nonassessable, (c) upon issuance and delivery of
the Warrant Shares upon exercise of the Warrants and against payment for the
Warrant Shares as provided in the Registration Statement, the Warrant Shares
will be legally and validly issued, fully paid and nonassessable, and (d) upon
issuance and delivery of the Series A Conversion Shares and the Common
Conversion Shares upon conversion of the Series A Shares, the Series B Shares
or the Warrant Shares, as the case may be, the Series A Conversion Shares and
Common Conversion Shares will be legally and validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement.
Sincerely,
ALSTON & BIRD LLP
By: /s/ R. Gregory Brophy
------------------------
R. Gregory Brophy, Esq.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS'
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 14, 2000, except for the third paragraph
of Note 8, as to which the date is March 3, 2000, in Amendment No. 4 to the
Registration Statement (Form S-1 No. 333-91619) and related Prospectus of
MD2patient, Inc., for the registration of up to 34,000,000 shares of Series B
Convertible Preferred Stock, Warrants to purchase up to 4,000,000 shares of
Series A Convertible Preferred Stock and 2,000,000 shares of Series A
Convertible Preferred Stock.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 15, 2000
